Bureaucratic Oppression and the Tax System

Abstract

Observers of the Internal Revenue Service’s administration of the earned income tax credit (EITC) have leveled one main criticism, that the Service has been unable to reduce stubbornly high error rates. Congress has generally focused attention on this problem with many legislative initiatives, including unprecedented (for the tax system) penalties for improper claims, special due diligence rules for preparers submitting returns with EITC claims, and a lessening of pre-assessment right to judicial review of Service rejections of EITC claims.

In this Article I wish to shift attention to the Service’s poor service to EITC claimants. In particular, I wish to broaden the inquiry to reflect the insights of nontax scholars who have looked at the ways that administrative agencies interact with low-income individuals who rely on benefits that agencies administer.

The underlying theme behind this Article is that in fashioning its approach to administering the EITC (or any other provision that is directed to lower-income individuals) the Service should learn from and apply insights from those who have studied how agencies tend to mistreat individuals, or as Professor Edward Rubin frames the discussion, engage in bureaucratic oppression. The Service and Congress can best ensure improvements to administering the EITC when policymakers understand both the specific functions that are associated with delivering benefits and the common barriers that low-income individuals face when interacting with government agencies.

This Article applies insights from scholars outside the tax perspective who have examined functions associated with benefits programs and barriers associated with successful benefit delivery. Those perspectives reveal that the Service faces many challenges if it wishes to administer the program well. The Article suggests possible ways to counter agency mistreatment. By isolating the functions and barriers in the context of the delivery of benefits, this Article takes the small but important step of highlighting the Service’s role in the nation’s efforts to combat poverty and provide incentives to the working poor.

Keywords: Earned Income Tax Credit, Tax Administration, Poverty, Adjudication

JEL Classification: D63, I31, K34