Panel Paper: The Evolution of the Tax Time Moment: Assets, Opportunities, and Barriers

Friday, November 9, 2012 : 1:00 PM
Schaefer (Sheraton Baltimore City Center Hotel)

*Names in bold indicate Presenter

David Rothstein, Policy Matters Ohio and Rachel Black, New America Foundation

The tax time moment presents working families with the unique opportunity to build assets in what is often the largest financial transaction of the year. Many of the services that connect low-income families with these asset building opportunities are provided by an extensive network of free tax coalitions and sites. This paper explores the emergence of the free tax movement and the expansion of these networks into the asset building field, as well as ways in which the infrastructure provided by this network could provide a more comprehensive menu of services to meet the financial needs of their clients. In particular, the paper identifies barriers that exist both in policy and infrastructural capacity that limit the asset development, consumer protection, and financial education these sites are able to provide at tax time, such as limited volunteerism and funding for the tax sites and limited knowledge of credits, eligibility requirements, tax loan and preparation fees, and access to basic transactional and savings accounts among clients.  In addition to eliminating these barriers, the paper also recommends the expansion of services that provide financial management tools to clients, such as asset building programs and services, including savings bonds, bank accounts, credit repair, as well as public benefits.

This paper begins with an analysis of tax credits for working families, specifically the Earned Income Tax Credit (EITC), as a method to relieve poverty and increase assets. As the EITC increased under presidential administration, more traditional public welfare programs like cash assistance and TANF decreased in benefits and eligibility. We also trace the beginning and development of the free tax movement, through the Volunteer Income Tax Assistance (VITA) program and low-income tax clinics. This paper also discusses the rise of one-stop shops for tax, benefit, and administrative assistance – including programs like the Benefit Bank, Single Stop, and Neighborworks. We analyze how these programs deliver services, coordinate programs, and what policies make them successful.  Further, we look at how these groups are integrating short- and long-term asset building products and strategies into their day-to-day work with clients. We also analyze scale and sustainability issues of these free service programs and assess how funding, marketing, and cooperation can be improved. Finally, we look at the trend of moving from a “high-touch” and labor intensive program to a more “low touch” and automated delivery system.

We also look at the broader public policies that impact that work of free tax and benefit programs, specifically changes to the EITC and other credits over the years. We pay specific attention to the growth of asset building opportunities around tax time and often linked to the EITC including savings bonds, IDAs, the Saver’s Credit, and IRAs. We make specific policy recommendations around enhancing eligibility for these programs by making them more refundable and removing income restraints. Finally, we analyze different federal and state policy options to remove barriers such as high-cost tax preparation and products and other fringe banking services that dilute the efforts of this asset building movement.