Editor's Note: This blog post was authored by Bob Annibale, Global Director of Citi Community Development and Microfinance.
Earlier this week, President Obama was sworn in for a second term, and his inaugural address drove home the notion that “prosperity must rest upon the broad shoulders of a rising middle class.” Yet the U.S. Census Bureau reports that in 2011, 46.2 million people — or nearly one in six Americans —lived below the official poverty line of $23,201 a year for a family of four. Millions more households live just above this level, and even more lack almost any savings. Prosperity, however, will only really be achieved when it is a shared and inclusive prosperity, recognizing the contributions made by all communities.
Income inequality has been widening over the last 40 years, but new analysis of the U.S. Census Supplemental Poverty Measure by the Brookings Institution provides some hope. It underscores the idea that two tax credits for working families — the Earned Income Tax Credit (EITC) and its companion Child Tax Credit (CTC) — have been crucial tools for many low- and moderate-income families to raise their standards of living, build assets and educate their children.
According to this analysis, the EITC and CTC together boosted working families’ earnings above poverty in every state, lowering the overall poverty rate by 2.8 percentage points in 2011 and taking it down even further, by 6.3 percentage points, for children. This is in spite of the fact that more than one-fifth of those who qualify for the EITC do not take advantage of the program, leaving approximately $13 billion in EITC benefits unclaimed each year.
Just imagine the impact that could be achieved with greater awareness and participation.
At the neighborhood level, Volunteer Income Tax Assistance (VITA) sites represent an untapped resource for making this vision a reality and taking it one step further. Dr. Michael Sherraden, Director of the Center for Social Development at Washington University in St. Louis, agrees. “VITA tax preparation sites are an invaluable resource. Low-income tax filers at VITA sites get honest service that is in their best interest. This quality tax service enables families to put a portion of refunds aside as savings, making their lives more stable."
The IRS reported that over 27 million people nationwide received nearly $62 billion in EITC refunds for the 2011 tax year, yet less than one percent of EITC returns were filed by volunteers at VITA sites. This presents a particular opportunity since free tax preparation at VITA sites eliminates fees that poor working families would otherwise be charged by paid tax preparers, who actually filed the majority of EITC returns last year. More importantly, however, VITA sites connect people to comprehensive asset-building programs. By combining the expertise of trained volunteers with the on-the-ground relationships and programmatic support of local community organizations, VITA sites can go beyond their base mission of offering free tax preparation services and serve as gateways to the tools and knowledge necessary for working families to achieve economic stability.
Citi – through Citi Community Developmentand the Citi Foundation – is supporting efforts that demonstrate how this approach can work. We are working with local community organizations to connect people with supportive systems for setting savings goals, using tax credits like the EITC and matched savings incentives to build financial assets.
- In Texas, the United Way’s THRIVE program leverages VITA sites in Houston as one of the first steps in a comprehensive strategy that has helped over 28,000 families gain greater financial stability in just two years.
- This year, Youth Policy Institute (YPI) will utilize VITA sites supported by the City of Los Angeles as a new pathway into its Families Save program, which builds on YPIs $30 million Promise Neighborhood grant and empowers families to save for college. The program includes unique Citi savings accounts that feature incentives such as sign-up bonuses, monthly deposit rewards, and zero fees or balance requirements.
- At VITA centers in New Jersey, Citi is collaborating with local nonprofits and Newark Mayor Cory Booker again this year to connect EITC-eligible families who are completing the Free Application for Federal Student Aid (FAFSA) with support to address the financial challenges of transitioning to college.
- In Maryland and Delaware, Citi continues to participate in statewide public-private partnerships that raise awareness of EITC and connect families with complementary training and coaching programs that enhance their financial capability.
- And, for the second time this year, Citi has created Money Matters, a free publication available in English and Spanish that is customized for more than two dozen cities and provides information on savings, finding VITA sites, claiming the EITC, and connecting with local organizations.
As the fact that we mark EITC Awareness Day today suggests, awareness does matter. But it is only the first step on a path from financial access to long-term financial assets. We must collaborate across sectors to ensure that eligible working families know about the EITC and CTC, can more easily file taxes and claim these refunds, and, as a result, keep more of what they earn. Critically, we must work together in new ways to provide the tools, knowledge and support that will transform these annual infusions of cash into savings that can lift people out of poverty and create more stable and prosperous economic futures.