There's a high correlation between economic growth and a cleaner environment.
If you take a look over the last 50 years, and health, overall, no matter what metric you want to use, growth is the answer.
And how do you get growth from the tax code's perspective?
Two things.
A consumption base, which I don't mean a sales tax, I mean a consumption base, where you're exempting either savings or the yield on savings, investment or the yield on investment, and very low internationally competitive marginal tax rates.
Those two things combined will give you the highest economic growth, and it'll give you the cleanest environment.
Well, that's a great place to end it.
Our team at FreeOp is the Americans who have the most to benefit from a pro-growth tax code, and we look forward to having you back next year to see how you did with these ideas.
Thanks, Ovi.
Thanks, guys.
All right.
Thanks so much.
All right, next up, we have Parna, a FreeOp Senior Fellow, who is one of my favorite people.
And we're going to take that to that other side of the tax reform debate, which is about the part of the tax code that affects low-income Americans.
There's an enormous norm in terms of size, fiscal size, an enormous number of programs that are used to support low-income families, particularly low-income families that work, that are funded through the tax code.
Give people an overview for those who aren't familiar with some of the major tax programs that affect low-income Americans.
Thank you, Ovik, and thank you so much to all of you for being here and to the Clapham group that has helped fund this research.
I'm very interested in the U.S. Social Safety Net.
I've been working on this at least for the last few years, looking at the issue of access to the safety net and especially access to multiple programs in the safety net.
So if you look at the U.S., Ovik, we spend about a trillion dollars on all sorts of programs that support low-income households.
These vary from tax credit programs that are through the IRS and also non-tax credit programs.
So some examples of non-tax credit programs, which we've all heard of, are SNAP, like the Food Stamps Program, TANF, WIC, and so on.
And tax credit programs are like the Earned Income Tax Credit and the Child Tax Credit.
We spend a lot of money, but I think one of the issues that I've been researching and looking into is how easy is it really for people to access these programs given the systems we have set up, right?
And I'm happy to get into that.
Yeah, so you know, and we have a session later today where we're going to touch on this as well.
But tell us a little about that.
What, you know, we have these programs.
You published a paper, an article for us.
I think you also published it at Forbes, where you talked about the percentage of people who are theoretically eligible for these programs and the number who actually participate.
And the number who participate, at least according to some of the data you've unearthed, is surprisingly low.
That's interesting.
And that's something that I personally hadn't looked at till about four years ago when I was working at the White House and saw pandemic policies being devised kind of quickly because it was a once in a, hopefully a once-in-a-lifetime crisis and governments hadn't figured out what would really work with a health crisis at that time.
And what it left me thinking was, when I started to think about probing more into these programs is, well, during the pandemic, it was really hard for us to get people the help they needed, right?
A lot of good money went out.
We had, I think, the child tax credit expansions, we had a lot of safety net program expansions and so on and so forth, economic stimulus payments.
But when you started digging into which low-income households were being left out of this safety net access, it seemed to be that we really didn't have the system set up to provide people the help they needed immediately, which meant having access to their bank accounts, having their tax information from previous years so that we could send the money out quickly and so on and so forth.
So I said, okay, well, if in a crisis we're struggling to get people to help they need, what happens in non-crisis times, right?
Let me look at the overall safety net.
And I think the issue has been that when people look at, you know, researchers, economists who have looked at these programs typically hone in on one or two programs.
So there's a lot of good research around SNAP and how access to SNAP and food stamps has been problematic and how can we implement nudges and get people to get the benefits that they need.
And then someone else will look at TANF, which is the cash welfare program.
And we realize that, oh, participation in TANF is like 25 to 26% amongst the eligible population.
But what I wanted to do was say, okay, we have all of these different programs, right?
And we think of the safety net as this combination of programs.
Some are helping people when they get unemployed, some are helping people when they have access to issues with access to food.
Some are health insurance programs and so on.
So I said, but what if I look at all of these, right?
And by all, I meant about seven to ten programs that we routinely talk about in DC.
And the surprising thing to me, and again, this is based on survey household survey data, so there are issues with reporting and so on.
But what I found was that about one-third of people who are at 130% of the federal poverty line or below say that they mainly access one or maybe two programs.
And these are people making, if you're a childless adult, about $18,000 a year.
Exactly.
And another one-third said we actually don't access any of these programs.
