The Tax Credit Trap

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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.

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is the first thing despots go after. An unwavering commitment to it is probably what draws you to Mother Jones' journalism. And as we're seeing in the US and the world around, authoritarians seek to poison the discourse and the way we relate to each other because they can't stand people coming together around a shared sense of the truth—it's a huge threat to them.

Which is also a pretty great way to describe Mother Jones' mission: People coming together around the truth to hold power accountable.

And right now, we need to raise about $400,000 from our online readers over the next two months to hit our annual goal and make good on that mission. Read more about the information war we find ourselves in and how people-powered, independent reporting can and must rise to the challenge—and please support our team's truth-telling journalism with a donation if you can right now.

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