The Working Poor are Paying for Government Benefits: Fixing the Hole in the Anti-Poverty Purse

Abstract

The Brookings Institute and the Progressive Policy Institute have collaborated in a study analyzing the shift of earned income tax credit (EITC) benefits away from the working poor, their families and neighborhoods. The study determined that approximately $1.75 billion of the $30 billion in 1999 EITC was shifted from targeted individuals to paid tax preparers and affiliated national banks. This article analyzes the problem of diminishing EITC benefits for the working poor and presents possible solutions to preserve our nation's largest and most effective anti-poverty program. The proposed solutions include (1) simplification of applicable tax provisions; (2) an offsetting tax preparation tax credit; (3) a revised government-private industry preparer partnership providing free Internet tax preparation and filing services; and (4) government-supported volunteer income tax assistance clinics open all year to assist low-income individuals with tax preparation, filing, correspondence and other financial education and banking assistance.

Keywords: EITC, working poor, refund anticipation loans, tax preparers

JEL Classification: H20, H24, D63, H53, I32, J15, J38, K34,