Category Archives: EITC

New Article: “Tax Audits, Economics, and Racism”

New Article: Francine J. Lipman, Tax Audits, Economics, and Racism, Oxford Research Economics and Finance (2022 Forthcoming). Abstract:

The Internal Revenue Service (IRS) is the federal agency charged with tax revenue collection. In fiscal year 2020, the IRS collected $3.5 trillion in taxes, which represented about 96 percent of aggregate annual federal funding (IRS, 2020). In its mission statement the IRS states that its primary role is to enforce tax laws. The IRS’ website announces that it is responsible “to help the large majority of compliant taxpayers with the tax law, while ensuring that the minority who are unwilling to comply pay their fair share,” among similar duties. Nevertheless, the IRS’ most recent official estimate of the “tax gap” or the amount of net taxes owed by taxpayers who did not “pay their fair share” even after IRS enforcement efforts was $1.143 trillion for the three-year period 2011-2013 or $381 billion average annually. This amount is more than all the income taxes paid by 90 percent of all taxpayers (Rossotti & Forman, 2020). Assuming constant compliance rates, the Treasury has estimated that the tax gap in 2019 was $584 billion, $7 billion over the decade, or 15 percent of annual tax liabilities (IRS, 2019). Economists have estimated that the tax gap was at least $630 billion in 2020 (Sarin & Summers, 2019).

Despite these titanic uncollected tax obligations and the IRS’ patent failure to accomplish its charge and stated goal every year, Congress has significantly cut the IRS budget since 2010. Budget cuts have occurred even though Congress has been requiring broader and deeper IRS engagement in tax reform, health care, and economic stimulus payments. The IRS has responded to these budget cuts and additional work with meaningful decreases in its enforcement activities even with increasing annual tax gaps. Most notably, the audit rates of corporations and high-income individuals have dropped precipitously. Audits on millionaires have plummeted 71 percent (Center on Budget and Policy Priorities, 2021) and on large corporations they have dropped 51 percent (Huang, 2020). As a result, voluntary compliance rates likely have not stayed constant, but more likely have declined.

Past IRS Commissioners and notable economists have found that the IRS’ reported estimate of the tax gap significantly understates sophisticated tax evasion among wealthy taxpayers and large corporations (Guyton et al., 2021; Debacker et al., 2020; Alstadsaeter et al., 2019; Johns & Slemrod, 2010). IRS Commissioner Charles Rettig in testimony before Congress estimated that the tax gap could be as high as $1 trillion a year or almost 30 percent of gross revenues (Davidson, 2021). Unless systemic changes are made, Americans can expect to lose 3 percent of gross domestic product or $7.5 trillion in tax liabilities due and payable under current tax law over the next decade (Rossotti et al., 2020; Sarin, 2021).

The IRS, economists, scholars, and policy experts generally agree on an effective remedy. The tax gap could be reduced by increased funding for targeted IRS enforcement that would more than pay for itself severalfold (U.S. Department of the Treasury, 2021; Holtzblatt, 2021, Huang, 2020). Despite this obvious and lucrative remedy, Congress has done the opposite while certain representatives simultaneously complain about increasing federal deficits. Why has Congress defunded the IRS when the annual tax gap has soared? Why has the IRS decreased audits of the highest income taxpayers and largest corporations when economists have estimated they are responsible for more than 70 percent of the tax gap? This article will attempt to provide a critical tax framework with which to analyze this enigma.

New Article: “Claimin’ True: Optimizing Eligible Take-Up of the EITC”

New Article: Jaden Warren, Claimin’ True: Optimizing Eligible Take-Up of the EITC, 28 Geo. Poverty L. & Pol’y J. 243 (2021). Abstract below:

The Earned Income Tax Credit (EITC) suffers from two competing issues: incomplete take-up and overclaims—some eligible people do not claim the credit while some ineligible people do. This Note applies concepts from behavioral economics to these issues to determine why existing reforms have had limited success and what can be done to address them. This Note proposes the creation of an “opt-out” EITC system in which the IRS automatically determines EITC eligibility and the harmonization of the EITC audit rate with the national audit rate, accompanied by a bundle of existing EITC reform proposals.

New Article: Context, Purpose, and Coordination in Taxation

New Article: Blaine G. Saito, Context, Purpose, and Coordination in Taxation, 55 Conn. L. Rev. (forthcoming 2023). Abstract below:

A great deal of scholarship focuses on whether we should place social safety net and redistribution programs within the tax sphere and under the responsibility of the IRS. But much of this literature misses a key point. These programs are here, and they are unlikely to leave the tax sphere. But little is said about how to approach administering them.

This article suggests a new framework to administering these programs by the IRS called contextualized purpose. The idea is that these tax programs exist in a broader context of the social safety net and redistribution and should be organized and managed in a way that comports with that. The IRS would discern the various purposes, values, and goals of these programs and note how they interrelate with other purposes, values, and goals within the tax system and the broader social safety net. As a result, contextualized purpose often requires that the IRS coordinate with other agencies to avoid administrative cross-purposes and that the agencies iteratively grow through learning by doing.

