Congress Discriminates Against the Poor on Tax Refunds

Citizen Wealth Financial Justice

tax refundNew Orleans  This one caught me by surprise. Congress managed to sneak through a provision in the tax-cut deal at the end of 2015 that both punishes the poor and privileges predatory products long targeted and increasingly scorned by banks and tax preparers.

What’s the deal? Beginning in the 2017 tax season, the new law will require the Internal Revenue Service to delay until February 15th or later sending any refunds to lower income, working households that have qualified to receive an earned-income tax credit or a child tax credit. According to an article in The Wall Street Journal, in 2014 by about the same time of year, the IRS had already issued more than 29 million returns for $94 billion.

What could Congress be thinking in this move other than to punish the poor and help the predators? Well, they are claiming that because the administration wanted to expand such tax credits, they want to give the IRS “more time to analyze W-2 forms with wage data from employers before issuing refunds.” Congress claims this will supposedly save about $78 million per year. What’s the math there? Well, by forcing millions and millions of lower income, working families to wait for their desperately needed returns or fall into the jaws of the predators, Congress will stop supposedly fraudulent returns that their own math indicates only amount to .00083% of the total. What is that eight one-thousandths or something? Face it, a miniscule number compared to the damage that will be done! In the same day’s Wall Street Journal there was a report that a rich Dallas family lost its case over hiding more than $1 billion in offshore accounts. That one family will pay three or four times the amount that will be saved by hurting millions of lower income working families.

Meanwhile, ACORN and other groups managed to curtail refund anticipation loans by H&R Block, Liberty, and Jackson & Hewitt and get major banks like HSBC and others to stop loaning money to these outfits and others to provide such predatory products, partially because of what one banker told me flatly had become “reputational risk.” Even the Consumer Finance Protection Bureau in recent years has climbed on this bandwagon. Now, it will be wide open for business again at 350 to 400% effective interest rates as lower income, working families who file early and wait anxiously for their refunds climb into the clutches of the predators for the very simple reason that they need their money and they need it now. It is “their money” remember because it is a refund and tax credit, hailed by all US presidents for decades now as one of our latest and greatest antipoverty programs for working families. Congress will punish the poor for 8 one-thousandths of “maybe” savings, so that the tax preparer predators can make billions once again singing the old song now.

This is the same Congress that has punished the IRS by cutting more than a billion from its appropriations forcing layoffs of tens of thousands of IRS workers, so the notion that the IRS has the capacity to even do this new job is absurd. Part of the beef from Congress is that the IRS has used technology to more rapidly issue refunds, essentially shortening the time frame the predatory tax preparers were arbitraging on the refund anticipation loans. They are claiming this is all about identify theft. There are simple tests that can be baked into the technology to verify identity as well, much more easily that delaying millions of desperately needed returns. This move by Congress is punitive pure and simple.

How is this “due process” under the 5th amendment of the US Constitution when only the tax refunds of poor workers are being stalled and not the big time fraudsters among the one-percent? We’ve got the plaintiffs by the thousands, where are the lawyers willing to stand up for the working poor these days?