One of the nations most "counted on" entitlement programs that gets little attention, is the "Earned Income Tax Credit" or EITC/EIC. Many Americans are eligible for this credit despite paying NO federal income taxes, and most Americans are unaware that 47% of people do not pay income taxes, and believe this is a positive "program."
Enacted modestly in 1975, it has been woefully expanded to the point of absolute ballooning costs to the taxpayers. The main reason earned income credit is important to note, is because it "pays cash money" to those who never pay a dime in income taxes, in the form of a "tax refund". The word "refund" is very misleading, as that is like walking into a retail establishment and asking for a "refund" for something that you have never bought. It differs from other credits, such as the child tax credit, as it is an incentive to keep earnings under a cap, to get free money. That cap is quite high.
Even those who never pay a dime in and therefore qualify for other government handouts, also receive protection of the military, the police and fire departments, utilize public schools, school lunch programs, libraries, and enjoy traveling on roads maintained by those that pay income taxes. They still visit federally funded national parks and buildings. They qualify as non-tax payers for federally funded Pell grants to attend colleges and technical schools, that the rest of us have to pay for.
Possibly the most frustrating out of any EIC redistributive truths, is that these are the folks that can also vote to increase taxes, subsidies, grants, medical care, food stamp allotments, etc., while never being hit by the reality of what these do to the pocketbooks of those who make even $1 over the income limit. By comparison, even counting inflation, these folks are making more money than most families brought home in prior generations-without EIC.
A full 47% of legal Americans do not pay income tax! This does not account for illegal aliens sucking the life force out of tax payer dollars. These individuals are the folks who qualify for EIC, and voting to increase their benefits that you and I pay for. In order to provide entitlements to some, I, as a taxpayer must pay a portion of the interest in order to borrow the money for these entitlements.
While people who support EIC claim that it "is an incentive for people to stay working rather than going on welfare," their assertions are wrong. First, the income requirements for welfare are capped much lower than EIC, meaning you can work and earn a fairly decent income and still receive EIC. Second, the EIC is still welfare by nature as it is a refundable tax credit. Meaning, if you didn't pay any taxes in, you still get a redistributed wealth payment to you. This is welfare in it's most basic form, and millions in the country receive it. Many more have no idea how it functions, and believe it's "only fair...how else will a family of 4 make it on $40,000 per year?" That is socialism my indoctrinated friends.
You can still receive this credit if you do not have children, so it is not a "pay you to have children" entitlement program, though having dependents does reflect the amount taken into account to be redistributed to you.
In the 2010 tax year, the EIC table looked like this, and the payouts are higher this tax year:
- $43,352 and you are filing single or head of household ($48,363 for married filing joint) and have 3 or more qualifying dependent
- $40,363 and you are filing single or head of household ($45,373 for married filing joint) and have 2 or more qualifying dependent
- $35,535 and you are filing single or head of household ($40,545 for married filing joint) and have one qualifying dependent
- $13,460 and you are filing single or head of household ($18,470 for married filing joint) and have no qualifying dependent
As you can see, a family of 4 can earn $40, 363 and still receive EIC. This means, they would keep nearly all of their income to begin with (a good thing for all Americans, but not if others are penalized) and then still receive the credit. This is nonsense, as they are then privy to two exceptions that higher wage earners are penalized for: making money higher than $40,363, and for paying taxes in on that income.
Using the 2010 EIC table numbers again we can see the benefit for people who know how to keep their income in that sweet spot: Perhaps they work part time, enjoying copious amounts of free time. Perhaps they utilize Section 8 subsidized housing, food stamps, free or reduced cost medical care for them and their family members, free cell phones, WIC, and a host of other helps that those who are masters at playing the system have figured out. Simply working the right amount of hours to keep the number $1 less than the upper level, can net you thousands of dollars at tax time that you have not earned.
