Case in point: Employee Retention Tax Credit. It is a pandemic-era policy enacted to protect jobs from the downturn caused by lockdowns. This was exploited by the bad guys and turned into a scam that cost taxpayers more than four times as much as he expected Congress to do. The Internal Revenue Service has repeatedly warned that the program is rife with corruption. But it’s still on the books. In fact, IRS Commissioner Danny Wuerffel said during Thursday’s House Ways and Means Committee hearing that nearly 20,000 more applications were filed in the previous week.
The program’s original objectives were sound enough when Congress created it at the height of economic uncertainty in 2020. The plan was to help companies keep their employees on the payroll for as long as possible, despite the loss of income caused by the pandemic. As originally planned, the credit would cover approximately half of wages from March 13, 2020 to December 31, 2020. Congress then extended the credit through December 2021, increased maximum payments, and made eligibility criteria more flexible. According to the Congressional Budget Office, the ERTC was originally expected to cost $55 billion, but has so far cost $230 billion.
People quickly understood how to use this system. In 2023, new claims poured in and the Treasury began draining funds. Werfel said new applications are coming in at a rate of 70,000 per week, which is an unusual amount for the costs expected to be incurred in 2020 and 2021. Much of this surge has been fueled by companies with unscrupulous advertising touting the programs as an easy way out. Become wealthy. Companies offer to file insurance claims on behalf of employers (in exchange for a portion of IRS payments). The IRS confirmed that many of the claims were against companies that didn’t even exist or had no employees during the pandemic. When the IRS suspended processing of these claims in September to weed out unwarranted claims, Werfel said, “We should only be seeing a small amount of retention claims coming in. Instead, we’re seeing a tsunami.” Stated.
The agency is still grappling with that challenge. Congress should immediately eliminate the Employee Retention Tax Credit. Ideally, this would happen with Senate passage of the bipartisan tax bill that the House passed by a vote of 357-70 in late January. That would be until April 15, 2025, as provided in the current law, which instead included a provision making January 31 the last day for filing an ERTC application. There will also be tougher penalties for promoters who misuse credits. The savings over the next five years are estimated at $78 billion.
The bipartisan tax bill redirects that money to more legitimate uses. The main one is to help low-income families with children by expanding the child tax credit. It would also reinstate expired business tax cuts for a variety of needs, but this is an art of legislative compromise. Senate Republicans have threatened to block the bill primarily for political reasons. Because they don’t want to give President Biden a victory in an election year. Their policy objection that the bill lacks strict enough work requirements to qualify for the child tax credit is overstated. An eligible parent or guardian must have worked at some point during her two years prior to receiving the credit.
If Senate Republicans simply refuse to stop blocking the bipartisan tax bill, Congress’ best option to eliminate the employee retention tax credit would be during the budget process in March. We strongly encourage legislators to take advantage of this. In addition to the fraud being completely outrageous, small businesses with legitimate claims are unable to process their claims. Because bureaucratic pipelines are clogged with fake claims. This program should not be left open for additional applications. The idea that the federal government would borrow a single penny, let alone the billions it actually owns, to fund such an obvious rip-off of taxpayers is unconscionable. The only thing worse was not being able to stop it.