U.S. Seeks Confidential Tax Data to Curb Benefit Fraud

The Reagan Administration, widening an already controversial dragnet for welfare cheats and other federal freeloaders, plans to seek broader authority to use confidential tax data and other computer files to double-check the claims of applicants for five huge federal loan and benefit programs.

The proposal, to be submitted to Congress late next month, is drawing fire from civil libertarians and some legislators who worry that the computer files could be misused or expanded into vast data banks on individual citizens. But the Office of Management and Budget dismisses the charge, saying that the program could weed out as much as $300 million a year in bogus and erroneous claims.

“This isn’t an infringement, and we’re asking for very little in the way of records,” OMB spokesman Steve Tupper said Monday. “We’re just asking for the states to do a little more checking because we’re losing $300 million a year that’s going out to the wrong people.”

Under the OMB proposal, Internal Revenue Service data on taxpayers’ “unearned income” from such sources as stock dividends, bank interest and rent would be provided to government overseers of five major federal programs: veterans’ benefits, Pell college grants and guaranteed student loans, low-income housing aid, coal miners’ black-lung benefits and federal employee benefits. The five, all frequent targets of OMB budget-cutters, are among the fastest-growing and most politically sacred government benefit programs.

The information would be computer-matched with lists of benefit applicants to ensure that the applicants have not tried to hide income that would disqualify them from eligibility for grants or loans.

In a bid to cut Medicare and other health-program expenses, the Administration also will seek to list enrollees in company-sponsored health insurance programs. Individual claims for health benefits would be matched against the list to determine whether private insurers are liable for payment.

Congress voted with little dissent in 1984 to require state welfare offices to check IRS tax data on applicants for federal programs such as food stamps, unemployment insurance and Aid to Families with Dependent Children. Most states have complied, but it is too early to gauge the program’s success, federal officials say.

Car Registrations

Civil liberties advocates have protested that federal officials have encouraged the states to go beyond the limited IRS records and collect data on such income indicators as automobile registrations.

“We all want to improve government efficiency, but we have to weigh the privacy problems that computer technology potentially could cause,” said Gary Bass, executive director of OMB Watch, a Washington-based watchdog group. The group contends that the states lack the experience and privacy safeguards to be trusted with “dossiers” on individuals’ finances.

Skeptics in Congress are concerned that Congress--which took charge of all disclosures of tax data after the Watergate political scandal tarnished the IRS--is relaxing its control too hastily. Congress has voted 25 exceptions to the tax-disclosure rule since it was enacted in 1976, a Senate legislative aide said.

Fears Privacy Abuses

Sen. William S. Cohen (R-Me.), whose Government Affairs subcommittee likely will review the OMB legislative proposal, is concerned that open-ended disclosure of confidential tax data will lead to privacy abuses and undermine ordinary citizens’ willingness to file accurate tax returns, the aide said.

OMB officials say that the actual release of IRS information would be minuscule, largely involving the 1099-E forms that some taxpayers file to report income from investments and the like. Insurance rosters would be compiled by asking citizens to state on their W-2 withholding forms whether they are covered by a company-sponsored health plan.