The EITC Movement at Ten Years

August 8, 2011

by Steve Holt

The Earned Income Tax Credit (EITC) - our largest federal anti-poverty program - has been successful at encouraging work, helping families in need and strengthening local economies. Over the last decade, it has also been the centerpiece of a broad range of public, nonprofit and private-sector activity that can be collectively described as the EITC Movement.

"Ten Years of the EITC Movement: Making Work Pay Then and Now," a new report from the Metropolitan Policy Program of the Brookings Institution, describes this activity and reflects on what local and national EITC initiatives have achieved since their significant expansion between 2000 and 2003. It also looks ahead with suggestions for continuing this important work.

The National League of Cities is part of the EITC Movement, which has helped hundreds of local communities ensure that eligible residents both know about the EITC and can readily prepare the tax returns required to claim it. NLC's Institute for Youth, Education and Families has worked with municipal officials in these two core areas to promote the EITC's availability and to support the volunteer income tax assistance (VITA) program of free return preparation.

The EITC has a high take-up rate, meaning a high percentage of eligible households take advantage of it. Unfortunately, it is hard to measure take-up rates at the local level with available data.

Nonetheless, other recent Brookings work ("Responding to the New Geography of Poverty: Metropolitan Trends in the Earned Income Tax Credit," http://www.brookings.edu/papers/2011/0217_eitc_poverty_kneebone.aspx) with local filing data shows how the EITC has proven to be reliable in supporting families and communities affected by the economic downturn.

The VITA program grew greatly in the last decade, and it is now one of the nation's top three tax preparers.

Free tax sites in some communities have a particularly significant market share. In Rochester, N.Y., in 2008, VITA sites prepared 7.8 percent of all returns (up from 0.2 percent in 2001), and the VITA market share in Buffalo, N.Y., was 7.1 percent (up from 0.5 percent). VITA sites in Tulsa, Okla., prepared 12.5 percent of returns claiming the EITC, and in Cambridge, Mass., the EITC market share was 11.8 percent. By comparison, the largest commercial firm (H&R Block) prepares 1 in 7 returns overall (about 14 percent).

The EITC Movement has also been successful in attacking refund anticipation loans (RALs). Used disproportionately by EITC recipients, RALs siphon off refund dollars in exchange for shortening the wait to receive a refund only by days. Total RALs fell from a high of $12.7 million in 2002 to $7.2 million in 2009, and concerted market and political action appear to point to the RAL's imminent demise.

The EITC Movement has also expanded the vision of EITC-related work. Communities now look beyond tax time to see how work supports in the tax code can build longer-term household economic security.

The success of the EITC Movement points to the need for continued systemic work guided by four objectives:

1) maintaining sufficient knowledge in the community of eligibility for the EITC and other tax credits to reach everyone who qualifies;

2) seeing that everyone eligible for these tax-based work supports is able to claim them quickly, simply and inexpensively;

3) providing opportunities for credit recipients to engage in sound financial practices with year-round benefits; and

4) ensuring that receipt of the EITC is free of predatory interference.

Municipal officials have an important role to play in this future. In a time of fiscal uncertainty for both governments and families, cities can prioritize targeted work that realizes the full potential of the support the EITC provides to workers and their communities.

Details: To download the Brookings reports, visit http://www.brookings.edu/topics/earned-income-tax-credit.aspx. To download NLC's toolkit for municipal leaders on Maximizing the Earned Income Tax Credit, visit www.nlc.org/iyef.

Steve Holt is the author of the Brookings Institution Metropolitan Policy Program report, "Ten Years of the EITC Movement: Making Work Pay Then and Now." His consulting firm, HoltSolutions, provides evaluation, research, management and public policy consulting services to government, foundations and nonprofit organizations.