Ken’s Take: The finding of extensive fraud in the new home owners’s tax credit program can not possibly surprise anybody. But, I am a bit startled by the magnitude — likely to be in the billions when the dust settled.
Just wait until the analysis is done on Cash for Clunkers. My bet: will make this look like chump change.
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Excerpted from WSJ: Home-Buyer Credit Tempts Tax Cheats, Oct. 23, 2009
The Treasury tax-oversight office told Congress that “tens of thousands of people” submitted suspicious — and possibly fraudulent — claims for a federal tax credit meant for first-time home buyers.
The credit, adopted as part of the February stimulus bill, modified and expanded on a tax credit that was first passed by Congress in 2008. The current credit is available only to first-time buyers who purchased a primary residence since April 9, 2008. The full credit is available to individuals with incomes of less than $75,000 and $150,000 for married couples.
The IRS is conducting more than 100,000 examinations that could require filers to give back the credit and pay civil penalties.
At least 19,000 filers who hadn’t bought homes claimed $139 million in tax credits and were reimbursed.
An additional 74,000 tax-credit claims, valued at $500 million, for people who previously owned a home.
More than 500 people under the age of 18, including a 4-year-old child, also had their names on applications for the credit, which has no minimum-age requirement. Most of the claims involving children were made by parents who purchased a home but were ineligible for the credit because their incomes were too high.
The authorities blamed a lack of safeguards, including lack of documentation requirements, for the extent of the problems.
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Rep. Charles Boustany Jr. (R., La.) said the problems show the dangers in creating refundable tax credits that give money to filers even if they didn’t owe any taxes. “Every time Congress creates a new refundable credit…the incentive for fraud is magnified,” he said.
The credit’s main sponsor, Sen. Johnny Isakson (R., Ga.), said he is “cautiously optimistic” that an extension — with procedural safeguards added — can move in the Senate next week. “Just because someone used fraud [to claim the credit] doesn’t mean the credit is a bad idea, it means there are some bad folks running around,” he said.
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Full article:
http://online.wsj.com/article/SB125622884824101553.html
The Homa Files 
October 26, 2009 at 10:33 am |
“Just because someone used fraud doesn’t mean [it’s] a bad idea, it means there are some bad folks running around.” The naïveté of this statement boggles the mind. Yet more reason to stop electing attorneys who’ve never run a business to positions of influence over the national incentive programs. Isakson should know better, though, having run a business for 20 years (according to his online bio). Then again, he’s been in politics since 1974 and in Congress since 1999 – more than enough time to have gone native, and to have forgotten the basic lesson that every incentive needs to have adequate, enforceable controls around it to counter system-gamers. And if he forgot that, then he certainly doesn’t recall that every carrot needs not only a stick, but someone to wield it. If they’d cut the tax credit by $500 they could have provided a strong stimulus of $7500 _and_ paid for the staff to enforce some controls around it… and created (or saved?) some real jobs in the process.