The Tax Credit Trap


Tax fraud by the poor amounts to some $9 billion a year. Corporations and the very wealthy, meanwhile, manage to avoid taxes to the tune of some $340 billion a year.

Nevertheless, the IRS spends a disproportionate amount of time and resources hunting down the former set of taxpayers—partly because they don’t have high-priced lawyers to argue their case, and partly because it’s just easier to determine fraud for the former group. A person claiming undue credits under the EITC isn’t going to be resorting to fancy loopholes or ultra-complex financial schemes. In fact, the agency was recently found freezing tax refunds for hundreds of thousands of poor Americans deemed “fraudulent”—most of whom were owed all of the money they claimed.

But here’s the thing. Part of the problem with low-income tax credits is that they’re unreasonably complex, as Dorothy Brown pointed out in the New York Times yesterday. The EITC’s instruction book runs to 50 pages, and even seasoned tax preparers often make mistakes calculating it. Nevertheless, low-income families are supposed to have this stuff down cold—and if they don’t, they risk being labeled “fraudulent” and persecution by the IRS. (Another problem, Brown might’ve noted, is that a whopping 40 percent of low-income taxpayers have never even heard of the EITC.)

As Brown says, the entire system is perverse, and instead of wasting money prosecuting low-income workers, Congress could simplify the tax credit and spend its time going after the corporations robbing the country of $340 billion a year—an amount, keep in mind, that could essentially close the federal budget deficit. Not that the Republicans in Congress are planning anything of the sort, but still.

FACT:

Mother Jones was founded as a nonprofit in 1976 because we knew corporations and the wealthy wouldn't fund the type of hard-hitting journalism we set out to do.

Today, reader support makes up about two-thirds of our budget, allows us to dig deep on stories that matter, and lets us keep our reporting free for everyone. If you value what you get from Mother Jones, please join us with a tax-deductible donation today so we can keep on doing the type of journalism 2019 demands.

We Recommend

Latest

Sign up for our newsletters

Subscribe and we'll send Mother Jones straight to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate