Most people dread filing their taxes. But for Denver resident Corrine Fowler, it turned out to be a lifesaver back in 1997.
Around Christmas, the then-22-year-old single mom lost both her jobs as an administrative clerk and hostess while putting herself through school. She had little money for the new year.
But when Fowler filed her taxes, she learned that she qualified for the Earned Income Tax Credit, an often overlooked federal program that gives tax refunds to lower-income workers.
The $1,800 check she received helped her pay her rent until March, when she had landed a job as a bank teller.
“It really kept me from either becoming homeless or having to move in with my mother,” said Fowler, who now works as an advocate for low-income families at the Colorado Progressive Coalition.
Her success story is echoed by millions of Americans who have benefited from the decades-old federal program, widely regarded by experts as one of the most effective anti-poverty programs in America. But it’s also a program that has come under increasing scrutiny from conservative pundits and lawmakers.
The EITC, as it’s known in wonkier circles, originally enjoyed bipartisan support in part because of what it’s not. Unlike traditional welfare programs, the refundable tax credit is contingent upon recipients having a job. President Gerald Ford, a Republican, signed it into law in 1975 with the support of conservative Democrats as an alternative to raising the minimum wage.
Since then it’s been expanded by both Republicans and Democrats, from Ronald Reagan to Bill Clinton, all with the intention of lifting Americans out of poverty by encouraging them to work through incentives written into the tax code.
When Reagan signed 1986 tax reform into law, which in part expanded the EITC, he called the bill “one of the most effective antipoverty programs in our history.”
Economists agree with Reagan.
The tax credit helped more than 27 million Americans in 2011, according to the IRS. It’s fairly substantial, especially for families or single parents with children: A married couple with three children earning up to $51,500 in 2013 would have received as much as $6,000 back.
That refund goes a long way for families struggling to make ends meet, said Aparna Mathur, an economist with the conservative think tank American Enterprise Institute. And because the tax credit is based on income, it phases out as families become more financially stable, another positive feature Mathur cited.
In addition, the nonpartisan Center on Budget and Policy Priorities found children of EITC recipients did better in school and were more likely to attend college than working poor families who didn’t apply for the EITC.
“It’s just a transfer of money, and when people are on the margin between poverty and not, getting a few extra thousand dollars really helps,” said Ben Harris, a fellow with the liberal-leaning think tank Brookings Institution.
The program is so effective that when President Obama mentioned in his State of the Union increasing how much the EITC gives to childless low-income workers, analysts considered it the biggest legislative proposal in the entire speech.
But this rare bipartisan success is at risk of late of becoming another political football, even as Washington spends the new year debating income inequality. High-profile Republicans such as Sen. Orrin Hatch of Utah and Sen. Tom Coburn of Oklahoma have recently attacked the credit as either too costly or too susceptible to abuse. One Republican, Sen. Marco Rubio, has even suggested scrapping it altogether.
In January, Rubio, a possible 2016 presidential candidate, suggested replacing the EITC with more regularly scheduled federal subsidies that would be delivered paycheck to paycheck as opposed to an annual refundable tax credit.
“This would allow an unemployed individual to take a job that pays, say, $18,000 a year — which on its own is not enough to make ends meet — but then receive a federal enhancement to make the job a more enticing alternative to collecting unemployment insurance,” he said.
Critics have also zeroed in on alleged fraud, a result they claim of the program’s complicated rules: An inspector general for the Treasury Department found that as many as 25 percent of the 2012 EITC payments were incorrect.
“Refundable tax credits are a nightmare to administer and lead to far too much of the American people’s money going out to those who aren’t eligible,” Hatch, the ranking senator on the Senate Finance Committee, said in a statement in October.
The biggest attack came indirectly in 2012, when Republican presidential candidate Mitt Romney was caught on tape telling fundraisers that 47 percent of Americans don’t pay income tax, arguing they are dependent on the government for resources and as a result unconditionally vote Democratic.
But economists say that’s a misleading statement because workers still pay payroll taxes, sales taxes, gasoline taxes and often property taxes, in addition to other state and local taxes.
Still, there are signs Democrats and Republicans may yet expand the EITC. One came when the president singled out Rubio’s proposal, which still maintains the basic purpose of the EITC program, in his State of the Union.
“Right now, it helps about half of all parents at some point,” Obama said of the EITC. “But I agree with Republicans like Senator Rubio that it doesn’t do enough for single workers who don’t have kids. So let’s work together to strengthen the credit, reward work and help more Americans get ahead.”
At least one possible 2016 presidential contender, Rep. Paul Ryan, R-Wisc., has praised the EITC.
“The concept of rewarding work, in a flexible way, is a very good idea.” Ryan told Politico, adding “it has conservative origins.”
Liberal lawmakers such as Sen. Sherrod Brown, D-Ohio, are even hoping they can translate tepid Republican support for the program into legislation expanding the program, in part by making recession-level tax credit increases permanent.
For her part, Fowler said she and the families she works with in Denver who rely on the EITC hope the tax credit will just survive in today’s hyper-partisan climate.
“It really pushes them above that threshold,” she said of EITC recipients. “It’s a nice big credit at the beginning of the year … and once they do get it, they definitely look forward to it and plan that they’re going to have this infusion of cash.”