During a private meeting with senators, IRS Commissioner Danny Werfel was asked by the chairman of the Senate Finance Committee to provide his evaluation of a concerning report. The report, brought to attention by a whistleblower, suggested that an alarming 95% of claims made by businesses for a COVID-era tax break were fraudulent. Senator Ron Wyden, who posed the question, recalled that Commissioner Werfel, after a moment of hesitation, acknowledged the validity of the whistleblower's estimate. This revelation has prompted Congress to expedite the termination of the employee retention tax credit, a program established during the pandemic to incentivize businesses to retain employees on their payroll.
As Congress prolonged the tax cut and opened it up to new corporations, demand for the credit skyrocketed. Firm marketers lured company owners in with the promise of massive returns if they would simply apply. Because of this, as of July, the federal government's projected costs-which were originally estimated to be $55 billion-have risen to over five times that amount. In the meantime, more claims continue to flood the IRS every week, guaranteeing an increasing cost that policymakers are keen to restrict.
(Photo : by Alex Wong/Getty Images)During a private meeting with senators, IRS Commissioner Danny Werfel was asked by the chairman of the Senate Finance Committee to provide his evaluation of a concerning report.
Lawmakers with divergent political perspectives, including liberal Senator Elizabeth Warren of Massachusetts and conservative Senator Ron Johnson of Wisconsin, find common ground in advocating for the closure of the program. Despite their usual disagreements, both senators express agreement on the urgent need to terminate the program.
Senator Johnson emphasized the prevalence of fraud in the program, stating, "I don't have the exact number, but it's like almost universal fraud in the program. It should be ended. I don't see how anybody could support it." Senator Warren concurred, highlighting the program's lax standards and insufficient oversight as key reasons for its discontinuation, stating, "The standards were too loose and the oversight was too thin."
According to the Joint Committee on Taxation, expediting the program's termination and stiffening penalties for businesses that promote false claims will provide an estimated $79 billion in revenue over a ten-year period.
The savings will be used by lawmakers to balance the costs of three company tax incentives and a larger child tax credit that will benefit a large number of low-income households. According to an estimate from the independent Tax Policy Center, households who would benefit from the adjustments in the child tax credit would experience an average tax decrease of $680 in the first year.
The tax credit is accessible to parents who owe little to nothing in federal income taxes since it is $2,000 per kid and only $1,600 of it is refundable. The maximum refundable child tax credit would rise to $1,800 for 2023 tax returns, $1,900 for the next year, and $2,000 for 2025 tax returns as a result of a deal reached earlier this month by congressional tax writers. An advocacy group and liberal think tank, the Center on Budget and Policy Priorities, estimated that the extension of the child tax credit will help around 16 million low-income children.
A House committee last week unanimously endorsed the plan, 40-3, demonstrating its widespread, bipartisan support.
However, the bill's passage through Congress is not guaranteed because a number of influential senators have reservations about some provisions. According to Wyden, a resounding vote in the House may drive the Senate to move more quickly. However, enacting significant legislation during an election year is typically a difficult task.
