Immigration is once again threatening to jam up congressional action, this time on tax legislation.
Conservatives' concerns about benefits flowing to illegal immigrants are a major sticking point in negotiations over the package of tax breaks known as "extenders."
Congressional negotiators last week were working toward a deal to reauthorize, and in some cases expand or make permanent, a grab bag of dozens of expired and expiring tax provisions worth almost $1 trillion on a 10-year basis.
Most of the tax provisions affect businesses, but President Obama and congressional Democrats have long insisted that tax breaks for low and middle-income earners be added to the mix.
In particular, they want to re-up the expansions Obama's 2009 stimulus legislation made to the earned income tax credit and the child tax credit, currently slated to phase out in 2017. Senate Minority Leader Harry Reid said last week that further negotiations were dependent on the expanded child tax credit being indexed for inflation. Currently, the $1,000-per-child credit is not linked to inflation, meaning that its value decreases every year.
That is where Democrats will run head-on into congressional conservatives, who do not want to see the low-income tax credits expanded unless the IRS can cut the high rate of wrong payments.
"Conservatives in the House are going to be keenly focused on these two extenders," said Rep. Bill Flores, R-Texas, chairman of the Republican Study Committee, a group of conservative House lawmakers. The two tax credits will "have to have integrity improvements" if negotiators want conservatives' votes, Flores said.
A similar effort to pass ambitious extenders package last year died at the last minute partly because of conservative worries about fraud and improper payments through the two tax credits. Congressional negotiators will have to reckon with those concerns if they want to send legislation to the president that does more than kick the can down the road another year.
About a quarter of benefits through the earned income tax credit and the refundable part of the child tax credit are made improperly, according to the most recent estimates from the Treasury Inspector General for Tax Administration. Together, the tax credits account for $22 billion in improper payments annually, more than the federal government spends on cash welfare.
In addition, a significant amount of the improper payments in the refundable portion of the child tax credit, $4.2 billion in 2010, went to illegal immigrants, the inspector general found.
"It's something that certainly Congress needs to address," said Chris Chmielenski, a director at NumbersUSA, a group that advocates for less immigration. "It's something that entices illegal aliens to come to the United States, it's a reward for being in the country illegally, and it's certainly costing taxpayers a ton of money."
It's a concern that has taken on added importance following a string of immigration-related controversies. Most importantly, Obama's 2014 executive actions on immigration have exacerbated concerns about improper payments.
Those actions gave certain illegal immigrants access not only to the tax credits, but also to back benefits for credits they were unable to accrue before the executive actions.
Currently, illegal immigrants can claim the child tax credit with only an individual taxpayer identification number, which the IRS issues to workers who need a taxpayer identification number for tax purposes but are not authorized to work.
To claim the earned income tax credit, by contrast, workers need a Social Security number, thanks to a measure included in the 1996 welfare reform bill. Obama's 2014 executive actions, however, will allow certain illegal immigrants to apply for Social Security numbers, meaning they would be eligible for both credits.
That's a problem for groups concerned with illegal immigration as well as conservative lawmakers. "One of the things we should not do is we should not pay illegal aliens to stay in this country," said David North, a fellow at the Center for Immigration Studies, a think tank skeptical of mass immigration.
The improper payments to illegal immigrants, though, are minor compared to the revenue those workers contribute through payroll taxes, argued Matt Gardner, executive director of the Institute on Taxation and Economic Policy, a nonprofit left-of-center think tank.
Gardner noted a 2013 Social Security Administration study finding that illegal immigrants pay $12 billion annually into Social Security, pointing out that those workers won't get retirement benefits. Allowing such workers to stay in the tax system is, on net, advantageous for taxpayers.
"What's ironic to me is that this conversation is embedded in the context of this extenders debate," Gardner said, noting that many of the extenders are corporate tax breaks that might not serve "any meaningful purpose at all."
Flores said Congress has a "fiduciary" duty to ensure that taxpayer money is not paid out wrongly and that immigration-related concerns are merely a "tangent."
The problem could be solved with reforms to program integrity that wouldn't require added funding for the IRS, he said. He also referred to the possibility of Congress passing legislation requiring filers to have valid Social Security numbers to claim benefits and designating the child tax credit a high-risk program for Government Accountability Office oversight so it would get more oversight.
Gardner agreed that the technical barriers to the IRS decreasing improper payments were low. But the benefits of doing so would be outweighed by lost revenue from payroll taxes and the costs of lost credits to families who are the intended beneficiaries.