The EITC Gives Low-Income Americans More Than Just Money

A new study finds that the EITC can have emotional and psychological benefits.

National Journal
Alana Semuels, The Atlantic
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Alana Semuels, The Atlantic
May 1, 2015, 2:56 a.m.

BO­STON—For many Amer­ic­ans, tax sea­son means sort­ing through reams of pa­per­work and re­ceipts, only to find out you owe money to Uncle Sam.

But for the dozens of people crowded in­to chairs lin­ing the hall­way of this tax-pre­par­a­tion of­fice, tax sea­son means something else en­tirely: a rare time when they may have a few ex­tra thou­sand dol­lars in their pock­et, along­side the emo­tion­al lift that can ac­com­pany a fin­an­cial wind­fall.

The people wait­ing here at the Roxbury Cen­ter for Fin­an­cial Em­power­ment will find out, with the help of a cast of vo­lun­teer tax-pre­parers, wheth­er they qual­i­fy for the Earned In­come Tax Cred­it, a pro­gram that makes avail­able $55 bil­lion an­nu­ally to the work­ing poor.

“I’m go­ing to save it. I want to take a trip, soon­er or later, down to see my fam­ily in the South,” Dorothy O’Neill, a 47-year-old wo­man who works for an in­dus­tri­al-clean­ing com­pany in Bo­ston, told me out­side the tax-prep of­fice. She hadn’t got­ten the tax cred­it be­fore, but she’d been work­ing for more than a year, and after a friend told her about the tax cred­it, she’d headed down to the of­fice to check it out. She was wait­ing to find out how much she’d re­ceive.

The Earned In­come Tax Cred­it began in 1975 and was ex­pan­ded dra­mat­ic­ally in 1993 as part of Pres­id­ent Clin­ton’s anti-poverty policy. Put simply, the cred­it is a sub­sidy the fed­er­al gov­ern­ment provides to those who work but earn very little. Single work­ers with one child can earn up to $38,511 and still be eli­gible; those who have three or more chil­dren and are mar­ried can make up to $52,427 and still be eli­gible. Some work­ers can re­ceive as much as $6,143 in a single check.

But the EITC can also lead to something more sig­ni­fic­ant than money this tax sea­son—a feel­ing of so­cial in­clu­sion and cit­izen­ship that might oth­er­wise elude them. Ac­cord­ing to a new study, people who re­ceive the Earned In­come Tax Cred­it, which provides big­ger re­funds to low-in­come work­ers with chil­dren, are, for a time, privy to the op­tim­ism of the Amer­ic­an dream, a sharp con­trast to the feel­ings of stig­mat­iz­a­tion as­so­ci­ated with re­ceiv­ing gov­ern­ment be­ne­fits.

The Earned In­come Tax Cred­it is, for many, “a just re­ward for work, an op­por­tun­ity for up­ward mo­bil­ity, and a chance to provide re­cip­i­ents’ chil­dren with some of their ‘wants’ and not just their ‘needs,’” write the au­thors of the study, “Dig­nity and Dreams: What the Earned In­come Tax Cred­it Means to Low-In­come Fam­il­ies,” pub­lished in the April is­sue of Amer­ic­an So­ci­olo­gic­al Re­view. “This mean­ing en­cour­ages spend­ing pat­terns that cre­ate feel­ings of so­cial in­clu­sion and cit­izen­ship.”

The EITC has been found to have a host of be­ne­fits—en­cour­aging house­hold heads to work, im­prov­ing health, and boost­ing school achieve­ment. In some cases, the EITC can be equi­val­ent to three months’ worth of in­come for filers.

But the EITC also has an in­tan­gible ef­fect, say re­search­ers Jen­nifer Sykes, Kat­rin Kr­iz, Kath­ryn Ed­in, and Sarah Hal­pern-Meekin. It al­lows the work­ing poor to plan for up­ward mo­bil­ity. Though they may not be able to spend the re­fund on the house down­pay­ment or sav­ings bond that they hope to, even the feel­ing that they could make a big change in their fin­ances is a big men­tal boost.

