By Sean Luechtefeld on 02/20/2013 @ 10:30 AM

Tags: EITC, Entrepreneurship

For the second time, Citi has created Money Matters, a free publication available in English and Spanish that is customized for a number of states across the country. This four-page publication is designed to enable hard-working taxpayers to take advantage of the tax benefits that are available to them, and provides information on savings, claiming the EITC, and connecting with local organizations. Most importantly, Money Matters provides lists of local Volunteer Income Tax Assistance (VITA) sites, where IRS-certified volunteers provide free assistance with preparing and filing tax returns.

One of the most important services that these volunteers provide is to ensure that working people claim the benefits to which they are entitled, like the Earned Income Tax Credit (EITC), which can result in substantial tax refunds.

The Money Matters publication provides details about the EITC, the availability of free tax preparation services through the VITA program of the Internal Revenue Service (IRS), partner spotlights and helpful tips on how to save your money and make the most of your tax return.

To read the Money Matters publications, visit the Citi Community Development website today.

By Katie Wright, Guest Contributor on 01/28/2013 @ 11:30 AM

Tags: EITC

EDITOR'S NOTE: This infographic originally appeared on the Center for American Progress (CAP) website. Katie Wright - a former CFED Fellow - is a Research Associate with CAP's Half in Ten Campaign.

Many low- and moderate-income families will claim the earned income tax credit this tax season—and all Americans will reap the benefits. In the recent fiscal showdown deal, Congress voted to continue the 2009 expansions of the earned income tax credit, which also acknowledged the increased costs to families raising three or more children and corrected the “marriage penalty,” by which some married couples risked losing a portion of their earned income tax credit for the five years following their union.

Not only does the earned income tax credit keep millions of working families from slipping into poverty each year, it also leads to positive outcomes for family health and student education. Earned income tax credit dollars benefit our economy, and most families who receive the credit end up paying billions of dollars more in net federal income tax than they receive in the earned income tax credit over time. With the 2012 tax season kicking off next week and today being Earned Income Tax Credit Awareness Day, now is the time to get the facts on one of the most important tax credits helping to ensure that work pays for working families.

By Sean Luechtefeld on 01/22/2013 @ 08:30 AM

Tags: EITC, Federal Policy

The announcement below is an advertisement for the EITC briefing that our friends at the National Community Tax Coalition are hosting in recognition of Friday's Earned Income Tax Credit Awareness Day. If you're in Washington, we hope you'll consider attending Thursday's briefing.

By Elvis Guzman on 06/07/2012 @ 12:15 PM

Tags: Assets & Opportunity Initiative, EITC, Local Policy, Policy Alerts

The Earned Income Tax Credit (EITC) is one of the strongest public benefit programs that help to reduce poverty and is mainly intended to increase the incomes of low-wage families with children. Over 27 million families claimed the federal EITC in 2009. The amount of the credit depends on the recipient’s income, marital status, and number of dependent children. In 2010, the federal EITC lifted 6.6 million people (including 3.3 million children) out of poverty. Twenty-five states, plus the District of Columbia, supplement the federal credit with their own state-level versions of the EITC. States typically calculate the credit as a percentage of the federal EITC and most programs are refundable.

For years this program has been praised by both major political parties; in fact, the federal EITC was first proposed by the Nixon administration and was later expanded by administrations from both parties. State EITCs, however, continue to face political challenges. Following is a brief overview of changes or proposals to state-level EITC programs in the past year.

Threats
In the wake of the recent economic recession, state EITCs have been part of several public programs targeted for possible austerity. Recent fiercely contested battles in Kansas and Oklahoma demonstrate the strong opinions surrounding the credit. Kansas Governor Brownback proposed to eliminate the EITC and Child and Dependent Care Tax Credit (CDCTC), along with the state’s income tax. Ultimately, legislative negotiations resulted in a “compromise” where the EITC was left intact, while the CDCTC and other provisions were eliminated. Similarly, Oklahoma Governor Fallin proposed to eliminate the state’s EITC, CDCTC and Child Tax Credit (CTC), to help fund the elimination of the state’s income tax. After similar bills passed the House and Senate, groups advocated critically against these cuts. Ultimately, both chambers could not come to an agreement and no tax reform was passed in the recent legislative session.

EITC programs in other states faced similar legislative challenges. In 2011, Michigan legislators voted to decrease the state’s EITC rate from 20 to 6 percent of the federal credit. Earlier this year, House Bill 5407 was introduced to amend these changes but has made little progress. North Carolina’s EITC is set to expire at the end of this year. After the legislature proposed eliminating the credit in 2011, this year a bill was introduced and is under consideration in the House and Senate to extend the EITC, CTC and CDCTC. In Iowa, the Senate passed Senate File 2161 to increase the EITC from the current 7 percent to 20 percent of the federal credit by 2014. Governor Branstad, gave his support for an increase in the EITC if commercial and industrial property taxes were cut in a reform package. The state legislature ended its session in May with no agreement on a bill.

Wins and Opportunities
While the economic recession has posed threats to existing state-level EITC programs, some states have proposed or enacted legislation to improve this credit. After a long push by local advocates dating to 2003, in late 2011 Illinois passed a bill that doubled its credit to 10 percent of the federal EITC over the next three years. The measure also increased the personal exemption and indexed it to inflation. In New Jersey, Governor Christie pledge to slowly increase the state’s EITC back to 25 percent, after he reduced the rate to 20 percent in 2010.

Legislatures in Maryland and Utah proposed measures to improve or create EITC programs, however both sessions ended with unsuccessful results. The Maryland state Senate proposed to increase the state EITC to 30 percent of the federal credit, along with an increase in the income tax, however the house failed to pass this package. The Utah state Senate passed a bill to create a state EITC at 5 percent of the federal credit, but the session ended with no resolution. While these pushes were not successful, they demonstrate that there is clear support for state EITCs and have opened the window for local advocacy groups and policymakers to take future action.

