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Blame Congress, As Well As H&R Block And IRS, For College Tax Credit Mess

Far be it from me to let either the Internal Revenue Service or tax prep giant H&R Block off the hook for the current mess which has delayed refunds for more than 600,000 taxpayers claiming college tax credits by up to eight weeks. In addition to their operational missteps, both did a poor job (at least initially) of communicating with taxpayers who desperately need those refunds to pay tuition or other bills.

But let’s put some of the blame where it rightly belongs: on the Washington politicians. For more than two decades, Congress has been expanding  “tax expenditures” with little regard for how complicated such provisions might be for taxpayers to use and for the IRS to administer,  let alone for whether they do enough good to justify their cost and the economic distortions they create.  A new 1065-page Congressional Research Service compendium lists 250 different tax expenditures. There are special deductions, exclusions and credits for everything from health insurance, retirement savings and hiring the disadvantaged to Nascar racetracks, windmills and oil drilling.

In recent years, some of the highest octane individual tax breaks have come in the form of “refundable” credits. While a deduction or income exclusion reduces your taxable income, credits reduce your tax bill dollar for dollar. When a credit is refundable, a family can get back even more than it paid in tax. Congress first adopted the $2,500 American Opportunity Tax Credit for 2009 and 2010 as part of the February 2009 $787 billion stimulus package, extended it through 2012 in the December 2010 tax deal, and extended it again, through 2017, as part of the fiscal cliff tax deal.

 

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