More About Robert Greenstein

Robert Greenstein

Greenstein is the founder and President of the Center on Budget and Policy Priorities. You can follow him on Twitter @GreensteinCBPP.

Full bio and recent public appearances | Research archive at CBPP.org


IRS Funding Cuts Likely Mean More Tax-Credit Errors

December 11, 2014 at 11:00 am

Even as the Treasury Department’s Inspector General noted a significant overpayment rate in the refundable part of the Child Tax Credit (CTC) this week, lawmakers chose — in the pending 2015 government funding agreement — to weaken the IRS’s ability to reduce errors in this credit and other parts of the tax code by once again cutting IRS funding to enforce and ensure compliance with the tax rules.  And, while lawmakers such as Senator Orrin Hatch (R-UT), the Senate Finance Committee’s top Republican, assailed the IRS for failing to address the errors, the Treasury and IRS have recommended a series of measures to Congress to reduce errors in the tax credits and other parts of the tax code — and Congress has failed to act on them (except for one very small measure included in the 2015 funding agreement).

Errors in the CTC and the Earned Income Tax Credit (EITC) — another working-family tax credit — need to be reduced (as do errors related to small businesses and various other groups of tax filers).  But the debate around this issue often is misleading and ignores three significant points:

1. Most overpayments result from unintentional errors, not fraud. IRS studies indicate that the majority of EITC errors stem from the interaction between the credit’s complex rules and complicated family and child-rearing arrangements, not fraud.  The EITC has very strict rules over who can claim a child, for example, which often trip up separated or divorced couples or three-generation families.  The CTC eligibility rules are similar.

Moreover, overclaims in these tax credits account for a small share of the tax compliance gap.  Underreporting of business income alone accounted for $122 billion of the $450 billion tax gap in 2006, the latest year for which such data are available.

2. IRS funding cuts have weakened tax enforcement. The IRS’s budget has taken repeated hits in recent years and will shrink further under the fiscal year 2015 budget agreement, falling to its lowest inflation-adjusted level since 2000.  Funding for IRS enforcement has been hit particularly hard; its 2015 funding level under the agreement is 20 percent below the 2010 level, adjusted for inflation. Yet the number of tax returns filed has grown significantly over the same period, and the IRS received substantial new responsibilities related to the Foreign Account Tax Compliance Act and the Affordable Care Act.

Because of these cuts, the IRS lacks the resources to pursue a substantial share of the questionable EITC and CTC claims that it identifies or to improve enforcement of other parts of the tax code.  For example, the IRS can use data matching and other techniques to identify questionable claims on tax returns related to the tax credits, but it cannot pursue many of those claims further because it lacks the staff resources to do so.  Due to budget cuts, the number of IRS staff devoted to enforcement has dropped by 15 percent since 2010.

3. Congress has failed to act on proposals designed to lower error rates. The year-end funding bill requires people who prepare their own returns to answer due diligence questions when claiming refundable tax credits, a useful but small measure.  But Congress has ignored an array of other, more significant proposals from the Treasury and the IRS (most of which are in the President’s fiscal year 2015 budget) to reduce errors in these credits.  These include:

  • Giving the IRS the statutory authority to require paid tax preparers to demonstrate basic competence in the rules governing these credits and other basic tax matters. The Treasury has found very high EITC error rates among returns filed by certain types of paid preparers (e.g., those who aren’t lawyers, CPAs, enrolled agents, or affiliated with a national tax preparation firm).  These preparers do not need to get any training whatsoever or demonstrate basic competence in the tax rules, a factor that contributes to tax-credit errors.
  • Requiring employers and other third parties to send the IRS information such as W-2’s and 1099’s earlier in the year to help it detect erroneous or fraudulent claims before it pays them.
  • Requiring paid return preparers to follow due diligence requirements in determining eligibility for the CTC, as they already must do for the EITC.

Senator Hatch said this week that “[t]he IRS’s inability to properly administer these refundable tax credits fails American taxpayers.”  In reality, it’s Congress that has failed American taxpayers by not giving the IRS what it needs to enforce the tax code.

New Data Provide Sobering Look at Concentrated Poverty in Schools

June 16, 2014 at 11:25 am

Update, June 20: We’ve updated the graph, below, to correct an error in the display of data.

New data never before systematically collected and reported show that thousands of schools across the country have very high concentrations of poor students.  States provided the data as part of the new community eligibility provision of the school lunch and breakfast programs, which allows schools serving high-poverty areas to simplify their school meal programs and serve meals at no charge to all students.  The data show how important community eligibility is.

