Immigration furor may thwart push to expand tax credit

Both President Obama and Rep. Paul Ryan (R-Wis.) want to expand a key tax break for the working poor, but any hopes for a bipartisan compromise face a familiar obstacle – immigration reform.

In his latest budget, Obama proposed giving adults without children greater access to the Earned Income Tax Credit (EITC), a benefit that in some cases gives working families refunds from the government.

Ryan, the chairman of the House Ways and Means Committee, has sounded open to that idea as well, noting that conservatives and Republicans have long been fans of the EITC and its work requirements.

But as a Senate hearing this week showed, the strident debate over Obama’s move late last year to shield millions of illegal immigrants from deportation could undercut any efforts for EITC expansion.

{mosads}Obama’s order allowed undocumented immigrants to seek work authorization. That work permit would pave the way for a worker to get a Social Security number, which in turn would allow her or him to claim the EITC.

Not only that, Eileen O’Connor, who ran the Justice Department’s tax division under George W. Bush, noted at the Senate Homeland Security Committee on Wednesday that workers who acquire a Social Security number would then be able to amend returns from the previous three years to claim the earned income credit.

The committee’s chairman, Sen. Ron Johnson (R-Wis.), and Sen. Ben Sasse (R-Neb.) latched on to that testimony on Friday, urging Treasury’s inspector general for tax administration to take a deeper look at what they termed “amnesty bonuses.”

“By subsidizing illegal entry with four years’ worth of new tax credits, the IRS would promote lawlessness,” Sasse said. “This program severely undermines the White House’s lip-service to enforcing the law and would increase the burden on law-abiding taxpayers.”

Lawmakers already faced their fair share of obstacles in expanding the EITC, in large part because Republicans and Democrats are deeply divided over how to overhaul the tax system for individuals – to the point that the Obama administration has advocated that Washington focus on business tax reform.

On top of that, the immigration debate has already impeded congressional efforts on the earned income credit. Democrats had sought to permanently extend current expansions of the EITC, set to run out in 2017, in negotiations over expiring tax breaks late last year.

But Republicans balked, in large part because they wanted to ensure that illegal immigrants couldn’t access the EITC or the child tax credit – another key Democratic priority.

Aides on Capitol Hill said this week that they expected the immigration debate to continue to hinder any negotiations over the EITC.

Ryan himself, along with other GOP lawmakers, has long complained about the increased amounts of fraud associated with the EITC.

Reps. Charles Boustany (La.), Sam Johnson (Texas) and Peter Roskam (Ill.), all senior Republicans on the Ways and Means panel, on Friday insisted that lax scrutiny of self-employment income allows tens of thousands of people to wrongly claim the EITC.

At a hearing on Tuesday, Ryan and Treasury Secretary Jack Lew both talked fondly of the EITC and outlined potential ways to expand it.

“Many of us agree that there are other populations that this reform could be applied to — say, childless adults. Let’s see if we can make the reforms pay for these improvements,” Ryan said, referring to efforts to contain fraud within the program.

“So, if we can contain it within itself, I think that would be an enormous step in the right direction and that, too, could perhaps lead to a bipartisan, common ground success.”

But even that statement underscored the challenges Congress will face in finding any deal on broad tax changes for individuals. Rep. Richard Neal (D-Mass.), a senior Ways and Means member, noted at Tuesday’s hearing that the panel was set the next day to vote to permanently extend a string of expired tax breaks for good.

“If we’re to apply the logic of not paying for things based upon what we’re to do tomorrow,” Neal said, “perhaps we should just expand EITC and not have it paid for.”