What do grandparents raising children, foster parents, and single fathers have in common? They are the newest targets in the Bush administration’s war on the working poor.
If the Internal Revenue Service (IRS) gets its way, by 2006 many low-income Oregon families will have to provide exhaustive documentation before they can claim the Earned Income Credit (EIC). The IRS claims this plan will reduce tax return errors. However, the requirements are so onerous that many eligible families may not claim the credit. Worse, the plan unfairly targets low-income families.
In Oregon, the Earned Income Credit provides $300 million in tax relief and income support to 200,000 low-income, working families every year. Working families can get up to $4,204 in 2003 from the EIC.
Most EIC claims (for families with children) come from two-parent families or single mothers. About a third comes from grandparents or other relatives caring for related children, foster parents, stepparents, or single fathers. The IRS determined this second group is at high risk for erroneously claiming the credit.
Later this year, 45,000 of these “high risk” families nationwide will have to provide additional documentation to the IRS before they can receive the EIC. If they don’t provide the documentation before the end of the year, and even if they send the papers in with their return next year, their EIC payment will be delayed. The IRS expects to expand the program to 2 million taxpayers next year and to 5 million within a few years, even before the results of this pilot test are in.
The IRS will only accept a few kinds of documents to prove eligibility and some of them, such as birth or marriage certificates, may be difficult or impossible to get, especially when the events happened outside the United States. In fact, the list of acceptable documents is more restrictive than for any other federal program that assists the poor.
Work-support programs should help people, not penalize them for applying. The IRS’s plan adds layers to the already complex process of claiming the EIC. It will “succeed” by driving eligible families away from the credit.
Certainly, only those who are eligible for the Earned Income Credit should receive it, and the IRS has procedures for examining returns and tracking down errors. The IRS examines about two percent of EIC returns each year, about twice the rate they examine all returns. When the “pre-certification” program is fully implemented almost one in three EITC recipients will be required to undergo what is essentially an audit before they have even submitted their tax returns.
Imagine if a third of all taxpayers were required to “pre-certify” their mortgage interest deduction, their medical expenses, or their IRA contributions. Politically such a proposal would never fly; the outrage would be tremendous. So should it be with this proposal aimed at the working poor.
If this process goes forward, the IRS should not expand the program until the results from the first year have been studied thoroughly to see whether it discouraged participation among eligible families.
Both Congress and the IRS should also acknowledge that tax “error” extends well beyond the Earned Income Credit. In 1992 the IRS found that the amount of revenue lost to tax “errors” among people who ran their own businesses was six times greater than the amount lost due to all tax credits, not just the EIC. Yet small businesses are not being singled out, only the working poor.
Unfortunately, the working poor are an easier political target, and they will be receiving this not-very-special treatment.
Additional information on the IRS Earned Income Credit Pre-certification proposal is available on the Oregon Center for Public Policy’s tax credit outreach website: www.www.ocpp.org/tc
John Lewis is the administrator at the Oregon Center for Public Policy
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