Love me some Jared Bernstein

Paul Krugman tends to be more of a big-picture guy. Jared Bernstein is very good at diving into the nuts and bolts of economic policy and how it affects ordinary people. They can’t get much past him!

First, as Marr points out, Ryan and his Republican colleagues just voted “to permanently extend an expensive small-business tax break without offsetting the cost, such as by requiring any improved compliance in that part of the tax code — where the rates of error and loss to the Treasury far outstrip those for the EITC. The IRS estimates that a stunning 56 percent of business income that individual returns should have reported went unreported in 2006, the latest year for which these data are available.”

 That data, which needs to be updated, shows that taxes unpaid on unreported business income amounted to $122 billion in 2006 compared with $28 billion for all improperly claimed tax credits, including the EITC.

Of course, low-income, working households should comply with the tax code, and the reduction of EITC overpayments would yield significant savings to the Treasury. For the record, most EITC payment errors are not fraudulent. They’re often mistakes relating to which parent gets to claim the qualifying child. The result is that non-custodial parents sometimes receive overpayments (it’s also true that in some of these cases custodial parents receive underpayments; these are not netted out of the IRS overpayment calculations, which are thus overstated).

This raises the second problem with Ryan’s EITC offset: He’s asking the IRS to do more to reduce overpayments (and conspicuously not asking it to go after unreported business income) while he and his colleagues have aggressively cut the tax agency’s budget, a point I’ve often stressed on this page. The IRS cuts have hit their enforcement efforts and taxpayer services hardest, leaving them with fewer resources to correct errors on returns and help low-income taxpayers sort out some of the complicated rules that apply to tax credits.

And shouldn’t individuals with business income comply as well? In fact, if your main criterion was “follow the money,” you’d put more energy into collecting elusive “pass-through income” — where individual taxpayers claim business income on their personal income taxes, often to take advantage of preferential rates, particularly on capital gains.

And there’s a much bigger double standard going on here: Tax breaks for low-income workers must be paid for lest they raise the budget deficit while tax breaks for business need not be, regardless of their deficit-raising impact. In fact, the unpaid-for tax breaks passed by the House Republican majority add $85 billion to the deficit over the next decade. And I fear this is but a prelude to the full package of “tax extenders” with a cost of $470 billion over 10 years.

Add in one other fiscal fact of life right now — that Republicans won’t countenance new revenues — and consider the implications of all of this:

– New spending must be offset, new tax cuts need not be
– New revenues are off the table
– Anti-poverty programs are spending programs
– Tax cuts, especially business tax cuts, benefit those with higher incomes.

Put all of that together and you’ve got a potent recipe for larger deficits, more income inequality, and less support for anti-poverty initiatives. If that’s what bipartisanship looks like today, count me out.