Wednesday, January 18, 2006
When there is an income tax, the just man will pay more and the unjust less on the same amount of income.
— Plato, The Republic
The poor are still with us and once again it’s George Bush’s IRS that is insuring they do not take unfair advantage of those of us who have, through our own diligence or felicitous pre-birth selection of parents, avoided their hapless state. The current news is the logical result of steps that were begun by the Bush administration in 2001. They relate to the earned income tax credit.
The earned income tax credit is intended to provide an incentive for the poor to work by giving them an offset for the Social Security taxes they have paid together with a credit based on their earnings. No household with earned income above $34,692 is eligible for the credit. In 2001 the average low-income tax credit paid by the government was $1,976 for households with children and $364 for single persons.
In 2003 this column observed that in 2001, the IRS began increasing its audits of the working poor while reducing its audits of the wealthy. In 2002 one out of every 64 people claiming the credit was audited whereas only one out of 120 persons with income of more than $100,000 was audited. Fifty-five percent of all audits conducted in 2001 were audits of the working poor. The amount the government was then losing because of the cheating poor was between $6.5 billion and $10 billion.
Although those amounts didn’t seem like much when contrasted with the $72 billion lost because of individual off-shore accounts (few of which were owned by the poor), $46 billion then being evaded by corporations and $30 billion evaded by partnership investors, there was, in fact, a significant difference. The poor are a drag on society whereas wealthy individuals and corporations are what make a George Bush kind of society run smoothly. When the wealthy cheat on taxes they take the money they save by cheating and reinvest it in our economy thus providing new employment opportunities for the poor. The poor, by contrast, use the money saved by cheating to buy food, clothing or pay rent which does no one but them any good.
Using the good offices of the IRS Mr. Bush has come up with a new way to protect the rest of us from the avarice of the poor. Being modest, he didn’t brag about it. Nina Olson did it for him.
Nina Olson is the IRS’s taxpayer advocate. In her annual report to Congress released in early January she reported that since 2001 tax refunds to which 1.6 million poor Americans were entitled had been frozen by the IRS and their returns labeled fraudulent by that agency. According to Ms. Olson, the majority of taxpayers identified had done nothing wrong and had been wrongly identified by a computer program. Not content with that aspersion cast on the IRS she went on to report that 66 percent of the persons whose refunds were frozen were entitled to the amount they claimed and in some cases, more. Another 14 percent were due a partial refund leaving only 20 percent that might have committed fraud. Forty six percent of the frozen returns that were labeled “conclusively” fraudulent by the IRS were in fact proper requests, a conclusion with which the IRS eventually agreed.
The IRS quite properly disputed the idea that 80 percent of the returns pertained to innocent taxpayers. It said “innocent” taxpayers were likely to press for refunds thus suggesting it was unlikely that they would have tolerated having their funds withheld. (It did not mention that Ms. Olson’s report says that IRS employees are not permitted to give a taxpayer any information about a missing refund until six months after the taxpayer contacts the agency, which suggests even if the IRS’s premise is correct, an “innocent” taxpayer can nonetheless be a victim of the system. It was smart to omit that since that kind of makes its explanation look foolish.)
The average income of those whose refunds were held up was $13,000 and the refund due was about $3,500. If the poor were successful they could add almost 30 percent to their income with their fraudulent claims. It’s no wonder the IRS is suspicious of them. Nonetheless, Ms. Olson is performing useful work. She shows that though the IRS is not perfect and hundreds of thousands are suffering as a result of its ineptitude, they are being given an opportunity to participate in Democracy in a way only they can, to help make George Bush’s America become the kind of place of which he dreams at night. Seen in that light they will certainly be less critical of the IRS than Ms. Olson seems to be.