News

California should improve awareness of EITC refund

No one likes to finish last. But the stakes are higher in some races than in
others.

New research reveals that California is dead last in bringing home the
country’s largest resource for working-poor families. By April 17, hundreds
of thousands of Californians will miss out on applying for the Earned Income
Tax Credit (EITC), a source of sizeable refunds that give a financial boost
to those at the low end of the pay scale. Golden State residents leave
almost $1 billion in federal funds unapplied for. California families pay a
big price when they leave these dollars sitting in Washington, D.C. People
who earn up to $37,263 can claim EITC refunds that average $1700, but can be
up to $4400 for working parents.

Simply put, these tax windfalls help families make it. Studies show people
spend them to fix the car or pay for the big expenses they sometimes can’t
cover with their regular paychecks. These tax windfalls also give many
Californians their best chance to save each year. This is important, given
that almost 8 million Californians live in “asset poverty,” meaning they
don’t have enough savings and assets to survive for three months at the
poverty level if they lost their jobs. The EITC has been proven to lift more
children out of poverty than any other federal program.

Rosa Hernandez heard about the EITC from a friend and applied for the first
time this year. A mother of three, she teaches pre-school in Kerman, a small
town outside Fresno. She received $4400 to supplement her $15,000 salary.
She plans to make the refund go a long way toward catching up on bills and
caring for her children.

People like Hernandez don’t apply for the credit because they don’t know
about it. Or they think they don’t earn enough to file a federal tax return.
Latinos, non-English speakers and people in the Central Valley are
especially likely to miss out.

Low-income neighborhoods also lose big. In urban and rural areas throughout
the state, often 25 percent of eligible people never apply. Millions of
unclaimed EITC dollars will never be spent at local grocery stores and other
neighborhood businesses. Most California cities miss out on tens of millions
of dollars.

It’s odd the state doesn’t do more to spur Californians to claim this
important resource–especially since it doesn’t drain a dime from our
depleted state coffers.

California should look north to Washington State. In 1999, state leaders
learned that 40 percent of eligible residents weren’t applying for the EITC.
They developed materials to raise awareness of the credit, conducted a media
campaign and set up a hotline. Significant media time was donated and the
toll-free number received 67,000 calls. The campaign cost $316,000 for its
first year, and less each year thereafter. Five years later, an estimated 80
percent of eligible Washingtonians–thousands more families–were receiving
the credit.

A California public-awareness campaign would, of course, cost more. But if
every dollar the state invested brought almost $20 into the hands of
California’s working-poor families, as it did in Washington, it would be
worth it.

When California is in better fiscal shape, it could create a state EITC, as
18 other states have. These state credits provide a modest match to the
federal ones to encourage more people to apply. For example:
Illinois and Indiana both give a five- and six-percent match, respectively.

Other states, like New York, provide a 30-percent match. San Francisco is
the only California city to provide a local match, called the Working
Families Credit. 9600 San Franciscans claimed the credit last year; the city
paid out an average $220 to applicants. Other cities should consider this
innovative policy.

We’re always hearing how California doesn’t get its fair share of federal
funds for things like roads and highways. Here’s an opportunity for state
leaders to take steps to bring home dollars that will go directly to their
constituents who need it t most. This should be a no-brainer.


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