The scandal involves a program known as the Earned Income Tax Credit. It is an anti-poverty program in which the government gives low-income workers a tax refund larger than their tax liability. For example, a family with a $1,000 income tax liability might qualify for a credit four times that large, and receive an Earned Income Tax Credit payment of $4,000. Another family with no income tax liability at all might qualify for the same lump-sum payment. Call it a subsidy, a refund, a transfer payment -- in any case, the family receives a check from the feds.
The government sends out between $60 billion and $70 billion a year in Earned Income Tax Credit payments. Now, a new IRS inspector general's report shows that a huge amount of that — anywhere between 21 and 30 percent, depending on the year — has been given out improperly to recipients who do not qualify for the payment. The inspector general estimates that somewhere between $110 billion and $132 billion -- billion, not million -- has been given away in improper Earned Income Tax Credit payments in the last decade.
It's long been known that the IRS throws taxpayer dollars away through tax credits. President Obama, who has sought to expand the Earned Income Tax Credit program, in 2009 signed an executive order entitled "Reducing Improper Payments and Eliminating Waste in Federal Programs" that required the IRS to come up with annual "improper payment reduction targets." That was four years ago. It still hasn't been done.
Don't look for it to be done anytime soon. IRS officials told the inspector general that the program was too complicated to administer correctly, and even if it were less complicated, they would not want rigorous enforcement measures to discourage legitimately qualified people from applying for the credit. In the words of the inspector general's report: "The IRS cited the complexity of the Earned Income Tax Credit program as well as the need to balance the reduction in improper payments while still encouraging individuals to use the credit as the two main reasons why reduction targets have not been established."