Senator Jim Hendren (a governor wannabe who runs as a Republican) is back again with his bill to redistribute wealth among Arkansans. The system is called the Earned Income Tax Credit (EITC). It is modeled on a federal provision that redistributes wealth and is known to be such a bad system the federal government has lost BILLIONS in mistaken or fraudulent claims.
Although the word “earned” is used in the name, there is nothing “earned” about it. The income tax credit doesn’t give back a portion of the income taxes a person has paid, instead it gives the person FREE MONEY. That means it is just another government entitlement, but this one is disguised by going through the income tax law instead of the welfare laws.
Even if you want to create another government entitlement, this is NOT the way to do it because of EITC’s high rate of fraud and error.
The IRS estimates that between 21 percent to 26 percent of EITC claims are paid in error. That is HUGE percentage. The IRS says some of this is due to unintentional errors because the law is complex, but also because of FRAUD.[i]
According to the IRS some people inflate their income to maximize how much they will make off of taxpayers through the EITC and other refundable credits.[ii] In other words a fraudster who doesn’t work at all can scam the system by claiming he was self-employed and made just enough income from odd jobs that (SURPRISE!) he doesn’t have to pay any income tax but qualifies to get free money from you through the EITC.
Another form of fraud the IRS sees is people under reporting income to pay less tax. EITC makes this kind of fraud even worse. For example, a self-employed person may hide income from the IRS by not reporting cash received or checks cashed at the payor’s bank. EITC compounds this fraud because if the fraudster reports just enough income to get a EITC payment, he not only doesn’t pay taxes on his income, he gets free money from you the taxpayer as an EITC payment.
The stench from this bill doesn’t stop there. Hendren’s bill also RAISES TAXES on other people to fund plan.
The plan is so bad Hendren throws in a small reduction income tax rates to try to distract you from his EITC and his TAX INCREASE.
Senator Hendren tried to pass a similar bill in 2019 which means he knows it is a redistribution of wealth bill and knows EITC is plagued by massive fraud and errors. He wants to do it anyway.
Hendren is so committed to this disastrous plan, it is the very first bill he filed for the 2021 legislative session. The bill number is SB2.
Tell your Senator and Representative what you think about Hendren’s plan to redistribute wealth in Arkansas through the fraud plagued EITC system.
[i] https://www.eitc.irs.gov/tax-preparer-toolkit/frequently-asked-questions/fraud/fraud
[ii] https://www.journalofaccountancy.com/news/2019/mar/2019-irs-dirty-dozen-tax-scams-201920830.html and https://www.journalofaccountancy.com/news/2019/mar/2019-irs-dirty-dozen-tax-scams-201920830.html
