President Obama and GOP House Speaker Paul Ryan want to expand it. Tax preparation companies and illegal immigrants are cashing in on it. Fraudsters have found bottomless ways to exploit it.
The earned income tax credit, a bipartisan-supported "anti-poverty" benefit, is robbing honest, law-abiding Americans blind. Originally intended to help low- to moderate-income working individuals and couples with children, the refundable tax credit has ballooned into a massive welfare entitlement for politically correct constituents who pay no income taxes — yet are still eligible for payouts.
According to a new report from the Treasury Department's Inspector General for Tax Administration, a whopping 23.8 percent of EITC payments, worth an estimated $15.6 billion, were issued improperly in fiscal year 2015 alone. The Office of Management and Budget singled out the $69 billion federal cash transfer program as "high risk". (It's the only IRS program that carries the designation).
Shady accountants help clients falsify income in order to claim the credits, then charge exorbitant fees for the "service." Self-employed filers also inflate their income with little chance of getting caught. Everyone's red flags are flapping, but the hole just keeps getting bigger. The Internal Revenue Service can identify "erroneous" claims, but it doesn't currently have any authority to do anything to rectify them.
Instead of stopping the rip-offs, the Obama administration has fueled an entire industry of illegal immigration vultures gaming the already fraud-plagued system.
In addition to blanket deportation waivers and work permits, Obama's executive amnesty orders extended EITC eligibility (retroactive to the last three tax years) to the so-called Dreamers and their parents. It's a proven recipe for bamboozlement. Illegal immigrants using individual taxpayer identification numbers have scammed another refundable tax credit program the Additional Child Tax Credit, to the tune of $4.2 billion a year, according to tax watchdogs. Average ACTC monthly payments to eligible families are about $1,800. Average EITC monthly payments to eligible families hover around $3,000.
Just this month, an illegal immigrant con artist from Honduras pleaded guilty to conspiracy to defraud the U.S., conspiracy to commit money laundering and illegal re-entry by a previously deported immigrant after the feds uncovered his $11 million EITC racket. His main partner, another Honduran illegal immigrant, is on the run.
The duo was assisted by several naturalized citizens in Tennessee who obtained phony Mexican, Honduran and Guatemalan IDs, prepared fake tax returns, and operated check-cashing businesses for Hispanic customers collecting hefty tax refunds. According to federal indictment documents, the conspiracy raked in 2,400 bogus refund checks between January 2012 and November 2014 totaling $10.8 million.
A hand up for the working poor has morphed into a cash cow for grifters from around the world. Economists add that the well-intentioned program has paved a path to reduced work incentives, lower wages and distorted family decisions (married couples are penalized).
When the enormous costs of such tax code social engineering outweigh the benefits in an era of unfettered open borders, it's time to pull the plug.