Does Tax Refund Fraud Benefit Democrats?

A disturbing look at who appears to be the biggest profiteer.

tax-fraudIn the lead up to Tax Day, the mainstream media devoted some deserved attention to the huge tax refund fraud problem we have in this country. But as usual, they failed to get specific about the root causes of the issue. That the Democrats in government gain from keeping the tax credit system as dysfunctional as possible is probably a good guess why.

Last week the AP reported on the “$4 billion” lost every year due to “fraudulent tax refunds.” The story coincided with a recent video produced by the Department of Justice wherein Attorney General Holder reminds us to not worry, they’re on the case. The AP report isn’t specific about what types of “fraudulent tax refunds” are in issue, but $4 billion is definitely a low number compared to the total problem.

The Earned Income Tax Credit alone costs taxpayers a whopping $12-14 billion in fraudulent payments every year. This is especially troubling considering the program pays out in total $56 billion per year, meaning its average “improper payments rate” is around 25 per cent. Medicaid fraud, which is very well publicized and has its own federal task force, hovers at around 8-10 per cent a year.

More troubling still is that the EITC is the government’s fastest growing entitlement program. Since its start in 1980 the program’s grown 44-fold. Compare this to the 8.5x increase in total entitlement spending in the same period.

The credit, which pays out up to $5,800 to a family of three, requires a valid Social Security number in order to be claimed. This restriction is easily nullified by the use of fake or stolen Social Security numbers and felony identity theft. As a result, millions of Americans, especially children, have their Social Security numbers compromised every year. Who’s doing much of the thieving? Analysts say illegal aliens. The Center for Immigration Studies’ Steve Camarota found that 40 percent of illegals use the program (over triple the use among natives) while other analysts have found rampant EITC abuse among illegals. So much for the left’s use of the term “undocumented” immigrants. Many “undocumented” immigrants are already documented; just illegally so.   

DHS Secretary under George W. Bush, Michael Chertoff, called the rampant identity theft surrounding the EITC, “a violation of the privacy rights and the economic rights of innocent Americans.” Since he made that statement, the EITC fraud rate has ballooned by a further 22 per cent. It’s no coincidence that this increase correlates with the jump in the illegal alien population over the last few years.

As one NBC report from 2005 noted, a compromised SSN can mess up one’s work history, Social Security benefits records and one's credit report. Documenting the experiences of one female victim, NBC found that she was “haunted by bills and creditors [and] received threatening letters from the IRS asking her to pay taxes on money earned by her imposters.” She was told to “re-pay unemployment benefits she had received, after the government discovered she was "working" while "drawing benefits.”

Despite such a horrific scenario and despite legislative efforts such as the Improper Payments Elimination Act, which requires all agencies to keep their entitlement programs’ improper payments rate to below 10%, no significant improvement has been made in reducing EITC fraud. Just like our lack of border security, e-Verify and an entry-exit biometric system at each of our ports, all of which are on the law books but are simply not enforced, beefing up the policing of EITC fraud and SSN theft would harm one of Obama’s key future constituencies: illegal aliens. Polls of illegals and Hispanics in general consistently show a deep preference for Democratic policies and big government. Along with our unenforced immigration laws, a failed EITC system keeps the magnet for illegal aliens switched on and the Democrat’s base intact.

AP quotes Mr. Holder as saying the scams "are carried out by a variety of actors, from greedy tax return preparers to identity brokers who profit from the sale of personal information to gangs and drug rings looking for easy access to cash." The biggest profiteer from this fraud may just be the Democrat-controlled government itself.

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