It’s a little early for most people to start worrying about filing their income taxes, but the staff at the Center for Economic Progress is already gearing up. The center, a statewide nonprofit organization that provides free tax counseling to low-income people, is trying to line up volunteers to help poor and working-class taxpayers with their forms, especially the forms that let them take advantage of the federal Earned Income Tax Credit program.
The EITC, says Herbers, has “become the largest federal benefit program for low-income people–it’s bigger than food stamps.” Last year, she says, the program paid out a total of $32 billion in subsidies, though only 15 percent of the people eligible for the subsidy file for it annually.
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The program got its start under President Richard Nixon. “I know it sounds pretty radical, but back in the early 70s President Nixon was proposing a subsidy to low-income people whose income was so low they didn’t pay taxes,” says Herbers. The Nixon proposal was called a negative income tax. “In other words, if you were making, say, $5,000 a year back then, Nixon was proposing that instead of you paying taxes to the government, the government would pay you a subsidy as a way of addressing income inequality.”
Those people could be passing up a lot of money. According to the Internal Revenue Service, the EITC can be as much as six weeks of the average recipient’s annual pay.
Low-income residents who want to get their tax refunds quickly often turn to private tax-preparation companies, many of which offer something called a “rapid-refund program.” Herbers says it’s essentially a short-term loan. The company helps a person fill out his forms and does a credit check, which generally takes two days. Then the company pays the person the amount of the refund, minus a fee–often a steep one. “I’ve seen rapid-refund charges that cost hundreds of dollars,” says Herbers. “The companies claim they need to charge that much to cover their risk. But the risk is really very low since they’re dealing with the IRS and know the check’s coming in.”
Most of the advisers at the center’s clinics are volunteers. Some, like Gilbert Sorber, are retirees. “I’m no expert in tax law–I was an engineer,” says Sorber, who’s been volunteering at a clinic in Austin for four years. “But I was always good with numbers, and I always did my own taxes. This is not that hard if you don’t get intimidated by the forms. And [the center] has a professional accountant on hand to answer any questions you have.”
