educational assistance must be provided under a written nondiscriminatory plan. Because
amounts received by employees for educational assistance are not required to be itemized
on either the Forms W-2 or on individual tax returns, we have no way of determining how
many employees benefit from this provision.
Both the targeted jobs tax credit and the educational assistance program expired as
of June 30, 1992. If the provisions are retroactively extended we expect ihat some
taxpayers will have to file amended returns. For those taxpayers who will be due a refund
if the legislation is extended retroactively, IRS will make every effort to facilitate these
claims for refund.
In considering any changes to the earned income tax credit or other tax provisions,
IRS urges the Congress to simplify the rules to the extent possible. It is extremely
important to both taxpayers and to the fairness of the system that taxpayers be able to
understand and voluntarily fulfill their tax obligations. If the tax rules can be simplified,
both taxpayers and IRS will make fewer errors and the costs and burdens of the tax system
will be reduced.
Taxpayers and practitioners alike have expressed fiustration with computing the two
additional components of the EIC. Our figures for Tax Year 1991 show that there were
105,000 returns where the young child credit was computed incorrectly and 75,000 returns
with errors attributable to the health insurance credit. The proposed repeal of the health
insurance credit and the supplemental young child credit would simplify the Schedule EIC
and would reduce taxpayer error rates. The repeal would also eliminate errors on tax
returns which stem from the limitations between these additional credits and other
deductions or credits permitted elsewhere on the tax return. Such a simplification will ease
the burden of taxpayers who are most in need of the credit.
Finally, I would like to make one last point. We at the IRS strongly believe that the
introduction of the Schedule EIC has significantly reduced the number of errors made
by taxpayers in computing the credit. For example, in Tax Year 1990, the error rate was
7.3 percent without the Schedule. In Tax Year 1991, the error rate declined to 5.6 percent
even with the changes to the EIC credit. Preliminary figures for the 1992 Tax Year
indicate that the error rate is down to 3 percent.
In addition, the Schedule is important because it helps the taxpayer accurately
compute the credit and gives IRS information that is not otherwise available from the
return, such as nontaxable earned income. We believe this Schedule helps taxpayers and
the IRS accurately compute and verify the credit.
In conclusion, I would like to thank the Subcommittees for this opportunity to
discuss the current tax rules for EIC and various other tax incentives. We believe the
proposals made by the Department of Treasury to simplify the rules and to increase the
basic amount of the EIC will help low income families who are entitled to this credit. We
look forward to working with the Department and with you and your staff as you consider
Chairman Rangel. Thank you, Ms. Lullo.
Mr. Carver, are you making any separate contribution?
Mr. Carver. No, Mr. Chairman, I am not. I am just here to help
answer how it is going at the present time.
Chairman Rangel. Thank you.
Ms. Lullo, you are saying that you believe that we are reaching
14 million of the potential 16 million taxpayers that are eligible for
EITC, and with some simplification that we are proposing, that we
could reach even more?
Ms. Lullo. Yes.
Chairman Rangel. With your outreach program?
Ms. Lullo. Yes. What I was saying, with the study that was
done to help us target our publicity, they estimated that there were
16 million households with income under the threshold amount
with children living in them.
What we are saying is that the $16 million estimate does not iso-
late those taxpayers necessarily that are eligible for the earned in-
come credit, because they may — ^for instance, their income may be
under that amount, but it could be, for instance, all from public as-
sistance, in which case they would not be eligible for the earned in-
come credit. But we feel like we have been very successful in our
outreach efforts in increasing the numbers of taxpayers who know
they are entitled to the credit and file for it.
Chairman Rangel. Did you do any research as to whether or not
these low-income people would prefer to have the EITC on a week-
ly, or however they get paid basis, rather than at the end of the
Mr. Carver. May I answer that, Mr. Chairman?
We have done some research at the local level, and we are find-
ing, as she said in her statement, that most people prefer the lump
sum. Let me just give you a couple of numbers.
