“Two years ago, my family was in jeopardy of becoming homeless due to job loss until we received the Earned Income Tax Credit. I was a college student raising our little boy, my husband was newly unemployed, and we found ourselves with three weeks to find a new place. With no income and little savings, we knew we needed to file our tax return so that we could use the refund to find housing. We visited a free tax preparer through the Volunteer Income Tax Assistance program who told us that we qualified to receive a tax credit for low-income workers. We learned that the amount of the credit would make up more than half of our refund. This enabled us to put a deposit on an apartment. Receiving the Earned Income Tax Credit was a huge blessing. It made the difference that kept our family from becoming homeless. Since then, I have finished school and my husband found a new job. My family is doing better now, thanks in part to the EITC.” – Emily, Salt Lake County Utah
Emily and her family are among the nearly 29 million families who will continue to benefit from the Earned Income Tax Credit (EITC) thanks to a milestone legislative victory at the end of last year. An idea born out of the 1960s War on Poverty and championed by then-Senate Finance Committee Chairman Russell Long (D-LA), the EITC is a refundable tax credit that since 1975 has provided a financial lifeline to lower-income Americans by rewarding them for their work.
Created to reduce the tax burden on lower-income workers, supplement their wages, and encourage greater participation in the workforce, the tax credit is structured to augment the incomes of lower-wage workers by reducing their income tax liabilities and providing refunds to those who qualify.
From a relatively humble beginning in its first year, when the EITC provided $1.25 billion in credits to just over 6 million taxpayers, the credit in 2013 returned more than $68 billion to nearly 29 million taxpayers. This growth is in part the result of four decades of expansions and enhancements to the credit, made possible by bipartisan support.
President Ronald Reagan, who signed into law a significant expansion, called it “the best anti-poverty, the best pro-family, the best job creation measure to come out of Congress.” Meanwhile, President Bill Clinton, in his first State of the Union Address, said of his own plan to expand the credit: “we will reward the work of millions of working poor Americans by realizing the principle that if you work forty hours a week and you’ve got a child in the house, you will no longer be in poverty.” And a 1989 Wall Street Journal article called the EITC “the antipoverty tool of choice among poverty experts and politicians as ideologically far apart as Vice President Dan Quayle and Rep. Tom Downey, a liberal New York Democrat.”
The Earned Income Tax Credit remains an important tool in the effort to lift people out of poverty, which according to 2016 federal guidelines is a family of four earning less than $24,300 per year. Nearly half the taxpayers who annually benefit from the EITC have adjusted gross incomes below $15,000, which falls not only below the poverty line but also the annual wages ($15,080) earned by a full-time worker being paid the federal minimum wage of $7.25 per hour.
According to the Center for Budget and Policy Priorities, the EITC lifted about 9.4 million people, including 5 million children, out of poverty in 2013, while reducing the severity of poverty for another 22.2 million people, including 8.1 million children.
The average credit claimed by all eligible taxpayers that year was $2,362, jumping to more than $4,000 for families with three or more children. In addition to catching up on bills or reducing household debt, often cited by recipients as the priority use of their payments, the credit, which is paid in a single, lump sum, is also widely used to fund a purchase that in fact supports recipients’ ability to work.
Data shows that EITC-eligible families are 600 percent more likely than non-eligible families to purchase a vehicle in February, the month in which the largest number of EITC payments are received. According to economists Andrew Goodman-Bacon and Leslie McGranahan, the extent to which car ownership contributes to employability can be seen in the eligibility rules for a number of other state and anti-poverty and income support programs, which exclude the value of a family vehicle from their resource limits.
But the EITC does more to improve lives than simply easing the grip of poverty on and supporting the ability to work. The credit has also been shown to improve the health and educational outcomes of current beneficiaries and their children, the benefits of which will extend to the next generation.
Research shows that mothers who benefit from increases in the EITC are more likely to receive prenatal care and stop smoking or drinking during their pregnancy, and are less likely to give birth prematurely or to low weight babies. Specifically, the EITC has been found to improve the birthweights of babies born to single mothers with no college education. Once in school, the children of families who receive the EITC perform better on standardized tests in elementary and middle school, have increased high school graduation rates, and are more likely to attend college.
The combined health and education benefits for children translates into more steady employment as they enter adulthood, and an increase of as much as 17 percent in future annual earnings.
