Wednesday, April 13, 2005

Tax time: rip offs and private enterprise

IRS recruiting ad

Today I did my taxes -- neither at the absolute last minute, nor in a timely fashion. But I'm done with them. I will owe very little and I know a little more about what I did with money last year than I did yesterday. So it goes.

For a couple of weeks I've been collecting material about US taxation and the way our finances work generally. In addition to obvious corruption and corporate rip offs, what keeps coming up is how the tax system is designed to help the usual suspects, the already rich, get the most out of everybody else.

First some representative samples of corruption and rip offs assembled by the Institute for Southern Studies:

Percent that state income tax collected from corporations has dropped since 1989: 40
Amount of federal revenue lost yearly due to corporate offshore tax havens: $255 billion
Amount lost from corporations underreporting their income: $30 billion
Of 275 largest corporations, number that didn't pay any taxes at least on year between 2001 and 2003: 82
Amount of spending the Pentagon admits it cannot account for: $2.3 trillion
Amount this represents for every person in the United States: $8,000
Amount that Halliburton is known to have overcharged the government on one of its Iraq contracts: $212 million
Amount of federal money earmarked for Wal-Mart in 2005 transportation bill to widen the road to their headquarters: $37 million
Number of hours it takes for Wal-Mart to make $37 million in profits: 31

But even more outrageous to me is the overwhelming evidence that the tax system directly channels yet more money from the working poor to the owners of finance companies.

Consider those refund anticipation loans enthusiastically offered by tax preparers to their strapped clients. They offer an immediate advance against your refund that they just calculated for you. Hard to resist? You bet! Not a good idea though and one that particularly fleeces racial minorities and the poor.

You've seen the ads. Simply sign a form with your tax preparer when filing your taxes, pay a fee and walk out with up to $5,000 cash against your coming refund check.

What you may not notice is the exorbitant annual percentage rate on that loan. But consumer groups have. They say these short-term, high-interest loans prey on the very people who can least afford them.

… tax preparers are by no means the only refund-loan vendors.

Car dealers have applied anticipated refunds toward auto down payments, joining check-cashing services, retailers, Internet sites and tax-software companies in promoting the loans as tax-season incentives to get more business. …

"Yes, it seems like a small amount of money and it would be if this were a one- or two-year loan, but it's not. It's a 10-day loan. That makes all the difference in the world."

Just how do refund loan lenders get away with the high interest rates? Major tax preparers circumvent state usury rate caps by partnering with banks chartered in states such as South Dakota and Delaware that have no caps.

The folks who are most vulnerable to getting ripped off by these loans are folks who need to use commercial tax preparers in order to take advantage of the Earned Income Tax Credit. The EITC is the largest federal poverty assistance program; the IRS makes it darn hard to get without sophisticated tax preparation however. EITC filers don't owe any taxes; they worked hard and have a refund coming; and they are by definition poor enough so the prospect of immediate money is hard to resist.

A National Consumer Law Center study estimates that refund loans drained about $324 million from the EITC program in 2002. Based on national averages, an EITC borrower could expect to pay $267 in fees for refund loan, electronic filing, check cashing and tax preparation fees to obtain a $1,600 refund.…

"There is no evidence that Congress has any concern about the entire area of predatory financial services that strips wealth from their constituents that can least afford to lose any money to the sharks," says [Jean Ann Fox, Comsumer Federation of America director of consumer protection.] "The IRS has a huge incentive to cast a blind eye to what is going on in the refund loan market."

I guess this is just run of the mill privatization. It is not enough for the feds to take our money; they have to make sure that some private enterprise gets its cut too.

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