So far this year, up through the end of February, we have had
about 16,000 taxpayers involved in the advance earned income
credit, with about 5.5 million people filing for the lump sum. So our
efforts — we have advertised it; we have advertised it better this
year than we have prior years. But it seems to us at this point that
the preference is for the lump sum payment.
Chairman Rangel. With the advance payment, is the employer
in a position to not only advise the worker, but to fill out or assist
in filling out the form, so that when they enter the employment
contract, they know what their options are? Is that a part of the
Ms. Lullo. Yes, sir. And in your packet, you probably will find —
I do not know if we have all of the information — ^but we have a no-
tice that goes to the employer telling them that they are required
to notify employees, even if they do not have withholding, that they
may be eligible for the earned income credit, and all of the bro-
chures that we have developed talk about the advance earned in-
come credit as well. And then in addition to that, there is a publi-
cation that they can give to their employees that explains the cred-
it and how to claim the advance credit.
Chairman Rangel. OK. We may want to work with you to mon-
itor this, but we certainly appreciate the fact that you know what
the problems are and you are working to try to make it easier for
the beneficiaries to receive the credit.
Mr. Primus, this may not be the right forum to discuss this with
you, but you were so eloquent in saying that in order to deal with
the problems of the poor that we really have to have a comprehen-
sive approach to the problem and certainly in g\v\ng assistance to
the working poor and education and health services as a part of all
I do not have my notes for the question, but one of the questions
I have is: When we talk about the increased number of children en-
tering poverty, there has to be some connection between the num-
ber of teenage parents that we have that are in poverty to begin
with, and there also has to be some connection with their families
bein^ unemployed, the availability of drugs and alcohol, and as the
President moves forward with these investments in people and job
training and education, there has to be a large number of people
that just fall outside of all of this thinking; that is, as relates to
the proposal in front of us. As a matter of fact, there has to be mil-
lions of people who are of working age that are in jail.
What made me think of this is that we are moving forward in
the international arena to provide a billion dollars for the rebuild-
ing of Haiti. And you may have read in today's papers that a large
number of people that are going to be the recipients of this are a
bunch of bums who are in the Army, that are illiterate, not trained
to do anything, they run around with guns, they hold up people,
but because it is a small country they cannot throw them in jail,
so they are reaching out to these people to have them rebuild Haiti.
These would normally be our rejects. Because you are a part of
discussions beyond what is in front of this committee, all I am ask-
ing now: Are these people being considered at all for any type of
attention, because they are costing us dearly in terms of the defi-
Mr. Primus. Let me respond in the following way, Mr. Chairman.
In terms of your general remarks, I mean, we are going to look
at a lot of these things as part of the Welfare Reform Task Group,
and there are other tnings in the budget that address some of the
issues you have raised.
For example, over 5 years, there is almost $3 billion in new dis-
cretionary funds that were proposed for drug treatment programs
through the Public Health Service. And as you know, the President
made a decision to take something that was called family support
and parenting and change it into a capped entitlement program.
With those moneys, plus this Public Health Service money, priority
will be given to women and children, including those involved or
at risk of involvement with the child welfare system.
I have not been privy to the precise — the last question you asked,
but I could provide it for the record. I do not know the administra-
tion's policy on the last thing you asked about.
Chairman Rangel. More than that, if you could contact me to
see whether or not we could put together a legislative task force
to work with those people. We cannot afford to ignore this large
segment of our population. And whether it is this committee or an-
other committee, if we are talking about America moving forward,
then we should at least deal with all of those that we are able to
touch in order to move forward. And knowing you as well as I do,
I am certain that you would want to do that.
Now, Mr. Sessions, my last question to you is that with the
earned income tax credit, in addition to just moving people who are
working out of poverty, a lot is made of the fact that it is supposed
to cushion the energy tax.
Now there are a lot of people who are not working, who are old,
who are retired, who do not have kids — and I know there is some
minor provision in the EITC for them — but when you are discuss-
ing policy, are there any other considerations for those people who
may not be reached with EITC, who are the poor folks who are
going to get hit with the energy tax?