The most recent expansion of the EITC came under President Obama as part of the American Recovery and Reinvestment Act of 2009. This legislation, enacted on the heels of the economic downturn and housing market collapse in 2008 and often simply referred to as “the Stimulus,” made two important, but temporary, changes to the EITC.
To account for the additional costs associated with larger families, the legislation provided a larger maximum credit for families with three or more children by increasing the rate of their credit from 40 percent to 45 percent. Additionally, the measure reduced the “marriage penalty” experienced by some couples by increasing the earnings level at which the credit phases out for married tax filers in comparison to unmarried tax filers with the same number of children.
Temporarily extended again in 2012 by the American Taxpayer Relief Act, the lapse of these EITC improvements, set to come at the end of 2017, would have coincided with the expiration of a key Child Tax Credit (CTC) provision that made the CTC accessible to the lowest income worker by lowering the threshold for which families could start to claim the credit to $3,000.
The stakes were high. Without Congressional action on the CTC, a single mother with two children working full-time at the minimum would have lost her entire CTC of $1,000 – equivalent to more than a month’s wages. According to the Center on Budget and Policy Priorities, the loss of these CTC and EITC benefits would have had devastating consequences, causing 16 million Americans – 8 million of them children – to fall into, or deeper into, poverty.
This reality created a sense of urgency for making these credits permanent, even a couple of years ahead of their possible expiration. Among the organizations involved in leading the successful advocacy effort to make the credits permanent were IS members Center on Budget and Policy Priorities and United Way Worldwide, an organization whose work in communities across the country has been critical to the success of the EITC over the years.
We recently had the opportunity to speak with Megan Tracz, Director of Public Policy and Advocacy at United Way Worldwide, about United Way’s involvement on the EITC, the impact of the credit in the communities they serve, and the effort to make permanent the provisions that were set to expire next year.
Q&A with Megan Tracz,
Director of Public Policy and Advocacy at United Way Worldwide
How have you seen the Earned Income Tax Credit and Child Tax Credit impact individuals and families served by United Way organizations across the country?
The impact and value of the EITC and Child Tax Credit on working families is immense. By helping families keep more of what they earn, we know that the credits represent opportunity for families, and that in addition to supporting financial stability, they have cross-cutting impacts on child health and academic achievement. Beyond using the credits to cover the basics – food, housing, utilities – the credits can often be the tipping point enabling families to afford a car to have more reliable transportation to get to work, or to put a down payment on a house that will provide greater stability long-term. We know that the majority of families claim the EITC for only one to two years suggesting that for many, the EITC is a bridge to upward mobility. And beyond the immediate impact of the credits on working families, communities also benefit as dollars are spent at local businesses supporting local economies.
Can you explain for our readers the direct role played by United Way staff and volunteers in connecting people to the Earned Income Tax Credit?
As part of our efforts to be a platform for social change and to build stronger communities, United Ways across the country run or support Volunteer Income Tax Assistance (VITA) sites and MyFreeTaxes.com – two pathways for individuals to connect to the credits while completing their taxes for free. Through VITA, volunteers become IRS-certified tax preparers and provide qualifying individuals and families with in-person assistance in filing federal tax returns. Thanks to the time and talent of thousands of community volunteers, millions of lower-income working families have access to free quality tax preparation, asset-building resources and financial education. We’re also excited that MyFreeTaxes (MyFreeTaxes.com) enables even more people to connect to the credits by providing online federal and state free-filing options, powered with H&R Block software, for individuals earning $62,000 or less. The bottom line is that more than 380 United Ways throughout the country engage in free tax prep efforts, and in these communities, volunteer-supported tax efforts helped nearly two million households access $2.2 billion in tax refunds in 2014 – including $681 million in EITC.
How do the EITC and CTC fit into the broader public policy objectives of United Way Worldwide?
As a network, United Way seeks to share our experience and knowledge to help inform policymakers’ decisions regarding policy and funding of government education, health and financial stability programs, as well issues impacting the ability of the nonprofit sector to strengthen communities. It’s really our civic obligation. Beyond investing in what works and mobilizing volunteers to support important causes, we know policy advocacy is key to scaling our impact work and to addressing the root causes of challenges facing us all. United Way’s policy agenda elevates key policies that equip families and communities to thrive across the lifespan. With the cross-cutting impacts of the credits on education, health and financial stability, and United Way’s firsthand experience, the EITC and CTC have been a top priority for years.
