Framing Tax Enforcement Against the Poor Through Catholic Social Teaching
W. Edward Afield
What makes for just tax policy? As Professor Hamill observes in her Canopy Forum piece on the estate tax, tax policy “is ultimately a justice-based ethical issue” that naturally connects to the values underlying a citizen’s perception of justice. Law and religion scholars have been paying greater attention to tax policy, with primary focus on questions of front-end tax system design. This focus has been understandable, as these questions of design appear to connect most readily to religious values about how burdens and resources should be distributed in a society, and what is the obligation of the citizen to comply with laws that direct a portion of his or her property to the government. Thus, evaluation of tax policy through a religious lens has most frequently focused on the important questions of what an appropriate rate of taxation should be; whether a tax system should be progressive; the nature of the moral obligation of citizens to comply with secular tax laws; and how religious framing of this obligation could potentially improve tax compliance.
This initial work is incomplete, however. In addition to applying a religious lens to the front-end design questions, law and religion scholars need to spend more time wrestling with the back-end administration and enforcement questions. Administration and enforcement of the tax laws can have considerable impact over whether a system of taxation is just – as the public is perhaps beginning to learn through the recent debate regarding increasing the IRS’s enforcement budget. Focusing value-based tax policy arguments primarily on the legislative component at the expense of the administrative can, even if successful, result in the Pyrrhic victory of legislative justice gains that are subsequently undermined by administrative failures.
In recent years, administration and enforcement issues have begun to draw the attention of tax scholars more generally and have certainly been a point of emphasis for the National Taxpayer Advocate. It is time for law and religion scholars to join them. The IRS increasingly plays more of a role in the lives of our most economically vulnerable, both in regards to how taxes are collected and how public benefits are administered. The presence of the IRS in the lives of the economically vulnerable is set only to increase, as evidenced by the recent use of the IRS to administer COVID-19 economic stimulus payments and to manage a monthly payment of the child tax credit. Religious evaluation of tax policy most often starts from the value of the burden that we place on the poor, and that burden is often nowhere more acutely experienced than in how the poor interact with the IRS.
In regards to the religious social teaching tradition with which I am most familiar, Catholic social teaching (CST), three pillars are relevant to how the IRS administers the tax system for the most economically vulnerable. The Pontifical Council for Justice and Peace’s Compendium of the Social Doctrine of the Church, in arguing that “[p]ublic spending is directed to the common good when certain fundamental principles are observed,” describes “the payment of taxes as part of the duty of solidarity; a reasonable and fair application of taxes; precision and integrity in administering and distributing public resources.” Mentioned specifically in this statement are the principles of solidarity and the common good. In addition to these principles, “a reasonable and fair application of taxes,” combined with “precision and integrity in administering and distributing public resources” with a focus on the “common good,” should be read to involve two other pillars of Catholic social teaching: subsidiarity and the preferential option for the poor. Both of these principles would need to be advanced in any tax system that claims to be distributionally reasonable and precise in its administration. Although other principles of Catholic social teaching could likely be implicated to a lesser extent in tax enforcement, the starting point for a Catholic social teaching critique of tax enforcement should be these foundational principles: subsidiarity, solidarity, and the preferential option for the poor.
These CST principles have been invoked by scholars who support a progressive tax system – one that would not overly burden the poor, and would support a duty of the citizenry to comply with just tax laws. When the United States Conference of Catholic Bishops addressed tax policy, as it did in Economic Justice for All: Pastoral Letter on Catholic Social Teaching and the U.S. Economy (1986), the bishops noted that “[t]he tax system should be continually evaluated in terms of its impact on the poor.” These principles are just as relevant, however, in determining whether an enforcement and collection regime effectively advances the same goals or rather undermines them.
Source: “St. Thomas in Rome” / Lawrence OP / CC BY-NC-ND 2.0
To begin looking at whether IRS enforcement and collection practices advance or undermine these CST principles, the most logical starting point of analysis is the area in which administration and enforcement most directly intersect with the lives of the most economically vulnerable: the administration of the Earned Income Tax Credit (“EITC”). Administration of the EITC directly implicates all three of these CST principles and, unfortunately in many respects, does not advance these principles as well as the legislation that created these credits.
Before diving into how these CST principles might suggest changes to tax administration for the poor, however, it is worth briefly sketching what these principles are. Subsidiarity, as described by Pope Pius XI in Qudragesimo Anno 79–80 (May 15, 1931), stands for the principle that “it is an injustice and at the same time a grave evil and disturbance of right order to assign to a greater and higher association what lesser and subordinate organizations can do.” Saint Pope John Paul II describes solidarity, on the other hand, in Sollicitudo Rei Socialis 38–39 (Dec. 1987), as “a firm and persevering determination to commit oneself to the common good; that is to say to the good of all and of each individual, because we are all really responsible for all.” Another John Paul II encyclical, Centessimus Annus 57 (May 1, 1991), provides the most concise description of the preferential option for the poor: “The Church’s love for the poor, which is essential for her and a part of her constant tradition, impels her to give attention to a world in which poverty is threatening to assume massive proportions in spite of technological and economic progress.” John Paul II also notes how this option can potentially find expression in Western countries in which “different forms of poverty are being experienced by groups which live on the margins of society, by the elderly and the sick, by the victims of consumerism, and ever more immediately by so many refugees and migrants” (Id).
