Debunking the EITC “fraud” myth

By Nick Kauzlarich

As we highlighted in last week’s news round-up, Republicans in Congress are laying the groundwork to overhaul federal safety net programs, and the Earned Income Tax Credit (EITC) may be at risk. Last week, House Ways and Means Committee member Rep. Jason Smith (R-MO) called for more “government oversight” of the EITC to crack down on improper payments, echoing many of his Republican colleagues’ sentiments on cutting waste, fraud and abuse from safety net programs.

However, Bruce Meyer, visiting scholar at the right-leaning American Enterprise Institute (AEI), argued that the numbers around improper EITC payments are “overstated” and suggested that many Republicans are mischaracterizing error payments as fraud.

“If a family really should’ve claimed three children rather than two children, they’ll call the entire payment fraud while really there’s an error and it’s just part of the payment,” Meyer said in an interview. “You don’t also want to call these errors fraud.”

The Center on Budget and Policy Priorities (CBPP) corroborates these claims, pointing to the IRS’s own data showing that the primary cause of improper EITC payments is the complexity of EITC rules, not fraud.

Indeed, the credit’s rules are complicated, given that it is based on income and targeted primarily towards workers raising children. Incomes can be miscalculated, particularly if a worker has multiple jobs, and custody rules can lead to some parents not knowing how many children to claim on their tax returns. It’s not surprising, then, that unintentional errors happen, especially if taxpayers don’t have access to the information they need.

Policymakers interested in addressing improper payments could consider investing in efforts to raise awareness of the rules surrounding the credit, rather than proposing more government oversight measures that could restrict eligibility for working families. In fact, policies introducing new filing requirements or additional paperwork could make the EITC rules even more complex and raise the error rate while deterring eligible working families from claiming the credit altogether.

One possible solution could be to invest in expanding access to Volunteer Income Tax Assistance (VITA), a program that offers free tax preparation to low-wage workers and has a 94% rate of accuracy, according to the latest data from Prosperity Now. The federal government could replicate Detroit’s successful EITC-awareness initiative to promote VITA sites throughout the country with a comprehensive marketing campaign featuring billboards, ads on mass transit, emails and public service announcements.

While expanding access to VITA sites is just one possible fix, there are many other ways to strengthen the credit moving forward. Hear about these solutions and learn more about what lies ahead for the EITC in 2018 by joining us and Prosperity Now on Capitol Hill February 1. Click here to register.