Tax Day: Americans Pay—Illegal Aliens Get Fraudulent Refunds

Recuperating from the April 15 income tax deadline? Soothe yourself with this: the Main Stream Media  devoted some deserved attention this tax season to the huge tax refund fraud problem—but, as usual, failed to get specific about a key factor: illegal aliens. That’s because the MSM’s allies, the Democrats in government, are gaining enormously from keeping the illegal alien-magnet switch on for as long as possible.

Thus AP recently reported on the “$4 billion” lost every year due to “fraudulent tax refunds.” [$4 billion: Bogus tax refunds a growing problem, By Eric Tucker, USA Today, April 10, 2014]  The story coincided with a recent video produced by the Department of Justice wherein Attorney General Holder reminds us to not worry, they’re on the case. [Attorney General Holder Calls Tax Refund Fraud and Identity Theft a “Rising Threat”, April 7, 2014]

The AP report isn’t specific about what types of “fraudulent tax refunds” are in issue, but $4 billion is definitely a low number compared to the total problem.

The Earned Income Tax Credit alone costs taxpayers a whopping $12-$14 billion in fraudulent payments every year. [$13.6 billion lost in bogus Earned Income Tax Credit claims last year,  by: John Hayward, Human Events, October 22, 2013]

This is especially troubling considering the program pays out in total $56 billion per year—meaning its average “improper payments rate,” as reported by Treasury Inspector General for Tax Administration (PDF) is around 25 per cent. In contrast, Medicaid fraud, which is very well publicized and has its own federal task force, hovers at around 8-10 per cent a year.

More troubling still: the EITC is the government’s fastest growing entitlement program. Since its start in 1980 the program’s grown 44-fold.[ Defrauding the American Taxpayer, By Edwin S. Rubenstein, The Social Contract, March 20,2013] Compare this to the 8.5x increase in total entitlement spending in the same period.

The credit, which pays out up to $5,800 to a family of three, requires a valid Social Security number in order to be claimed. But this restriction is easily circumvented by the use of fake or stolen Social Security numbers and felony identity theft. As a result, millions of Americans, especially children, have their Social Security numbers compromised every year.

Who’s doing much of the thieving? Analysts say illegal aliens. The Center for Immigration Studies’ Steve Camarota found that 40 percent of illegals use the program (over triple the use among native-born Americans) while other analysts have found rampant EITC abuse among illegals.

So much for the Left’s use of the term “undocumented” immigrants. Many “undocumented” immigrants are amply “documented”—just illegally so.  

George W. Bush’s DHS Secretary Michael Chertoff called the rampant identity theft surrounding the EITC, “a violation of the privacy rights and the economic rights of innocent Americans.” But since Chertoff made that statement, the EITC fraud rate has ballooned by a further 22 per cent. It’s no coincidence that this increase coincides with the jump in the illegal alien population over the last few years.

As an NBC report from 2005 noted, a compromised SSN can really mess up your work history, Social Security benefits records and credit report. Documenting the experiences of one female victim, NBC found that she was “haunted by bills and creditors [and] received threatening letters from the IRS asking her to pay taxes on money earned by her imposters.” She was told to “re-pay unemployment benefits she had received, after the government discovered she was “working” while drawing benefits.”[The secret list of ID theft victims,  By Bob Sullivan, MSNBC.com, January 29, 2005]

Despite such a horrific scenario, and despite legislative efforts such as the 2010 Improper Payments Elimination Act, which requires all agencies to keep their entitlement programs’ improper payments rate to below 10%, no significant improvement has been made in reducing EITC fraud.

Reason: Just like our lack of border security, e-Verify and an entry-exit biometric system at each of our ports, all of which are on the law books but are simply not enforced, beefing up the policing of EITC fraud and SSN theft would harm one of Obama’s key future constituencies: illegal aliens.

Polls of illegals and Hispanics in general consistently show a deep preference for Democratic policies and big government. Along with our unenforced immigration laws, a failed EITC system keeps the magnet for illegal aliens switched on…and the Democrat’s base intact.

The AP story cited above quotes Mr. Holder as saying that the scams

are carried out by a variety of actors, from greedy tax return preparers to identity brokers who profit from the sale of personal information to gangs and drug rings looking for easy access to cash.

But the biggest profiteer from this fraud may just be the Democrat-controlled government itself.

Jeff Stewart [Email him] is an attorney living in Washington, DC.