Does the EITC Subsidize Tax Cheats?
From the abstract of an article summarizing interviews with 115 recipients of the Earned Income Tax Credit, the largest anti-poverty program in the United States:
Rather than adjust work hours, defer marriage, or have additional children, respondents exhibit a different type of behavioral response to the incentive structure of the EITC: They alter their tax filing status in order to maximize their refunds. They routinely claim zero exemptions and deductions on their W-4s, file their tax returns as head of household rather than as married, and divide children among the tax returns of multiple caregivers. Although some of these behaviors qualify as tax noncompliance, they emerge because the intricacies of the tax code conflict with the complexity and fluidity of finances and family life in low-income households.
In ordinary, non-academic English, “tax noncompliance” by making false statements on federal returns would usually be called cheating. How this “tax noncompliance” is understandable because family life in low-income households is complex with “fluidity of finances” we leave to readers’ comments below.
This is unfortunately not too surprising. Incentives matter, and people will respond by doing such things whenever the tax code puts them in a position where gaming the system yields a strong benefit. But it is not only low-income individuals who will respond this way, but people of all different income levels. In fact, higher income earners have even stronger incentives to avoid, legally and illegally, paying taxes.
Wouldn’t higher income earners have a lot more to lose if caught?
High income earners also have a lot to gain if not caught. I think the incentive of payoff outweighs punishment for many of them.
Not once has my tax accountant told me the Internal Revenue Service allows “tax noncompliance” in situations when I have “fluidity of finances”.
I guess we ought to be happy that this kind of tax cheating doesn’t lead to fewer work hours, deferred marriage, or having additional children…as welfare does.
Why are we examining EITC when off-shore banking still occurs?
Two words:
Class Warfare
What’s wrong with off-shore banking? I wish everybody would hide income. Then, if voters would kick politicians out of office when they try to increase taxes, that would be good too. I believe there is nothing wrong with legally avoiding taxes; and illegally avoiding taxes if you can get away with it. After all, I always though my income was really MY money!
There is only one bad word: Taxes.
All earned income is ours to keep. If you want infrastructure where you live that costs money and everyone has a responsibility to contribute.
You are simply a taker. You do not want to contribute your fair share of the cost of infrastructure.
Why is that?
This has nothing to do with class warfare.
As I’m sure you know, offshore banking is perfectly legal and proper as long as the proper forms are filled out and required taxes are paid.
Falsely claiming exemptions is not legal, at any income.
USBS and Mitt Romney would have something to say about your assertion.
And yes it is class warfare.
EITC helps poor people. Tax avoidance and shelters help rich folks.
Who is this article attacking?