Federal Threats
There are a few upcoming political battles that may affect the federal EITC during the lame-duck session, including the extension of the Bush tax-cuts, the cuts in the Budget Control Act and the looming debate over raising the federal debt ceiling. Advocates are closely watching these highly-contested issues since they may result in cuts to the federal credit.

Benefits of the EITC
States often see cutting tax credits for low- and moderate- income families as an easy way to reduce spending. However, legislators frequently fail to see the benefits tax credits provide to working parents and their children. Enacting state-level EITCs is linked to better health related outcomes for children, including higher rates of private insurance and less reliance on public health programs, such as Medicaid and the Children’s Health Insurance Program (CHIP), (Baughman, 2012). This research also indicates that parents receiving the EITC are more likely to move into better paying jobs with more benefits, particularly health care. Other studies indicate the EITC increases employment, shifting dependence away from cash and food assistance programs; between 1993 to1996, economists estimate over a half million families moved from AFDC and the food stamps program to employment (Greenstein, 2005). Millions of hard-working families and children thrive with EITC assistance and it’s counterintuitive to cut these essential programs.

To help protect the federal and state EITCs, keep yourself updated on legislative changes. Lend your voice to local advocacy groups and contact your state’s elected officials. We must continue to act in unison to ensure low- and moderate-income families are not left behind.

By Michelle Nguyen on 04/17/2012 @ 04:30 PM

Tags: EITC, Recommended Reading

Happy tax day, everybody! Depending on your current tax filing status, today’s tax filing deadline may fill you with relief or panic. While I’m fortunate enough to have already filed, tax day also reminds me of interesting data from the Brookings Institution about the Earned Income Tax Credit (EITC), which is one of the largest and most effective wage support programs for low- and moderate-income families.

Perhaps the most well-known tax credit, the EITC supplements the earnings of working people by reducing their tax burdens, and if the EITC is greater than the amount of taxes owed, the taxpayer receives a refund. For more information on research about the EITC, see this research brief that CFED created in 2010.

The data from the Brookings Institution is fascinating and extensive, especially for organizations who are interested in providing voluntary income tax assistance (VITA) sites for their city. With a few clicks, the data can help answer questions such as:

• The percentage of total returns receiving the EITC
• The average EITC dollar amount claimed
• The percentage of Refund Anticipation Loans and Checks requested

For a list of all data in the database, see here.

Because the data drills down to geographies as granular as the zip code- and city-level, interested users can see data for their city and benchmark that against similar locales. Brookings also provides an interactive map for folks to visualize the data. And while the data is only as recent as 2008, it is recent enough to still provide some important baseline information about the EITC claims in your city.

By Ethan Geiling on 03/15/2012 @ 01:30 PM

Tags: Assets & Opportunity Initiative, EITC

There has been a lot of state policy action across the country. Below are the latest updates from some of CFED’s Assets & Opportunity Scorecard policy priorities:

• College Savings Victory: To help Missouri families save money for higher education, the state has partnered with the 529 College Savings Plan Program to start a matching grant program. Families with incomes below $74,999 are eligible for a dollar for dollar match up to $500 per year. $500,000 in matching grants will be available through the grant program over the next four years. Missouri joins 12 other states that currently provide incentives for making deposits into 529 college savings plans.
• Momentum Building to Curb Predatory Short-Term Lending: According to the National Conference of State Legislators, 21 states have pending legislation related to payday and small dollar lending. At the federal level, 250 advocates signed a letter urging federal regulators to end the predatory practice of bank payday lending.
• Tax Credits for Working Families: Threats - Kansas and Oklahoma are proposing to eliminate or significantly reduce state tax credits for working families, including the states’ Earned Income Tax Credits (EITCs), which are set at 17% and 5% of the federal credit, respectively. Advocates in North Carolina are fighting to extend their state EITC, rather than letting it expire after tax year 2012. Victories and opportunities - Virginia passed legislation strengthening its EITC by incorporating the federal EITC expansions adopted in the American Recovery and Reinvestment Act into the state version of the credit for tax year 2012. A number of states – including Michigan, Maryland, New Jersey, Iowa and Utah – are considering increasing their state EITCs. Click here for a more comprehensive update from taxcreditsforworkingfamilies.org.
• Asset Limits in TANF: The Hawaii legislature is considering a number of bills that would raise or eliminate asset limits in public assistance programs. SB 2178 would increase the asset limit in Temporary Assistance for Needy Families (TANF) from $5,000 to $15,000; SB 2936 would eliminate the asset limit in TANF; and HB 2685 would raise the asset limit in certain public assistance programs to $10,000. To date, five states – Ohio, Virginia, Maryland, Louisiana and Alabama – have taken the positive step of eliminating the asset test in TANF.
• Financial Education in Schools: New data from the Council for Economic Education shows mixed results over the past two years. As of 2011, 46 states require school districts to include personal financial in their curriculum standards – up from 46 states in 2009. However, only five states require student testing of personal finance concepts - down from nine states in 2009. Research shows that college students from states that require a mandatory financial education course as a condition of high school graduation are more likely to create and adhere to a budget and less likely to engage in risky credit behaviors.

By Kim Pate on 01/30/2012 @ 04:30 PM

Tags: EITC, Events

The Earned Income Tax Credit (EITC) is one of the nation's most effective anti-poverty programs. The EITC is a refundable tax credit primarily for individuals and families who have low or moderate incomes. Greater tax credit is given to those who also have qualifying children. EITC can be a major financial boost for working people, particularly those suffering in a recovering economy. But, many hard-hit families do not even know that this vital credit exists. In fact, millions of workers will qualify for the EITC for the first time this year.

Because roughly one in five taxpayers who qualify for EITC doesn’t claim it, the National Community Tax Coalition (NCTC) organized EITC Awareness Day for last Friday, January 27. This national grassroots effort spotlighted the transformative power of the tax credit. NCTC believes that with the right tools, 100% of EITC-eligible individuals will claim the tax credit and boost their own financial security.