What do these CST principles have to contribute to how the tax laws are administered with respect to the poor? This is a timely question. The recent expansion of the child tax credit, combined with recent media coverage in Pro Publica about the high audit rate of EITC recipients, has raised the question to the broader community of taxpayers about whether our system of tax enforcement reflects the values we would like it to. To the extent that a CST critical lens on enforcement can offer additional moral arguments supporting reform proposals favoring the economically vulnerable, this focus can help overcome oppositional arguments that claim such reforms primarily provide benefits to individuals undeserving of them.
While the EITC is not the only element of the tax code that impacts the poor, its importance, combined with its outsized role in tax administration, makes it a prime candidate to serve as an initial subject for a CST-focused analysis of tax enforcement. The EITC is the most effective means-tested federal anti-poverty program. The federal government administers the credit through the tax code, providing its greatest benefits to low-income working taxpayers supporting children. On its face, the EITC is a policy that should draw considerable support from Catholic social teaching. The EITC provides a significant benefit for the poor through a reasonably efficient legislative mechanism, while bolstering families and valuing the dignity of work — all of which would appear to be intentional goals of the legislation establishing the credit. While the establishment of a national credit (as opposed to a state or local one) might not seem to directly advance the principle of subsidiarity at first blush, it does not take much of an analytical lift to recognize that these goals do advance the principles of solidarity and the preferential option for the poor.
The EITC should be celebrated as an example of a policy that advances solidarity and the preferential option for the poor, even though it is doubtful that Congress was explicitly thinking in these terms in establishing the credit. In providing a mechanism not only to reduce the tax burden but also to distribute cash payments to the most economically vulnerable, particularly to those supporting a family, our society, through the EITC, is responding to Saint Pope John Paul II’s call to “feel responsible for the weaker and be ready to share with them all they possess.” Sollicitudo Rei Socialis 39 (Dec. 1987). Furthermore, the EITC’s redistributive and welfarist benefits reflect a policy that appears to be consistent with the United States Conference of Catholic Bishops’ argument in Economic Justice for All (at 45) that “families below the official poverty line should not be required to pay income taxes. Such families are, by definition, without sufficient resources to purchase the basic necessities of life. They should not be forced to bear the additional burden of paying income taxes.”
EITC administration and enforcement, however, threatens to undermine these benefits. This threat becomes readily apparent when looking at how the IRS prioritizes policing EITC noncompliance and the steps that it takes when suspicious of potential noncompliance. Although the overall audit rate for taxpayers nationally has been quite low for some time, the EITC is nevertheless subject to a high audit rate. Indeed, as Paul Kiel and Hanna Fresques demonstrated in a detailed piece in Pro Publica, the poorest counties in the country paradoxically have some of the highest audit rates because of the enforcement focus on the EITC. In addition, once an EITC claim is selected for audit, one of the most commonly used tools that the IRS uses is a refund freeze, in which the IRS delays issuing a refund to some EITC claimants while their claim under examination. The IRS uses this process under the theory that it is more difficult to claw back improperly issued payments than it is to avoid issuing them in the first place. But these refund freezes can have negative consequences for the taxpayers who are selected for audit but who are nevertheless entitled to the credit, as the frozen refund can lead to these taxpayers not being able to meet their basic living expenses and having to navigate a complex web of procedures often requiring the assistance of a tax practitioner.
The IRS’s budget woes are not a secret at this point, and one of the consequences of the agency’s limited resources is that it simply does not have the capacity to investigate all forms of tax noncompliance. Like any law enforcement agency, the IRS has to make strategic decisions about how to prioritize its enforcement efforts, but those choices become just as much value judgments as do the legislative choices that create the tax code. For the EITC to remain a bulwark for the economically vulnerable, citizens have to continue to support it as being reflective of their values. What do those citizens who would like to see the tax system reflect the values of CST see when they hear about how the EITC is administered and policed?
Rather than advancing a preferential option for the poor grounded in solidarity in its audit selection processes, the IRS is adopting a preferential option for auditing the poor, grounded in self-interest. As Professor Karie Davis-Nozemack has demonstrated, in choosing to prioritize its enforcement resources towards EITC audits, the IRS is prioritizing enforcement that is less resource intensive, as well as less likely to meet taxpayer resistance over enforcement against higher net worth individuals and against entities that may have more complicated returns – and a higher likelihood of obtaining representation. When it comes to auditing the poor, the government is also much more concerned with preventing an improper payment from going out than it is with making sure critical economic relief goes to those who need it in a timely manner.
Given the choice between having more improper payments as a cost of quickly distributing relief versus having some economic relief improperly delayed, or even denied, as a cost of preventing improper payments, IRS enforcement practices fall squarely in the latter camp. Making matters potentially worse, the U.S. Treasury Inspector General for Tax Administration (“TIGTA”) has argued that the IRS should be taking even more aggressive enforcement action, despite the Treasury Office of Tax Analysis observing that, even when credits are mistakenly issued, “a substantial portion of erroneous EITC claims likely helped support children in low-income families despite those children being claimed in error.” In short, the current state of EITC enforcement is indicative of the government treating the poor with suspicion – arguably with more suspicion than with which the government treats the rich – and of utilizing overly broad enforcement methods that may indeed prevent fraud but that also impact too many taxpayers entitled to the credit.
