The Government Accountability Office (GAO) recently released a report revealing that almost a half-million taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payers missed their total rebate payment due to complications over disbursing funds to non-filers with eligible dependents. Taxpayers who do not regularly file tax returns—usually those who do not owe tax because they earn lower incomes or who receive federal disbursements through agencies like the Social Security Administration—were required to provide additional information, such as their current address, to the Internal Revenue Service (IRS)The Internal Revenue Service (IRS) is part of the U.S. Department of the Treasury and is responsible for enforcing and administering federal tax laws, processing tax returns, performing audits, and offering assistance for American taxpayers. to receive their benefits. Unless non-filers provide this information online, non-filers must wait until they file their 2020 tax return to receive their rebate.
The Treasury Department and IRS have already said that filed returns with properly-claimed dependents received after May 17 were allotted the correct rebate amount. For those who did not file a proper return, the IRS is working to adjust payments and provide additional financing before the end of July.
While the IRS is solving this problem, this highlights a key principle of tax policy for future rebates: it should be easy for taxpayers to comply with and for governments to administer. If Congress and the Trump Administration decide another round of rebates is preferable, more steps should be taken to ensure the disbursement of payments is simple and administrable.
Policy Design Is Just as Important as Policy Intent
As the CARES Act rebates were discussed in Congress, Administration officials assured the public that if taxpayers had not already filed a 2019 or 2018 tax return, the federal government possessed sufficient information at the Social Security Administration to disburse the rebates properly. Additionally, the primary point of the rebates was to disburse direct liquidity to households quickly to assist in purchasing economic essentials.
The GAO report highlighted that the IRS faced challenges to reach individuals who do not normally file returns as well as those without bank accounts, internet access, or permanent residences. While the additional dependent benefits under the CARES Act were tailored to larger families, the variation increased the steps the IRS needed to take to get money out the door and the compliance required to get there, especially for non-filers. There was widespread confusion about which dependents were eligible and under what conditions, increasing the compliance challenge for filers.
In light of this, any future rebate should be designed and administered consistent with these principles:
- Administrability is just as important as rebate design: Reducing the number of rebate variations and compliance forms filers are required to complete to get funds is preferable. Excessive compliance costs erode the goal of the rebates.
- Simplicity is just as important as speed: To prevent large gaps in who receives the benefit and the amount of time it would take to go back and make those taxpayers whole, the IRS could ensure that they have the right information before sending the money out the door.
If policymakers repeat the same formula from the CARES Act, many of the policy design issues are already resolved through increased information sharing between the IRS and taxpayers. However, if lawmakers add complexity, then it is likely that these problems will be repeated, along with newer challenges to address.
The IRS is working to ensure everyone eligible gets the entirety of their original rebate check. Thankfully, this effort has been streamlined by the feedback and information sharing in response to the first round of rebates. The lessons from this exercise are instructive: simplicity and administrability are critical if policymakers opt for this option again.
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