In conjunction with EITC Awareness Day, CFED joined about a dozen national partners to host a policy briefing on Capitol Hill. Held on Thursday, the briefing brought together several key speakers who recognize the importance of tax time in helping low- and moderate-income families save. One statistic that really stuck out to me during the briefing was that in 2010, the EITC kept 6.6 million people out of poverty, half of whom are children. According to the IRS, last year over 26 million workers received nearly $59 billion from EITC refunds – which helped with paying the rent, buying groceries, covering utility bills, and handling other pressing needs.

Given how successful the EITC has been in helping keep families out of poverty since its inception in 1975, I can only imagine how many more families would benefit were the program to be expanded and if all eligible families took advantage of this important tax credit.

By Lauren Williams on 01/23/2012 @ 09:00 AM

Tags: EITC, Entrepreneurship

Join NCTC & CFED for an EITC Policy Briefing on Capitol Hill this Thursday from 10 – 11:30 am EST

To commemorate Friday's EITC Awareness Day, our partners at the National Community Tax Coalition (NCTC) are excited to host you and your colleagues this Thursday for “Promoting the Security of America’s Working Families: A Review of the EITC’s Value and Discussion of 2012 Policy Implications.” The briefing, co-hosted by CFED and other partners, will take place in the Cannon House Office Building (First & Independence SW, Washington, DC) in Room 121.

Thursday’s discussion will explore how the EITC and similar tax credits encourage the work of low-income entrepreneurs and provide a boost to local communities. The event will also feature a new report highlighting the success of EITC, which draws on recent research and provides policy recommendations to ensure the strength of EITC for 2012 and beyond.

Speakers for this event will include Jana Barresi (Manager of Federal Governmental Relations, Walmart), Jackie Lynn Coleman (Executive Director, NCTC), Sara Johnson (Director, Baltimore CASH Campaign), Verlinda Paul (Director, IRS EITC Program) and David Rothstein (Research Fellow, New America Foundation).

The event is free, but you must RSVP. To do so, contact Gail Parson (gparson@tax-coalition.org; 312.346.6282 x297) or Jennifer Thall (jthall@tax-coalition.org; 312.346.6282 x270). We hope to see you there!

By Lauren Williams on 01/13/2012 @ 03:30 PM

Tags: EITC, Entrepreneurship

Out friends at the Center on Budget and Policy Priorities (CBPP) are pleased to announce the availability of the 2012 Tax Credit Outreach Campaign Kit, which highlights some of the work being done as part of our Self-Employment Tax Initiative (SETI). This resource is intended to provide community groups, social service agencies and employers with the materials and information needed to conduct community outreach efforts promoting the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). Throughout the United States, millions of people are working hard to make life better for themselves and their families. With the jobs they hold, and the current difficult economic circumstances, many of them simply cannot earn enough to achieve their goals. However, this year eligible families can get as much as $5,751 from the EITC, and even more if they also qualify for the CTC. Claiming the credits can put an eligible worker on the path to securing better housing, pursuing higher education, obtaining dependable transportation, covering out-of-pocket health care costs, or paying for quality child care. In 2010, 27 million eligible families and individuals claimed EICs worth $59.7 billion, yet millions of dollars still went unclaimed. Outreach efforts are needed to inform eligible workers about the tax credits and how to get free tax filing assistance.

In addition to exploring six key elements of an effective Outreach Campaign, the Kit contains full-color posters, flyers, fact sheets, a full stock of outreach strategies and examples of where they are being used successfully, and a guide to finding even more information on the CBPP Tax Credit Outreach Campaign website.

You can request a free copy of the Kit at www.eitcoutreach.org/eitc-mailing-kit. If you have questions about the Kit or about CFED’s SETI strategies for helping entrepreneurs at tax time, leave a comment below.

By Ethan Geiling on 01/11/2012 @ 10:45 AM

Tags: Assets & Opportunity Initiative, EITC, Individual Development Accounts

2011 was an eventful state policy year, to say the least! As states struggled with budget deficits, advocates worked to defend policies and programs from cuts. In addition, however, there were also a number of significant victories. Below are highlights of some of the most significant state policy changes of 2011.

• State Earned Income Tax Credit: One of the most exciting 2011 policy changes happened in Connecticut, where advocates successfully passed a fully-refundable state EITC at 30% of the federal credit (see page 6 of our Assets & Opportunity Scorecard Resource Guide to read the story behind this change). Illinois doubled its state EITC from 5% of the federal credit to 10%. Unfortunately, Michigan reduced its EITC from 20% to 6% of the federal credit. Wisconsin also reduced its EITC for families with two or more children.
• Asset Limits in Public Benefit Programs: The biggest and most highly-publicized asset limit change happened in Michigan; the state unfortunately reinstated the asset test in the Supplemental Nutrition Assistance Program (SNAP), limiting assistance to people with less than $5,000 in liquid assets and $15,000 in vehicle value. On the positive side, Nebraska raised its SNAP asset limits to $25,000 in liquid assets with all non-liquid assets excluded. Unfortunately, Michigan may have started a nasty trend that is continuing into 2012. Pennsylvania recently announced that it plans to reinstate the asset test in SNAP, and Colorado legislators are considering reinstating the Medicaid asset test.
• State Individual Development Account Programs: Alabama created a state IDA program, although the program didn’t receive funding. A handful of states — including Georgia, Massachusetts, Mississippi, and Texas — introduced legislation to create state IDA programs or to restore funding that had been previously slashed. Unfortunately, both Minnesota and Louisiana have eliminated state IDA funding for fiscal year 2012. In Minnesota, this cut meant the loss of approximately $250,000, and in Louisiana, it meant the loss of $1.3 million in state IDA funding.
• Financial Education: Massachusetts launched a statewide Office of Financial Education to coordinate and enhance financial education delivery across the state (see page 6 of our Assets & Opportunity Scorecard Resource Guide for the story behind financial education in Massachusetts).
• 529 College Savings Plans: West Virginia launched a robust matching grant program featuring up to a $500 annual match for low-income families. North Dakota implemented a $100 matching grant incentive for newborns. However, on the downside Minnesota completely eliminated its matching plan. Three states minimized major barriers to saving by adjusting their plans’ minimum deposit and fee rules. Both Alabama and Rhode Island removed minimum deposit requirements from their plans. Indiana introduced a no-fee savings plan to benefit low-income residents.
• Job Quality Standards: Eight states raised the minimum wage for workers beginning in 2012: Arizona, Colorado, Florida, Montana, Ohio, Oregon, Vermont and Washington. These increases range from 28 to 37 cents per hour. Washington is the first state to set its minimum wage about $9 per hour.
• Prize-Linked Savings: Although it’s a relatively new policy, prize-linked savings saw considerable action in 2011 (see our State Stroke-of-a-Pen guide for more information about prize-linked savings). Washington, Nebraska and North Carolina passed legislation in 2011 that allows certain financial institutions to offer prize-linked savings programs. Four other states – Arkansas, Iowa, Mississippi and New Mexico introduced legislation to allow PLS programs in 2011, but the bills did not pass.

