Federal Tax Credit for Low Earners is Economic Engine for Delaware

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The News Journal
By Rhona B. Graham
March 18, 2010

In the Holy Grail hunt for job creation, it's possible that the tax season is a likely contributor.

But this is no new idea. Congress approved the Earned Income Tax Credit in 1975 in part to offset the burden of Social Security taxes and to provide an incentive to work.

Wilmington's Shiloh Baptist Church's Nehemiah Gateway Community Development Corp. is center of the state's EITC effort. It serves as the umbrella operation for free tax preparation sites targeting low- to moderate-income earners.

In Delaware last year, on average, EITC filers got back $600, regardless of whether they owed taxes.

In 2002, the first year, the campaign was housed at one site and volunteers prepared 250 returns. By 2005, 400 volunteers prepared over 8,000 tax returns at 17 sites. That year, the campaign helped working Delawareans collect $11 million in additional tax refunds.

Two years later, when Gov. Markell was ending his second term as state treasurer, EITC brought more than $17 million to the 2,000 residents.

Yes, EITC is an expansion of tax-based public assistance. But we're not talking the stereotypical lazy single mother image evoked by critics who describe EITC as handout to those who don't pay taxes.

Their complaint is based on the fact that someone who meets the EITC guidelines, but ends up owing no taxes, still gets the designated refund.

This year, families with one child and income less than $35,463 qualify for up to $3,043; families with two children and income less than $40,295 can receive up to $5,028. Even those without children may be eligible.

Last year, the fiscal conservative Heritage Foundation issued a paper that said, "The Making Work Pay credit will send money directly to millions of taxpayers who pay no income taxes at all. It is impossible to cut taxes for a taxpayer who pays no taxes. Thus, refunds to taxpayers who pay no income taxes cannot, by definition, be a tax cut. This is spending pure and simple, and it is misleading to pretend otherwise."

True enough. But where is the proof that the estimated billions in 2009 federal EITC credits sent to moderate- to low-income taxpayers isn't being recycled back into the economy in positive ways through payoffs of bad debts, avoidance of more foreclosure and personal purchases?

With the massive layoffs and elimination of jobs in the last two years, it's more likely that most of EITC refunds, on the average $604, return most Americans to the kind of cash-and-carry personal spending not seen since the 1989 stock market tremor.

Some states have tracked refunds as definite revenue enhancers.

"We found that the tax credit refunds, when spent in California, translate directly and indirectly into economic growth for small businesses that lead to job creation and tax revenue for the state," said Antonio Avalos, a California State University at Fresno professor of economics.

The bipartisan National Conference of State Legislators says using free tax preparation services can significantly increase the number of individuals who are eligible for EITC. In Delaware, the organization estimates a 5 percent increase in participation could net $3 million more in revenue.

Which brings us back to Nehemiah Gateway. Last year, 14,300 Delawareans were able to file their taxes for free at Nehemiah Gateway sites in all three counties. The site at Wilmington's Ezion Mt. Carmel United Methodist Church saw over 1,000 clients last year.

This year, it has on hand 500 volunteer IRS-trained tax preparers from Seaford to Bear, from the Goodwill center on Wilmington's Lea Boulevard to the Newark Senior Center.

But Shiloh's pastor and Nehemiah Gateway founder, the Rev. Clifford Johnson, has a double agenda. Johnson uses EITC as an opportunity to educate those who are poor financial managers, with no history of savings or even a bank account.

A separate group of certified personal financial managers are on hand to help residents open accounts with Artisan Bank and enroll in classes on how to get out of and avoid debt.

That's quite different from the usual work of the church -- feeding the poor, Bible studies and worship services. For Johnson it's no great distance.

"This is who I am. ... This is what Christ calls us to do. You worship to get the energy and insight to do the ministry. The greatest joy you have is to use your spiritual skills to help somebody else."

About one in four eligible taxpayers fails to claim the EITC, meaning that scores of local residents could be missing out on thousands of dollars.

They have until April 15, less than a month, to drop by any of the Nehemiah Gateway sites. For more about the free tax preparation call Delaware Helpline at (800) 464-4357 for locations.

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This page contains a single entry by Ernest Roberts published on March 18, 2010 4:07 PM.

Extremism in the Defense of "Liberty" is a Vice was the previous entry in this blog.

More City Taxpayers May Qualify For Earned Income Tax Credit is the next entry in this blog.

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