Mr. Sessions. Well, as you mentioned, the EITC would be ex-
panded to cover childless workers not covered by current law.
Chairman Rangel. Yes.
Mr. Sessions. In addition, the administration's budget plan in-
cludes an expansion of the food stamp program. I think the amount
is about $1.7 billion when fully phased in in 1997, which is the
time that the energy tax will be fully phased in, and also an expan-
sion of the LIHEAP program by about $1 billion. So both of those
programs would be available to people who do not necessarily qual-
ify for the earned income tax credit.
Chairman Rangel. OK. Mr. Matsui.
Acting Chairman Matsui. Thank you, Mr. Chairman.
What I would like to ask, Mrs. Lullo, is: You know, one of the
things that I find is that — I think it was 1983, if I am not mis-
taken, we had a hearing on SSI disability benefits, and we had
somebody from the Social Security Administration come to our sub-
committee who gave us a packet of information, and it was very
well done, very similar to what I see here. And then as we really
got into it, we found out that the package or the brochures were
only given to senior citizen groups in various communities, and it
was only like eight communities out of all the communities in the
United States, and so it was not what I would have called a real
outreach program. It was more a showv thing. And I understand
that you are really trying. Can you tell me how many thousands
of these were prepared?
Ms. Lullo. I am sorry. I do not know the number. We can get
that for you.
[The following information was subsequently received:]
The type and numbers of EIC publicity material distributed to the public this year
(as of April 15, 1993) follow:
Notice 962, EIC stutter 2,448,000 318,000
Publication 1495, EIC Poster 165,418 52,443
Publication 1620, EIC Folder 37,200
Publication 1621, EIC Drop-in Ads 3,800 550
Publication 1622, EIC Brochure 1,405,343 789,000
Publication 1695, EIC Envelope 3,000
In addition, approximately 6 million copies of Publication 1325, "Employers — Re-
quired Notice to Employees of a Possible Federal Tax Refund Due to the Earned
Income Credit (EIC)," were mailed to employers during the third quarter of calendar
Acting Chairman Matsui. Mr. Carver, do you know the number
of these documents that were prepared for groups? How is this
packet being distributed?
Mr. Carver. We can give you some numbers. The smaller ones
are included in the mailout of the tax forms we send to all employ-
ers. That is about 6 million employers every quarter that we mail
that out to. That stuffer appears in there about the advance credit
and the information for taxpayers.
Acting Chairman Matsui. So this one, 6 million go out every
quarter to employers?
Mr. Carver. Yes. Annually to that same group, we send the post-
er, the large one there, that one you have in your hand, that goes
Acting Chairman Matsui. Who does this poster go to?
Mr. Carver. To the employers.
Acting Chairman Matsui. Employers as well.
Mr. Carver. And then we also hand it out to some of the groups
that you mentioned before that we contact.
Acting Chairman Matsui. Now like this "Good News: Working
Families Earned Income Credit," this goes out to — how many of
these go out annually or quarterly?
Mr. Carver. I do not have an answer for that.
Acting Chairman Matsui. Do we have an answer to that?
Ms. LULLO. I do not know the exact number, but the other items
that you find in here that are actually publications go out to all of
our Public Affairs Officers, Taxpayer Education Coordinators, and
to private groups to be handed out during outreach seminars, to be
Acting Chairman Matsui. Well, could I ask you about these sem-
inars? Who goes to these seminars? Is it employers or employees?
[The following was subsequently received:]
Through the Community Outreach Tax Education (Outreach) Program, seminars
addressing the Earned Income Credit (EIC) have been conducted in all districts.
