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The earned-income tax credit has long been considered an important tool in fighting poverty, but in D.C. — which has a generous local match — many residents don't even know they are eligible for it.
Pictures of Money/Flickr
D.C. lawmakers approved a historic tax increase this week that, if implemented, could lift thousands of District residents out of poverty. But advocates say further steps are needed to make sure people know the new resource exists.
Proposed changes to the city's Earned Income Tax Credit, or EITC, came during Tuesday's debate and vote on the 2022 budget, when lawmakers approved raising taxes on residents who make more than $250,000 a year. A large portion of the revenue from the tax hike will fund homeless services and early childhood education, but the remainder would allow D.C. to increase its local match of the federal tax credit from 55% from the current 40%, with the extra benefit provided in the form of a monthly payment.
"What we're really talking about is a universal basic income," says Councilmember Charles Allen (D-Ward 6), who sponsored the measure. "For low-income households, working families, it is — every month — cash coming in. Whether that's to help pay the bills, put food on the table, buy the kids new clothes, it is deeply impactful and meaningful."
Created during the Nixon administration, the EITC lets low- and moderate-income working people lower their tax burden or get more money back from the government. Currently, a single worker with two kids making less than $48,000 a year qualifies for the EITC, as does a married couple with three kids who brings in less than $58,000.
The council's change — which still requires final approval in August — would make D.C.'s EITC match the most generous in the country. But residents can't claim the benefit if they don't know it exists.
An estimated 20,000 families in D.C. are not collecting the tax credit even though they're eligible, says Joseph Leitmann-Santa Cruz, the CEO of Capital Area Asset Builders, a nonprofit that connects low-income D.C. residents to the financial system.
"At the end of the day, what matters is not that the resources are available, but that those who could benefit from the resources know about the resources and take advantage of them," Leitmann-Santa Cruz says.
In 2020, nearly 50,000 tax filers benefited from the EITC, with an average of $2,343 per filer. But data from 2017 — the latest available — show that the city's EITC participation rate was 77%, meaning thousands of residents left money on the table, the CEO says.
D.C. already provides one of the country's most robust EITC matches. The city started kicking in an additional 10% on top of the federal credit two decades ago, and has since increased it to 40%. Currently, if a resident with three children qualifies for an EITC of $6,200, they could fetch an additional $2,500 or so from the city.
"These are people who work, who are earning wages but still struggle to get by. So it's basically allowing them to keep more of the money that they're earning," says Tazra Mitchell, the policy director for the left-wing D.C. Fiscal Policy Institute. Mitchell says her own family benefited from the EITC when she was a teenager.
One key component of the measure passed this week is that it allows residents to collect the credit as a monthly payment starting in 2023, instead of a lump-sum refund at tax time. That's crucial, says Leitmann-Santa Cruz.
"Every family has to make sure that there is sufficient money to cover the electricity, the water and the credit card bills, but not necessarily the amount of income will be available at that specific date when the bill is due," says Leitmann-Santa Cruz. "So by having a recurring monthly payment, we are ensuring that people have access to a tax credit [that lets them] pay bills on time."
Councilmember Allen says the idea of increasing the local EITC match had been percolating for at least three years, since the council's budget office conducted research on universal basic income programs. Economic disparities exposed and exacerbated by the COVID-19 pandemic made the issue more urgent, he says.
"I think that it really helped shine a light on how different our city is within its own borders," he says.
Across the country, governments are beginning to experiment with basic income programs that provide regular cash infusions to needy individuals and families. The Biden administration has embraced the concept, too, with its new expansion of the federal Child Tax Credit. Locally, nonprofits in D.C. directly gave out cash to hundreds of East of the River families who lost income during the pandemic. Families reported using the funds to pay back rent, cover education supplies for their kids, and even start businesses.
Mary Bogle, a researcher in the Metropolitan Housing and Communities Policy Center at the Urban Institute, says the conversation around cash benefits has evolved in recent years. Policymakers today are less likely to fret over how recipients use the money, because research has shown that people usually spend it on essentials.
"Cash is equitable. Cash is a way to put something in the hands of folks and say, 'Now you make decisions about your lives, and you don't have to have all these barriers,'" Bogle says. "It's deeply in keeping with the American view of things, which is, give people choice. Let them make their decisions."
Proposed changes to the city's Earned Income Tax Credit are still in flux, according to Councilmember Allen. An initial estimate of the initiative's cost came in under what lawmakers expected, meaning the match might even surpass the current proposal of 55% before the final budget vote is taken next month.
If the expansion is ultimately approved — which is likely — the next challenge will be making sure low-income residents file their taxes so they can collect the credit, says Leitmann-Santa Cruz. He says many low-income Washingtonians aren't required to file a federal tax return because their incomes are too low.
"That, right there, is the biggest obstacle for families," he says.
Capital Area Asset Builders is already working with the D.C. government to spread the word about the Earned Income Tax Credit. If the benefits get the boost that lawmakers are seeking, that publicity will become even more essential.
This story is from DCist.com, the local news website of WAMU.