To con­duct the study, lead au­thor Sykes be­came a cer­ti­fied tax-pre­parer and talked to low-in­come work­ers while help­ing com­plete their taxes at a site in Bo­ston. She and her col­leagues talked to 115 house­hold heads who re­ceived re­funds of at least $1,000.

They found that about a quarter of the EITC money was used to pay down debts or press­ing bills. About a tenth is used for “treats” or ex­tra con­sump­tion, and the rest—nearly 40 per­cent—of the re­main­ing re­fund is used to pur­chase things as­so­ci­ated with up­ward mo­bil­ity, such as dur­able goods like a new fridge or a car.

Even the abil­ity to pur­chase small “treats” around tax time had pos­it­ive so­cial as­so­ci­ations, they found, al­low­ing fam­il­ies to feel in­cluded in the same league as Amer­ic­ans who spend on din­ner or trips without think­ing twice about it.

One moth­er told the re­search­ers that she can usu­ally provide her chil­dren with what they need, but not what they want. With the re­fund, she was able to take them to T.J. Maxx and let them pick out their own clothes.

“It might have been a couple of dol­lars more ex­pens­ive, or it might have been even double the price, but the point was they got what they needed and at the same time they felt like a mil­lion bucks. Be­cause they got ac­tu­ally what they wanted. My kids felt like a mil­lion dol­lars,” she said.

“Just hav­ing that money, ex­tra money like that, it’s a good thing,” an­oth­er wo­man told the re­search­ers. “Just go­ing in­to the store and just ba­sic­ally buy­ing what you like, you know, not ne­ces­sar­ily what you need. … I’m 43 now. What have I done [for my­self]? I want to live com­fort­ably!”

The cred­it can also help work­ing par­ents feel val­id­ated as pro­viders, the au­thors say.

“Par­ents as­so­ci­ate this sort of spend­ing be­ha­vi­or with be­ing a full par­ti­cipant in U.S. so­ci­ety. These al­loc­a­tions make people feel they are part of the main­stream, in­stead of just watch­ing from the side­lines,” the au­thors write.

Of­ten, people can’t spend their re­funds in the ways they’d like be­cause they have bills to pay. But fam­il­ies can still in­dulge in dream­ing about how to spend their money, which has a func­tion in and of it­self. For in­stance, fam­il­ies will dream of sav­ing the money and put­ting it to­ward a down pay­ment on a house, even though they end up us­ing the money to pay off bills when the re­fund ar­rives.

“It’s a com­plic­ated story be­cause they have dreams that are per­haps big­ger than the EITC dol­lars al­low them to real­ize,” Sykes told me, in an in­ter­view. “I think this goes to how power­ful the Amer­ic­an dream as­pir­a­tion­al nar­rat­ive is.”

The abil­ity to in­dulge spend­ing fantas­ies also can also lead to feel­ings of so­cial in­clu­sion, be­cause fam­il­ies are able to feel that they’re not poor and that they’re con­sumers just like oth­er Amer­ic­ans.

Fur­ther­more, the EITC is not giv­en out through the wel­fare of­fice, but rather is earned by people who go to a tax-prep cen­ter just like many oth­er Amer­ic­ans. And those who be­ne­fit from it re­ceive a check from the gov­ern­ment, just like people whose wages were over-with­held. In that way, there’s no “scar­let let­ter” on checks dis­tin­guish­ing those who over­paid from those re­ceiv­ing a “handout,” the au­thors say.

The au­thors talked to people who had re­ceived Tem­por­ary Aid to Needy Fam­il­ies, or TANF, and who more re­cently qual­i­fied for the EITC. There was a stark con­trast to how they felt about each gov­ern­ment pro­gram. Past wel­fare re­cip­i­ents of­ten had to of­fer an ex­cuse for their time on wel­fare and that spend­ing wel­fare on a spe­cial treat like a din­ner out was a “mor­al fail­ing.” But spend­ing the EITC on such treats was ac­cept­able, be­cause work­ers had earned the money.

