This month marks the 39th year the Earned Income Tax Credit has been available to help American families make ends meet. In its illustrious history, the EITC has helped families out of poverty more than any other federal initiative. In 2011 alone, the benefit helped 28 million working American families pay their bills and lifted three million children in working families out of poverty.
The EITC, a brainchild of President Gerald Ford, is one of the more popular anti-poverty programs we have. And because only working families are eligible, the EITC serves as a strong work incentive, increasing employment rates among parents and reducing welfare receipt.
As productive as it is, there are still many ways in which we can strengthen and improve the EITC. At the moment, low-income childless workers receive little benefit from the tax credit. Because their earnings surpass the income limit, these hard working Americans are currently not eligible to qualify. As a result, the broken federal tax system drives them deeper into poverty.
I have introduced legislation in Congress to fix this problem. My proposal nearly triples the maximum credit for childless workers, lowers the age of eligibility for qualifying for the credit from 25 to 21. Taken together, these reforms would boost benefits for nearly 15.2 million taxpayers.
However, extending the credit is not the only way in which it can be improved. We can continue to cut down on the improper payments. The Internal Revenue Service estimates up to one-quarter of the nearly $62 billion in EITC payments in fiscal year 2012 were paid in error.
I strongly disagree with the detractors of the credit who label these improper payments as fraud. The National Taxpayer Advocate, Nina Olson, has stated that a major source of improper payments is the complex eligibility requirements. The fact that millions of dollars owed to eligible workers goes unclaimed each year is further evidence of the complexity of the EITC. We need a simpler process that beneficiaries can understand.
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Another way to fix the program is to professionalize tax preparation nationwide. I was outraged when I read a recent story of a 20-year-old Alabama women who was still charged $400, or a quarter of her total refund, after she told the commercial tax preparer not to file her return. With nearly 56 percent of individual returns being done by paid preparers, we need to address this problem growing problem. In 46 states, there stricter regulations on barbers than on tax preparers. To ensure consumer protection, more transparency and oversight is needed.
Nina Olson agrees. In her testimony before the Senate Finance Committee, she stated that the “absence of minimum competency standards for return preparers leaves these taxpayers vulnerable to inadvertent errors that could cause them to overpay their tax or to underpay their tax and face IRS collection action. It also leaves some taxpayers open to unscrupulous preparers, many of whom would be weeded out if the return preparation industry were professionalized.”
Expanding the EITC without correcting this problem would be unwise because the number of Americans being charged unreasonable fees during tax season continues to grow.
I applaud my colleague House Ways and Means Committee Chairman David Camp for putting out a major tax reform bill this year. In a display of bipartisanship, we both recognize the current tax code is indefensible, and is inefficient at promoting work. Unfortunately, there is little appetite for wholesale reform in the current Congress. But that should not prevent us from taking modest action, and I believe that enhancing the EITC is a right place to start. There is bipartisan support for the program And President Obama made it a priority in his budget.
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By making these sensible changes, we can can save the taxpayer and the Treasury Department billions of dollars each year. These savings could be reinvested into a new and improved EITC to enhance benefits and strengthen work incentives. These are not a red state or a blue state proposals. They are common sense initiative that will benefit millions of hard working Americans. The time for Congress to fix the EITC is now.
US Rep. Richard E. Neal of Massachusetts is a member of the Ways and Means Committee.t