Can’t wait to see what’s in store for 2012!

By Lauren Williams on 12/23/2011 @ 11:00 AM

Tags: EITC, Entrepreneurship

Spend Some, Save Some: Making the Most of Your Tax Refund

The Earned Income Tax Credit (EITC) is one of the nation’s largest anti-poverty programs. The EITC reduces the tax burden on workers, supplements wages, helps low-income families build assets and reduces income inequality. Annually, the EITC helps 6.6 million Americans move out of poverty; half of these are children. In 2010, over 26 million workers received nearly $59 billion in EITC. The average credit was $2,100, but can be as much as $5,751, depending on the worker’s income, marital status and whether they have children.

Awareness is critical. Only four out of every five eligible taxpayers claim and receive the EITC. Ideally, all eligible taxpayers would claim their EITC. The IRS, Center on Budget and Policy Priorities (CBPP) and countless other nonprofit and community-based organizations have mounted campaigns to make sure that eligible taxpayers know they can claim this credit.

También está disponible en español.

Making sure that affordable tax assistance is available to these families is equally important. The IRS, numerous foundations and community organizations also support programs that provide free tax assistance to low- and moderate-income families. Volunteer Income Tax Assistance (VITA) programs, for instance, offer a valuable service to working Americans by helping them keep more of their hard earned money, especially if they quality for the EITC.

An important element of many successful EITC campaigns is connecting workers to asset-building opportunities. Financial education, asset-building tools, safe financial products, credit repair resources, and more can help families use their returns to build assets.

To that end, CFED has partnered with Bank of the West to create a new Financial Education Guide for taxpayers receiving assistance at VITA programs. This, free, easy-to-read guide (available in English and Spanish) walks clients through some important things to consider when they receive their refunds to helps them make the most of the money they expect to receive. This guide and the included Savings Plan Worksheet can help taxpayers:

• Recognize the value of using the tax moment to contribute to their short- and long-term savings goals
• Make decisions about how to use their refunds for spending on “must-haves,” saving for the future and spend on “nice-to-haves”
• Get connected to resources like U.S. Savings Bonds, College Savings Accounts, additional tax credits like the Saver’s Credit, Individual Development Account programs and Bank On campaigns

Click here to download the Financial Education Guide to print and share with taxpayers at your VITA sites!

For more information, please contact Stephanie Halligan or Leigh Tivol.

By Ethan Geiling on 11/18/2011 @ 10:00 AM

Tags: Assets & Opportunity Initiative, EITC, Federal Policy

I’ve been really into state and local tax policy recently. I think it’s a phase we all go through at some point.

It’s a really interesting topic, especially in these tough budget times when state policymakers are making difficult decisions about how to balance budgets. A lot has happened with state Earned Income Tax Credits (EITC) over the past year. These policy changes were captured in our newly released Scorecard Resource Guide on Tax Credits for Working Families.

The biggest change happened in Connecticut, where after more than a decade of near-misses, the state successfully enacted an EITC at 30% of the federal credit. We wrote a great case study that tells the story behind this change. Unfortunately, a couple states went in the opposite direction: Michigan reduced its EITC from 20% to 6% and Wisconsin reduced its EITC for families with two or more children.

But state and local tax policy is about more than just the EITC (although it is a powerful credit that helps millions of families struggling with financial security every year). Almost every state’s overall tax system taxes low-income families far more heavily than wealthy families. A report by the Institute on Taxation and Economic Policy (ITEP) quantifies exactly how regressive states’ tax systems are.

In particular, the report points out the “terrible ten” most regressive states. In these states, the poorest residents pay a substantially higher portion of their income in taxes than the wealthiest residents. For example, in Washington State, the poorest 20% pay 17.3% of their income in taxes, while the wealthiest 1% pay only 2.9% of their income in taxes. In other words, the poorest pay almost six times more of their income in taxes than the wealthiest.

Source: Institute on Taxation and Economic Policy, 2009

So what makes the tax systems in these states so regressive? First, most of these states do not have an income tax (or if they do, it is a flat income tax rather than a tax with graduated rates). Second, these states have high sales and excise taxes, which disproportionately tax the lowest income residents. And finally, these states do not have strong targeted tax credits that benefit low-income families. For example, out of the “terrible ten” states above, only Illinois has a fully-funded EITC, and it’s a mere 5% of the federal credit.