To implement community eligibility, states are required to publish data on which schools and districts are eligible — namely, ones in which 40 percent or more of students already qualify for free meals automatically because they either have been identified as low income by another program (such as SNAP, formerly food stamps) or are considered at risk of hunger (because they are homeless, for example).  These students are called “Identified Students.”

As we’ve reported, more than one in five schools and districts nationwide — more than 28,000 schools and more than 3,000 districts — meet those criteria.  Digging deeper in the new data, we’ve now found that those 28,000 schools include more than 8,000 schools in which 60 percent or more of students are Identified Students, plus another nearly 6,000 schools in which between 50 and 60 percent of students are Identified Students, in the 44 states for which we have the percentage of Identified Students for each school (see chart).

This means that in more than 14,000 schools, a majority of the students receive SNAP or are homeless, migrant, or otherwise vulnerable.  That’s more than one in ten schools nationwide.

These numbers understate the number of needy children.  On average, for every ten Identified Students, roughly six more students come from families that qualify for free or reduced-price school meals if they complete a school meals application.

The story for school districts is equally striking, showing concentrated poverty across broader areas.  The roughly 3,000 districts that qualify for community eligibility district-wide in the states for which we have data include more than 800 districts in which 60 percent or more of students are Identified Students, plus another nearly 700 districts in which 50 to 60 percent of students are Identified Students.

To be sure, we’ve long known that many localities, ranging from large cities to rural areas, have areas of concentrated poverty.  Still, the new data are sobering.

Many of these families struggle to provide enough healthy food for their children.  Hungry or undernourished children have a harder time succeeding in school.

Schools with large shares of students facing deprivation confront tough challenges.  Community eligibility can help them meet these challenges by ensuring that all students receive the healthy meals they need to grow, learn, and thrive.

House Should Drop School Meal Waivers from Agriculture Spending Bill

June 11, 2014 at 3:41 pm

The fiscal year 2015 agriculture spending bill that the House began considering today would establish sweeping waivers from new nutrition standards for school breakfasts and lunches.  The House should not approve the bill as long as it includes that provision, which risks rolling back significant recent progress in improving children’s diets.

As we’ve explained, Congress directed the Agriculture Department (USDA) just a few years ago to strengthen school meal standards, partly in response to the alarming rise in child obesity in recent decades.  USDA based the changes on recommendations by the National Academy of Sciences’ highly regarded Institute of Medicine.

The lunch standards — which require more whole grains and vegetables, for example — have been in place for two years, and 93 percent of school lunches served meet them.  The breakfast standards are phasing in.

Partly in response to pressure from some big companies that sell foods to schools, the 2015 agriculture spending bill would require USDA to establish waivers from the breakfast and lunch standards for school districts that show a net loss in their food service programs over a six-month period.  It also would require states to grant such waivers.  School districts receiving waivers wouldn’t have to comply with any of the new standards.

These waivers could do away with the new standards in vast numbers of school districts across the country.  Many districts could qualify for a waiver simply by no longer reporting in their school food budget the district contributions that help support the food programs.  This would create the impression of a net budgetary loss without any actual change in program finances.  Even districts already complying with the new standards could obtain a waiver.

A wide range of concerned groups oppose the House waivers, including those representing pediatricians, educators, public health professionals, and groups working to improve nutrition and reduce hunger.  The White House has threatened to veto the bill, in large part because of the waiver provision.  Rep. Sam Farr (D-CA) plans to offer an amendment that would strip the provision from the bill.

To be sure, some individual districts have had trouble complying with specific parts of the school meal standards.  But sweeping statutory waivers aren’t needed to address such concerns.  USDA provides extensive technical assistance to school districts in such cases, and the Senate Appropriations Committee-approved agriculture spending bill would require USDA to develop a comprehensive plan to give schools enhanced training and technical assistance to comply with the standards.  It would also address specific concerns related to sodium limits in the new standards.

House members can show that they genuinely want to improve children’s health by refusing to undermine the school meal standards.

The Ryan Budget in Context

May 5, 2014 at 1:40 pm

Defending his budget’s $5 trillion in proposed cuts over the next decade, House Budget Committee Chairman Paul Ryan has noted that total federal spending would still be nearly $43 trillion over that period, implying that criticism of the cuts is therefore off-base.  But as I explained recently, this number by itself doesn’t tell anything about whether spending under the Ryan plan would be adequate or properly targeted.

