Editor’s note: The following column was submitted by Nerve Citizen Reporter Alberta Wasden, an accountant and community activist who lives in Wagener.
When President Barack Obama’s tax-filing supporters file their taxes this year, they are in for a big surprise.This time not even the biased media can put a positive spin on the fact nearly seven million low-income and poverty-level filers will go home with a minimum of $13 billion less.
This number is going to grow by the end of the 2012 filing season to over double that amount thanks to the new tax-filing requirements now in place. The new requirements have a chance of decreasing refunds to the almost 26 million low-income and poverty-level filers, resulting in a decrease of more than $40 billion in refunds and cash assistance.
This is not the alternative minimum tax that worried everyone. It is not even the increase in taxes on the rich. This is simply two new requirements added to pages of requirements for the Earned Income Tax Credit and Child Tax Credit – just two small requirements clarifying the qualifications concerning dependent children claimed for those credits.
One requirement is proof of kinship. The other is proof of residency. Added to the stretched-out filing date of Jan. 30, these three things could save American taxpayers almost $26 billion. Oh yes, I can see you wondering how something this simple can accomplish what Congress hasn’t been able to do, and that is cut entitlement spending. It only sounds simple, but in reality, it is not.
Is the late filing date of Jan. 30 caused by the IRS’s inability to accommodate the late cliff-hanging tax changes? Or is it a quiet way of giving the IRS time to match people filing “misreported income,” as it is called by the IRS, with valid W2s and 1099s due by Jan 31? Last year for the 2011 filed taxes, this amounted to almost $13 billion paid out in error. By moving out the filing date, this amount can drop to almost nothing thanks to the matching done by computers throughout the IRS and federal government.
The kinship requirement and the residency requirement are not so simple. The Earned Income Tax Credit started in 1975, and refunds were about $5 billion paid out to low income-poverty level families. Now it is almost $60 billion and is the largest cash- or near-largest cash-assistance program targeted at low-income and poverty-level families in the United States. Only the Supplemental Nutritional Assistance Program (SNAP) is larger. This means an estimated 26 million households received a total of more than $55 billion in reduced taxes and refunds in 2010.
Congress was only able to pass a $38.5 billion spending cut in the 2011-2012 budget. However, President Obama, by signing off on those two small requirements, can potentially save almost double that spending cut, leaving Congress to face the angry filers.
The problem with proving kinship is just that – proving kinship. Over the last decade, a decrease in a father’s name on a birth certificate has eliminated one-half of a child’s blood relatives. How can Grandma claim she is raising her son’s children when there is no proof of kinship? As far as Daddy filing for his child, he cannot prove paternity without a birth certificate or a DNA test. No uncles, no aunts, no cousins – one-half of the child’s family does not exist; and until this filing year, it was not needed. A tax preparer may have asked to see proof in previous years, but often tax preparers did not, simply taking the word of the person filing. This year tax preparers are facing fines if they do not have and keep as part of their records actual proof of kinship. Now with fines starting at $500 and possible harsher penalties, tax preparers will be asking Grandma and Daddy for the birth certificate or some legal paper stating kinship.
Proof – legal proof – and having the father’s name added to the birth certificate only opens another can of cash-assisted worms: the cans of SNAP, Medicaid, housing assistance, and on and on, with cans of cash and cash-assisted worms.
A large number of families living in poverty or low incomes are single-parent homes. Most states paying assistance out of those cans of worms will try to find the absent parent and recoup the money those states give to the family and children of the delinquent parent. Until now, with no name on the birth certificate, neither the state nor the federal government could collect anything. By adding the father’s name to the birth certificate to file a child or children for the Earned Income Tax Credit, it will be the proof needed for states to collect on the additional millions of dollars paid out to families.
How hard is it to prove a child lives with the person claiming the child as a dependent for the Earned Income Tax Credit and Child Tax Credit? Until now, it was as simple as a statement from a parent. It was as simple as rushing out to a school to change an address to back up the tax filer’s claim of proof the child lived in the house. Again, proof – legal proof of residency – and not a letter from the post office, not Mama saying the children live with their uncle, aunt, grandfather, but real legal proof. Of course, this brings us back to the can of cash and cash-assisted worms.
The Supplemental Nutritional Assistance Program (SNAP), or food stamps for those not familiar with the federal government’s acronyms, for a family of four averages about $500 to $600 a month or more in some states. Families getting food stamps have income requirements, and that level of income does not get the maximum Earned Income Tax Credit and Child Tax Credit. What has happened in previous years is a parent or guardian will sell the children’s information. The child’s Social Security number and date of birth are sold to someone to claim the children and split the refund money with the non-filing parent. Except now, proof means SNAP may find out that the children do not live where the food stamps are going to feed them, or someone is supporting the entire family. Either way, it is going to be interesting explaining exactly where the children are – especially if they do not live where SNAP is sending food stamps. Someone is engaging in fraud either with SNAP or the IRS, and with proof, it will be easier to track down families receiving assistance for children living in other households.
Medicaid is another can of cash worms. Medicaid encourages whistleblowers to turn in people making false claims, and now the whistleblower is the IRS. Medicaid advertises it will hunt down and prosecute someone fraudulently cheating the system. Now Medicaid has proof – legal proof – that some parents have unclaimed support, and that is enough to stop Medicaid benefits and start an investigation. Again, this is fraud either to Medicaid or to the IRS.
Before now, it was easier to blame the complexity of the federal tax code on misfiling, misstatements, misreporting, tax preparer errors, and even errors by the IRS. These two new requirements are clear. The tax filer claiming the Earned Income Tax Credit must be kin to the child or children, or they are not. If the tax filer is kin, then there is proof of kinship. If the tax filer is living with the child or children, prove it. Even a month-old child has a medical record with an address.
President Obama has with no fanfare, no chest thumping, saved the American taxpayer what may be the largest tax cut in U.S. history. Certainly, it is going to surpass the tax cut passed by Congress. It also has the propensity to reduce fraud in several other federal and state assistance programs.
President Obama’s plan to save billions of dollars by approving those two small requirements of legal proof of kinship and residency was incredibility well-orchestrated, or he possibly was clueless. Did Democrats realize Obama had already put a plan into motion that would reduce the nearly $60 billion payout to their base? It is doubtful they did, or if they did, is it possible they agreed with Obama that it was the only way to cut the largest-cash or near-largest cash-assistance program in the United States?
Where were the Republicans? Surely if Republicans knew about this tax-saving move they would be trying to take credit for it. There is one more logical possibility, and that is neither the Republicans nor Democrats in the U.S. Senate or House knew anything about Obama’s strategy. Was this even his strategy, and did he understand what would happen?
Surprise! President Obama might have fooled everyone all along.