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The Greedy Non-Rich

November 20th, 2009 · 3 Comments

And we thought only the rich were greedy and dishonest.

Paul Caron reports:

The Treasury Inspector General for Tax Administration yesterday [said] that 372,000 taxpayers erroneously claimed education tax credits in 2006 and 2007, totaling $532 million (an average of over $1,400 improper credit per taxpayer).  Improvements Are Needed in the Administration of Education Credits and Reporting Requirements for Educational Institutions (2009-30-141).

Similarly, fraud is rampant with respect to the earned income tax credit (EITC) and the new homebuyer credit.

Refundable credits are a form of welfare and an invitation to commit fraud.

Update: Mary O’Keeffe points out that the education credit is currently not a refundable credit. See her comment below.

Tags: Credits · Tax Crimes

3 responses so far ↓

  • 1 Mary // Nov 20, 2009 at 11:09 am

    Ahem, Peter. Check your facts!

    The education credits TIGTA studied were NOT refundable credits. And they did not go to the poor.

    Prior to this tax year, all education credits have been NON-refundable.

    As such, the benefits of the education credits accrued primarily to the middle-class, not to the poor. So the particular TIGTA study you cite is not evidence of the “greedy poor” because poor people have not gotten benefits from education credits.

    We always run the education credit numbers for clients at our VITA site, just to be sure, but I can’t recall a single case of a low-income taxpayer who got any benefit whatsoever of claiming a federal education credit on his return.

    That will change with the 2009 tax returns they file during the 2010 filing season, because the Hope Credit (previously non-refundable) has morphed into the American Opportunity Credit, which will reach a broader set of Americans, on both the lower and higher ends.
    http://www.irs.gov/newsroom/article/0,,id=205674,00.html

    If you insist on using the TIGTA study as evidence that anyone is “greedy,” it would be the middle class, because they were the primary beneficiaries of the education credits during the time period TIGTA studied. However, having dealt with the complexity of the tax code, I think it’s more reasonable to chalk this particular error up to confusion. The rules for the education credits are complicated and confusing. The primary form of confusion is that some taxpayers claimed the Hope credit for the same student for more than the maximum two years allowable. However, some taxpayers claimed the Hope when the Lifetime credit (which is allowable for an unlimited number of years) would actually have gotten them more money than the Hope did. Such taxpayers were confused rather than greedy.

  • 2 Peter // Nov 20, 2009 at 11:24 am

    Hi Mary,

    I can always count on you to set me straight.

    I was referring to the EIC and homebuyer credits, but I can see I didn’t make myself very clear.

    I hate to go all Ayn Rand on you, but all classes of “people” are greedy, not just the rich. It’s part of the human condition.

    As with all credits and deductions, some taxpayers make honest mistakes. But there are many who seize the chance for a freebie and commit outright fraud.

  • 3 Widespread Fraud with First-Time Homebuyer Credit // Jun 23, 2010 at 7:27 pm

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