Follow the money

Tax fraud costs the federal government hundreds of billions of dollars each year. Individual taxpayers rip off the government for $132 billion annually. A recent study estimated that small business owners are among the worst offenders, hiding a significant portion of their income, and thereby deprive the Treasury of an estimated $38 billion a year. Corporations don’t like to pay taxes either. One expert concluded that, thanks to tax shelters, big business weaseled out of a tax bill of $54 billion. U.S.-based companies are increasingly establishing legal identities overseas in order to avoid taxes.

So who is the IRS going after in an effort to reduce tax fraud? The poor, who else? The IRS will ask tens of thousands of the working poor who now take advantage of the Earned Income Tax Credit to "provide the most exhaustive proof of eligibility ever demanded of any class of taxpayers," writes the New York Times (April 25). The Earned Income Tax Credit, widely acknowledged to be one of the most successful antipoverty programs, is intended to ease the burden of Social Security taxes through tax refunds, thus encouraging the poor to work. Recipients will now be asked to provide marriage certificates to verify claims made about dependent children as well as other documentation to the IRS. Needless to say, many of the working poor, fearful of the government or intimidated by bureaucratic process, will forego the tax credit rather than provide the information.

Fraud is a problem with the Earned Income Tax Credit. The IRS estimates that $6.5 billion to $10 billion is paid out to ineligible recipients each year. There is nothing wrong with the IRS insisting that the tax credit get to the people for whom Congress intended it. The problem is one of priorities. Congress, responding to complaints from well-connected taxpayers and pandering to the general antitax sentiment, has cut money for IRS investigations and audits. In fact, you are significantly more likely to be audited if you take advantage of the Earned Income Tax Credit than if you make over $100,000. Some might even call that discrimination.

In short, compared to the way corporations, wealthy individuals, and small business owners cheat on taxes, the working poor are pikers. They are also almost voiceless in Congress. At the very least, poor taxpayers shouldn’t face greater burdens than other taxpayers.

Published in the 2003-05-09 issue: 
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