L.A. County -- the biggest loser
There are some contests where you don’t want to finish first. Being the biggest loser of free federal tax refunds is one of them.
Yet Los Angeles County just notched that dubious distinction in a recent study of California’s participation in the earned income tax credit, or EITC, a refund that gives a financial boost to people at the low end of the pay scale.
The unheralded tax credit is a secret weapon in the fight against poverty. Last year, the tax credit effectively gave 2.5 million Californians $5 billion in raises. People who earn up to $48,279 can be eligible, although the idea behind the credit, introduced in the Nixon administration, is to give low-wage workers with families a leg up. The average refund is about $2,000, but they can be as high as $5,657.
It’s a resource that’s especially important for struggling parents and their kids. According to the Brookings Institution, the earned income tax credit lifts more children out of poverty than any federal program.
It’s just as powerful for businesses. Research shows that people tend to spend their earned income refunds immediately. That spurs sales at local businesses, which in turn can hire more people and pay wages. In fact, in a study comparing stimulus options, Moodys.com found that what gets the biggest bang for the buck are investments that increase the spending power of the neediest.
But at a time when every dollar counts, we’re letting earned income money fall through our fingers. The IRS says that California has one of the lowest participation rates in the country. Two Cal State Fresno economists, in a study commissioned by the New America Foundation, estimate that 800,000 Californians will neglect to claim $1.2 billion in earned income tax credits this year.
If the prediction comes true, the poor won’t be the only ones suffering. The Cal State Fresno researchers applied “economic multiplier” models that show that California’s economy will miss out on $1.4 billion in business sales, $342 million in wages and $88 million in tax revenue because the unclaimed refunds will never be spent.
And nowhere will those losses be greater than in Los Angeles County. The study estimates that 250,000 county residents don’t claim $370 million in refunds. That works out to $446 million in sales that won’t happen, more than 2,700 jobs that won’t be created and $122 million in wages that won’t be paid.
Of course, people don’t willfully miss out on refunds. They do so because they haven’t heard of the credit or don’t think they earn enough to apply. And often they’re confused. That’s understandable -- the IRS considers 20 factors to determine if someone qualifies. Latinos and non-English speakers are among those most likely to fail to claim the credit.
That’s why it’s so important that people find out if they’re eligible before April 15. You can call the county’s 211 help line to learn more about the earned income tax credit and to get connected with 130 free tax preparation sites throughout the region. Or you can head to the Forum in downtown Los Angeles from 11 a.m. to 3 p.m. It’s the final day of First Lady Maria Shriver’s “one-stop” fair designed to make it easy for people to find out if they’re eligible for various kinds of aid and how to apply for them. Shriver held a similar event at the Fresno County Fairgrounds last weekend, and one organizer estimated that 26,000 people came, according to the Fresno Bee.
Many more people, though, need to hear the message. Our cash-strapped state can’t afford for them not to.
Anne Stuhldreher is a senior research fellow at the New America Foundation, a nonprofit, nonpartisan policy institute.