What is the connection between the programmatic work of local United Way organizations and the development of your advocacy strategy?
As I mentioned, over time United Way has developed a large footprint in the free tax prep space seeing the return on investment in enabling community members to access millions in federal dollars. Each community celebrates the local impact it makes through VITA and MyFreeTaxes, sharing impressive topline data, like Cincinnati connecting 18,000 households to almost $21 million or Atlanta serving 32,000 thousand for more than $31 million in refunds. With roughly half of the local refunds attributable to the EITC and CTC, we sought to help United Ways understand that their programmatic impact was tied federal public policies governing the credits. And that the future of the credits was at stake and it was going to take all of us advocating with one voice to save them for the community’s bottom line.
The foundation of our advocacy strategy was building off our network’s individual and collective work connecting families to the credits. We reinforced to United Way leaders that armed with data and stories about the impact of the credits in their communities, they had the opportunity and authority to be uniquely effective champions.
Once local United Way staff understood the impact the advocacy campaign could have on their communities they serve, what went into preparing them to be successful advocates for making the EITC and CTC permanent?
Many state and local United Ways have been advocating to strengthen and protect the EITC and CTC for years, but the advocacy campaign we ran in 2015 was a deeper, more coordinated engagement. Working in close partnership with the Center on Budget and Policy Priorities and other national leaders, United Way Worldwide devoted significant staff capacity and resources to equip the network with state-by-state data, aligned messaging, communications materials, and advocacy training to be successful. We conducted substantial individual outreach to invite United Ways in strategic areas to partner, hosted a kick-off training and Hill Day in DC, and then continued the momentum with monthly campaign calls, regular e-communications and one-on-one technical assistance. Together with other partners around the country, we helped create and sustain a conversation that wouldn’t have happened otherwise. Perseverance was key because in many respects, we were attempting to get a policy win two years earlier than experience with Congress would lead us to expect.
What were some of the specific advocacy activities undertaken by United Way staff and volunteers?
We focused a great deal on educating elected officials and the public on the benefits of the credits in communities and what was at stake if Congress failed to act. In total we conducted more than 150 Hill visits with Members of Congress focusing on Congressional Leadership and Senate Finance Committee and House Ways and Means leaders. Over August Recess and into the fall of 2015, United Ways conducted 40 in-district meetings with elected officials on the credits. On the public awareness front, we engaged in traditional and social media, generating 30 op-eds/letters to the editor in strategic local markets and nearly one million impressions through social media in support of the credits. United Way joined national partners in meeting with the White House and also contributed to the national dialogue through interviews with national and trade media. Finally, in the culminating month of the campaign, we used digital channels to engage individuals in the advocacy effort, generating more than 5,500 letters to Congress on the credits.
Who are some of the other key leaders in the advocacy effort around the EITC and CTC?
We really appreciated the critical role the Center on Budget and Policy Priorities played in convening national partners to align messaging, data, and strategy in this advocacy effort. Some of the other national organizations who actively engaged on this work include the National Council of La Raza, The Institute on Taxation and Economic Policy, MomsRising, RESULTS, the Coalition on Human Needs, and the Corporation for Enterprise Development, among countless others. Each group leveraged its unique voice and reach, and together we were a force.
What has been the reaction of folks in your network to having participated in this advocacy effort?
Thrilled. We talk a lot about collective impact and working together as a network to achieve something that no single United Way or organization could do alone. This advocacy effort models the collective approach and together we help 50 million Americans to be able to keep more of what they earn, making a tangible difference in local communities. That’s impact at scale. And it’s just the beginning.
So what’s next for the EITC?
Great question. We’ll be celebrating this success for quite some time, but by no means, resting on our laurels. While the win in December was incredible, there’s one major piece of the EITC left undone – strengthening the credit for low-income workers without children. Americans in this group are the only segment of our population taxed into poverty. That’s unacceptable when we know what works. With the proven success of the EITC in incentivizing and rewarding work, it’s no surprise that Republicans and Democrats alike are championing this expansion of the EITC – in fact, President Obama and Speaker Ryan have introduced virtually the same proposals to expand the EITC for workers without children. And with rumblings of comprehensive tax reform early in 2017 – where everything will be on the table – we’ll need to ensure we’re proving the value of what’s working in the tax code, including the credits. So there’s certainly lots more to do, and United Way will be at the table to make sure this major victory is only the launching point.