When Republicans in Congress were developing the Working Families Tax Cuts (WFTC) last year, members from across the conservative spectrum signaled their intention to offset new spending and revenue loss by reducing government spending. This is easier said than done. Programs throughout the federal government are saddled with unneeded spending, with many taxpayer dollars going to unintended recipients, fraudsters who skim money that is meant for others, and some Americans who simply don’t need the money. Assessing the scale and scope of these issues can be difficult, partially due to obfuscated government data reports. Once a problem is identified, it can be very hard to fix, thanks to entrenched special interests who benefit from this government largess. As a result, it takes real fortitude to do the work needed to actually cut waste, fraud, and abuse. But the Working Families Tax Cuts did just that, in agencies across the federal government.
The WFTC required a valid Social Security Number (SSN) for a variety of federal benefits and credits, including Medicaid, Supplemental Nutrition Assistance Program (SNAP), and Child Tax Credits. This SSN restriction was also added to new WFTC tax benefits, including the senior deduction, no tax on tips/overtime, Trump Accounts, and college education tax credits. The Administration estimates that these provisions could save taxpayers $185 billion in fraudulent benefits over the next decade.
When Congress passed the Affordable Care Act (ACA) in 2010, Republicans in opposition to the bill expressed concerns about ballooning costs for taxpayers. They were right. Much of the explosion in ACA spending is related to the “temporary” expansion of COVID benefits approved by Congress in the 2021 American Rescue Plan Act, which cost taxpayers billions on its own. The Congressional Budget Office (CBO) estimated that extending these COVID-era credits would increase the deficit by $335 billion over ten years. Several Biden Administration rules also increased costs by increasing improper enrollment, while the federal government allowed states to charge the federal government “provider taxes” on Medicaid revenue to receive even more money, with fewer strings attached. The WFTC added a number of provisions to combat this waste, including adding work and community service requirements for able-bodied adults to receive Medicaid, restricting provider taxes to help end state Medicaid “money-laundering,” and requiring that enrollees are actually alive and not enrolled in more than one state. These provisions will reduce the federal deficit by over $1 trillion over the next decade, while restraining the level of cost growth in federal health care programs.
Able-bodied work requirements were also added by WFTC to those who receive SNAP benefits, saving taxpayers roughly $186 billion over 10 years while increasing employment and the quality of life of thousands of Americans who should be working. Now all working-aged Americans under the age of 64, including parents with children over 14 years of age, will be required to work or perform community service at least 20 hours a week. Other taxpayer protections were added by WFTC to the SNAP program, including requiring a higher cost share for states that have high payment error rates and limiting the ability of future administrations to increase benefit amounts by executive action.
One controversial relic of the COVID era was finally ended by WFTC: the Employee Retention Tax Credits. Ever since the creation of the credits by the CARES Act in 2020, there has been a virtual tsunami of questionable claims filed by individuals and businesses across the country. Estimates show that 70% to 90% of claims to this program were potentially fraudulent, with the program costing taxpayers over $300 billion. WFTC made a series of taxpayer-friendly program changes to help unwind this program, including adding a retroactive bar on late claims, extending the statute of limitations for the IRS to review potentially fraudulent claims, adding a new penalty for organizations that promoted the program using contingent fees, and expanding penalties for erroneous claims. These needed changes will save taxpayers billions of dollars.
Congress and the President deserve praise for adding these important taxpayer protections to the WFTC. Each of the provisions were passed in the face of lobbying efforts from those who benefited from the status quo, and still fight to roll them back even today. Those who serve taxpayers will need to be vigilant to help Congress keep these provisions in place going forward.
Tax reductions—even those that serve a broad base of Americans—should be offset by reducing spending. This is not easy to do, but the WFTC shows that Congress can do the job when needed. With a national debt of over $39 trillion, more spending reductions are needed, but the WFTC showed that Congress is up to the task.