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March 23rd, 2011

Refundable Tax Credits, Welfare for the Middle Class

By Rob Gettemy

I’ve always been troubled by refundable tax credits.  These credits such as the Earned Income Tax Credit, the Child Tax Credit, and the latest, Making Work Pay Tax Credit (MWPTC), have resulted in millions of middle class citizens not only getting every dollar of income tax they have had withheld back, but to also get up to several thousand dollars more back than they even paid.  No matter what you call it, this is welfare, and it is designed to get the middle class “hooked” on receiving freebies from the government.  It is anti-American and it should stop!

So why am I harping on this right now?  My high-school-aged son had a few part-time jobs over the last year, earned approximately $4,000 and had federal income tax withholding of $13.  I completed his tax return earlier this year, and sent it in anticipating a $13 refund.  Yesterday, however, my son received a check from the IRS for $311, or $298 more than he was entitled to.  He also received a notice from the IRS that they believed his taxes had an error on them, and he was entitled to a MWPTC.  I knew that he was not entitled to it.

This is where it gets interesting.  I called the IRS at the number they put on the form we received, because I wanted to tell them they sent my son too much money.  Yes I realize, some of you probably think I’m an idiot for looking a gift horse in the mouth.  While I detest taxes, and I take advantage of any legal loophole I can, I don’t want to be tax cheat like Timothy Geithner, Claire McCaskill, Charles Rangel or many other politicians.  Furthermore, I certainly don’t want to teach my son that it is ok to keep something that is not his.

When I called the IRS, I heard a very nice recording that was clearly set up specifically for people who received a notice that the IRS was applying the MWPTC to their returns even though they had not requested it.  While I suspect 95% of the people who received this tax credit in error cashed the check and never thought about making the call, I bet the majority of those who actually called the number hung up from the recording feeling satisfied that even if they were not due the money, they at least made an effort.

When I finally was able to talk with a live person, he seemed a bit surprised that someone was calling to say they received too much money.  I then explained what happened, and he clearly assumed I had made an error on my son’s return.  When I pressed him a little more, he pulled up the return and realized that I filled it out correctly, yet the IRS computer still sent my son the credit.  The long story, short, on my son’s situation is that I have to follow up with the IRS via mail, send them back the check and they’ll send him his correct refund.  By the way, this was after the IRS agent suggested I just cash the check and send them a check for what I felt was the erroneous amount.

But, my frustration did not end there.  I talked to the IRS agent about the fact that this was an automated process, and wondered how many others were effected.  He seemed to agree that this could be a big problem.  However, he assured me that at some point in the future (maybe a year or two later), the IRS computers would figure it out and send a notice to those who cashed their erroneous refundable tax credit checks, or as I like to call them, welfare checks.  That notice would tell the recipient that they had twenty-one days to pay back the money or interest would start accruing.  I honestly don’t care about the hardship that might cause for the person who cashed the check knowing they were not entitled to the money.  But, I can’t help but feel sorry for the poor sap who lives paycheck to paycheck, and gets a notice from the IRS that they had twenty-one days to pay money to the IRS that was sent to them because of an IRS screw up two years prior.  And, by the way, if they can’t pay immediately, they will have to pay interest.

It is hard to believe that an automated process would have accidentally sent only my son too much money…we just don’t have that kind of luck.  In the private sector, people would be fired for this.  I suspect that in the public sector, while this will likely cause the treasury to spend millions of dollars to rectify the situation and many citizens like myself a bunch of wasted time, the responsible party or parties will have to settle for a 3% raise instead of the expected 4.5%.

The other thing that frustrates me about that is the entire premise of a refundable tax credit.  The only way it is refunded is if it creates a negative total tax bill for the year.  That portion that is negative is “refunded” which is a misnomer because they are not refunding that tax payer’s money.  Instead, they are confiscating money from one tax payer to give a welfare payment to another.  The vast majority of people who receive more money back than they pay in think it is a wonderful deal.  After all, who doesn’t love something free, especially money?

When the government takes money from one person and gives it to another, they incent the recipient to vote for the politician that promises to do more of that.  Eventually though, the system will collapse because fewer and fewer people will be paying taxes, and the 60% of the country that is currently a net recipient of government money will grow.  At some point, it will be game over for America if we don’t stop this.

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About the Author

Rob Gettemy

Rob Gettemy is the founder and owner of 1 Million for Jesus Christ, a Christian apparel company. In addition, Rob teaches entrepreneurship at the University of Iowa and was a candidate for US House, Iowa District 2 in the 2010 Republican primary. Rob attended the 912 rally in Washington DC in 2009 and also attended the 8-28 event in 2010. Rob has been an outspoken critic of liberal policies his entire adult life.

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