While the administration continues to push for tax cuts for corporations and the very wealthy, whose tax avoidance is estimated to cost the government $75 billion a year, it is also working to establish a rigorous pre-certification process for Earned Income Tax Credit (EITC) recipients.

While the administration continues to push for tax cuts for corporations and the very wealthy, whose tax avoidance is estimated to cost the government $75 billion a year, it is also working to establish a rigorous pre-certification process for Earned Income Tax Credit (EITC) recipients.

Recently, Business Week Magazine reported that in 1940 companies and individuals each paid about half of the federal income tax collected. Currently, companies pay an astoundingly low 13.7% while individuals pay 86.3%. The article cites a number of reasons including aggressive but legal “tax avoidance” strategies that make use of ever-widening loopholes in an increasingly complex tax code; intensive corporate lobbying efforts for tax breaks; sophisticated legal departments dedicated to reducing company taxes; and actual abuse – crossing the blurry line between legal tax “avoidance” and tax “evasion.” The IRS estimates that US corporations and rich individuals cost the country about $75 billion a year. The Treasury Department released new regulations in February to attempt to curb the worst abuses. Most of us would agree that attention to corporate tax abuse is a good thing.

Simultaneously, though, the Treasury Department has turned its attention to Earned Income Tax Credit (EITC) recipients – working taxpayers who earn around $35,000 or less. See the Department press release about both initiatives. The IRS has estimated that incorrect EITC payments cost from $8.5 billion to $9.9 billion in 1999, a fraction of the cost to the government of tax evasion by corporations and the wealthy. At the same time, national estimates of unclaimed EITC payments (refunds that could have been collected) amounted to $2.7 billion in 1999. Net loss, then, would be from $5.8 to $7.2 billion, a fraction in comparison to corporate and high-end taxpayer costs; and some of these errors are due to honest mistakes, since the EITC rules are also complex and very few low-income families can afford tax advisors.

The pre-certification process proposed by the Treasury Department will require “high-risk” EITC taxpayers (especially those who are raising children other than their own, such as grandparents) to fill out long forms, obtain affidavits from authorities like landlords or doctors, and supply the IRS with marriage licenses and birth certificates. Tax refunds – money that many low-income people count on to catch up on bills, rent, utility payments, car repairs, and the like – will be delayed until verification is complete. Currently IRS audits delay refunds by about eight months.

Meanwhile, tax breaks to the wealthy and corporations continue to be enacted and take effect. With domestic spending being cut to the bare bones, military spending going up, and deficits as far as the eye can see, the 2004 Congressional Budget Resolution contains a provision requiring that savings be found by eliminating waste, fraud and abuse. It’s hard to argue with the premise, but given the numbers, why not crack down hardest on the corporations who are abusing the system to pay less than 14% of all income taxes? Targeting low-income EITC workers – causing a hardship to people who can least afford it for very little savings (and even less when you count the expenses of conducting the pre-certification process and verifying returns) seems the wrong way to go. If Congress gets its way, and any savings from the elimination of waste, fraud and abuse are used to give yet more tax breaks to corporations and wealthy people, it’s an outrage.