This month, a new study by the National University System Institute for Policy Research (NUSIPR) revealed that a key federal tax credit has a substantial economic impact in San Diego County. Rather than lose out on hundreds of jobs and tens of millions of dollars, local lawmakers must redouble their efforts to increase claims of the earned income tax credit (EITC).
Enacted into law by Congress in 1975, the federal earned income tax credit assists the economic prospects of low- and moderate-income workers by reducing their tax burden, and in many cases supplementing their earned income with a tax refund in excess of their tax liability. Refund amounts (worth up to $5,600) are based on the filing status of the taxpayer, the number of their qualifying dependents, and their gross income level. EITC payments have an impact not only on the recipients but also indirectly benefits local businesses and residents. Tax refunds enter the local economy and are spent for goods and services, supporting jobs and generating tax revenues for state and municipal governments. As these dollars are re-spent and re-circulated, they create a "multiplier effect" that can be measured, including in our own San Diego County.
NUSIPR conservatively estimates that at least $248.5 million in EITC refunds from the 2006 tax year were spent locally in San Diego County, inducing $349.9 million in sales activity, supporting 2,075 jobs and $87.7 million in wages. To put these figures into perspective, local spending of EITC refunds each year is more than three times greater than the estimated direct economic impact of Comic-Con ($67.8 million)!
Despite the popularity of the program in San Diego, not every worker is claiming the money that's owed to them. Previous research indicates that approximately 25% of earned income tax credits are unclaimed by eligible workers each year. From analyzing 2006 IRS tax data, NUSIPR identified approximately $78.7 million in unclaimed EITC payments for 59,036 San Diego County workers. It can be safely assumed that at least $62.1 million would have been spent in our region this year, inducing $87.4 million in sales, supporting 519 jobs, and $21.9 million in wages.
This isn't to suggest that San Diego leaders are simply sitting on their hands; in fact, NUSIPR found that our region does more to promote EITC each year than most big cities in America. Most recently in 2009, county officials partnered with nonprofit and community groups to host approximately 75 free tax preparation sites, allowing approximately 500 volunteers to assist completing more than 18,100 federal tax returns worth $5.86 million in EITC refunds. Although EITC outreach has improved over the years in our region, it is still helping too few workers. The 14,627 tax filings directly facilitated by San Diego EITC Coalition volunteers in 2007 was only 1.1 percent of the tax filings that tax year.
When San Diego County workers fail to enroll for the EITC, our entire region suffers. With approximately one out of five San Diego County residents living in EITC-eligible families, raising the bar on program outreach is one more component to securing our region's economic recovery. Though financial resources may be hard to come by in this difficult economy, local lawmakers can still take important cost-effective steps to help promote awareness of the valuable federal program.
Elected officials at the city of San Diego, San Diego County and other municipal governments should all consider passing an honorary EITC Awareness Day each year, to help promote the federal program and boost local EITC outreach. Government access television channels such as CityTV can also be utilized during the tax season to educate residents about the EITC and inform them of free tax filing assistance centers. Furthermore, why not print a short EITC informational message on all City envelopes and residential mailers during tax season, from water bills to community newsletters?
New ideas can help close the tax credit collection gap in San Diego, but only if lawmakers have the political will and the sincere interest to change the status quo. I'm cautiously optimistic that, as our economic recovery continues to languish in the coming months, more elected officials will rally to the side of San Diego's working families.
Vasquez is the senior policy analyst with the San Diego Institute for Policy Research.