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Auditing the Working Poor is Bad for Texas Children

Poverty hurts kids and auditing every American claiming the tax credit is bad news. 

Columns appearing on the service and this webpage represent the views of the authors, not of The University of Texas at Austin.

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Kyle Field, home of the Aggies, seats 102,733 football fans. The Longhorns’ stadium: 100,119. Now picture a place as big as both stadiums combined.

If we built a place eight times bigger than that, it still wouldn’t hold all the Texas children growing up poor.

Poverty hurts kids, which means Congress’ recent proposal to audit every American claiming the Earned Income Tax Credit (EITC) is bad news for 1.7 million little Texans.

As a pediatrician, I see poverty making its mark on patients’ bodies and report cards regularly. Children in low-income families are sick more often. Their schools are usually worse. And they’ll likely be poor as adults, realizing a heartbreaking cycle.

The good news is tax credits help.

If you work and make less than about $54,000 a year, you’re probably eligible for the EITC, a tax refund giving Americans a boost for working, and one of the rare government programs with bipartisan support for its pro-work, anti-poverty impact.

The EITC, along with the Child Tax Credit, lifts more children from poverty than any other federal policy. Hundreds of nonpartisan studies show its link to less infant death, better child health, reduced maternal stress, improved K-12 school performance, higher graduation rates, [pause for a breath], more employment of single moms, increased adulthood income, longer life expectancy, and so on.

I’ve seen this up close in my patients. In fact, the EITC’s benefits are so important and well-understood that families file taxes for free in my waiting room to ensure access to the program, which is 20 percent unclaimed yearly. Barriers such as confusing forms or predatory tax preparers charging big fees make it hard on families needing access to the EITC. And if Congress gets its way, it’ll get harder.

To be fair, some EITC money is wrongly disbursed because of fraud or honest mistakes. So Congress passed a law two years ago requiring the IRS match EITC claimants’ W-2s and 1099s with reported income. Did the benefit outweigh the cost? The jury is out. But one thing is certain: Delays in refunds hurt honest taxpayers counting on the money sooner.

Now Congress is proposing even more thorough audits, and the effect will be dangerous to kids. Further delaying EITC refunds not only delays families’ payments for mortgage, rent, debt and utilities, but also probably decreases EITC uptake overall, thereby denying a proven medicine to (never fraudulent) children in need.

And it will be expensive. Consider this: More than 28 million Americans claim the EITC yearly, including about 7 million small-business owners. Just imagine the tedious, months-long process auditing 28 million new taxpayers, something sure to cost us millions.

What’s more: Auditing the poor means diverting resources from audits with more returns (think: fraudulent corporations). Politics aside, this decreases revenue. And the budget-limited IRS already allots too many resources to investigating EITC claimants. Although EITC audits are 39 percent of all tax audits, they only yield 7 percent of recouped tax dollars.

So what should Congress do instead?

First, Congress should go after unlicensed, for-profit tax preparers. Error rates approach 60 percent for unlicensed tax preparers, whose predatory marketing peppers low-income neighborhoods. And worse: They take $1.75 billion from poor families yearly by charging big tax prep fees and skimming money off the EITC.

Second, we must develop a common application for entitlements. Tax returns require almost the same information as applications for help with food, health insurance, or housing. A common application would make accessing resources easier for families and simplify fraud investigations.

Third, Congress should increase funding for Volunteer Income Tax Assistance (VITA). VITA organizations — with 100 percent licensed tax preparers — file taxes for low-income Americans with only 6 percent error (i.e. minimal fraud). And they do it for free. But they’re underfunded big time, which means VITA prepares only 1 percent of total EITC returns, both in Texas and nationally.

If Congress wants to simplify taxes or decrease the deficit, they’ll vote thumbs down on this complicated, expensive and risky budget resolution. A whole mega-stadium of Texan children depends on it.

Michael Hole is an assistant professor of pediatrics in the Dell Medical School and LBJ School of Public Affairs at The University of Texas at Austin.

A version of this op-ed appeared in the Austin American Statesman.

To view more op-eds from Texas Perspectives, click here.

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Texas Perspectives is a wire-style service produced by The University of Texas at Austin that is intended to provide media outlets with meaningful and thoughtful opinion columns (op-eds) on a variety of topics and current events. Authors are faculty members and staffers at UT Austin who work with University Communications to craft columns that adhere to journalistic best practices and Associated Press style guidelines. The University of Texas at Austin offers these opinion articles for publication at no charge. Columns appearing on the service and this webpage represent the views of the authors, not of The University of Texas at Austin.

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