And to me, that's a shocking statistic, right?
Because where is this money going?
We spend about a trillion dollars.
And where is this money going if it's not truly helping people in need?
When I started looking at, you know, beyond these non-tax credit programs, also to the tax credit programs like the earned income tax credit, you know, again, participation rates there are at about 78% to 75%.
So much higher.
Much higher, because I think what's helpful there is that it's going through what I call a one-stop shop.
You file your taxes and the VITA, like the free tax assistance services, or your tax preparer tells you, here's something that you can also get.
You can get a cash refund at the end of the tax year as you're filing for your taxes.
Again, with the child tax credit, but the issue even there, why is it at 78%?
Why are we not at 99% or 100%?
And the issue again there is that people really have to spend a ton of time researching what am I eligible for?
How do I qualify for the EITC?
What are all the rules around qualification?
So one example there is, the biggest complication, and I know we talk a lot about EITC fraud, waste and abuse, because we're spending about $20 billion, I think, in overpayments in the EITC.
But again, when you start digging...
20 billion a year.
Yeah, 20 billion a year.
And you start digging in and you realize, well, maybe a lot of that is just confusion around who actually qualifies for the EITC.
So if you look at the, you know, one of the rules is what defines a qualifying child.
So if there are two parents, you know, and they have a child who would potentially qualify them for a higher EITC payment, the rules are complicated.
So the IRS expects you to understand, okay, if your child has lived with you for longer than six months, then you might be able to speak.
Especially if the parents are split up, right?
Exactly.
That's what gets complicated.
If they're filing jointly, it's usually not an issue.
But you also get from research that a lot of people don't know that they're even eligible for the EITC.
They will file a tax, but they don't know that they're eligible for the EITC.
When parents are split up, that becomes a bigger deal.
Like, where has a child spent more time?
Whose child is it?
Who has a higher AGI?
The IRS has tiebreaker rules.
An aunt or a grandparent can also claim a child.
If they're living in the same household, can also claim a child on the EITC application.
So there are just so many things for taxpayers to figure out.
Basically, it's just as complicated as for anybody in this room to do their taxes.
Oh, absolutely.
Is there a turbo tax for EITC?
The IRS has set up these free counseling sessions and tries to educate people.
And now I believe there are chatbots.
I write about that in the paper too.
How can we tap into Gen AI technologies to help people really understand before they even file a payment, before they even go to a tax preparer, which is again a little costly, what am I eligible for?
What are all the tax credits that I could potentially be eligible for?
Because I'm truly low income.
And I need to understand the help that the government can give me.
So maybe you could have Gen AI technologies help people do that.
I think technology can make a big difference.
Because a lot of it seems to be a lack of either awareness or information or having to supply multiple types of documents before someone can tell you, yes, this is the help that you can get.
So I think helping people navigate the complex web of all these different programs that we think we're doing a lot.
We're doing a lot for people.
But sometimes it's the truly needy who are being left out of that process.
You know, it's one of the things we heard this morning from Patrick Ruffini, the pollster that we had, I don't know if you were here for that, he mentioned that in a number of the Hispanic border counties in Texas, that when he went down there to talk to them and asked them, why are you voting, turning Republican, that one of the top responses he heard is that the voters didn't like the fact that they felt a lot of people were getting welfare subsidies for not working.
To a voter like that who hears you and says, wait a minute, you want more people to be on welfare?
There's maybe a psychic disconnect.
Explain to that voter why he should favor the kinds of reforms you're talking about.
I think the issue comes down to, you know, there's a lot of concern that, yes, we're spending so much money and a lot of it is just going to people who are fraudulently claiming the money.
That's where the fraud comes in.
If you look at the way our programs are designed, so something like the Earned Income Tax Credit, there is a work requirement in the sense that you only get the EITC if you actually are filing taxes and you have some earned income.
Similarly for the child tax credit, there is an earned income requirement for you to claim the CTC.
Similarly for you would say SNAP across different states, there's a work requirement or at least yes, show us that you're looking for a job, you're investing in some training, similarly for unemployment insurance.
If you actually dig into the programs, the challenge isn't that we're not making people work to get the benefits they need.
The challenge is, yes, there's a perception that there's a lot of fraud in these programs.
And I suspect a lot of that fraud is being driven by the fact that you may not be able to verify, right?
Like, are people truly working?
