Wednesday, January 14, 2009


I want to bring your attention to a recent post from a fellow tax blogger, Chad Bordeaux of PERIODIC RAMBLINGS OF A CPA, which falls into the category of “I couldn’t have said it better myself”.

President Elect Obama: Stop the Tax Code Lie” echoes what I have been saying for years.

In the post Chad explains, quite correctly, that (the highlights are mine) “a third of all taxpayers pay no income tax - projected to increase to 44% under President-Elect Obama's plan {according to a report from the Tax Foundation – rdf
}. The reason for this disparity in what people believe and what is actually true dates back to the initial passing of the Earned Income Tax Credit in 1975, and its massive expansion in 1990 and 1993.

Touted as one of the top anti-poverty programs in the country, the Earned Income Tax Credit is no more than a massive government welfare and wealth redistribution system - kept on the down-low from most Americans. It is not obvious because it isn't called "welfare." It is called a "tax refund." I hate to tell Congress, but a refund is only a refund up to the amount that someone paid. Anything else, if NOT A REFUND, is welfare. Currently, taxpayers that paid no income tax (zero, zilch, nada) can receive a "refund" of up to $4,825. [Not a typo].
I am not here to argue whether these people need the money or whether or not the poor should be helped or anything related. My issue is simple. The government needs to stop lying to the American public by funneling these massive welfare payments through the tax code. If the welfare is needed, open up the debate on whether or not welfare is needed and stop hiding it in the tax code.
Also, the biggest area of tax fraud - by far - is related to the Earned Income Tax Credit. Approximately 1/3 of all returns containing an earned Income Tax Credit is flawed, resulting in billions of dollars in lost funds to the government (ultimately taxpayers). If someone wants these welfare payments, let them apply for welfare. Most of these people are already on food stamps and receive assistance already. Let the Department of Health & Human Services sort this out and let us actually see from a budgetary standpoint, the true cost of welfare in this country. What is the government hiding here?
President-Elect Obama has promised a vast expansion in refundable tax credits such as the earned income tax credit. Personally, I think it is time we stopped the lie. I am not against people who need help getting help, but I am against lying to Americans to get it done

Bordeaux points out that “this lie has been going on during the Ford Era, the Reagan Era, the Bush I Era, the Clinton Era, and the Bush II Era. Obama did not start the lie”.

As I said in my post “
Obama The Red Menace” (I was being facetious – and making a Broadway reference) –

“I do not believe that the Tax Code should be used to 'redistribute' wealth or assist in providing ‘welfare’ to lower income individuals. The purpose of the federal income tax is to raise the money necessary to run the government – period. While the Code can encourage certain positive activities such as saving and investment, higher education, charitable contribution and volunteer work, home ownership, etc – all things that benefit society in general – it should not be used for ‘social engineering’.

I am also against the concept of 'refundable' tax credits – credits that allow an individual or family to 'make a profit' from filing a tax return. This includes the current Earned Income Tax Credit and the Child Tax Credit.

The EITC does not provide the safeguards, checks, and balances required in other federal and state welfare programs necessary for responsible fiscal management. As a result, it is perhaps the most abused provision of the tax code. Studies have suggested that close to 30% of all EITC claims are bogus.”

I also said – “I am not against tax relief for the working poor or the concept of providing aid to families with dependent children, or other types of welfare programs for the working poor”. I just don’t believe these concepts should not be incorporated into the Tax Code.

So what do you think?


1 comment:

Anonymous said...

Any other problems with the EITC aside, my complaint about it is that it is unfairly age-discriminatory -- single people must be at least age 25 to qualify, even if they met the income requirements at an earlier age.

If a person no longer qualifies to be claimed as a dependent by someone else (which would still keep parent-supported college students from getting it), they should be equally EITC-eligible, regardless of whether they are age 19, 24, 25, 45, whatever.

An independent single 24-year-old who earns $10,000 this year is not any less poor than an independent single 25-year-old who earns $10,000 this year.

As long as the EITC continues to exist, this ought to be fixed.