One of the most ridiculous things that we have done with the tax code is build welfare into the system. The Internal Revenue Service and the Tax Code are intended to generate revenue for the government.
We already know that nearly 50% of Americans pay absolutely no Federal Income Tax. This statistic alone should make Americans gag. There is simply no way this country can continue to operate with half of Americans not investing in the nation.
But it gets worse.
There are a large number of Americans who get a tax “refund” totaling more than they actually paid!
Most of the time these are through the use of credits.
And the Earned Income credit is nothing more than the government’s way of “spreading the wealth”. The government even touts EIC as a major tool against poverty!
Now I have no problem with tax credits under the current tax code. I do have a problem with the entire tax code and believe it should be scrapped for a flat or fair tax where all Americans have some skin in the game. But that is another matter.
And Barack Obama often speaks of “closing tax loopholes” by which he means tax credits and tax deductions. Which is a perversion of the true meaning of ‘loophole’ but we will let that go for now.
The mortgage deduction encourages people to buy homes and if we are going to have government tax tinkering to affect behavior, this is not a bad deduction to have. You are allowed to write off some of the interest you pay on your mortgage loan. Since this interest is taxed as some form of income on your lenders tax return, at least someone is paying taxes on this “revenue”.
And deductions for charity encourage giving, which theoretically saves the government from having to pay for services that churches and other charities can do far more efficiently than the federal government.
And if we are going to have a tax code that the government uses to encourage behavior, owning a home and giving to charity is hardly an ignoble endeavor.
But what about the Earned Income Tax Credit? Exactly what behavior does that serve to encourage? To maximize the benefit you must work very little – or not at all – and have kids. The more the merrier.
And it also helps if you happen to be a “single” parent. You can file as Head of Household and claim the Earned Income Credit. Marriage would significantly reduce – or eliminate entirely – the credit as both incomes must be considered.
So, the best we can say for the Earned Income Credit is that is discourages work and marriage and at the same time encourages having more children.
And the worst aspect of the Earned Income Credit is that you can get a “refund” totaling more than you paid in taxes. Thousands more.
We have welfare programs that are designed to help impoverished persons survive. That is why these programs exist.
The Tax Code is supposed to be designed to provide revenue to run the government – not welfare.
One thing that will go a long way in making the statistic that nearly half of Americans pay no income tax less egregious is if we didn’t know that not only did some pay no tax, but actually got money back as a refund. Which means that the 50% statistic is actually worse than it sounds!
This is obscene.
There is a simple and quick fix.
An few additional lines added to the 1040 form that reads “Tax Refunds may not be greater than taxes actually paid. Enter either the actual taxes paid or refund amount, whichever is lower.”
If someone is in an unfortunate financial situation, as Americans, most would not object to having them not pay into the federal tax pool. But it is absolutely unfair and un-American for anyone – business or individual – to get back more than they pay.
End the Earned Income Tax Credit refunds.