Here’s a bill Senators Thune and Rounds should work to change. Senate Appropriations has moved a funding bill that quadruples the length of the form that taxpayers fill out to get the Earned Income Tax Credit. They didn’t do it because Rand Paul told them that the EITC has a 25% fraud rate (it’s got error, but not that much proven deception); they did it because tax-prep companies lobbied for the change.
First, understand that the EITC does a lot of good:
The EITC is one of America’s premier anti-poverty programs. It targets poor families specifically, and because you have to work to get it, countless studies have found it encourages single mothers and other people without much connection to the labor market to enter the workforce. The Census Bureau estimates that it and the related Child Tax Credit keep 9.4 million people out of poverty every year, and recent research suggests that when you take into account the people the EITC brings into the workforce, the real number is probably twice that. If that weren’t enough, it also boosts test scores for kids in families receiving it and improves both parents’ and children’s health [Dylan Matthews, “H&R Block Snuck Language into a Senate Bill to Make Taxes More Confusing for Poor People,” Vox, 2015.08.24].
The EITC delivers these benefits with 1% administrative costs, far less than non-tax benefit programs. If you want bang for the buck in fighting poverty, you promote the EITC.
Alas, professional tax preparers charge low-income folks a lot of money to prepare 1040s with the EITC. When a low-income family stands to receive three or four thousand dollars, it’s easy to fold in a three or four hundred dollar service fee that the tax preparer slices out of the refund check before it reaches family. The family never feels the pain of that money coming out of their pockets, but a chunk of the money that could have produced the anti-poverty benefits listed above is lost to the friction of corporate profit. (Again, it’s not enough that big business gets lots of its own handouts straight from the government; they want a bite of what’s on the little guy’s plate, too.)
Most EITC error happens because of the complexity of the rules. Adding paperwork means more error. And commercial preparers are responsible for more of that error:
There is no good policy rationale for this change. H&R Block CEO William C. Booth has attempted to justify it as a way to reduce improper payments, but there’s little reason to think it would have that effect. Again, taxpayers already have to supply all this information, and the real misreporting problem is from paid preparers like H&R Block, not individuals. A recent IRS study found EITC-claiming returns from paid preparers were more likely to result in overpayments than self-filed returns. That’s right: People who fill out taxes for a living are, on average, worse at it than taxpayers who do it themselves (and, by the way, the IRS’s volunteers do a better job than anybody).
The only possible reason to change the form, then, is to confuse taxpayers enough that even more of them will pay companies like H&R Block to prepare their returns [Matthews, 2015.08.24].
The Earned Income Tax Credit helped 67,000 South Dakota households in 2012 and pumped $139 million dollars into our state economy. Senator Thune! Senator Rounds! Let’s keep that help going to the people who need it most! Instead of letting tax prep corporations profit off the poor, try fully funding the IRS, giving the IRS the authority to straighten out the commercial preparers, and adopt simplifications to the EITC that the Bush Administration proposed a decade ago.