Alternatives to Damaging the EITC & Harming Low-Wage Workers

Last month, the Senate Appropriations Committee included a very damaging paragraph in its 191-page financial services budget bill. Under the guise of reducing EITC error rates, the bill would quintuple the number of pages low-wage workers need to fill out to claim tax credits for which they are eligible. In other words, the bill alleges to increase compliance but would ultimately only increase complexity. This is a flawed and imprudent strategy that will hurt low-wage workers without tackling the problems it purports to address.

We know how important the EITC and other tax credits are for low-wage American workers. In 2013, 27 million American’s claimed the EITC and the Child Tax Credit. Research shows that the lump sum tax refund makes work pay and provides a rare opportunity for low-wage workers to plan for their financial future and that these workers use their tax refunds primarily for basic needs, debt management, savings, and investments. The EITC doesn’t just help low-wage workers get by; it helps them get ahead and plan for the future.

As members of the low-income free tax preparation community, we see the value of the EITC to taxpayers and we work hard to file tax returns correctly. The Volunteer Income Tax Assistance (VITA) program, which is administered by the IRS and utilizes IRS-trained volunteers, has a 94% accuracy rate. That’s better than any other large tax preparer in the country. In other words, #VITAWorks isn’t just a popular hashtag in the field—it’s actually true.

While reducing filing errors is a worthy goal, increasing the difficulty of filing federal tax returns is a highly ineffective method for accomplishing that goal. The vast majority of EITC claimants file through paid preparers. These preparers have higher error rates than self-preparers (and much higher error rates than returns filed through VITA). But the Senate proposal does nothing to address the compliance shortfalls among these preparers.

Instead of placing additional burdens on low-wage workers, Congress should ensure that all tax filers have the information they need to file their returns accurately, and that paid preparers are doing a good job. This includes 40 million commercial preparers nationwide that are currently unregulated – many without adequate training, supervision, identification or regulation. Competency testing and IRS oversight has contributed to VITA being one of the most accurate ways to file a tax return. Earlier this year, Sen. Wyden and Sen. Cardin introduced the Taxpayer Protection and Preparer Proficiency Act to bring these best practices to the commercial tax preparation field.

Increasing the filing burden for low-wage workers will not address the need for increased accuracy in tax preparation. Instead it will create barriers for resource-strapped workers, thereby decreasing compliance and swelling the number of tax filers who forego earned credits due to the heightened difficulty of the process. The booklet for filing the EITC was 37 pages for Tax Year 2014, substantially longer than other credits and deductions. The complexity of filing the EITC already contributes to the error rate – adding more burdens to the process will not help. Before piling up new burdens on low-wage workers, Congress should consider Taxpayer Protection and Preparer Proficiency Act and related proposals to get workers the information they need to file their returns correctly.

Tracy Fischman, Pepare + Prosper
Jeremie Greer, CFED
Robin McKinney, Maryland CASH
David Marzahl, Center for Economic Progress
David Rothstein, Neighborhood Housing Services of Cleveland