And if we want to get into federal tax policy, we should start by talking about the “upside down” nature of federal expenditures aimed at encouraged savings and investment. A report by CFED and the Annie E. Casey Foundation found that, of the nearly $400 billion spent by the federal government in 2009, most funds went toward tax breaks. However, more than half of these breaks went to the wealthiest five percent of taxpayers, who averaged a net benefit of $95,000 each. On the other hand, less than 5% of the federal expenditures benefitted the Americans earning the least. The bottom 60% of taxpayers averaged just $5 each.

There are two main takeaways from all of this:

• First, talking about taxes is super interesting and something we should do all the time. This blog post barely scratched the surface of these issues. (We didn’t even get into how taxes affect aspiring entrepreneurs.)
• And second, the tax system is a powerful force that touches virtually everyone in the country. We should not underestimate the power of tax policy as a means to create economic opportunity for low- and moderate-income residents.

By Ethan Geiling on 11/08/2011 @ 04:30 PM

Tags: Assets & Opportunity Initiative, EITC

Yesterday, the Census Bureau released its much-anticipated supplemental poverty measure. The goal of this new measure is to provide a more accurate picture of poverty in the United States.

For years, poverty experts and researchers have contended that the official poverty measure is outdated, misleading and ultimately not useful. The official measure was developed about a half-century ago and is based on the assumption that families spend one third of their after-tax income on food.

This measure fails to take into account many things. Two of the most common criticisms of the official poverty measure are that:

• It doesn’t account for government benefits, like food stamps and the Earned Income Tax Credit
• It doesn’t account for differences in cost of living (e.g. it costs much more to live in Manhattan than it does to live in rural Mississippi)

The New York Times wrote a great article last week explaining the history of the official poverty measure and criticisms by researchers. 

The Census Bureau published this helpful table summarizing the differences between the official measure and the new supplemental measure:

Source: U.S. Census Bureau, 2011

Some big takeaways from the new supplemental measure data:

• Poverty is higher than previously assumed. In 2010, there were 49.1 million people (or 16.0%) in poverty according to the new supplemental measure, compared to 46.6 million (or 15.2%) according to the official poverty measure.
• There are more older Americans living in poverty according to the new measure (9% with the official measure vs. 15.9% with the new supplemental measure). This is likely because the new supplemental measure takes into account expenses like out-of-pocket health care costs, which are likely to burden older Americans.
• There are fewer children living in poverty according to the new measure (22.5% with the official measure vs. 18.2% with the new supplemental measure). This suggests that government programs helped keep millions of children out of poverty.
• Expansions in programs under the 2009 Recovery Act kept millions of people out of poverty. The Center on Budget and Policy Priorities released a great analysis of the effects of specific programs on poverty. It found that the expansion of the Earned Income Tax Credit (EITC) and Child Tax Credit kept 1.6 million people out of poverty, the temporary Making Work Pay tax credit kept 1.5 million people out of poverty, and expansions in SNAP kept 1.0 million people out of poverty. Overall, the EITC reduced the poverty rate by two full percentage points. Ultimately, these findings many influence the budget debates going on in Washington by showing the important role that safety-net programs play in reducing poverty.
• The new supplemental measure finds that the poverty rate among blacks is lower than previously estimated; 25.4% with the new supplemental measure, compared to 27.5% with the official poverty measure. But more whites, Asians and Hispanics are in poverty. The proportion of Hispanics in poverty is higher than the proportion of blacks.

Source: U.S. Census Bureau, 2011

By Ethan Geiling on 04/28/2011 @ 03:30 PM

Tags: EITC, Financial Empowerment, Local Policy

“Umm…how old are you? Are you sure you know how to do taxes?” After taking one look at me, one of my first VITA clients was quite skeptical of my ability to prepare her taxes. I suppose her doubt wasn’t completely unfounded. I’m 22 and probably don’t look like someone who knows anything about taxes.

Over the past four months, I volunteered as a tax preparer for the DC EITC Campaign. Every Saturday afternoon I trekked over to Adams Morgan for my weekly four-and-a-half hour shift at the Jubilee Jobs tax site. Overall, I had a very positive experience and learned a great deal about both tax law and some of the hardships DC’s low-income residents face. Now that tax season is over, I want to share some stories, reflections, and takeaways from my experience. (For the record, my skeptical client ended up trusting my abilities, and even asked me to help her fill out her daughter’s financial aid forms after I finished her taxes). Finances are a very personal subject. They’re not something you generally discuss in depth with others. But they were something that I needed to discuss with all of my clients in order to accurately prepare their returns. Interestingly, when taking with someone about their finances, an invisible barrier is broken and they may start telling you all sorts of details about their lives -- details they normally wouldn’t tell a complete stranger. During my conversations with clients, which usually lasted between 30 to 90 minutes, I learned a great deal about their family structures, home lives, and financial welfare. Here are a few takeaways:

1. Many people are struggling to find steady employment in this tough economy.
   Many of my clients had been laid off in recent years and were trying to cobble together income from multiple jobs and sources. It was not uncommon for someone to come in with three or four W2s -- each with only a few thousand dollars or less -- from all of their employers over the year. Although many clients wished to be employed full time, their employers could only afford to hire them part time or for short periods. For example, I had one client who worked part time at a grocery store for half the year, had a short stint at a catering company, and occasionally worked the night shift as a security guard throughout. Sadly, stable employment was a rarity.
2. People use a wide variety of financial products beyond checking accounts to meet their financial needs.
   You often assume a checking account is the first and most basic account a person needs. I found that this often wasn’t the case. For example, a number of my clients used prepaid cards for their day-to-day banking instead of a checking account. They told me prepaid cards were easier to manage, let them pay bills simply, and provided almost all of the same features as a checking account, with very low fees. Surprisingly, a few of my clients had savings accounts but not checking accounts. They said savings accounts provided them with a structure to save, but they preferred to use check cashers and other methods for their day-to-day financial needs. In addition, one client told me that he purposefully doesn’t know the PIN for his checking account debt card, because he wants to make it difficult to access the money. He was essentially treating the checking account like a savings account in order to curtail impulse spending.
3. People recognize the value of savings, even if it is only a small amount.
   Even though almost all of my clients were struggling to make ends meat, many of them still understood the importance of savings. Many clients told me they planned to put aside at least a small portion of their refund for savings. One client even used Form 8888 to purchase a $100 savings bond with his refund (thanks D2D Fund for helping make this possible!). Few, if any, clients planned on saving their entire refund, which is understandable given their other pressing financial needs.

