Let’s Address the Elephant in the Room

Like most of you, we were startled to recently find out that the U.S. government made about $100 billion in improper payments last year. Even more alarming: approximately $14.5 billion of that was in the form of Earned Income Tax Credits.

We skirted around this news for a bit – debating how to share it or even whether to share it at all. Some are quick to blame the high number of improper payments on the EITC’s complex qualification structure or taxpayer fraud. Others are just as quick to call for the credit’s demise.

In truth, there isn’t one glaring reason behind the staggering number of improper EITC payments. But as Brookings’s Ron Haskins noted in our interview last week, most are made in genuine error rather than through fraud. Because the EITC phases in and out at varying income levels, depending also on marital status and number of children, there is significant confusion about who is eligible and how big a credit they can claim. This illustrates a need for high-quality taxpayer services to ensure that only eligible workers and their families receive the EITC – and at the correct amount.

Unfortunately, the quality of these services often falls victim to budget negotiations. The Center on Budget and Policy Priorities released an excellent write-up last month on how cuts in the IRS budget have compromised taxpayer assistance programs and weakened enforcement of regulations on paid tax preparers, many of whom help low-income workers collect credits like the EITC.

The federal EITC lifted about 6.5 million people out of poverty in 2012, including 3.3 million children. It is a vital safety net program that increases labor force participation and makes work pay. Allowing sufficient resources to improve taxpayer services would greatly reduce the number of EITC payments made in error and ensure that the credit is used only to help qualifying individuals make ends meet.