“Could these programs have been done outside the tax system? I don't know. The Cash for Clunkers program isn't run through the IRS and it seems to be working quite well. Something to think about Congress.”
She is talking about the various credits and deductions currently in the Tax Code, and on the 1040, to “reward” certain beneficial behavior – like education, home ownership, saving for retirement, working, etc.
The $4,500 maximum “Cash for Clunkers” subsidy for trading in a used gas guzzler for a new, more fuel efficient auto is not paid out as a tax credit, refundable or otherwise, on the Form 1040. As Roni Deutch explains it in the post “A Deeper Look at the Cash for Clunkers Program” at her THE TAX LADY BLOG –
“In fact, it is being managed the U.S. Department of Transportation, not the Internal Revenue Service. When a qualifying taxpayer goes to buy a car, the dealership will automatically credit the rebate towards the purchase price. You do not need to claim it on your income tax return, you do not need to request the rebate; the dealership should handle everything.”
As Trish pointed out, this process “seems to be working quite well”.
So why, then, could not the U.S. Department of Education automatically apply the American Opportunity Credit, or the HOPE or Lifetime Learning Credit, towards the price of tuition, with the possibility of any remaining available credit being applied at the college book store? Then the government would be assured that the money is actually spent on continuing education. If the student “drops out” the unused portion of the “government subsidy” would be returned to the Department of Education.
And why, then, could not the First Time Homebuyer Credit be applied to the purchase of a qualifying home at the actual closing? Then the government would be sure that a primary personal residence was actually being purchased by a “first-time” homebuyer. A “Statement of Qualification” could be added to the papers filed with the purchase on which the purchaser(s) would certify, under penalty of perjury, that he/she/they qualify for the $8,000 payment.
If there are credits to be provided to cover health insurance premium purchases in any upcoming Health Care Reform bill, why not have the U.S. Department of Health and Human Services credit the amount to the price of the actual premiums? Then the government would be sure that the money is actually spent on health care coverage.
Perhaps the amount of Retirement Savings Credit allowed could be actually deposited by the government into the individual’s IRA or other retirement savings account. Then the money would actually add to and help to grow retirement savings.
And in the case of the Earned Income Credit, why not just provide the qualifying individual or family with a supplemental welfare check, perhaps through the SSI system?
Doing things in this way would be beneficial in many ways.
(1) It would be easier for the government to verify that the recipient of the subsidy or hand-out actually qualified for the money, greatly reducing fraud. And tax preparers would no longer need to take on the added responsibility of having to verify if a person qualified for government funds.
(2) The qualifying individual(s) would get the money at the “point of purchase”, when it is really needed, and not have to go “out of pocket” up front and wait to be reimbursed when they file their tax return.
(3) We would be able to actually measure the true income tax burden of individuals. No longer would about half of the American population either pay absolutely no federal income tax or actually make a profit from filing a tax return. These people would still be receiving government hand-outs, but it would not be tied into the income tax system so they would actually be paying federal income tax.
(3) We could measure the true cost of education, housing, health, welfare, etc programs in the federal budget because the various subsidies would be properly allocated to the appropriate departments and not be reported as a part of net income collected via income tax.
(4) The Tax Code would be much less complicated, the cost to the public for preparing a tax return would be reduced, and the IRS would have much less to process and to audit.
Obviously, while this would reduce the burden of the IRS, it would increase the burden and paperwork of the individual departments and agencies that would take over the distribution of the subsidies and hand-outs. So the IRS budget would be reduced and the other individual budgets increased. The savings in tax fraud would probably cover any added expenses (I know there would still be fraud, but it would be more difficult than in the current situation). I sincerely believe that it is a trade-off that would ultimately be beneficial to all.
So – what to you think?