In Camp’s defense, differently configured households might fare better than Greenstein’s example; he mitigates the changes to the EITC with a considerably more generous child tax credit, which is also linked to wages and, therefore, work effort. Overall, his plan would slightly reduce taxes paid by those at the low end of the income distribution spectrum.
There is a genuine issue with the current program: Its complex eligibility criteria, and poorly regulated filing process, lead many people to claim, and get, more money than they should — between $11 billion and $13 billion in 2012, according to the Treasury Department’s inspector general, and more than $130 billion over the past decade. Much of that was due not to good-faith error but to cheating by tax preparers, whose fees often depend on the size of the refund or who lend money to clients in anticipation of their checks.
Camp would attack these overpayments by converting the earned-income tax credit into a rebate of an employee’s Social Security taxes.
According to a Joint Committee on Taxation summary of the provision, this “is both much simpler and more transparent than current law, with the potential for fraud reduced by the direct link to payroll taxes withheld on a taxpayer’s Form W-2.”
The idea is clever and politically daring — maybe too daring, because it could be construed as raiding a revenue stream dedicated to the Social Security trust fund. That fund is an accounting fiction, but it’s a widely cherished accounting fiction.
Meanwhile, some 22 percent of potentially eligible workers never file for the EITC because of the program’s daunting complexity, Treasury’s inspector general has found. Camp’s simplification might encourage more of them to sign up.
Camp’s lower EITC benefits per household were meant at least partly to allow for an increase in participation while keeping the overall impact of tax reform revenue-neutral.