More on Konop's plan...EIC in Lucas County

Reading the article in the Toledo Blade it appears there are two conflicting views of Ben Konop's recent proposal to increase EITC participation...

Ben Konop:

“By making sure that Lucas County residents get their fair share of tax refunds from the federal government, we can strengthen our community from the ground up,” Mr.Konop said, noting that according to estimates by Policy Matters Ohio — a nonprofit research organization — Lucas County residents have failed to claim about $6 million from the federal government in the last three years.

“This is an initiative aimed at helping families prosper in Lucas County,” he said, noting that his proposal is a three-part plan modeled after similar programs in New York City and West Virginia that were implemented in recent years.

George Sarantou:

“Once again my opponent’s lack of any government experience is showing,” he said. “The EITC has been in place since 1975 and the IRS has in place a system of awarding the credit to people who qualify for it even if they didn’t claim it on their tax returns.”

“Unfortunately, even though Mr. Konop wants to create yet another layer of government, there is no need for this initiative because as long as you file your taxes, the IRS will automatically scan the returns and reward the credit if you qualify for it.”

This of course made me curious... So, yes of course you know what comes next. The Research!

According to this:

The Brookings Institution and others have estimated that at least 15 percent of those eligible do not claim the credit. Those who do claim it often pay high fees to preparers, both to prepare the returns and to provide expensive refund anticipation loans that allow the filer to get the refund a few days earlier. Paying for these services can cost more than $300 for a filer eligible for a $1,500 EITC credit.

According to this:

The IRS estimates that close to 20 percent of those eligible for the credit do not receive it.

In Ohio, more than 300,000 families purchased RALs, and as mentioned, more than 500,000 used paid preparers. If these families spent $120 on tax preparation and $130 on a loan (a conservative estimate), then Ohio's low-income families lost more than $99 million to paid preparers in 2003.

The possible impact on the local economy is clear according to this report by the Brookings Institute, page 17:

The San Antonio study also finds that each $1,000 of federal EITC would generate an additional $2 in local tax revenue. The researchers conclude that modest municipal expenditures on promoting the EITC and free tax return preparation might easily pay for themselves (Texas Perspectives 2003). A similar study in Baltimore found that current EITC receipt generated nearly $600,000 in local income and property tax revenues (Jacob France Institute 2004). Findings from a similar study in Nashville, conducted through a partnership between an EITC outreach campaign and a local university, helped to generate local governmental support for the campaign there (Hamernik 2005).

It also does not appear from this IRS Report that the IRS is automatically giving those who qualify the EIC. It appears what they do is:

Likewise, the IRS continued its efforts to increase EITC awareness:

The IRS sent notices to approximately 958,000 taxpayers during FY 2002, who appeared to qualify for the EITC based on the tax returns filed.

Partnerships were established with key stakeholders, external partners, and intermediaries that provided an overwhelming opportunity to educate taxpayers about EITC, offered free tax preparation, and provided information on financial literacy. As of March 24, 2003,the IRS had completed approximately 42 million EITC contacts.

Further in the PDF it lists this as one of the future goals:

Encourage eligible taxpayers to claim the EITC by increasing outreach efforts and making the requirements for claiming the credit easier to understand;

This leads me to conclude that there is evidence that many Lucas County residents are eligible for EIC that are not currently receiving it and it is also demonstrated by the various studies out there that this can help a local economy as well as be done in an cost effective manner to make happen. It's also evident that there is a general belief that providing more free or low cost tax preparation services would also add to the amount people would receive from EITC and be able to save or spend.

As a semi update, while I was researching this issue, the Konop for Lucas County campaign was as well. The posting time is when I started this a.m.; at 1:30 p.m. I received another Press Release from the Ben Konop campaign, which in part states:

Mr. Sarantou is flat wrong on both counts. According to the IRS itself, the IRS does not voluntarily calculate the tax credit for eligible filers nor does it automatically scan returns and reward the credit if one qualifies for it. This was, in fact, confirmed by the IRS today.

“Unfortunately, my Republican opponent has once again put politics ahead of what’s best for the community. His false and misleading statements do the public a great disservice by disseminating inaccurate information to potential recipients of the EITC,” stated Konop. “Working families need the EITC to help pay for groceries, rising gas prices, or health care costs,” added Konop. “My opponent is obviously not looking out for the public’s best interests by issuing his reckless and inaccurate response,” said Konop.

“Today, for the good of Lucas County taxpayers, I call on my Republican opponent to retract his statement and give Lucas County taxpayers what they deserve: the truth,” concluded Konop.