Friday, February 11, 2011

What's income got to do with it?

Apparently, the Earned Income Credit is rife with fraud........

The GAO has listed the Earned Income Tax Credit (EITC) Program as having the second highest dollar amount of improper payments of all Federal programs. The IRS has made little improvement in reducing EITC improper payments since 2002 when it was first required to report estimates of these payments to Congress. The IRS continues to report that 23% - 28% of EITC payments are issued improperly each year. In Fiscal Year 2009, this equated to $11 billion to $13 billion in EITC improper payments.

Who would have thunk it? Free money for nothing and apparently people try to abuse that system? That's a big ole Obama WTF!

The other day, I had a young guy come in to question his tax return wondering why he didn't get anything for his education credit. I explained that because he was in grad school his education credits wouldn't exceed the amount of tax he actually owed. In other words; not refundable.

His response "geez, I guess the government thinks it would be better if I got a job!".

My first instinct was to drag this guy out of my office, kick his ass and say to him "who do you think is subsidizing that fucking grad school tuition you pay. It's working assholes like me who actually pay taxes."

My second instinct is to shrug my shoulders because why shouldn't this guy think he should get a refund for something he never paid into. After all, the single mom who lives next to him never went to college, got knocked up with a couple of bastards and does drugs.

She'll probably walk away with a $5,000 refund she never paid in just for being a bum.

Just for giggles, I decided to review the income and tax liabilities for the 100 tax returns we've kicked out this year.

Now keep in mind that our system is called an "income" tax. Allegedly, that means a tax on your income.

But if it's an income tax, how can one person make $66,000 and have to pay $10,388.00 into federal income tax and her neighbor makes $74,000 and pays only $383.00? A $10,000 difference.

Now each taxpayer has completely different fact sets. One may have received energy credits, they're filing a joint return for family with children in college, or own an expensive home with lots of mortgage interest.

So? What the hell does any of that have to do with income? The premise is that if you make more, you can afford more. I can tell you from knowing both of the clients above, the one who makes more can afford more, much more. Yet she pays $10,000 less than someone who makes less than her.

Our income tax system is a travesty because it's total bullshit. It should be called "an income tax unless you do the things we want you to do then we'll make it less tax".

It reminds me of those United Way campaigns where the United Way gives you a card that determines your "fair share". They have no idea who you are but they can determine what your "fair share" is based on some nebulous income number.

Given that I make money trying to limit the tax liability of my clients, I should be thankful for such a screwed up system. But more and more, I'm starting to feel like your average crack dealer who rationalizes ruining people's lives with drugs by saying "I'm just giving the public what it wants".


Anonymous said...

I have a theory that the EIC is around to keep SS solvent. The more babies people have, the more future contributors we have to SS and thus the collapse of the pyramid scheme is delayed.


gordon gekko said...

The only problem is that most of these people qualifying for EIC are not exactly breeding future contributing members to society.

How about giving people a tax credit when/if their kids pass their state high school exams and not a moment before?

becbeq said...

When I taught I used to point out that the tax code was a perfect engine for social engineering. You want more college graduates? Tuition deduction and education credits. Want to encourage home ownership? Home mortgage interest deduction. Contributing to charity is good, so there's a deduction for contributions.

But my theory falls apart on EITC. WTF is gov't trying to encourage? Single parent households making minimum wage with multiple children? EITC discourages these people from marrying baby's daddy, or trying to better themselves. And you have to have at least four kids to pass your morals to -- two for mom to claim and two for daddy. (But, of course, daddy probably has a few extra with a few other mommies)