December, 2003

The State EITC Online Resource Center is pleased to present its electronic newsletter on current policy developments around state and federal Earned Income Tax Credits. For more information, please go to: www.stateEITC.com. Additional information on the federal EITC can be found at: www.eitc.info.

Feel free to forward this newsletter to your interested associates and to email sarah@thehatchergroup.com with news, information or other resources to be added to the update. If you do not want to receive this newsletter in the future, please reply with the word UNSUBSCRIBE in the header.

In this edition of the policy update:

• Rhode Island Makes Portion of State EITC Refundable
• New Report Documents Illinois’ Successful Campaign for a Better EITC
• Michigan Group Issues Report Supporting a State EITC
• Kentucky Advocates Produce Reports Highlighting Need for an EITC
• Precertification: IRS Releases New Forms & Instructions
• Olson Outlines Tough Penalties for Preparers Who Cheat on EITC
• Brookings Launches Interactive Website Offering EITC Data by Zip Code
• Tips for Communicating on State EITCs Presented at CBPP Conference
• New Report Shows EITC Could Alleviate Severe Housing Cost Burdens
• AECF Report Highlights EITC Outreach Campaigns

Rhode Island Makes Portion of State EITC Refundable

A recent change to Rhode Island's Earned Income Tax Credit made a part of the credit refundable. Eligible taxpayers can claim 5 percent of the unused portion of their non-refundable 25 percent EITC as a refundable credit. The change will help approximately 42,000 Rhode Islanders with very low earnings claim more of the EITC they are owed. The refundable EITC passed at the end of this legislative session as part of the budget.

Go to: http://www.rilin.state.ri.us/Billtext/BillText03/HouseText03/H5885.pdf

New Report Documents Illinois’ Successful Campaign for a Better EITC

The Hatcher Group has produced a new lessons learned report on the Make Work Pay Coalition’s successful campaign to make the Illinois EITC permanent and refundable. The report, Supporting Working Families When State Coffers are Empty, outlines how the advocates succeeded in improving in the EITC despite a $5 billion state deficit. It also includes helpful insights and tips for advocates who are considering similar efforts elsewhere.

Go to:http://www.stateEITC.com

Michigan Group Issues Report Supporting a State EITC

The Michigan League for Human Services recently released a report, entitled “Rewarding Work and Helping Families: Why a State Earned Income Tax Credit Makes Sense for Michigan,” outlining the advantages of a Michigan EITC. The report includes a number of useful statistics for Michigan advocates, including tables showing how much a family would receive on average from the credit depending on the size of the credit and the number of children in the family.

Go to: http://www.milhs.org/Media/EDocs/StateEITC032.pdf

Kentucky Youth Advocates has released two new reports detailing income inequality in the state and the enormous benefits that the federal EITC has provided. “Kentucky Still a Low-Income State: Analysis of Federal Tax Returns,” examines the distribution of income in Kentucky and its implications for tax policy options. “The Federal Earned Income Tax Credit What it Meant for Kentucky and the Nation in Tax Year 2001,” examines the federal EITC highlights for Kentucky in tax year 2001. The reports are meant to lay the groundwork for advocacy around a state EITC.

Go to: http://www.kyyouth.org/Publications/Money%20Matters/eitc2001.vol5.pdf
http://www.kyyouth.org/Publications/Money%20Matters/v5.i7income.pdf

According to an article that appeared in Tax Notes on October 24th, the Internal Revenue Services’ controversial precertification program is set to begin in December and will be applied to 25,000 "high-risk" taxpayers. This is a smaller number of taxpayers than than were originally supposed to participate in the program. Speaking at a roundtable discussion on the EITC at New School University, National Taxpayer Advocate Nina Olson described the revamped program as an experiment rather than a full-fledged program. Along with the reducing the number of families being asked to provide additional information in order to claim the credit, the IRS has also revamped forms to make the language less intimidating and included a toll-free number to call if filers cannot obtain documents or affidavits required to prove their child's residency. The IRS will also conduct two additional experiments. In one, 1,000 randomly selected filers will be allowed to ask friends and relatives to provide proof of residence for the child they are claiming. In another, 1,000 randomly selected taxpayers will receive the forms in both Spanish and English to see if distributing materials in both languages will increase the number of families participating in the program. The IRS has posted the new forms and instructions for precertification on its website. The new form 8836, and the accompanying instructions are also available in Spanish.

Go to: http://www.stateeitc.com/precertification/index.asp

Speaking at the National Tax Association’s annual conference in Chicago, National Taxpayer Advocate Nina Olson announced that she is proposing increased penalties and liability for commercial tax preparers who perpetrate fraud or disregard IRS rules when preparing returns including the EITC. Olson, who noted that more than 67 percent of EITC returns are prepared by commercial preparers, said she would make her recommendations part of her annual report.

Go to : http://www.taxanalysts.com/www/taxwirewww.nsf/0/EDEB449D1DF8672E85256DDE0009B576?OpenDocument

The Brookings Institution’s Center for Urban and Metropolitan Policy has launched a new interactive website from which users can obtain basic zip code-level data (including RAL data, where available) on the EITC for numerous levels of geography (states, metros, counties, cities/towns). The data are aligned across years (tax years 1997 to 2001) so that users can track program patterns over time, and avoid going multiple places for similar data. In addition, the website includes reports, commentary and resources on the EITC.

Go to: www.brookings.edu/urban/eitc

On November 16th, Sarah Samson from The Hatcher Group presented preliminary findings from focus groups in Illinois and Idaho during a workshop at the Center on Budget and Policy Priorities’ Funding State Services Conference. The presentation focused on tips for effective messaging for state EITCs, including framing the debate, energizing the public and preparing successful counter-arguments. To obtain a copy of the PowerPoint presentation, “Communicating About State Earned Income Tax Credits,” please email Sarah at The Hatcher Group.

A report released in October from the Brookings Institution Center on Urban and Metropolitan Policy looks at the impact of the EITC on housing costs for low-income working families. The report shows that, if included as income, the EITC reduces the number of low-income working families with severe housing cost burdens by 18 percent. Moreover, expanding the EITC for childless workers and larger families would eliminate severe housing costs for an additional 153,000 families. A proposal along these lines introduced in the 107th Congress would also lift 228,000 families above the poverty line.

Go to: http://www.brookings.edu/es/urban/publications/200310_stegman.htm

AECF Report Highlights EITC Outreach Campaigns

The Annie E. Casey Foundation has released a new report entitled “Earn it, Keep it, Save it.” The report details how coalitions in three sites – Boston, Louisville and rural North Carolina – are helping low-income families make the most of the EITC. More than 30 sites in cities and rural areas across the United States are participating in the Foundation's efforts to raise awareness about the EITC and maximize the opportunities it presents to low-income families. In addition, a broad range of outreach materials and resources for use as part of the National Tax Assistance for Working Families Campaign are now available for interested groups. Please email Susan Gilbert at slgilbert@thehatchergroup.com for more information.

Go to: http://www.eitc.info/elements/Earn%20It,%20Keep%20It,final.pdf