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Where Credit Is Due

Campaign Aims to Ensure Low-Income Workers Know Their Tax Rights

By Afefe Tyehimba | Posted 3/6/2002

Last December, the U.S. General Accounting Office announced that Uncle Sam would likely pay $30 billion this year to taxpayers who qualify for the Earned Income Tax Credit (EITC). But the agency also reported that about 25 percent of eligible families don't claim the tax break for low-income workers.

Numbers like that show why the Maryland Earned Income Credit Campaign, an ad hoc group of 150 businesses and organizations led by the Baltimore-based Maryland Committee for Children, is kicking its efforts into overdrive. With a slew of fliers and bilingual brochures available at banks, community centers, and social-service agencies, the campaign aims to make sure low-wage Marylanders know they may be eligible to net as much as $4,600 above the tax benefit from the child-care and other deductions.

"It may sound too good to be true, but it isn't," says campaign coordinator Jennifer Williams. Last year, she notes, EITC paid out $31 billion nationwide, making it "the biggest single income support for working families," paying out far more than other poverty-relief programs such as food stamps ($21 billion) and Temporary Cash Assistance ($12 billion).

It is also a program that often goes unnoticed by many of the people it targets: workers making anywhere from a few thousand to $32,000 a year. The heftiest returns going to families at or below federal poverty levels ($14,630 for a family of three, $17,650 for families of four). Those who miss out, advocates say, are frequently people with unsteady work histories who may be shifting from welfare to work, or immigrants unaccustomed to and, perhaps, uncomfortable with bureaucratic agencies such as the Internal Revenue Service.

The effort to reach those taxpayers has grown to include the state Department of Human Resources (which gave the campaign a $19,000 community-outreach grant last year), large corporations such as the Constellation Energy Group, and philanthropies including the Annie E. Casey Foundation, which is providing a $10,000 grant.

In November, Casey Foundation project consultant Janet Raffel coordinated training sessions by IRS agents for 100 local volunteers from an array of businesses and nonprofits, increasing from 23 to 37 the number of sites citywide where taxpayers can get free tax preparation under the IRS' Volunteer Income Tax Assistance (VITA) program.

The campaign's goal goes beyond just making sure Uncle Sam shows low-income workers the money. Raffel says EITC helps reinforce a strong work ethic among low-wage earners, and can help them attain "broad goals" such as homeownership or higher education, things that can lift them out of poverty.

The EITC was adopted by Congress in 1975 as a way to offset the burden of rising Social Security payroll taxes and other employment-related costs, such as child care, on low-income families. It has been expanded several times since then, under both Republican and Democratic presidents and Congresses. The first overhaul, to tie EITC benefits to inflation, occurred in 1986, during the first Reagan administration, a time of fierce partisan debate over the cost and efficacy of programs for the poor.

EITC was "liked by the Republicans because it created positive incentives for work," says Nicholas Johnson, a senior analyst with the Center on Budget and Policy Priorities (CBPP) in Washington. "The Democrats liked the idea of making the EITC program more responsive" to low-wage earners by allowing cost-of-living increases to boost refunds.

In addition, 16 states have implemented similar tax programs; Maryland adopted a version of EITC in 1987. However, the state didn't offer a cash refund, instead providing a credit against the following year's tax liability. Advocates say that practice limited the state's EITC's effectiveness as an employment incentive; as Williams notes, people who work hard and emerge from the sometimes intimidating tax process with a cash reward are more likely to stay the course. Activists successfully lobbied the state to institute a cash refund in 1998, and last year the General Assembly increased the state EITC from 15 percent to 20 percent of the federal amount (to be phased in through 2004).

"It's hard to dislike a program that rewards work," says Williams, referring to the bipartisan support generally accorded EITC.

Studies also indicate that the EITC helps redress a heavier tax burden on poorer families. A June report from the Center on Urban and Metropolitan Policy--an arm of the liberal think tank the Brookings Institution--concluded that due to the rising cost of living in the Baltimore area, families earning $18,000 are no better off "than they were in the late 1970s," whereas families making $165,000 get 35 percent more value for their money. "By supplementing the wages of low-income working families, [the EITC] has curbed growth in national after-tax income inequality," the report states.

According to the Brookings report and research by CBPP and other economic-policy researchers, how families use their EITC refunds ranges widely, from immediate needs like catching up on bills and making home repairs to long-term goals such as saving for college tuition or a home. The Maryland campaign aims to address using the refund as well as simply securing it.

"We give classes to individuals where we talk about credit management and home counseling or how to start a business," says Talib Horne, assistant director for the East Harbor Community Development Corp., which has long offered financial-literacy programs to East Baltimore residents and is hosting one of the 14 new VITA sites created through the campaign. "In terms of helping people do their taxes, we knew we could assist them in figuring out what to do with that money," Horne says.

East Baltimore resident Edward Washington had no problem deciding how to allocate his EITC, once he found out that he qualified. "I got debt up to my eyebrows, and this will help me offset some of that," he says. An older gentleman, Washington says he has worked off and on "for years," but didn't know about the EITC until a friend told him about free tax-preparation services at East Harbor.

"I'm not a tax person and I still don't fully understand it," Washington says. But he does understand one thing: "At least my refund isn't going to be blown away. It's going toward something, and that's my main thing. Bottom line is, if something is going to hurt me, you can keep it. But if it benefits me, I want it."

For information on the Earned Income Tax Credit and a list of VITA sites, contact First Call for Help at the United Way of Central Maryland, (410) 685-0525.

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