For single or head of household filers or qualifying widower, you can receive a MAXIMUM CREDIT of:
- $457 IF your AGI is between $6,000 and $7,500 AND you have no qualifying dependent
- $3,050 IF your AGI is between $8,950 and $16,450 AND you have one qualifying dependent
- $5,036 IF your AGI is between $12,550 and $16,450 AND you have two qualifying dependent
- $5,666 IF your AGI is between $12,550 and $16,450 AND you have three or more qualifying dependent
For married filing joint, you can receive a MAXIMUM CREDIT of:
- $457 IF your AGI is between $6,000 and $12,500 AND you have no qualifying dependent
- $3,050 IF your AGI is between $8,950 and $21,250 AND you have one qualifying dependent
- $5,036 IF your AGI is between $12,550 and $21,500 AND you have two qualifying dependent
- $5,666 IF your AGI is between $12,550 and $21,500 AND you have three or more qualifying dependent
(My CPA husband just informed me this tax year has a MAX EIC number of $5,891, up more than $200)
This refund is also tax free. This means the recipients do not pay federal or state income tax on it, no social security, no medicare. Nothing. The additional twisting of the knife for the tax payers among us who must pay a high percentage of every dollar earned in the above listed taxes.
It is not unusual for people not paying into the tax system, claiming other benefits and working lower paying jobs, to receive tax "refunds" (though they are not being refunded a thing, only given a welfare check) of $7,000-$10,000 of taxpayer money.
Not surprisingly, the welfare program of EIC is also wrought with fraud. This costs taxpayers millions extra in fraud investigations and bureaucracy.
There is also that pesky proof that this welfare is not used to bolus a sluggish consumer market, but rather mostly eaten up by big ticket purchases of items produced abroad, and to fund deferred debt. People simply wait to pay their debt until "they get their income tax back"-what an oxymoron.
It is actually incredibly difficult to find a cost of the welfare program to the US tax payer. This is because the program has so many layers, and few economists and strategists actually want to pin the number down. The entitlement makes it's way through so many facets, and while liberals like to claim that it is offset by spending, the fact is, it is another debt we cannot pay for. Wikipedia defines both the trick over assessing the cost, and where that assessment leaves us this way:
It is difficult to measure the cost of the EITC to the U.S. federal government. At the most basic level, federal revenues are decreased by the lower, and often negative, tax burden on the working poor for which the EITC is responsible. In this basic sense, the cost of the EITC to the Federal Government was more than $36 billion in 2004.
It is also estimated that between 22% and 30% of taxpayers claiming the EITC on their tax returns do not actually qualify for it. This led to an additional cost to the government (in 2010) of between $8 and $10 billion.
At the same time, however, this cost may be at least partially offset by two factors:
- any new taxes (such as payroll taxes paid by employers) generated by new workers drawn by the EITC into the labor force;
- taxes generated on additional spending done by families receiving earned income tax credit.
Additionally, some economists have noted that the EITC might cause a reductions in entitlement spending that result from individuals being lifted out of poverty. However, because the pre-tax income determines eligibility for most state and federal benefits, the EITC rarely changes a taxpayer's eligibility for state or federal aid. (bolding mine)
So yes, it costs us billions of dollars, much of it unknown, the only "benefits" (the two bullet points) are vague, non-tangible, and speculative in nature, and the program, though designed to replace some/all of federal aid, rarely does.
With all that said, I cannot blame a single working American today for filling out the schedule EIC to claim their EIC should they qualify. Why wouldn't they? Why look a gift horse in the mouth? If our government has created a "free" program that most Americans believe is a positive, and that they are entitled to, why would anyone say "no thank you"?
That's why it's time the government begins to exercise a bit of responsibility and says "no thank you" to ripping off the tax payers by redistributing their hard earned dollars so that the smaller wage earners can live the same lifestyle as those paying income taxes! However, we know under this Socialist regime, we'd have better luck seeing pigs fly than seeing any fiscal truth in responsibility.
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