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  • Print publication year: 2009
  • Online publication date: August 2010

The Working Poor Are Paying for Government Benefits: Fixing the Hole in the Anti-Poverty Purse

Summary

There is universal agreement that the federal income tax laws are too complicated. The complexity of these laws is especially frustrating for the millions of low-income working families who qualified for more than $30 billion of federal earned income tax credit (EITC) in 2002. The EITC is one of the nation's largest and most effective anti-poverty, income transfer programs. Low-income families will receive more federal expenditures from the EITC than from the Food Stamp Program, Supplemental Security Income, or Temporary Assistance to Needy Families. Without the EITC, an average of 4,300,000 working American households, including 2,200,000 children, would live in poverty.

Unfortunately, the complexity of the EITC rules and compliance requirements is notably daunting. Congress has created an extensive anti-poverty program, which is almost impossible for the targeted families to obtain without professional assistance because it is too complicated to comprehend and claim. Academics, practitioners, members of Congress and National Taxpayer Advocates have prepared detailed and broad-ranging recommendations for simplification of the EITC. Despite the numerous and thoughtful recommendations, the current evidence suggests that Congress will not enact comprehensive EITC tax simplification in the near term. Indeed, over the last twenty-plus years Congress has added more complexity to the already cumbersome EITC.

Despite the inconceivable complexity in the EITC, in 2000, 19.3 million taxpayers claimed $31.2 billion in EITC benefits. How did these families get this critical relief? The American marketplace, rather than Congress, has provided a response to the working poor's desperate demand for assistance. Sixty-eight percent of tax filers who received the EITC hired paid tax practitioners to prepare their income tax returns.