Of course, given the fact that there isa high EITC improper payment rate of approximately 24% of claims, the government does have an obligation to try to prevent these claims from occurring, and CST would not suggest otherwise. Indeed, both solidarity and the preferential option for the poor would require that the government be a good steward of its resources so that they could be appropriately used to benefit the economically vulnerable, which would require policing noncompliance wherever it is found. That obligation, however, does not justify an enforcement regime in which the IRS uses its limited enforcement resources to scrutinize the poor more heavily than it does the rich, particularly when it comes to delivery of benefits that are intended to provide economic relief to the poor.
I have thus far used EITC enforcement as my primary example. The need for IRS enforcement reform, however, likely will spread beyond EITC enforcement as the IRS is increasingly called upon to administer programs designed to provide economic benefits to the poor, as evidenced by the recent use of the IRS to administer economic impact payments and advanced payments of the child tax credit during the COVID-19 pandemic. This is where subsidiarity comes in. There is a temptation to think that subsidiarity does not have much of a role to play in evaluating the enforcement practices of a large federal agency. Federal tax enforcement and administration is, after all, national by definition. If solidarity and the preferential option for the poor are the values that should inform enforcement priorities, subsidiarity is the value that suggests how even national enforcement can be improved through a more specialized focus.
As Nina Olson has pointed out both during and after her time as National Taxpayer Advocate, the IRS’s mission has evolved so that the IRS is no longer solely responsible for collecting revenue but is also responsible for administering significant social benefit programs. As a result, under the IRS’s current administrative model, the administration of these benefits is combined with other enforcement and service elements for which the IRS is responsible. This is one of the reasons that EITC claims have such a high enforcement rate compared to other tax compliance issues. Mission expansion, combined with an unwillingness to segregate benefits administration into a separate unit, has resulted in an IRS that cannot both enforce tax laws and administer benefits for the most economically vulnerable with efficiency and fairness. In short, the IRS suffers from a lack of subsidiarity.
Proposed solutions to this lack of subsidiarity have ranged from Kim Bloomquist’s suggestion to move benefits programs such as the EITC from the IRS to the Social Security Administration to Nina Olson’s idea of the IRS creating a division solely dedicated to programs that depend on taxpayer family status (which all of the significant benefits programs do). What these proposals have in common, even if they do not directly reference the principle of subsidiarity, is a belief that it is insufficient for the government simply to charge one of its agencies (in this case) with adding benefits administration to its already long list of enforcement and service tasks that surround revenue collection more broadly. Rather, whether it creates a separate unit within the IRS or tasks another agency that is more accustomed to administering social benefits, the government must localize the benefits function within the federal bureaucracy.
In other words, tax enforcement cannot fully advance the preferential option for the poor in solidarity without adopting a more subsidiarity focused enforcement regime that recognizes that, even within the context of federal enforcement, there is a need for more localized solutions, particularly in regards to federal government’s efforts to help the economically vulnerable.
In the coming months, there is likely to be more talk about tax enforcement as the government debates providing more resources to the IRS. While providing an appropriate budget to the IRS is important, it would be a shame if the debate about tax enforcement stopped at the question of whether the IRS has sufficient resources. How the government administers the tax laws is just as reflective of society’s values as the tax laws themselves.
For those citizens whose value system is rooted in Catholic social teaching, they can look at the increasing growth of tax laws that provide benefits to the poor, and they can see their values reflected in their tax code. They will not, however, see their values similarly reflected in the enforcement of these laws. Because CST does not have a monopoly either among religious traditions or among secular value systems on emphasizing care for the poor, other citizens whose values prioritize the poor are likely to experience similar dissonance in comparing the tax laws to their administration.
The present moment offers an opportunity for these citizens to bring these values into the enforcement debate in order to remind the government that more enforcement resources, while necessary, are not sufficient unless they support enforcement values that match the underlying values of the laws themselves. ♦
W. Edward “Ted” Afield is the Mark and Evelyn Trammell Clinical Professor and Director of the Philip C. Cook Low-Income Taxpayer Clinic at Georgia State University College of Law, one of the largest academic low-income taxpayer clinics in the country. Professor Afield was previously on the faculty at Ave Maria School of Law, where he also served as Associate Dean for Academic Affairs. His research focuses on a range of tax procedure issues relating to tax compliance and professional regulation, state and federal tax issues that impact educational policy, as well as more practice focused doctrinal research into tax procedure for the practicing bar and, in particular, for the community of low-income taxpayer clinics.
Afield, W. Edward. “Framing Tax Enforcement Against the Poor Through Catholic Social Teaching.” Canopy Forum, October 28, 2021. https://canopyforum.org/2021/10/28/framing-tax-enforcement-against-the-poor-through-catholic-social-teaching/