HB 4 by
state Rep. Tony
Bacala would end it for next tax year, while next-door HB 5 by
state Rep. Walt
Leger would send it to seven percent of federal adjusted gross income for
next tax year. A House
panel heard the bills together last week.
The program, estimated to give
out $47 million to Louisianans claiming it this year with about half
of that in nonrefundable form, at best represents a crude and inefficient
way to alleviate poverty that in theory might work but finds itself in the
scope of poverty programs working at cross-purposes. Its wastefulness comes
from both inappropriate payouts and treating a symptom rather than the disease.
While the Internal Revenue
Service asserts
an “error” rate of roughly a quarter, that does not definitively measure
actual fraudulent applications that, anecdotally computed, may send the rate
much higher. While an argument could be made that better enforcement could
prevent both unintended and intentional errors, having to verify every filer’s
marriage status, dependents, assets, and investment income makes such a solution
cost prohibitive, adding to already substantial administrative costs (at the
federal level, 39
percent of IRS audits occur with returns claiming the EITC).
Besides direct bureaucratic
costs, society pays another indirectly with the EITC in that it removes money
that could go to other government activities, meaning fewer tax dollars paid in
at the state level. Separating these dollars from productive individuals that
otherwise may find use in investment activities also stunts economic growth
that supplies the most reliable way to diminish poverty.
Worse, the EITC’s structure –
paying increasingly more as income rises then levels off and subsequently
declines to zero at a certain amount – encourages
only minimal work and depresses wages for those at the lowest earning levels
by acting as a subsidization mechanism for employers, also reducing economic
output. It has only a weak
impact on coaxing people into in the workforce and in their retention
relative to other factors, one of its main selling points often voiced by its
proponents.
In isolation, the EITC might
exhibit a more positive economic impact. However, its combination with other
welfare programs that makes total work effort less attractive only exacerbates
the dampening effect, causing an economy less able to provide jobs and higher
wages that best helps the poor. Its inherent flaw comes from an erroneous
understanding of poverty – this does not come from the able-bodied having a lack
of resources, but from their attitudes and the behavior that follows from these
that impede accruing these resources without some kind of preferential
treatment from government.
Advocates of the EITC also
attempt to justify it by arguing that studies show children in families who
receive the tax break perform better in school, making them more likely to
become taxpaying citizens themselves. But this claim makes the classic mistake
of confusing association with causation; the reason those children may do
better than their peers in families that do not work is their parents value
work more to begin with, as shown by their willingness to take a job that
qualifies them for the EITC, and they pass this attitude that encourages
achievement onto their children.
In the final analysis, the EITC’s
costs outweigh its benefits. Better anti-poverty measures that promote work
exist, such as wage subsidization programs – some variants of which,
ironically, have received much more discussion about their curtailment than the
EITC – and given that next year’s forecast deficit looms exceptionally large,
no practical or moral reason exists for continuing this taxpayer expenditure.
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