By: Dennis Walsh
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IRS Commissioner John Koskinen was recently quoted as saying the EITC is one of the government’s best tools to fight poverty. Yet, in its 40-year history, there is no hard evidence that the program has done more than provide an income supplement to low- and moderate-income individuals that in some cases raises a claimant’s income above the government-defined poverty threshold for a particular year. This is not addressing poverty.
In comparing current poverty rates with those of decades past, there is no basis to show the EITC, along with Medicaid, food stamps, and other federal and state transfer payment programs, have done anything to significantly lessen the rate of poverty.
For those able to work, education and individual responsibility represent the escape hatch from poverty. Family, faith community, and local community together should provide encouragement and transitional support as needed.
Government defines and measures poverty in economic terms without regard to poverty of the mind that can keep individuals in perpetual economic distress. That’s where as CPAs we can make a difference.
While CPA tax practitioners typically see only a small fraction of the number of EITC clients served by the retail tax industry that caters to this clientele, we can nevertheless capture opportunities to educate EITC recipients who we do encounter and, more broadly, reach out to our communities as volunteer teachers and financial counselors. Financial literacy is an essential foundation for upward mobility.
It is a simple fact, for example, that recipients of large EITC payments are typically among those least able to responsibly handle a lump-sum payment. We can help these individuals estimate their tax and EITC, and help them revise Form W-4 with an appropriate number of withholding allowances.
Although advance payment of EITC was eliminated after 2010, by reducing or eliminating income tax withholding where justified, demand for quick refunds can be lessened to some degree, and this can in turn help encourage responsible monthly budgeting. Store-front tax services lack incentives to help clients stagger EITC receipt, since it would lower the demand for quick tax preparation services and reduce fees from immediate payment arrangements.
We can also encourage EITC claimants to use IRS “Free File” with direct deposit. Those who do not have personal Internet access or access through family members or friends, as well as persons needing preparation assistance, can be referred for free tax preparation at a local Volunteer Income Tax Assistance (VITA) site.
The January 31, 2015 “Making Cents” financial literacy training event, held at Guilford Technical Community College in Jamestown and led by the Piedmont and Northwest Piedmont Chapters, is a great example of what we can do through the Association. You can also join the thousands of fellow practitioners across the nation who have volunteered to teach financial literacy through the AICPA’s “360 Degrees of Financial Literacy” program, as well as participate in similar efforts sponsored by community organizations.
On a strategic level, in partnership with our legislators, we can advocate for programs that better incentivize workforce education and independence from public support. As individual professionals and as an Association, with our respected standing, we bring a good measure of clout to the table.
The North Carolina companion EITC was eliminated beginning in 2014, and the federal EITC program is overdue for reform. But lest we throw the baby out with the bath water, if restored to inflation- adjusted 1970s levels, the federal program can serve its originally intended role of incentivizing work by lifting some of the payroll tax burden from low-income workers at a fraction of the current cost and with a substantial positive effect on the federal budget deficit.
Warren Buffett was once quoted as saying that he would “give his children enough to do anything, but not enough to do nothing.” Government might heed this sage principle.
Through The Micah Project, Dennis Walsh, CPA, serves as a volunteer consultant to religious workers and exempt organizations, focusing on financial management, legal compliance, and organizational development. A graduate of the University of Wisconsin, he completed the Duke University certificate program in nonprofit management. Dennis is the author of “Legal & Tax Issues for North Carolina Nonprofits” and has written for various nonprofit publications. He actively volunteers with the Guilford Nonprofit Consortium, the Not-for-Profit Committee of NCACPA, and for the accounting assistance program of the North Carolina Center for Nonprofits. He can be reached at email@example.com.