The following post first appeared on FactCheck.org.
Sen. Rand Paul falsely claimed that a tax credit program for low-income workers has a “fraud rate” of 25 percent and costs taxpayers “$20 billion to $30 billion.” Paul cited a report by the Government Accountability Office, but that’s not what the report said.
The earned income tax credit program had an “improper payment error rate” of 24 percent in fiscal year 2013, according to the latest GAO report. The error rate includes fraud, but also represents mistakes made by taxpayers when filing tax forms and the IRS when processing payments. The GAO blamed the mistakes on the “complexity of the tax law.” The errors cost taxpayers $14.5 billion — which is less than half of the high-end estimate provided by Paul.
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Despite the law, the IRS continues to report high rates of improper payments in the tax credit program. In the first year of reporting improper payments, the IRS said the rate was between 25 percent and 30 percent in fiscal 2003. It dropped the next year to 22 percent to 27 percent. But it hasn’t changed much since then. (See Figure 2 in TIGTA’s latest annual report.)
We’re not minimizing the problem of improper payments in the earned income tax credit program. But Paul is wrong to claim that all recipients of EITC’s improper payments — whether overpayments or ineligible payments — obtained the money by committing fraud. He is also far off on how much the errors cost taxpayers.
