Whenever you hear that one thing is refundable, you most likely suppose that implies that somebody will get a refund on one thing she or he paid. However the IRS and even economists who examine tax coverage don’t imply that in any respect. By “refundable,” they imply that somebody will get a fee even when she or he paid nothing within the first place.

That situation comes up when one examines the Earned Revenue Tax Credit score (EITC.) As Cato Institute economist Chris Edwards factors out, of the $71 billion of the EITC given to 27 million folks in 2021, $69 billion, or virtually all, was “refundable.” That’s, it was given to individuals who paid no earnings tax. The EITC is sort of wholly a welfare-spending program, not a tax-cutting program.

These are the opening two paragraphs of David R. Henderson, “Tighten the Earned Revenue Tax Credit score,” November 30, 2022, my quick TaxBytes column for the Institute for Coverage Innovation.

One other excerpt:

Furthermore, this system is rife with fraud. Curiously, Hilary Hoynes, an economics professor on the College of California, Berkeley, wrote an article in 2014 calling for an enlargement of the EITC with out ever mentioning fraud. Round that very same time, Professor Hoynes gave a chat on the Naval Postgraduate College, the place I used to be an economics professor. In her discuss, she defended the EITC and didn’t point out fraud then both. Nevertheless, in Q&A, she readily admitted that many recipients of EITC funds obtained them fraudulently. What would you anticipate from a program that one can profit from just by submitting a false tax return and receiving a test from the U.S. Treasury? Not all the errors are fraudulent. However the Authorities Accountability Workplace estimated that the error and fraud fee between 2016 and 2020 averaged 24 p.c.

Did I do an entire evaluation? No. I can’t do this within the allotted 450 phrases.

Learn the entire factor.

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