Targeting Low-Income Kids: More Arguments, Making Even Less Sense
As we’ve written before, the Additional Child Tax Credit (ACTC) remains under the gun and, with it, the support on which more than 4 million families rely for feeding, clothing and housing their kids. Two U.S. Senate bills now have joined earlier, U.S. House proposals aimed at eliminating ACTC refunds for households who file their taxes with Individual Taxpayer Identification Numbers (ITINs) – thus targeting many working taxpayers who are only complying with federal law mandating that they pay taxes.
Such a change would run dramatically counter to the original, legislative intent behind the credit’s creation, which – according to a 2008 Congressional report – was to “reduce a family’s tax liabilities … better recognize the financial responsibilities of child rearing, and … promote family values.” And the switch would be particularly painful to the immigrant families who constitute a large proportion of the families legally using ITINs rather than Social Security Number (SSNs) to file their taxes.
Now comes a new wrinkle that many ACTC critics are using – incorrectly – to bolster their cause. And it’s prompting NCTC to join with the National Council of La Raza and First Focus in a news conference today on ACTC matters.
Recent news reports have quoted an unnamed, paid tax preparer and a tax filer talking about ACTC claims that have been made on behalf of children who don’t live in the United States. To be clear: Such ACTC refunds would be fraudulent and shouldn’t be paid-out. But despite representations to the contrary, such cases do not constitute evidence of either (a) widespread attempts by individual taxpayers to game the system or (b) the need to stop ITIN families from claiming the ACTC refunds for which they’re eligible.
In fact, the proposed SSN requirement doesn’t equate to a solution for dealing with actual fraud, as abusers could just as easily use a fake or stolen SSN.
Most individual taxpayers don’t know enough about the tax code to cook-up schemes like this, and they aren’t looking to do so. At least, that’s the experience of NCTC’s field of volunteer-assisted providers of free tax preparation services for low- and moderate-income, working households – Volunteer Income Tax Assistance (VITA) programs. In fact, the vast majority of the taxpayers with whom our VITA members work simply want to do the right thing and ensure they’ve paid any taxes they owe while claiming any credits for which they legitimately qualify.
However, our field’s experience also includes this observation: When such fraudulent tax claims do arise, they’re often prompted by unscrupulous, commercial tax preparers who can boost their own fees higher by “helping” their clients claim bigger refunds. (Not insignificantly, this appears to be the case of the unnamed preparer quoted in news accounts.)
To be sure, most paid preparers might steer well clear of such shady behavior. But our volunteer field’s client families do relate stories about past dealings with some decidedly questionable commercial preparers, illustrating where the real problems of abuse often originates.
Among other things, this underscores the importance of the Internal Revenue Service (IRS) efforts at boosting regulation of commercial tax preparers. These new requirements for training, registration and continuing education are still phasing-in, aimed at ensuring compliance and high quality in the commercial tax prep industry. This includes a clear idea of what’s beyond the pale, and the fines and prison time that result from straying there. These rules need to be given further opportunity to work and be enforced.
Equally significant are calls to avoid further budget cuts to the IRS – and instead, to bolster resources for both compliance efforts and for taxpayer services (services that could reduce taxpayers’ reliance on paid preparers, not to mention improve overall accuracy of returns).
Finally, let’s be clear: Tax fraud is far from specific to the issues involving ITIN families. It knows no sociodemographic boundaries, despite the tendency of some to focus primarily on specific populations such as immigrant households. In fact, a recent Treasury report pegged corporate tax abuse at about $170 billion for Tax Year 2006.
NCTC and the VITA field are committed to preparing high-quality, accurate tax returns, and we support efforts to effectively tackle fraud and abuse – something the SSNs-for-ACTC-claims proposal wouldn’t accomplish.
As stated in our letter to Congress earlier this year, the ACTC proposal purports to save as much as $9 billion over the course of 10 years – but would discourage tax filings from ITIN families who, through payroll taxes, contribute that much money every year in Social Security and Medicare benefits they’ll never claim. So the broader population of taxpayers would feel a resulting strain.
When the well-being of our most vulnerable children, struggling families and our nation’s economic stability are at stake, we ought to tread carefully and deliberately to protect what’s most important.
By Sean Noble, Director of Public Policy & Research