S. E. Williams
California’s new Earned Income Tax Credit, CalEITC, is destined to be one of the state’s most successful initiatives in the fight against poverty. It is designed to supplement the earnings of the state’s working families and individuals.
Over the years, several studies have assessed the success of the federal Earned Income Tax Credit Program—the forerunner of CalEITC, as well as Earned Income Tax Credit programs already implemented in other states around the nation. However, not a lot has been written about how individuals and families use the cash-back refunds they earn.
Last week, San Bernardino County resident, twenty-four-year-old Jordan Woods shared his elation about his increased tax return as a result of CalEITC and how he planned to spend it. Woods had recently totaled his car in an automobile accident. “I’m getting a larger refund because of it,” he shared. “Now, I’ll be able to pay my insurance deductible. That way I can get another car and not have to depend on my parents.”
Senior Marie Davis of Riverside was surprised and grateful for her cash-back refund. “I had read about CalEITC but didn’t think it applied to me until I went to have my taxes done,” she shared. Davis is single, works part-time and has a number of chronic medical issues. “The timing for me was perfect,” she explained. “The person who did my taxes said I won’t be eligible when I file next year because I’m turning 65. I’m just grateful for this year because it really helped.”
“My medical co-pays have really eaten into my budget, Davis said. “I’ve worked all my life and now because of my health I’m having a hard time making ends meet.” Davis declined to share the amount of her refund check but when asked what she planned to do with the money she replied, “I’m going to use it to pay down my hospital bills.” She concluded. “I don’t like owing money. The refund is really going to help me make progress toward paying them off.”
Woods and Davis are not unique in their use of their cash back refunds enhanced by the CalEITC. A 2013 study published by the Harvard Kennedy School of Government looked at whether Earned Income Tax Credit dollars were merely supplementing the current consumption of already stretched budgets of individuals and families, or whether it was actually being used for debt repayment and to accumulate assets.
The study separated how Earned Income Tax Credit recipients spent their refunds into three categories. The first category considered was current consumption that included things like groceries, expenses for the children, etc. The second category was debt repayment—and, the third category was asset building which included savings, college tuition, home purchases or repairs.
The study found that 72 percent of participants, just like Davis and Woods, planned to catch up on bills with their EITC funds. Surprisingly, an even larger portion of participants, 89 percent, actually did. On the other hand, 69 percent of participants claimed they planned to invest some of their refund in asset accumulation however only 47 percent of them actually managed to do so. And yet, this was good news because in the past it was more difficult for these individuals and families to save.
Faculty Researcher Kathryn Edin, Professor of Public Policy and Management at the Harvard Kennedy School, commented about the study, “I think our most important finding was actually to do with the idea of belonging.” In the past, the poor had to work under the table to make ends meet, or get taxed on every dollar earned.” She concluded, “Now, they can work and collect the Earned Income Tax Credit like every other American, and it’s like a badge of citizenship. There’s a sense in which you’re part of the mainstream, you’re a taxpayer. People are proud to claim that money; they think they earned it.”
To learn more about California’s Earned Income Tax Credit, CalEITC, visit CalEITC4Me.org.