March 7, 2010
Big business and advocates for the working poor often have trouble finding common ground. But that shouldn't be a problem for the next few weeks leading up to April 15. New research shows they both have more than ever at stake this year in boosting California's woefully low participation in the country's largest program for the working poor -- the earned-income tax credit. They just need to realize it.
The earned-income tax credit is the most effective and efficient anti-poverty tool you've never heard of. Created by then-President Richard Nixon, and expanded by both Republican and Democratic presidents, it gives a financial boost to people at the low end of the pay scale. People who earn up to $48,279 can claim refunds as high as $5,657. The average is about $1,900. Research shows the earned-income tax credit lifts more children out of poverty than any federal program. That's because the credit gives a big raise -- up to 40 percent -- to working low-income parents.
But it's also an idea with as much appeal for bottom-liners as for bleeding hearts. That's because Californians claimed about $5 billion in refunds from the tax credit last year. And studies show people spend them right away, on big-ticket expenses like fixing the car. This immediate spending fuels local sales, pays local wages and creates local jobs. In fact, Moodys.com says putting cash in the pockets of those who need it most is the most effective economic stimulus around.
But there's a problem. The stimulus is only as strong as the number of eligible families that claim the refunds, and California has one of the lowest rates in the country, according to the IRS. A new study from two California State University, Fresno, economists estimates that 800,000 eligible Californians who could claim them, don't. If it happens again this year, California will miss out on nearly $2 billion of economic activity -- $1.4 billion in business sales will never happen; $342 million in wages will never be paid; $88 million in tax revenue will never make it to our state's empty coffers. The study was commissioned by the New America Foundation.
People miss out because they don't know about it. Or they think they don't earn enough to file a federal tax return. Latinos and childless workers are among those most likely to not participate.
Fortunately, foot soldiers up and down the state are getting the word out through organizations like the United Way and Legal Aid. And California first lady Maria Shriver is reaching out through her "WE Connect Campaign," letting people know about programs they've never heard of and making it easier for them to apply.
Normally that might be enough. But this year is different. With double-digit unemployment rates and people earning less overall, more Californians than ever are likely eligible for the tax credit. With our safety net unraveling, these dollars are critically important to families. With our economy sputtering, the same is true for businesses.
It's time for the business community to join the chorus, making sure everyone who could get the refund does. Chambers of commerce should sound the alarm to their members. Businesses can tell their employees about nearby free tax-preparation services. Retailers can hand out information in checkout lines. And media of all types -- especially Spanish-language stations -- should run public service announcements on heavy rotation.
There's a lot of griping in California that we don't get our fair share of federal resources but pay much more than our due. With April 15 a few weeks away, here's an opportunity to turn that around, not just out of the goodness of our hearts but for the economy.
For more information about tax-preparation assistance, call (916) 498-1000.
Anne Stuhldreher is a senior research fellow at the New America Foundation in San Francisco.