IRS News Release  
July 10, 1995

Johnson Announces Oversight Hearing on the
Internal Revenue Service's Taxpayer
Compliance Measurement Program

Congresswoman Nancy L. Johnson (R-CT), Chairman of the Subcommittee on Oversight, and Congressman E. Clay Shaw, Jr. (R-FL), Chairman of the Subcommittee on Human Resources of the Committee on Ways and Means, today announced that the Subcommittees will hold a joint hearing on the Earned Income Tax Credit. The hearing will take place on Thursday, June 15, 1995, in the main Committee hearing room, 1100 Longworth House Office Building, beginning at 10:00 a m.

This hearing will feature invited witnesses only. In view of the limited time available to hear witnesses, the Subcommittees will not be able to accommodate requests to testify other than from those who are invited. Those persons and organizations not scheduled for an oral appearance are welcome to submit written statements for the record of the hearing.


To be eligible to receive the Earned Income Tax Credit (EITC), an individual must have earned income. To target the credit to low-income workers, the amount of the credit to which a taxpayer is entitled decreases when the taxpayer's earned income (or, if greater, adjusted gross income (AGI)) exceeds certain thresholds. The earned income and A&i thresholds are indexed for inflation and are also adjusted to take into account qualifying children. In 1995, a taxpayer with two or more qualifying children will not be eligible for the EITC if his or her income exceeds $26,673. The income cut-offs decline to $24,396 for a taxpayer with one qualifying child and $9,230 for a taxpayer with no qualifying children.


There are three major EITC issues which the Subcommittees intend to examine. First, based on studies by both the Internal Revenue Service (IRS) and the General Accounting Office, there is an alarmingly high rate of errors and fraud in EITC claims. According to IRS data, the noncompliance rate could range as high as 30 to 40 percent annually. Given the fact that the federal government will spend between $25 and $28 billion per year over the next five years on EITC benefits, the loss to the taxpayers from noncompliance could be very high The IRS took significant steps during the current tax filing season to detect erroneous and fraudulent EITC refund claims. The Subcommittees will examine the effectiveness of the IRS' efforts and whether additional changes are needed to reduce the credit's susceptibility to fraud and errors. We are especially interested in learning whether, as some tax experts have recently argued, fraudulent claims are an inevitable consequence of the value and refundable nature of the EITC benefit.

The second issue to be addressed is whether inappropriate beneficiaries may be receiving the EITC. Under current law a taxpayer may have relatively low earned income, and therefore may be eligible for the EITC, even though he or she may have other significant sources of nontaxable income. Although the credit is intended to help low-income workers, its eligibility criteria does not include all of the resources recipients may have to support their families. Earlier this year, the Administration proposed denying the credit to taxpayers with $2,500 or more of interest and dividend income. This Administration policy was based on the rationale that the EITC should be targeted to families with the greatest need, not those with other resources upon which they can draw to meet family needs. The Subcommittees will examine the implications of changing the credit's eligibility criteria to take into account sources of income that are not currently counted for eligibility purposes.

The Subcommittees are also interested in receiving testimony on the labor market effects of the EITC. As long ago as 1990, the Ways and Means Committee heard testimony expressing concern that the EITC could actually reduce the aggregate level of work in the nation. This effect could occur because earners in the flat range of the credit may have reduced incentive to work additional hours. Even more important, the millions of earners in the phase-out range have an unambiguous incentive to reduce hours of work. -The Subcommittees will examine the concern that the credit's large phase-out range may lead to a net reduction in work.

In announcing the hearing, Chairman Johnson said: "Even advocates realize that there are problems with the EITC. Rather than put our heads in the sand while these problems fester, we should take strong action now to make certain the EITC will remain available for the millions of American low-wage parents, especially those trying to leave welfare, who use the EITC exactly as it was intended." Chairman Shaw added that: "This hearing is very important because the design of the EITC has invited fraud. As we maintain the core of this program, we must root out the excesses.


Any person or organization wishing to submit a written statement for the printed record of the hearing should submit at least six (6) copies of their statement with their address and date of hearing noted, by the close of business, Thursday, June 29, 1995, to Phillip D. Moseley, Chief of Staff, Committee on Ways and Means, U.S. House of Representatives, 1102 Longworth House Office Building, Washington, D.C. 20515. If those filing written statements wish to have {heir statements distributed to the press and interested public at the hearing, they may deliver 200 additional copies for this purpose to the Subcommittee on Oversight office, room 1136 Longworth House Office Building, at least one hour before the hearing begins.

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