What Tax Time can do for the Working Poor

By Joseph Martinez and Walen Ngo, United Way of Greater Los Angeles

The EITC, or Earned Income Tax Credit, has been known for over thirty years to be one of the more successful anti-poverty programs in the nation. The tax relief program is geared toward only workers earning income below a certain income threshold and is responsible for delivering much needed tax refunds to workers, who in turn use this money for medicine, rent, school supplies and food. Every year many people who are eligible for the tax credit in the U.S. and L.A. County fail to claim it, leaving behind billions in uncollected money. According to a 2008 research brief by the United Way of Greater Los Angeles, one in five taxpayers in L.A. County claimed the EITC in the 2006 tax year- that is, 750,000 taxpayers in L.A. County. These residents received a total of 1.5 billion dollars in refunds. Where does all this refund money go? What are the implications when eligible people don’t claim the refund and in essence, ‘leave it on the table’?

A new report by the New America Foundation examines the consequences. Money that is not claimed is never spent on local businesses, which in turn never create new jobs that could have been.  In addition, potential local tax revenue from this forgone economic activity is never generated. The report does an excellent job of highlighting how we are all in the proverbial “same boat.” Even if you are not low income, and not receiving the tax credit, your community still benefits by the infusion of cash coming into your business, your neighborhood and in your infrastructure via tax revenues generated.

Among some of the findings:

• L.A. County left over 370 million dollars in unclaimed refunds in year 2006. This meant a loss of over 440 million dollars to the economy in foregone sales.
• Over 2,700 jobs were not created due to this loss to the economy. This translates into over 123 million dollars in forgone wages.
• The EITC is particularly important in L.A. County because it has a higher level of poverty than the state and the nation- nearly 40% are considered low income. L.A. County has a lower median income compared to other large metro areas, and has a higher proportion of minorities (a constituency which claims the EITC in no small numbers).

If poverty prevention as well as alleviation is to be a public policy goal for our communities, then EITC expansion and funding for capacity and outreach is vital.  To learn about EITC outreach efforts in Los Angeles, visit http://www.greaterlaeitc.org/.