Good morning. I’d like to welcome everyone to this morning’s hearing on improper payments in the administration of refundable tax credits.
In the course of less than a decade, improper payments arising from refundable tax credits have cost taxpayers an estimated $106 billion according to government reports. To put this amount of money in perspective, it’s more than the fiscal year budgets of the Departments of Homeland Security, Justice, Treasury, and Transportation – combined.
Refundable tax credits not only reduce an individual’s tax liability, they can also result in payments from the government when the credits exceed one’s tax liability; meaning that millions of Americans have been able to eliminate any income tax liability and even get a check back from the government via refundable credits. Not surprisingly, this makes them an attractive target for those willing to claim more than they are legally due or otherwise cheat the system. The problem is so widespread that the Inspector General has even found IRS employees abusing refundable tax credits.
Some improper payments can also result from honest errors that are the inevitable result of our complex and convoluted tax code. But whether caused by innocent mistakes or outright fraud, improper payments cost the taxpayer dearly.
For instance, the Earned Income Tax Credit consistently ranks among the most vulnerable federal programs – with improper payments totaling nearly $17 billion in 2010 according to GAO. This is roughly a quarter of the program’s total outlays. And this is not a new problem with this credit, as IRS has issued as much as $83 billion in improper payments since 2003.
Another example is the Additional Child Tax Credit, for which improper payments have reportedly risen from under $100 million in 2000 to well over $4 billion in 2010. The list goes on.
In the case of the First Time Homebuyer Credit, over half a billion dollars reportedly has gone to individuals who did not qualify for the credit. The Inspector General recently found thousands of tax filers who claimed the First Time Homebuyer Credit by listing a P.O. Box as their qualifying home. Thousands of prisoners successfully claimed the First Time Homebuyer Credit, as did hundreds of children. Hundreds more successfully claimed “undecided” or “to be determined” as their address, and still received the credit.
Despite these numbers and examples, not enough is being done to stem the tide of improper payments. Reports suggest that IRS has failed to develop an effective way to measure progress at reducing these improper payments. The agency has also failed to implement years of Inspector General recommendations that, if accepted, could save taxpayers billions of dollars.
Given these staggering numbers, this morning’s hearing will explore the size and scope of these improper payments and whether the IRS is doing what is necessary to ensure the integrity of refundable tax credit programs. I am hopeful that the testimony provided by today’s panel will also help the Committee identify additional actions needed to protect taxpayer dollars.
I am now pleased to yield to our Ranking Member, Mr. Lewis.