The Case For Paying A Tax Refund In Several Chunks, Not All At Once
In Texas, many families are pulled out of poverty by what’s known as the Earned Income Tax Credit, or EITC. Some experts say changing how the credit is paid out might help even more people.
The Brookings Institution’s Alan Berube talks about the credit — and why paying it all at once may not be the answer.
Interview Highlights: Alan Berube…
…On focus group members’ jobs and why they felt financially strapped: “Occupations like child care, in a warehouse and distribution center, in hospitality, food service, really the kind of working class jobs of the 21st century. They’re making incomes anywhere from maybe $20,000 to $40,000 a year. So, they were really concerned about issues like how much they were getting paid, how much was ending up in their paycheck after taxes, and whether that was enough to afford the necessities of life.”
…On what the EITC is and who’s eligible: “It was actually instituted about 40 years ago as a way to relieve payroll taxes for low earners, and today,it’s effectively a major earning supplement for people who work but don’t make a lot of money. In 2016, families who had children and had incomes under $50,000 could get a credit against their income taxes of up to $6,300."
…On why getting a big EITC refund all at once might not be the answer: “You’re a low-earning family, you’ve got maybe a couple of kids, you make $30,000 a year, the EITC might provide you with $2,500 or $3,000. The problem is if you’re making that little money in your paycheck, it’s very easy for your family to get behind. And it’s great to get a big check once a year when you file your tax return, and maybe you can make some big purchases. But, as these families in the focus group revealed, mostly what they’re doing is catching up on all the bills they couldn’t pay the last several months, waiting around just hoping they make it to tax time so you can cover those bills.
"In talking about tax time and large tax refunds, participants said that the refunds didn’t really address what they pointed to — this earnings gap. One said ‘It’s just to catch up.’ And another worker said ‘Yeah, that’s what I do. All my tax returns go to pay off stuff.’ A third said, ‘It seems like a Band-Aid over a big wound.’ What all of that indicated to me is that it would be great if we could just find a way to take this very successful program but space it out over the year, so that folks don’t get behind and they don’t always feel stressed, and they’re not running to catch up with the lack of earnings that they suffer throughout the year.”
Alan Berube is senior fellow and deputy director at the Brookings Institution Metropolitan Policy Program.