Tax Reform Could Mean A Cut For The Rich, An Audit For The Poor

WASHINGTON ― The Republican tax agenda unveiled this week would repeal an inheritance tax that affects only the richest 0.2 percent of the population.

For low-income workers, the tax reform plan could mean closer scrutiny of their filings ― something more like an audit than a tax break.

The tax code currently provides a significant benefit to people on the lower end of the income scale through a $69 billion program called the earned income tax credit. Twenty-eight million households received checks from the program in 2015, averaging $2,381 for a family with one child. Conceived in 1975 as a “work bonus,” today the credit provides an annual cash refund to workers who earned money but made less than $18,000 per year. The amount is scaled based on income, and parents are eligible for much larger refunds than people without children.

President Donald Trump said Wednesday that “my plan is for the working people,” the very constituency for whom the tax credit especially benefits. But even though the amount of the credit has been expanded on a bipartisan basis several times in past years ― including in the 1986 tax reform that House Speaker Paul Ryan (R-Wis.) frequently cites ― Republicans have no interest in doing so this time.

A senior administration official said during a conference call on Tuesday that while they didn’t want any changes to the earned income tax credit, “We’re encouraging the committees to improve how the program works.”

Improving how the program works might actually mean making the benefit more difficult to obtain.

In July, Republicans on the House Budget Committee approved a spending outline that would require the Internal Revenue Service to verify the income of everyone filing for the earned income tax credit. The program does have a high rate of improper payments ― more than 23 percent, according to the IRS. Conservatives argue this is due to fraud, but past analyses have suggested improper payments are as likely to be the result of honest mistakes made in the tax filing process, such as accidentally misreporting income or separated spouses both claiming on behalf of the same children.

If a tax return is suspicious or gets selected as part of a random sample, IRS auditors will seek to verify it. But under the House Budget Committee’s proposal, the millions of filers claiming the credit could be subject to extra income verification ― which could delay benefits for weeks or months.

As the liberal Center on Budget…

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