The article uses contextualized purpose to examine and suggest administrative changes to key income support programs like the earned income tax credit (EITC), the child tax credit (CTC), and the pandemic economic impact payments (EIP). It then discusses what are some of the advantages and concerns with this approach and how this approach fills the gap left by traditional discussions of tax programs to effectuate social policy.

New Article: EITC Correspondence Audits: An Equal Protection Issue

New Article: Sydney Warda, EITC Correspondence Audits: An Equal Protection Issue, 70 DePaul L. Rev. 777 (2021).

New Article: EITC for All: A Universal Basic Income Compromise Proposal

New Article: Benjamin Leff, EITC for All: A Universal Basic Income Compromise Proposal, 26 Wash. & Lee J. Civ. Rts. & Soc. Just. 85 (2019). Abstract below:

Much has been written about a concept called universal basic income (UBI). With a UBI, the government gives every person a certain amount of money each year, or even each month. The UBI has broad appeal with thinkers on both the right and the left, but the appeal is partially because different thinkers have different visions of what the current state of affairs is with respect to government welfare policies and different theories about why these existing policies are inadequate or damaging. Reforming existing programs, rather than making a radical break with the past, could satisfy at least some of the interests that motivate support for a UBI. The purpose of this Article is to explore the possibility of modifying the Earned Income Tax Credit (EITC), the largest and arguably most popular U.S. anti-poverty government transfer program, in order to capture at least some of the benefits associated with the UBI. This Article explores four problematic aspects of the EITC, each of which could be modified to make it function more like a UBI. These four aspects are: (1) the EITC creates disincentives to work for the so-called “nearly poor” because the credit phases out at moderately low income levels; (2) the EITC is fundamentally dependent on family structure, which is potentially unfair, invasive, and affects incentives to marry, divorce, and cohabitate; (3) receipt of the EITC benefit is temporally mismatched with recipient need, expensive for recipients to collect, and difficult for the IRS to administer because the EITC is integrated with the tax system; and, finally, (4) the EITC is too small to fully function as a hedge against underemployment and poverty. Modifying the EITC would make it more like a UBI and would make it more effective at achieving the goal of supporting financially struggling workers and their families while minimizing perverse incentives.

New Article: Something for Nothing: Universal Basic Income and the Value of Work Beyond Incentives

New Article: Jonathan Grossberg, Something for Nothing: Universal Basic Income and the Value of Work Beyond Incentives, 26 WASH. & LEE J. CIV. RTS. & SOC. JUST. 1 (2019). Abstract below:

Proponents and opponents of a universal basic income all acknowledge that the most significant political challenge to its adoption in the United States is that a universal basic income would not have a work requirement attached. Often, this is characterized as a problem involving incentives—the availability of a universal basic income would cause many people to stop working (or significantly curtail the number of hours that they work) and simply live off the universal basic income. This Article makes three contributions to the literature related to a universal basic income: First, it provides a typology for understanding the many reasons for valuing work; second, it argues that the United States is unlikely to implement a universal basic income because a universal basic income does not account for several aspects of the value of work; and, third, it argues that advocates of a universal basic income should instead focus on the more modest goal of redefining the activities that constitute work and broadening the social safety net by expanding existing policies through the use of a broader definition of work. This Article proposes that the value of work in American political culture has four primary dimensions: 1) reciprocity, that one receives rewards for one’s labor, that one gets what one gives and that no one should be a free rider, one who gets but does not give; 2) calling or vocation, that work is a calling or vocation that one should have or pursue, and that only those that have or pursue such a calling or vocation have moral standing; 3) self sufficiency, that work promotes self sufficiency, which is a necessary component of liberty and which is necessary to avoid dependency; and 4) incentives, of an economic kind, that society should encourage work because it increases the size of the economic pie. These categories provide a new framework for thinking about the value of work and for evaluating policies that relate to the working lives of Americans. As an alternative to the adoption of a universal basic income, this Article proposes that proponents of a universal basic income should focus on expanding and redefining current policies, such as the Earned Income Tax Credit so that they more closely resemble a participation income. In fact, a broader definition of work has even been used in recent conservative policy ideas, such as the Medicaid work requirements that some states have introduced, which include within their definition of work the activities of education, job training, and community service. This Article closes with an outline of a proposal to adopt an expansion of the Earned Income Tax Credit that resembles a participation income and addresses each of the dimensions of the value of work.

New Report: The EITC and minimum wage work together to reduce poverty and raise incomes

New Report:  Jesse Rothstein & Ben Zipperer, The EITC and minimum wage work together to reduce poverty and raise incomes, Economic Policy Institute, Jan. 22, 2020.

-Thanks to Francine Lipman for the heads up!

