Tuesday, April 16, 2019

Tax policy colloquium, week 12: Day Manoli's "The Effects of EITC Correspondence Audits on Low-Income Earners"

Today at the colloquium, Day Manoli presented the above-named paper, which can't be posted yet for IRS clearance reasons. But it promises to be of considerable interest when it comes out. It looks at the data around IRS documentation requests to randomly selected taxpayers, within a group that is deemed to present low or intermediate risk scores re. the need for an auditing adjustment, who have claimed the earned income tax credit (EITC).

It would probably be premature at this point to discuss the study's particular findings, but the administrative intervention that Manoli et al are studying involves "correspondence audits" in which the IRS sends a letter requiring documentation - say, of claimed earnings or dependents - and failure to respond with the requested items results in the EITC's being denied.

EITC denial by reason of the correspondence audits appears to have decreased Type II errors (giving the EITC to those who didn't legally qualify). But it also appears to have increased, perhaps quite significantly as a percentage matter, Type I errors (denying the EITC to those who did legally qualify but couldn't handle the extra hurdles - in some cases because the IRS letter wasn't successfully delivered to them).

Some general observations that I would offer here include the following:

1) By Congressional diktat, audit rates are generally higher for EITC claimants than for any other individual taxpayers other than the very rich. This cannot be justified as a matter of generating the maximum bang for the buck from the allocation of IRS audit resources. I don't think there is good justification for it otherwise either. Among its possible motivations are classism, racism, and fiscal language illusion or bias (viewing over-payment of "transfers" as worse than under-payment of "taxes" even though (a) a dollar is a dollar, and (b) we are all net taxpayers on a lifetime basis, hence it's absurd to code some of the sub-transfers differently than others).

2) Relatedly, the relative priority that public debate gives to focusing on Type II errors in EITC provision, relative to Type 1 errors, appears to me to lack adequate justification.

3) Lots of EITC non-compliance is not deliberate. This reflects the EITC rules' excessive complexity. A prominent NYC tax lawyer of my acquaintance once wrote an article urging his colleagues to offer tax advice pro bono to needy clients, rather than working for more billable hours and giving the extra $$ to charity. One can agree or disagree with his view, given billing rates vs. the value of one's services to someone who can't pay for them, but one of the arguments he made was that in fact the EITC can be daunting enough in practice that skilled tax lawyers actually CAN offer their pro bono clients something that is scarce and of value. The EITC oughtn't to have been designed in such a way that high-end legal skills might come in handy towards claiming it properly.

4) Papers on Food Stamps or SNAP, such as that by Tatiana Homonoff which we discussed several week ago at the colloquium, often discuss "targeting efficiency" - e.g., the relative social welfare costs of SNAP benefit loss to worse-off versus better-off individuals among those whose incomes are low enough to qualify for it. The welfare costs under the EITC not only of Type I errors but even of correcting at least innocent Type II errors (which often reflect the rules' needless complexity) likewise ought to be treated as relevant to the analysis. These are generally people in the lower income ranges, often with dependent children, who may have significant unmet material needs but who are punished for lacking political clout.

4 comments:

Bruce David said...

Hello everyone..Welcome to my free masterclass strategy where i teach experience and inexperience traders the secret behind a successful trade.And how to be profitable in trading I will also teach you how to make a profit of $12,000 USD weekly and how to get back all your lost funds feel free to email me on(brucedavid004@gmail.com) or whataspp number is +22999290178
























Bruce David said...

Hello everyone..Welcome to my free masterclass strategy where i teach experience and inexperience traders the secret behind a successful trade.And how to be profitable in trading I will also teach you how to make a profit of $12,000 USD weekly and how to get back all your lost funds feel free to email me on(brucedavid004@gmail.com) or whataspp number is +22999290178

Brittany Seiber said...

To know more about Chief Dr Lucky you can visit his website (https://chiefdrluckyherbaltherapy.wordpress.com/)
 
 A friend that suffered from Herpes and was cure with the help of this great herbal doctor Chief Lucky so i decided to contact him for help in getting rid of my families genital herpes virus 1/2 which i did and all i was told to provide was just some useful information and some materials used in preparation of the natural cure and that i did and now i am the happiest person on earth because i am writing this testimony of mine with joy and happiness in my heart to the whole world to know that natural remedy is real because i am a living testimony of Chief Lucky traditional herbal cure and i want you all to contact Chief Lucky via his email: chiefdrlucky@gmail.com or WhatsApp him +2348132777335 am sure he will help you too.

Unknown said...

Welcome to the future! Financing made easy with Prof. Mrs. DOROTHY JEAN INVESTMENTS

Hello, Have you been looking for financing options for your new business plans, Are you seeking for a loan to expand your existing business, Do you find yourself in a bit of trouble with unpaid bills and you don’t know which way to go or where to turn to? Have you been turned down by your banks? MRS. DOROTHY JEAN INVESTMENTS says YES when your banks say NO. Contact us as we offer financial services at a low and affordable interest rate of 2% for long and short term loans. Interested applicants should contact us for further loan acquisition procedures via Whatsapp Number +1(541)279-1406 Email profdorothyinvestments@gmail.com

We invest in all profitable projects with cryptocurrencies. I'm here to share an amazing life changing opportunity with you. its called Bitcoin / Forex trading options, Are you interested in earning a consistent income through binary/forex trade? or crypto currency trading. An investment of $100  or  $200 can get you a return of $2,840 in 7 days of trading and you get to do this from the comfort of your home/work. It goes on and on The higher the investment, the higher the profits. Your investment is safe and secured and payouts assured 100%. if you wish to know more about investing in Cryptocurrency and earn daily, weekly OR Monthly in trading on bitcoin or any cryptocurrency and want a successful trade without losing Contact MRS.DOROTHY JEAN INVESTMENTS  Email profdorothyinvestments@gmail.com


YOURS IN SERVICE
Mrs. Dorothy Pilkenton Jean
Financial Advisor on Bank Instruments,
Private Banking and Client Services
Whatsapp Number +1(541)279-1406
Email Address: profdorothyinvestments@gmail.com
Operation: We provide Financial Service Such As Bank Instrument
From AA Rate Banks, Cash Loan,BG,SBLC,BOND,PPP,MTN,TRADING,FUNDING MONETIZING etc.