Doing taxes is kind of like a detective game where the goal is uncovering credits and deductions in order to maximize the refund. When preparing a client’s return, I would try to thoroughly understand the client’s financial situation so I could figure out every credit or deduction he or she might qualify for. And there are so many different credits out there! There are tax credits for children, education, retirement savings, housing, and more. Two credits in particular deserve a special mention:

• The Earned Income Credit: Since the DC EITC Campaign is named after this credit, it seems fair to give it a special mention. In addition to the federal EITC, the DC metro region has some of the country’s highest state EITCs, which are additional credits that build on the federal credit. The state EITC is 40% of the federal credit in DC (the highest rate in the country), 25% in Maryland, and 20% in Virginia (although the Virginia credit is not refundable). Montgomery County has an additional local credit that is 72.5% of the Maryland state EITC.
• The Schedule H Credit: Another credit that was particularly beneficial for my clients was the DC Homeowner and Rental Property Tax Credit, or Schedule H. This refundable credit of up to $750 is available to DC renters and homeowners with incomes below $20,000. Although $750 might not sound like much in the grand scheme of things, this credit was invaluable to many of my clients, especially given DC’s exceedingly expensive housing.

Overall, being a volunteer tax preparer was an incredibly valuable experience both for me and for my clients. I even had one 84 year-old lady who really wanted to leave me a tip, and couldn’t understand why I didn’t have a tip jar!

Thanks to our friends over at Capital Area Asset Builders and Community Tax Aid for organizing over 500 volunteers and making it all possible. I’m looking forward to volunteering again next tax season.

By Ethan Geiling on 04/26/2011 @ 06:00 PM

Tags: Assets & Opportunity Initiative, EITC, Local Policy, Policy Alerts

The Earned Income Tax Credit (EITC) is the largest federal anti-poverty program; it provided about $59 billion to 25 million families last year. The refundable credit is targeted at low-income working families with earned income, usually in the form of wages, salary or self-employment earnings. The specific amount of the credit a family can receive depends on both income and the number of qualifying children. The EITC was originally enacted in 1975, and has expanded with bipartisan support since then. Ronald Reagan once called the EITC “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.”

Currently 24 states and DC have their own version of the EITC that builds on the federal credit. These state EITCs range from 3.5% of the federal credit in Louisiana to 40% of the federal credit in the District of Colombia.

Unfortunately, the EITC is under attack in a number of states. Legislation was introduced in Michigan to eliminate the state EITC, which is currently 20% of the federal credit. If enacted, this would reduce incomes for 800,000 working families and push 14,000 children into poverty. Similarly, legislation was introduced in North Carolina to eliminate the refundable portion of the state EITC. Advocates in both states have been actively fighting to preserve the credit.

However, there is still some positive news. Five states – Connecticut, Missouri, Montana, North Dakota and West Virginia – have introduced legislation to create a state EITC, while four states – Illinois, Iowa, New Jersey and Oregon – have introduced legislation to expand their state EITCs. The most promising efforts are in Connecticut, where Governor Malloy has publicly endorsed a state EITC. The Connecticut legislature is reviewing two bills to establish a state EITC: SB 41 calls for a phase-in of a credit starting at 10% of the federal EITC in 2012 and increasing to 20% by 2014; and HB 5701 calls for a state credit equal to 20% of the federal EITC.

By Jennifer Brooks on 03/25/2011 @ 11:15 AM

Tags: EITC, North Carolina, Assets & Opportunity Initiative

The following is the Assets & Opportunity Policy Update, which was sent out to our partners earlier this month. If you would like more information, please email scorecardpolicy@cfed.org.

• Automatic IRA: On February 9, the Illinois Senate introduced SB 1844, the Illinois Automatic IRA Act. A companion bill, HB 1672, was introduced on February 22, and has been assigned to the State Government Administration Committee. Assets & Opportunity partner, the Shriver Center drafted the bill and will be lobbying Illinois policymakers for support. If passed, the bill would allow employees who do not currently have an employer-sponsored retirement plan to deposit wages into an IRA trust fund administered by the State Treasurer's office.
• State EITC: SB 360 was introduced on February 15 in the Montana Senate. The bill would provide a state Earned Income Tax Credit (EITC) of 20% of the federal EITC for working families. Advocates across the state, including Assets & Opportunity partner Rural Dynamics, actively supported the bill. On March 11, legislators amended the bill to provide a State EITC of 10% of the federal credit. The bill, however, was tabled after a vote on party lines.
• State EITC: The North Carolina House introduced HB93 on February 16, which would eliminate the refundability of the state’s EITC. North Carolina’s state EITC is 5% of the federal credit. HB93 was referred to the House Finance Committee. Advocates across the state have been holding press conferences and events to protest the bill. Click here to read an op-ed article about the bill and the importance of the EITC to working families.
• State 529 Plan: The Texas Senate introduced SB 517 on February 28, and referred it to the Senate Finance Committee. If passed, the bill would allow unclaimed property funds to be used to support the Texas Save and Match Program. HB 1001, the companion bill, was also introduced and referred to the Appropriations Committee.

Posted on 03/22/2011 @ 01:00 PM

Tags: Innovation, Innovators, Entrepreneurship, Financial Empowerment, EITC

Our guest blogger today is Tracy Fischman, executive director at AccountAbility Minnesota. This highly innovative organization has been a partner with CFED’s Self-Employment Tax Initiative (SETI). As this year’s April 18th tax deadline draws near, certain for-profit tax preparers are marketing “refund anticipation loans” or similar products which are overpriced and inappropriate for most people, so Tracy’s information is particularly timely.