New Book: Holes in the Safety Net: Federalism and Poverty

I’m excited to share that Holes in the Safety Net: Federalism and Poverty (Ezra Rosser ed., Cambridge University Press, 2019) has just been published and is now available. As can be seen in the list of chapters below, the book has a great group of contributors:

Introduction by Ezra Rosser

Part I: Welfare and Federalism

Federalism, Entitlement, and Punishment across the US Social Welfare State by Wendy Bach

Laboratories of Suffering: Toward Democratic Welfare Governance by Monica Bell, Andrea Taverna, Dhruv Aggarwal, and Isra Syed

The Difference in Being Poor in Red States Versus Blue States by Michele Gilman

Part II: States, Federalism, and Antipoverty Efforts

States’ Rights and State Wrongs: Supplemental Nutritional Assistance Program Work Requirements in Rural America by Rebecca H. Williams and Lisa R. Pruitt

State and Local Tax Takeaways by Francine J. Lipman

Early Childhood Development and the Replication of Poverty by Clare Huntington

States Diverting Funds from the Poor by Daniel Hatcher

States’ Evolving Role in the Supplemental Nutritional Assistance Program by David A. Super

Part III: Advocacy

Federalism in Health Care Reform by Nicole Huberfeld

Poverty Lawyering in the States by Andrew Hammond

Conclusion: A Way Forward by Peter Edelman

Though it will be a year before a cheaper paperback option is sold, the hardback version of the book mainly targeted at libraries is now available. Here is the publisher’s page on the book, and here is the Amazon page. Please check it out and consider forwarding a request to your school’s librarian to get a copy of the book. The chapters really are great!

That is the main message, but I think it is within my fair use rights to share the book’s Acknowledgments’ page below because the first part of it speaks to the poverty law community generally:

This book is a product of the poverty law scholarly community. I would not have considered working on it if I had not been confident that I would find a great group of scholars willing to participate in this project. This is my third collaborative poverty law book project and it truly is wonderful to be part of a community that is primarily motivated by concern for the poor. My confidence was justified and I would like to thank especially the great group of contributors who wrote chapters for this book.

This book grew out of a conference hosted by American University Washington College of Law (WCL). I would like to thank Dean Camille Nelson, as well as Jennifer Dabson, Shayan Davoudi, and Karina Wegman for their support not only of the biannual poverty law conference but also of the Economic Justice Program at WCL. Daniel Hatcher’s eye-opening book, The Poverty Industry: The Exploitation of America’s Most Vulnerable Citizens (2016), inspired both that conference and this edited volume. Hatcher’s book is well worth reading in its own right.

I would like to give a special shout-out to my phenomenal research assistant, Oliver Jury. Often it was Oliver who caught the stray period mark or came up with the best way to fix a troublesome sentence. His attention to detail and skills as a writer are truly impressive.

Finally, I owe a big thank you to all those who cared for my young children while I worked on this project. In the United States, I want to thank Glenda, Onestina, and the staff at Play, Work or Dash; in El Salvador, thanks to my mother-in-law and to Elba. And everywhere, at all points in time, and for everything, thanks to Elvia. This book is dedicated to our children, Mateo and Mario. May they realize both the value of hard work and tremendous privileges they enjoy, and may their lives be filled with happiness and meaning. Un fuerte abrazo.

Thanks again to the contributors and to the larger community. And I hope you get a chance to read the many great chapters in the book.

New Article: U.S. Refundable Credits: The Taxing Realities of Being Poor

New Article: Leslie Book, U.S. Refundable Credits: The Taxing Realities of Being Poor, 4 Journal of Tax Admin 71 (2018). Abstract below:

This paper looks at the American experience in using tax law to deliver benefits to low and moderate-wage workers. First examining two recent cases in which individuals improperly claimed the earned income tax credit, this paper explores some of the challenges to both taxpayers and tax administrators associated with using the tax system to deliver benefits that are dependent on levels of attachment to children and the presence of earned income. The paper then explores two approaches to improve compliance. One approach is a proposal in a recent Heritage Foundation policy briefing recommending that only parents with legal custody of their children should be entitled to receive the earned income tax credit. The state of California initially excluded self-employment income from its definition of earned income in its state earned income tax credit. Both measures fail to reflect characteristics of the lives of the working poor, including a growing reliance on multi-generational living arrangements and shared care of children, a surge in nontraditional employment associated with the gig economy, and a reliance on third parties such as return preparers and tax software providers. Despite the problems with the proposals, they reflect genuine compliance concerns. This paper concludes with recommendations to address those compliance concerns that will likely serve the goal of improving integrity, while also ensuring the law and administration of the law reflects the lives of lower-income Americans who increasingly rely on the tax system to meet basic needs and support their families. As the American tax system is increasingly a key component of the safety net, this paper is especially timely and can assist policymakers who wish to balance improvements in program integrity with a respect for taxpayer rights and achievement of other program goals.

New Report: The Earned Income Tax Credit (EITC): A Brief Legislative History

New Report: Margot L. Crandall-Hollick, Congressional Research Services, The Earned Income Tax Credit (EITC): A Brief Legislative History (2018).