Are people, you know, when they are putting in documentation, you know, is it, you know, are they putting in some fraudulent documentation?
Is it that they truly are confused about the process, right?
If I'm claiming a qualifying child, for instance, in the EITC, again, there's a ton of research that shows that about 70% of what we think of as fraudulent claims are really genuine claims where people are just confused.
Was I supposed to claim this child on my return or was someone else?
And if you talk to people in the IRS, they will say that we genuinely believe 50 to 60 percent of these cases are driven by just a you know confusion around the application process.
So I do think we need to sift through and you know, I think if we can use technologies for verification, I know Freop has done an excellent paper, you know, with having a federal digital ID, right?
Like, how do we connect government to taxpayers so that they have that one digital ID that stores possibly all the documentation that's needed to verify income assets and so on?
I do think if you bring in more technology, a lot of these cases would get reduced.
And this perception that, oh my god, there are all these people out there who are not working and who are fraudulently claiming benefits could be reduced.
I'm not saying that there isn't fraud or waste.
It could maybe increase confidence in the program.
Increase confidence in the system.
We will have a session, I can't remember if it's later today or tomorrow.
Yeah, it's later today at 3:15 using technology to improve program integrity.
We'll talk about this idea.
Dan Lipson, Michael Tanner wrote the paper.
It builds off the technology that Estonia has had for 30 years.
It's kind of like a TSA precheck, but for identity.
And the idea is that there would be no identity theft if you had this kind of system.
Social security numbers are basically in the public domain now.
If someone wants to steal your social security number, it's out there.
They can find it on the dark web.
There have been so many cyber hacks over the years, and that becomes a big problem.
Exactly.
And I think the other idea that I've been thinking about, and again, a lot of other countries do outside the U.S., is this idea of pre-populating tax returns.
Why do we put all of the onus on the taxpayer to sort of, I'm going to fill this out, I'm going to understand, read all the sort of footnotes and eligibility rules and qualifying child criteria.
And I'm going to be on the hook for claiming something that I think I'm eligible for.
And then the IRS is going to come back and audit me because they realize that I've filled out something wrong, right?
Instead of that, if we had a system where the IRS could actually pre-populate tax returns, we're collecting W-2s from employers, we're collecting, people are submitting childcare expenses.
There's a lot of documentation that the government already has.
Can we make it easier for people to file accurate tax returns?
And then that might also help increase trust in the system, reduce these cases of fraud, but make it so much simpler.
And there's, again, a ton of research around this saying that for people who don't have complicated tax returns, who are not itemizing, we're not claiming, I don't know, 20 different things, business returns or whatever, it might actually be a better system.
Intuit, the company that owns TurboTax has lobbied heavily against that legislation because they want everyone to file taxes through them.
Among other reasons.
Yeah, I think people, you know, I think we have to decide what our North Star is, right?
What do we want the country to be?
What do we want to do for our people?
If our goal is, yes, we are allocating in the budget all this money because we truly believe low-income taxpayers need it, then we figure out an efficient way to get the money to them.
If our goal is, I don't know, we just need to have people be on the hook, and then the IRS has this complicated process, and just a ton of documentation and inefficiency in the current system that I think we could obviate by doing this.
Yeah, if I could say the common thread of your paper that you just put on, tell me the name of the paper so people can look it up if they want to.
Yeah, it's called Redesigning Technology to Help Low Income Taxpayers Access the Safety Net, not quite a mouthful.
That's all right.
So we've got that paper, and then we have the digital identity paper there of the same theme, which is that there's ways to effectively use technology for welfare reform, that you put these technologies in place, it can get rid of a lot of the friction that makes it hard for people to use these different programs.
There's another element of welfare reform around the complexity of welfare today that I would think, and tell me if this is wrong, I would think does require legislation, which is the fact that you have EITC and SNAP and CT the child tax credit and all these other programs and it's like you have to apply to all these different programs.
If you make $100 more a year, your tax rate goes massively up and all this sort of stuff.
You have to use the money for certain things over here and this program can only you can only spend it over there.
So doesn't that scream for just taking a look at the whole thing and just saying we're going to have I don't know if it's universal basic income or some other style of let's give people go back to cash welfare where you give people the money let them spend that on what they need.
Have we gotten too bureaucratic in the way we've set up these programs?
I completely agree Ovi.
I've written about this before actually.