AccountAbility Minnesota was founded in 1971 by a group of justice-minded accountants who believe that a person’s ability to access quality tax preparation and financial services should not rely solely upon one’s ability to pay. Enlisting the help of hundreds of volunteers, the organization offers free tax preparation and financial services at 13 sites in the Twin Cities that enable low- and moderate-income individuals and families to maximize the opportunity that tax time provides. (Customers can use our online clinic finder to find a list of locations, schedules, and eligibility.)

In 2010, we helped 11,000 taxpayers received $21 million in refunds. We also trained 15 organizations throughout Minnesota who in turn helped another 9,000 taxpayers receive an additional $14 million in refunds. At AccountAbility Minnesota, we recognize that it is expensive to be poor. The customers we serve – whose average income is $13,400 – too often have to spend their money just to access it. And tax time is no different. As such, we’ve adopted strategies to promote economic security through the tax preparation process. With tax credits designed to significantly boost incomes of low-wage earners, tax time provides a unique moment to begin or continue a conversation about saving. It also offers an essential alternative, by way of education and services offered, to paid preparers and fringe – often predatory – financial products they offer, like the Refund Anticipation Loan.

The money-moment that tax time provides

AccountAbility Minnesota is uniquely positioned to reach underserved families and communities with financial education and information about saving, money management, developing and keeping a budget, planning and more. Tax time is a prime time to educate and offer services that can put people on a path towards financial security – empowering them to make informed and effective decisions that reflect their individual circumstances. Over the years, AccountAbility Minnesota has innovated and partnered with other organizations and financial institutions to expand its financial services, offering non-predatory services and products that promote savings and asset development. Our financial services include free savings accounts, low-cost prepaid debit cards, free credit reports, financial planning and benefits screening.

Update on Refund Anticipation Loan market

As previously referenced, may low-income taxpayers are targeted by paid preparers offering costly products that promise fast refunds. In recent years, the most common product has been the Refund Anticipation Loan (RAL). RALs are short-term, high-interest loans secured by a taxpayer’s expected tax refund. According to the National Consumer Law Center, 8.4 million persons in the U.S. spent an estimated $738 million in RAL fees in 2008. This year the IRS has terminated access to its debt indicator – a tool used by tax preparers and related financial institutions that offered information about whether a taxpayer will receive their federal refund and therefore was used to determine whether to underwrite a RAL. Thus H&R Block is not providing RALs this year but Jackson Hewitt and Liberty Tax Services (and possibly others) are still offering the product. We were excited to see that the FDIC has recently notified both Jackson Hewitt and Liberty Tax Service that their RALs are “unsafe and unsound.” As the RAL market shifts, other products are popping up in its place, such as the Refund Anticipation Check (RAC). A RAC is a temporary bank account that is opened to allow for direct deposit, and taxpayers’ refunds are then uploaded onto a prepaid debit card or they are issued a paper check. In 2008, about 12 million taxpayers received a RAC at a cost of $360 million. With information provided by our partners studying this market, we are keeping an eye on RALs, what the FDIC’s recent notice will mean, and what products are popping up in its place. We will continue to innovate, offering financial services and products that meet the financial needs of our customers.

In a future Blog, Tracy will describe some of AccountAbility’s latest innovations. Please let us know your thoughts and questions on Tracy’s message.

By Bill Schweke on 03/04/2011 @ 12:30 PM

Tags: Economic Development, EITC, Ideas in Development

At this juncture of a painfully slow recovery from a major recession, there remains a massive job gap in the U.S. The Upjohn Institute for Employment Research argues that if the country is to restore the employment to population ratio to the level it was in December, 2007, the American economy must create 320,000 net new jobs per month for five years.

What might this mean on the state level? What is the challenge facing North Carolina, for example? During 2010, according to the NC Justice Center, the state netted just 10,400 jobs. In order to get to pre-recession employment numbers by 2015, it must create slightly more than 14,000 net jobs per month. That’s approximately 168,000 annually.

These are big hurdles to leap over. Especially given the worries caused by the drag on the economy caused by the budget deficits in America’s states, along with Republican intentions to make large federal budget cuts in the spring and rapidly-increasing oil costs, another recession or a bout of stagflation is not unimaginable.

Given the larger fiscal and political context, any viable series of options must be grounded in recognizing certain facts that largely eliminate some courses to take, such as another infusion of stimulus money, a more cautious and slower route to budget balancing and large-scale public employment programs.

Consequently, alternatives must be relatively inexpensive (and public monies will very likely need to be shifted from ineffective programs to more promising ones). They must minimize the use of cash and, instead, pursue, in many cases, the sound design and implementation of appropriate tax expenditures. All direct spending must leverage other money, along with professional resources. Furthermore, the jobs agenda must include ways to save jobs, modernize firms and encourage the expansion of existing enterprises. They must also employ methods of aiding small businesses for political and practical reasons (foremost among these is the fact that nearly all net job creation since 1980 has occurred in small business startups less than five years old). Because of the depth and length of this recession, some of the approaches must address the problem of permanent job loss, the likelihood of substantial drops in lifetime earnings, the growth in the long term unemployed and discouraged workers. Finally, they must deliver significant results in the short-term, while dealing with the massive job gap that the country now faces.

During the past few years, I have been working on three ideas that mostly conform to these guidelines.

