Thread: EITC: the Federal Subsidy for Illegals and Their Employers

National Data, By Edwin S. Rubenstein
EITC: the Federal Subsidy for Illegals and Their Employers
[Ed Rubenstein’s complete report, The Earned Income Tax Credit and Illegal Immigration: A Study in Fraud, Abuse, and Liberal Activism, [PDF] is available courtesy of The Social Contract.]

The Earned Income Tax Credit is the largest anti-poverty program in the United States. In 2007 more than 23 million households received $47 billion EITC payments. That dwarfs traditional welfare and food stamp spending combined.

Yet unlike those programs, the EITC is virtually unknown outside of the policy wonks who study it and the low income individuals who receive it.

Households headed by illegal Mexican immigrants are more than three times as likely to receive the credit as households headed by native-born Americans. In no other means-tested payment do illegal aliens receive such de facto preferential treatment.

What had started as a tax offset for low income workers is now simply another federal welfare program. A welfare program that subsidizes children in families least likely to afford them. A welfare program that benefits corporations more than the poor. A welfare program replete with fraud. A welfare program kinder to immigrants and even to people here illegally than to natives. Today, immigrants receive EITC at nearly twice the rate of natives, and nearly half (49.2%) Mexican immigrants receive it.

Low wage employers are the big winners. Walmart is a prime example. The company launched a massive campaign to promote the credit a few years ago. A company spokesman at the time said: “The momentum behind it is education—ways our employees can save money and live better.â€

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The IRS for some purposes does not care if a taxpayer is here legally or not. They want everybody to pay taxes on money made. They even have a form for anybody who do not qualify for a social security number. They will give the taxpayer an Individual Taxpayer Identification Number (ITIN).

However, getting an ITIN does not allow taxpayers to qualify for Earned Income Tax Credit. According to the IRS website,

The EITC is a credit for certain people who work. You (and your spouse, if you are filing a joint return) and any qualifying children listed on Schedule EIC need valid social security numbers.

For people to get the credit, when they are not eligible to work in the US, they are committing fraud. It does not surprise me, that people, who are already breaking one law, working illegally, are willing to break additional laws. The IRS regularly audits returns where customers who claim EITC, to catch the people committing fraud. This year, to further deter the fraud, they held people's EITC until after they verified, the taxpayer had the right to claim the credit.