One of the things that struck me about the EITC was how it made a pro­cess that is, for most people, a com­plic­ated and stress­ful head­ache, with boxes to check and de­pend­ents to name, a pos­it­ive ex­per­i­ence for many low-in­come work­ers. People can go to a cen­ter ded­ic­ated to help­ing low-in­come people file their taxes for free and be­come know­ledge­able about how much they earned be­cause they work. Some cen­ters have re­sources to help people learn how to save that money, too.

“You know when you work the whole year and you know you’re go­ing to get a good amount, you’re beat­ing down the door” to the tax cen­ter, one wo­man, Fuli­cia Stevens, told me, at the Roxbury cen­ter. “My old­est son, his birth­day is in Janu­ary, so I’m totally de­pleted by that time of the year.”

The Earned In­come Tax Cred­it isn’t uni­ver­sally em­braced by poli­cy­makers. The House GOP tax re­form in­tro­duced last year would have re­placed the pro­gram with a monthly wage sup­ple­ment. Twenty-six states have their own EITCs, typ­ic­ally struc­tured as a per­cent­age of the fed­er­al cred­it, but some of those have been cut back in states such as Wis­con­sin that were fa­cing budget prob­lems after the re­ces­sion.

And some states—in­clud­ing Mas­sachu­setts—are talk­ing about ex­pand­ing the EITC. Re­pub­lic­an gov­ernor Charlie Baker re­cently re­leased a pro­pos­al to double the amount of the state cred­it.

Do­ing so could put more money back in­to the hands of the work­ing poor—and could also change their at­ti­tudes about what they can achieve, Mimi Turchinetz, the dir­ect­or of the Bo­ston Tax Help Co­ali­tion, told me.

The Bo­ston Tax Help Co­ali­tion is a part­ner­ship of non­profits, busi­nesses, and com­munity groups that seeks to help people max­im­ize the im­pact of the EITC, and runs the Roxbury of­fice where I met Stevens and O’Neill. In the busy days be­fore tax sea­son, people were every­where in the of­fice, wait­ing with pa­per­work, lined up against the wall, hunched over com­puters with vo­lun­teer tax-pre­parers.

The co­ali­tion re­cently launched a pro­gram that re­cruits low-in­come cli­ents and helps them man­age their fin­ances, im­prove their cred­it scores, and save money. It seeks to help low-in­come people have at least a shot at fin­an­cial mo­bil­ity, us­ing their tax re­fund and oth­er re­sources to help them achieve some of the as­pir­a­tions they’d men­tioned to the re­search­ers. The pro­gram will help people buy sav­ings bonds and put money in­to twin ac­counts that will provide a $500 match when people reach a cer­tain sav­ings goal.

“The deck is stacked against poor people. We know that. We do everything that we can do to make sure that folks have the best hand,” Turchinetz said.

Fuli­cia Stevens said she’s ready to re­pair her cred­it and start sav­ing money. In past years, she’d spent her re­fund re­pla­cing her kids’ worn be­long­ings or buy­ing fur­niture to re­place broken pieces in her house.

But in 2014, she’d got­ten laid off after only a few months of work. She didn’t think she’d get a re­fund, but when she went in­to the Roxbury Cen­ter for Fin­an­cial Em­power­ment, she found out she’d get $1,600.

She’s go­ing to save it any way she can, and she’s ready to get back in­to the work­force, she said, to earn more—and save more. When she found out she was get­ting a little help from the IRS, she felt that she’d earned a wind­fall—both fin­an­cially and emo­tion­ally.

“To come here today and see I was go­ing to get something was a won­der­ful feel­ing,” she told me. “A little bit of help, you know.”

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