Meetings in which this credit is promoted are held with the following types of
groups of taxpayers, tax professionals, and organizations:
State and local welfare agencies
Child care providers
Anti -poverty groups
Parents Without Partners
Town meetings attended by representatives from state, federal, and local agencies
State correctional institutions
Community associations established for immigrants, such as Koreans, Vietnam-
ese, and Spanish
Health and Human Services agencies such as Head Start and Aid for Dependent
United Way agencies
Department oi Agriculture County Extension Service
Job Service ofiices
State Employment offices
State Education Association Conference
State University Tax Conference
Women's organizations such as Women in Business, Displaced Homemakers, and
Women's Resource Center
Refugee Resettlement Programs
Parent Teachers Association (PTA)
Ms. LULLO. Well, there are probably cases where each goes. Our
seminars are set up in the District Offices, and they are based on
the needs that the District Taxpayer Education Coordinators and
Public Affairs Officers have determined, and they do that in con-
junction with organizations in the local district offices. So each dis-
trict will be handled differently, depending on the needs.
Acting Chairman Matsui. I guess one of the problems I have —
and let me say this — I think you all have been doing a better job.
I was trying to recall an article I had read either last year or 1991
in which there was a GAO report in which it said only about 60
to 65 percent of the people who are eligible actually collect their
benefits, not the 14 million out of 16 million that you are currently
referring to. And I think it was about 11 million as opposed to 15
or 16 million people who were eligible at that time.
Now this was a 1991 study, I oelieve, and so it is a year and a
half old, so I do not want to hold you to that. But it just seems
to me that we have a lot of work to do.
And I think these are fine, but I do not think they get out to the
people, generally speaking. I do not think you have the resources
to be able to hit the kind of population that you want to hit, and
I think there are probably more than you are saying, and you just
have rough numbers anyway. I mean, you do not have data that
is — I mean, what is your data based upon?
Ms. LuLLO. I am sorry?
Acting Chairman Matsui. Your data, your 16 million eligible re-
cipients and 14 million that are receiving this earned income cred-
it? How did you arrive at that figure?
Ms. LuLLO. Well, the 16 million is an estimate, and that came
from the research study that we used in trying to target our public-
ity efforts. The 14 million is based on information that we have as
far as people who claim the credit.
Acting Chairman Matsui. So you are telling me that the 16 mil-
lion is — so that number is based upon your publicity effort; it is not
based upon any
Ms. LULLO. Well, it was a research study trying to identify
households that had income at the threshold or below that had
children in the home.
Acting Chairman Matsui. See, I think one of the problems is
that you are relying on information — you are relying on people to
take advantage of a right in a very anecdotal way, and so you may
hit, you may miss, and it may be relevant, and it may not be rel-
I do not think that is enough. I mean, if only 80 percent of the
taxpayers filed their returns, I think we would be really howling
right now. And so if only 80 percent are receiving benefits, I think
we should really be upset over that. I do not think it is anything
to be proud of We have to get 90 percent, 95 percent, and maybe
100 percent. We will never get that, but we have to do the best we
Now I am thinking that a better way of doing this — and I think
Mr. Rangel referred to this — is maybe put an obligation on the em-
ployer. I mean, maybe we have to do this in a way that a filing
occurs on the moment that person applies for the job and is hired
and files that W-4 form, maybe that has to be put into the equa-
tion, and the employer is probably the only one who knows what
this person makes, and make that an obligation of the employer.
That way we know that we will not even have this kind of hearing,
and we will not need all this stuff, because it will be an obligation.
And I do not know what it is going to require. I mean, maybe
employers will complain because it is more paperwork. But at the
same time, we are talking about a lot of valuable benefits, particu-
larly since we are going to increase these benefits.
I mean, we hear that now a family will, when it is fully phased
in, will receive $3,300, and I do not think we should rely upon
somebody losing $3,300 a year in refundable credit just on the
basis of anecdotal information.
And so I think we have got to go beyond this kind of stuff. And,
you know, I know you are going to have a new Commissioner soon,
and I really look forward to working with Commissioner Richard-
son, because I think she will be tremendous for all of us. I know
she is committed to this.
And so it would be my hope that over time you are going to come
up with something more than just this anecdotal information. I do
not think you are going to reach the people by doing it this way.
Do you have an observation on that?
