- - Wednesday, April 8, 2015

Most workers would be fired if they made a $1 million mistake. But our government admits to wasting at least $100 billion a year, yet nobody gets canned.

One example is that a program with consistent 24 percent levels of fraud and waste — the Earned Income Tax Credit (EITC) — remains popular among Washington politicians.

Government inefficiency is legendary. You would be in prison if you handled your taxes the way government handles our tax dollars.

The Obama White House brags that they’ve “improved” the error rate so that it totals “only” 3.5 percent of overall federal spending. But the error rate often tops 10 percent in the biggest-spending programs, which mostly are public assistance programs which increase dependency on government.

Inexcusably, there is no major push within Congress or the White House to fix this. Ronald Reagan successfully ran for president by decrying the “welfare cheats.” Now the problem is far more massive, yet gets ignored.

The worst of the error-prone federal programs make over $100 billion in wrongful payments each year, as reported by the Office of Management and Budget. (Obamacare’s massive waste is not included because it was just kicking off during the latest year reported, which is for 2013.)


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Among the most wasteful: the National School Lunch Program ($11.3 billion in payments; 15.7 percent error rate); Medicare Fee-for-Service ($357.4 billion in payments; 10.1 percent error rate); Children’s Health Insurance Program ($9.1 billion; 7.1 percent error rate); Medicaid ($246.9 billion in payments; 5.8 percent error rate); and the Medicare Prescription Drug Benefit ($57.1 billion; 3.7 percent error rate).

The champion of all fraud-ridden programs is EITC. It also is the most difficult to correct because many conservatives have been snookered into giving EITC a free pass. The program pays low-income households with children up to $6,143 a year in cash simply for filing an annual return with the IRS. No social worker interviews, no eligibility checkups. Simply file the form and get a check. Some 28 million people received EITC in 2014, costing taxpayers $66 billion that year. The IRS estimates 27 percent of those payments — $17.7 billion — were unjustified.

Claiming fictitious children is one major source of EITC fraud. For example, an inspector general’s report found that 2,137 fraudulent returns were filed from a single address in Lansing, Michigan, each claiming their children lived at that one address. That resulted in $3.3 million in payments before the fraud was detected.

The complexity of EITC is another factor in its enormous error rate.

Since its 1975 creation, EITC has led a charmed existence and has grown dramatically. Today’s conservatives often laud the program solely because recipients must report some work income to qualify for the federal subsidy. But in addition to fictitious children, claimants boldly report phony income in order to qualify, keeping that amount at a low level to avoid tax liability.

The House Republican majority attempted reform the income tax credit in 2000, but they backed off when leading presidential candidate George W. Bush condemned the plan for supposedly “balancing the budget on the backs of the poor.” So now 28 million EITC recipients are supported on the backs of taxpayers and the massive fraud continues.

The tax credit indeed provides incentive to work, but also a disincentive to work harder and to become self-sufficient. Every extra dollar earned by a household reduces its EITC payment. If a single parent gets married, the new spouse’s income can wipe out EITC benefits, creating a marriage tax.

The Tax Policy Center, which leans left, calculates that that phase-out rate often means that every extra dollar earned means 21 cents lost from EITC benefits. This is why those claiming EITC checks tend to stay on the program rather than being weaned off. Welfare reform bypassed the EITC; no time limit was created for how long anyone can stay on the program.

Each of the other waste-filled programs have similar stories that show the need for reform, although none as dramatic as income tax credit.

Why aren’t these problems fixed? One reason is to officials and politicians want to avoid the negative publicity of “taking things away” from people. Too many officials care most about buying votes by giving things away, instead of being good stewards of our tax dollars.

Former Congressman Ernest Istook is president of Americans for Less Regulation. Get his free email newsletter by signing up at eepurl.com/JPojD and follow his podcast at Podcast.Washingtontimes.com/istook/IstookNewsletter.jpg.

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