FRAUD & ABUSE: EARNED INCOME TAX CREDIT BY UNLAWFUL IMMIGRANTS
By Frosty Wooldridge
June 29, 2009
Your U.S. Congress participates in and supports one of THE most fraudulent taxpayer abuse schemes ever concocted within the Federal Government. It’s time the administration put its foot down rather than allow millions of unlawful immigrants to step onto American soil—while soaking billions out of the U.S. Treasury.
Since the Earned Income Tax Credit (EITC) became part of the income tax code in 1975, it has quietly become the largest cash transfer program in the United States. At a cost of more than $44 billion per year, EITC spending dwarfs that of the traditional welfare program—Temporary Assistance for Needy Families (TANF)—and nd food stamps combined. More than 23 million households currently receive the credit.
Edwin Rubenstein exposed one of the most dramatic tax frauds ever on the American taxpayer: “Defrauding the American taxpayer,” Volume 19, Number 3, spring 2009, www.thesocialcontract.com, “The Earned Income Tax Credit and Illegal Immigration - A Study in Fraud, Abuse, and Liberal Activism.”
“From 1985 to 2006, EITC payments grew from $2.1 billion to $44.4 billion, or by an eye-popping 2,014 percent,” Rubenstein said. “Total federal income tax revenues rose by 217 percent over that same period. Similarly, the number of returns claiming the EITC rose from 6.4 million to 23 million—an increase of 255 percent—over a perperiod when the total number of federal income tax returns increased by 36 percent.
“More than one in four immigrant households received the EITC in 2000—nearly twice the 13.2 percent rate of houuseholds headed by Native Americans. And because immigrant households are larger via higher fertility, their EITC payments are larger than those received by native households.
“Bottom line: Immigrants accounted for about 13 percent of the U.S. population in 2008 but receive an estimated 26 percent of EITC benefits—about $12 billion.”
The most distressing aspect of EITC stems from unlawful immigrants tapping into the program on a massive scale. For example, in Greeley, Colorado this year, district attorney Buck Young raided a tax filing agency to find over 1,000 fraudulent returns by unlawful workers. While they paid little or nothing in taxes, they received hundreds of thousands in bogus returns. That same scam multiplies all over the country.
“Tax relief" goes to people who never paid a cent in taxes, and may have already defrauded the government of huge sums each year. "EITC scams are common, well-organized, and massive," Rubenstein writes in the report. EITC ranks second out of 57 government programs in fraudulent payments.
“But enthusiasm for the credit has blinded policy makers to its problems. The EITC program is dominated by fraud. Year after year about one-third of all EITC returns are based on illegal multiple returns, phony Social Security numbers, or claims of non-existent children or spouses. A disproportionate share of illegal alien households receives the benefit.
“Washington’s love affair with the EITC has allowed the minimum wage to decline in real value. Native workers have suffered as a result. So have labor unions. In effect, the EITC subsidizes employers who hire low-wage immigrants and reject equally qualified natives. No one should be surprised; therefore, that Wal-mart, the U.S. Chamber of Commerce, and most liberal activist groups are major EITC supporters.
“For most poor families, the tax credit check is the largest single sum of money they will receive during the year. Most receive it after filing income taxes. But some need the money immediately, and they can get it—for a price. A niche financial sector thrives by leending EITC recipients immediate cash in return for a hefty chunk of their credit check. The cost to the poor of these so-called Refund Anticipation Loans (RALs) has been estimated at 6 percent of the entire EITC program.
“Widespread availability of high-interest RALs made poor borrowers easy marks for sub-prime mortgage hucksters. The resulting defaults have pushed the entire economy to the brink of collapse. While the sub-prime story is well known, few are aware of the EITC’s role in introducing the poor to the culture of debt.”
Has the EITC lived up to its hype? In answering this, consider the following:
The EITC originated as an anti-poverty program; the number of the returns claiming EITC benefits rose 25 times faster than the poverty population over the past two decades.
EITC benefits rise sharply with parenthood; poverty rates for families with children have risen faster than those for childless families since the credit was created.
The EITC is the most illegal-immigrant friendly of poverty programs; illegal immigrants constitute a far larger share of the poverty population now.
Implication: The EITC is a textbook case of unintended consequences. Our economic meltdown may be among them.
“The current federal EITC provides large benefits to families with children, mostly single mothers, and minimal benefits to singles, even though declining wages have affected all low-income workers. These disparities create disincentives to work in the formal labor market and for poor men and women to marry, cohabitate, and co-parent,” said Rubenstein. “President Obama’s stimulus package increased EITC payments by $600 for poor families with three or more children, while leaving the program’s perverse disincentives intact. This will merely exacerbate the credit’s bias against work and marriage.”
"The Earned Income Tax Credit (EITC) is the largest anti-poverty program in the United States - and the most illegal-immigrant friendly," explains Edwin Rubenstein, author of the new report. "In 2007, more than 23 million households received more than $47 billion in the EITC payments."
Finally, “The EITC is the most accessible of the major entitlement programs and used by more people than food stamps and welfare (TANF)* combined. A related tax credit, the Additional Child Tax Credit (ACTC) is available to illegal immigrants even if they do not have a valid Social Security number.”
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Ed Rubenstein, Financial analyst and economist, who is President of ESR Research; formerly he was with the W. R. Grace Company, the Manhattan Institute and the Hudson Institute.
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