Here’s some historical context for that ten-year cumulative $43 trillion figure, using spending as a share of the economy (gross domestic product, or GDP) — the standard measure that economists and analysts use to examine trends in spending over time:

  • Under current policies (i.e., without Ryan’s cuts), total federal spending — which reflects the costs for everything from Social Security and Medicare to defense, all other government functions, and interest — will average 21.3 percent of GDP over the next decade.  While Ryan implies this is excessive, it’s a bit below the 21.6 percent average during the Reagan years, even with today’s higher health care costs and the retirement of the baby boomers.
  • Moreover, at 21.3 percent of GDP, federal spending would be only modestly higher under current policies than its 20.5 percent average over the last four decades (1974-2013), again despite higher health care costs and the boomers’ retirement.
  • In contrast, under the Ryan budget, federal spending would average 19.1 percent of GDP over the coming decade, which would be well below the four-decade average and even further below the average for the Reagan years.

The amount of cuts in the Ryan budget is not in doubt; Chairman Ryan’s own materials specifically say that his budget “cuts spending by $5.1 trillion.”  And Chairman Ryan has not challenged our finding that 69 percent of those cuts would come from programs targeted on low- and modest-income families.  Instead, he cites the fact that under his budget, federal spending would total $43 trillion over the next ten years.

In short, $43 trillion is a big number that Chairman Ryan employs in a way that masks the deep cuts his budget aims at key programs for Americans of limited means.

Debating the Ryan Budget

April 30, 2014 at 10:50 am

Yesterday’s Washington Post cites CBPP’s finding that House Budget Committee Chairman Paul Ryan’s budget gets nearly 70 percent of its budget cuts from low-income programs while noting that “Ryan has taken strong exception” to our findings.  I previously wrote two blog posts responding to Chairman Ryan’s criticisms and, while summarizing them, below, I also make one further point.

Chairman Ryan has made no attempt to refute our calculations.  Rather, he claims that his budget’s cuts aren’t really “cuts” at all, but instead are simply smaller spending increases than would otherwise occur.

My first post responded to this claim, pointing out:  “[T]he Chairman is trying to have it both ways.  At the very start of his ‘Pathway to Prosperity,’ he writes, ‘The House Republican budget cuts spending by $5.1 trillion over the next ten years.’ ”

Also, Chairman Ryan’s argument that a cut isn’t really a “cut” makes little sense, I explained:

For many programs, it costs more to provide the same services for its beneficiaries from year to year, because of inflation.  In addition, the population is aging and, thus, more people qualify for programs for elderly Americans [like Social Security and Medicare] each year.  For these reasons, the cost of providing the same level of benefits and services to people who qualify rises for various programs from year to year in nominal dollars — that is, in dollars not adjusted for inflation, population growth, or the population’s aging.

A budget allocation that doesn’t cover cost increases due to these factors means either that eligible recipients will see their services or benefits cut, or that some people who would otherwise qualify for those services or benefits are turned away.

My second post explained that while total federal spending grows under the Ryan budget in nominal dollars:

that’s driven in large part by increases in Social Security and Medicare — whose costs rise with inflation and the aging of the population, among other factors — and interest payments on the debt.  Ryan cites trends for overall federal spending to mask the fact that his budget contains hefty cuts — even in nominal (non-inflation-adjusted) dollars — in key low-income programs like Medicaid and SNAP (formerly food stamps)…

A related point also merits a response.  The Post article quotes Chairman Ryan’s previous statement that while his budget cuts federal spending — which is projected to be $48 trillion over the next decade under current policies — by $5 trillion, that leaves almost $43 trillion, and “Nearly $43 trillion is enough.”

That’s rhetoric, not a policy argument.

The $43 trillion and $48 trillion figures appear large because they are cumulative ten-year totals of all federal spending — everything from Social Security and Medicare to defense, other basic government functions, and interest.  Much of this spending reflects external factors such as the aging of the population, rising health care costs, and projected increases in interest rates.

The Ryan budget focuses its $5 trillion in budget cuts on a relatively small part of the budget — programs for low-income people and non-defense discretionary programs, which have already been hit hard by the tight budget caps under the 2011 Budget Control Act and the added cuts under sequestration.  Some 69 percent of the Ryan budget’s cuts come in programs for people with low or moderate incomes.  And the Ryan budget doesn’t save a penny by scaling back unproductive tax subsidies — spending through the tax code — that heavily benefit wealthy households and powerful corporations.

The only way to evaluate whether spending under the Ryan budget (or any budget) is adequate and properly targeted is to examine which programs would be cut, which would expand, and how those changes would affect people and communities.  By targeting low-income programs for cuts while asking no sacrifice from the wealthy, the Ryan budget would mean more poverty, increased inequality, more people without health insurance (the Urban Institute estimated that more than 40 million people would likely lose coverage under a previous Ryan budget), and less investment in key areas such as education and infrastructure.