• A new Job Growth Tax Credit, which would provide a 30 percent tax credit on the first $14,700 of wages paid to each additional employee over and above 102 percent of the baseline employment. This incentive would be offered statewide to all sizes of business only in years of high unemployment and would play a countercyclical function. It would, moreover, mean that lower-wage jobs are subsidized at a higher rate and more such jobs will be generated. Lastly, the concept could be set up rapidly and would be attractive to a fairly wide spectrum of firms.
• A Targeted Job Creation Program, which offers small existing private employers direct wage and benefit subsidies in its most economically disadvantaged counties for hiring unemployed job seekers (ideally, ones that have exhausted their UI). Although more complicated to administer than the Growth Tax Credit, it is structured to reach those more deeply in need.
• Use the Federal Tax System to drive American job growth by leveraging tax time to reach out and support (especially) low-income start-up businesses. The federal tax system is the interface with 22 million self-employed individuals who file Schedule C each year, as well as 2 million new entrants to the system. VITA sites are now allowed to prepare Schedule C, and they should be encouraged to. It turns out that the tax system can be the entry to badly needed new benefits, like claiming EITC, the Make Work Pay Credit, and the Child Tax Credit, as well as a variety of other benefits which cost states nothing, but make a huge difference to struggling entrepreneurs and families. It is also the ideal venue for encouraging the fledgling business owner to access other managerial, educational and technical assistance resources and move out of the gray economy. The program would even be a positive incentive for doing so. Given the numbers of such firms - in the millions - encouraging and enabling only a small percentage to hire an employee or two would still amount to a big number and impact.**

This is a good place to start a major effort to bridge the job gap.

**My peers at CFED have developed this body of work. I have been comparatively a second or third violin, regarding this third idea. Thanks to Nancy, Gene, Bob and many others.

By Sean Luechtefeld on 10/04/2010 @ 11:53 AM

Tags: ALC 2010, Bank On, EITC, Innovation

EDITOR'S NOTE: This guest blog post comes to us by way of David Blatt, Director of the Oklahoma Policy Institute. To read the full text of this post and to explore the rest of David's blog, click here.

Last week, I had the pleasure of attending the 2010 Assets Learning Conference that brought together over 1,000 participants for three days of plenaries, workshops and sessions exploring approaches to building an economy in which all Americans, including those of limited means, are provided opportunities to achieve household financial security through savings, investment, and entrepreneurship.

As I noted in my blog post reporting on the opening plenary, a major theme of the conference was the notion of “scale” – the need and opportunity to take policies, programs, and products that have been introduced and tested in modest ways up to now and expand them to serve a much greater number and range of individuals and families. In session after session, I learned about innovative practices that are already working at the local level or in pilot programs and that community organizations, government agencies, and financial institutions are gearing up to expand. Here are just four of the policies, programs and products from the asset building field that seem poised for a larger impact:

• The Bank On Initiative: According to a 2008 FDIC survey, one in four U.S. households is unbanked or underbanked, which means they do not have a checking or savings account, or rely on high-cost alternative financial services. In 2006, the city of San Francisco, in partnership with banks, credit unions and non-profit organizations, launched the Bank on San Francisco project to make it easier for the unbanked to get into mainstream banking by providing consumers with starter accounts and financial education. Building on the success of the San Francisco program and with the active involvement of the National League of Cities, the program has spread to over a dozen cities. The Administration has now proposed $50 million for a national Bank on USA initiative “to promote access to affordable and appropriate financial services and basic consumer credit products for households lacking such access.”
• $ave USA Initiative. For many low-income families, the Earned Income Tax Credit (EITC), which can be worth over $5,000 to a two-child household, provides an annual lump-sum payment that can not only be used to spend on ongoing and one-time expenditures, but that can also be saved and invested. In New York City, the Office of Financial Empowerment launched the $ave NYC Account Program to provide opportunities for families to invest part of their EITC refund in savings. $ave NYC is a matched savings program operated at tax time that provides low-income households 50 cents of public match for every $1 of savings up to $1,000. An evaluation of the program found that 61 percent of program participants deposited over $500 to their $ave NYC account, despite having average households earnings of roughly $15,000. These findings confirm the growing body of evidence showing that with the right incentives and program design, low-income families can and do save. In July, the federal government announced its financial support for the program in New York and three other cities, including Tulsa.
• Small Dollar Loan Program: Many low- and moderate-income families regularly depend on payday loans, which have APRs that can exceed 450 percent and tend to be extremely short-term, to try to make ends meet. Payday loans often lead to patterns of frequent, high-cost borrowing which perpetuate a cycle of debt and economic insecurity. In 2008, the FDIC launched the Small-Dollar Loan Pilot Program in partnership with 31 banks. All the banks committed to offering borrowers closed-end installment loans up to $2,500 with payment periods that extended beyond a single paycheck and APRs below 36 percent. Some banks coupled their loan product with financial education classes and resources. According to a study of the program, “most pilot bankers in the pilot indicated that small dollar loans were a useful business strategy for developing or retaining long-term relationships with consumers.” The FDIC intends to use the lessons from the pilot to work with the public, private, and non-profit sectors on strategies to expand the supply of lower-cost small-dollar loans.
• The Saver’s Credit. At the national policy level, the Obama Administration is promoting a broad set of tax policy changes that encourage and facilitate savings. One proposal that is strongly backed by CFED and a coalition of corporate and non-profit supporters would expand the Saver’s Credit, which currently is claimed by less than 6 million individuals. Under the Administration’s proposal, the Saver’s Credit would provide a flat 50 percent match on deposits into qualified retirement accounts up to $1,000 per year for joint filers, automatically deposit this match directly into a designated account, and extend this benefit to households earning less than $65,000. If enacted, up to 50 million Americans would be able to use the Saver’s Credit to build up a nest egg for retirement and other eligible uses.

These four examples are from an exhaustive list, but they are representative of a field in which a growing number of partnerships are bringing together government, non-profits, and the private sector to help build assets and strengthen financial security. The Oklahoma Asset Building Coalition is eager to be an active part of this work here in Oklahoma; whether or not you’ve been a part of the regional meetings that the Coalition is hosting around the state, we hope you’ll join our effort and help us ensure that Oklahoma contributes to bringing the assets movement to scale.