President Biden and others in Washington recently argued their mammoth $3.5 trillion spending plan has “no cost” since it is “fully paid for.” That’s simply not so. But even if these fanciful claims were true, they still would ignore significant hidden costs of their proposed massive benefit expansions for Americans hoping to get their annual tax refund checks back promptly.
Efficient tax administration is a core function of government, but this year, American taxpayers had to wait longer than ever before to get their refunds from the Internal Revenue Service (IRS). Returns that once took three weeks to process now take at least four months.
At the same time, inflation at levels unseen in decades continues to shave dollars off the value of those expected refunds. Approximately 8.5 million personal and business tax returns hadn’t been processed as of the beginning of September. With an average value of $2,827 per refund, that’s a lot of money withheld from American taxpayers.
So, what’s causing these huge delays? It’s an unintended but unavoidable consequence of Biden’s and the Democrats’ radical plan to transform the IRS into America’s number one welfare agency.
As a result of partisan legislation Biden signed in March, starting July 15 the IRS has sent out billions of dollars in new checks every month to tens of millions of American households. An estimated 39 million households, including 65 million children, have started to receive these monthly checks. How big is that change? These checks are now flowing to more people than the number who currently collect Social Security checks under the programs that Franklin Delano Roosevelt created in the 1930s. And instead of growing over multiple decades, that massive tide of new checks started flowing within four months of the legislation authorizing them.
Under the expanded, now monthly child tax credit (CTC), parents collect up to $300 per child per month, regardless of whether the parent works or how they plan to spend the money. It’s the first federal cash assistance program without a work requirement since welfare reform in the 1990s — and the first managed entirely by the IRS.
The expanded CTC has fundamental flaws. It abandons the successful welfare reforms of the past 25 years. Instead, it discourages non-working recipients from seeking jobs and even ends the child tax credit’s prior incentives for low-income working parents to earn more.
But the problems don’t stop there. Unlike other federal and state welfare providers, the IRS never sees the people it serves, helps them find jobs, or ensures that they get support with parenting and other underlying issues such as substance abuse or mental health problems.
As current delays affecting taxpayers make clear, the IRS has been unable to effectively balance its enormous new check-writing tasks with its primary responsibility of efficiently administering federal taxation. The IRS already was understaffed before the launch of the monthly child tax credit, and over 4,000 processing positions remain unfilled. The payment of stimulus checks and filing changes caused by the pandemic have made the situation even more difficult. But these glaring issues haven’t stopped Democrats from demanding far more from our nation’s tax collectors than they were ever supposed to do.
The IRS’s top priorities must be collecting the right amount of taxes and refunding those that are overpaid. Tax refunds of nearly $3,000 can have a big impact on the financial well-being of families and struggling small businesses. And unlike new benefit checks invented by politicians, it is the taxpayers’ own money and they deserve to get it back promptly.
But Biden’s plan threatens to deny millions more Americans their refunds for months on end, all because of a flawed focus on permanently sending out new checks to tens of millions of parents — including many who don’t even owe federal income taxes in the first place.
That’s not right. While it remains to be seen how Democrats propose to pare back their mammoth $3.5 trillion spending spree, extending their current child tax credit policy would only worsen this hidden — but very real — cost for millions of taxpayers.
Matt Weidinger is the Rowe Fellow in poverty studies at the American Enterprise Institute. He is a former deputy staff director of the House Committee on Ways and Means.