So when I was looking at the non-tax credit programs, right, you look at SNAP, TANF, WIC, low-income housing, heating assistance and so on.
Why are we making people apply for these things in so many different agencies, so many different rules?
Every government department has different rules that say you can claim this income as part if you're trying to get this benefit, but not that income if you're trying to claim this benefit.
I think it's created a web that's truly hard for people to navigate.
And like you're saying, when people worry that if I report now that extra $100 in income or an extra $1,000 in income, are my benefits suddenly going to go away?
Am I suddenly facing much higher tax rates?
I know we've all done that research on welfare cliffs, right?
You suddenly earn that extra $100, an extra $1,000, and suddenly your money is gone.
And that effectively means you've paid a really high tax rate on that additional dollar of income.
So one, I do agree that if we could get the agencies to talk to each other, you could simplify, you could have this one-stop application process, that everybody can go in and just apply for, here's my income and asset statement, you tell me what I'm eligible for.
The other idea that I've been toying around with is sort of this, you could provide so the current system says let's say you lose your job, you still have to on your own go in and apply for unemployment compensation and then you slowly figure out okay can I get SNAP, can I get Medicaid, can I you know get other help.
But what if we did not put the onus of that system on the person who's actually struggling at that point in time, right?
So we say if you've lost your job, you face an economic crisis, You know, the government is going to help you with some temporary cash support.
It could be a two-month program.
You know, it could be a one-month program.
I don't, you know, I don't know what it is, but it could be immediate cash support for these individuals who are struggling.
And then that gives them that two-month period to say, you know, find a job, not have to struggle with applying for 10 different programs.
You know, give them that opportunity to actually come back into the labor market, you know, get back on their feet, support their families, you know, get the health care that they need.
And then in two months, you know, if you realize, okay, I'm still struggling, then you do have to navigate the system because just from a practical perspective, I don't see the two parties coming together and saying, I'm completely doing away with work requirements for these 10 different benefit programs.
But I don't think that that has to happen in the first week after somebody loses their job.
What's the best way to reconnect welfare to work?
Because when you talk to employers, they say, look, unemployment's at a record low.
I can't find enough people to work in these jobs who will show up every day and pass a drug test.
They're struggling, and one of the arguments they make is that maybe we're paying people not to work through a lot of these programs and therefore we've artificially shrunk the labor market.
How should we address that problem if it is a problem?
So it's a good question.
Like, you know, again, you know, I think that there's some of it is also a mismatch, right?
Some of it is about skills training.
So what we often hear now, you know, working in the private sector, what I hear a lot is sometimes people are showing up for jobs and they don't have the right trainings, right?
And so can we do more on skills upgradation?
And maybe kids don't even need to go to college and we just need to train them on the job.
So I think that's a big part of it, right?
Like what are the jobs that employers are putting out there?
And where is that gap between what people have on their resume or the trainings that they have received versus what an employer is actually looking for?
I think aside from that, you know, the economy does, you know, as the economy improves, I think the job finding rates go up dramatically, right?
And so I think there's some sense in which, yes, if you overdo social policy and you overdo welfare programs and it becomes really generous and people, you know, like if you had a UBI that was paying people $5,000 a month to stay home, I do worry about the impacts on work incentives, right?
How many people would actually be searching for a job if they were guaranteed an income every month?
But if you had a temporary system that said, we understand you're struggling, here's some temporary cash supports.
But after that, we do expect you to find a job.
We do expect you to be, if you are trying to apply for these 10 other programs, we expect you to be searching for a job.
We expect you to get some training or education.
That's a nice compromise, I think, right?
So I do worry that overly generous benefit programs could affect work incentives.
But on the other hand, given all the research that says people are struggling to even get the help that they need, they're applying for maybe one, maybe two programs, let's do more as a temporary measure than we have currently been doing.
We're going to have to leave it there, Parnamathor, FreeOp, Senior Fell.
Thank you so much for your time.
Thank you so much for having me, Albert.
Thanks to our C-SPAN audience.
We'll say goodbye to C-SPAN for the afternoon.
You can learn more about our work at freeop.org.
The house will be in order.
This year, C-SPAN celebrates 45 years of covering Congress like no other.
Since 1979, we've been your primary source for capital help, providing balanced, unfiltered coverage of government, taking you to where the policy is debated and decided, all with the support of America's cable companies.