Ms. LULLO. Well, just a couple of clarifications. First, the 16 mil-
lion that I mentioned earlier, not all of those people are known to
be eligible for the earned income credit, because they may have in-
comes that are under the threshold amount, but it may not be
earned income, in which case they would not be eligible for the
The other thing is that we do send out notices to employers tell-
ing them that they are required to notify taxpayers, especially
those who have no withholding, that they may be eligible for this
credit and that they can get it in the advance form.
My understanding currently is that there is not a statutory re-
quirement at this point in time for the employer to notify employ-
Acting Chairman Matsui. That is probably something that we
will want to work on with you. I think it makes some sense.
But, you know, I will tell you how anecdotal this is. You get a
GAO report that says about 10 million are taking it. You say 14.
And then Mr. Primus' own Blue Book it says 13 million — I mean,
Green Book, excuse me. Green Book says 13. And, again, you know,
what is the difference between 10, 13, and 14 million? Well, it is.
It is a big difference, particularly if we are talking about $3,300
worth of valuable benefits.
So let me move over, if I may, to Mr. Sessions and Mr. Primus,
and I will be very brief, because I know other members have ques-
In terms of the credit, we have now a single individual who will
be eligible for a credit up to $306 a year. If this committee and the
administration embarks upon a very significant major child sup-
port enforcement operation this year or next year in terms of the
welfare reform package, is there any reason we should think about
allowing the noncustodial wage earner to receive a benefit, the
earned income credit, based upon family size if, in fact, we can set
up this mechanism where it really works and where we get every
absent father to start paying his benefits for having children?
Mr. Primus. Mr. Chairman, I think that is a very interesting
idea and one that looks like it has considerable merit, so that it en-
courages the fathers who are not living with their children, but
nevertheless are working, to pay child support to their children,
and we will definitely take a look at that idea in the context of wel-
Acting Chairman Matsui. Yes, I would like that done. And then
also, I guess, you have to still deal with the marriage penalty prob-
lem as well, right, because that makes it worse. Or does it? I guess
it would make it worse. And so is that something that you could
also look at?
Mr. Sessions. The marriage penalty? Were you referring earlier
to the EITC for childless workers or for the
Acting Chairman Matsui. Well, the first one for childless work-
ers, which will be in the proposal.
Mr. Sessions. Right.
Acting Chairman Matsui. But what about those workers,
noncustodial fathers, who are single at this time and who have
children, now would that person— because we are really going to
come down on them. I mean, we are hoping that we are going to
make that person feel the same obligation that the custodial moth-
er feels for that child. Perhaps that person should be considered for
an earned income credit based upon family size and children as
well. And that is what I think I asked Mr. Primus and you to look
Mr. Sessions. OK
Acting Chairman Matsui. Thank you, Mr. Chairman. I have no
Chairman Rangel. Thank you. Mr. Santorum.
Mr. Santorum. Thank you. I would just like to follow up on that
point, because I think we could be getting ourselves into a real ket-
tle of fish here. My understanding right now is, if a couple is mar-
ried, their maximum benefit is $1,500; is that correct? But if they
were not, if they were not married because of the marriage penalty,
they would get a $2,000 maximum benefit, and together it would
be $4,000; is that my understanding; is that correct?
Mr. Sessions. The EITC is not necessarily tied to marital status.
It is a fimction of whether or not you have children. A marriage
penalty or bonus can result when a couple
Mr. Santorum. Right.
Mr. Sessions. Right.
Mr. Santorum. But there is a marriage penalty.
Mr. Sessions. There are marriage penalties and also potential
marriage bonuses. By extending the phaseout range to $28,000, we
create a marriage bonus in some cases.
Mr. Santorum. The point I was trying to make is, if we extend
the EITC to noncustodial parents, we, in fact, not only have a mar-
riage penalty, but we have a bonus for people who divorce, because
both parents would then be able to claim a tax credit under that
idea, correct? I mean, that is what is being offered.
Mr. Sessions. The credit is only available if the child lives with