Tax credit could cost taxpayers $1 billion

California now is considering a state-level Earned Income Tax Credit. That comes just in time for Jan. 27, the IRS’ EITC Awareness Day. (I am not making this up.)

According to a study by the Legislative Analyst, requested by the Legislature:

The federal EITC is an income tax credit that increases the after–tax income of low–income workers. Evidence from academic studies suggests that the federal EITC causes paid work participation among single mothers to be higher than if the EITC did not exist. It also reduces poverty to some extent for tens of millions of people.

Problems:

Evidence from the federal Internal Revenue Service (IRS) also suggests that improper federal EITC payments are an issue. Roughly a quarter of federal EITC payments go to people who are in fact eligible for a smaller payment or are not eligible for the EITC at all.

And Forbes reported:

The IRS estimates an error rate of 23%-28% on EITC returns, or about $13 to $16 billion paid out in error. Yes, billion with a b.

Actually, there are better ways to help the poor than a program that would cost taxpayers up to another $1 billion: cut taxes, especially the sales tax; and reduce regulations, especially on housing and small business.

But that’s not going to happen. Instead, we’ll get more gimmicks like this.