Q&A with Mott Program Officer Benita Melton on Earned Income Tax Credits

The Federal Earned Income Tax Credit (EITC) program, approved in 1975 and expanded as recently as 2001, reduces or eliminates the federal income taxes owed by many low- and moderate-income working individuals. In cases where the calculated credit exceeds the tax owed, the federal EITC provides a wage supplement in the form of a tax refund.

Benita Melton is a program officer for the Charles Stewart Mott Foundation’s Expanding Economic Opportunity program area, which is part of the Foundation’s Pathways Out of Poverty program. In the following Q&A, Melton discusses Mott’s interest in the EITC, as well as activities in the field to ensure that eligible families take advantage of the program.

Mott: What has been the Mott Foundation’s interest in the EITC?

Benita Melton: Following the 1996 federal welfare reforms, millions of families left welfare and found jobs, but most were earning low or moderate incomes. Under our Income Security grantmaking portfolio, the Foundation is interested in promoting and/or expanding policies that supplement these workers’ incomes and help them achieve a decent standard of living. EITCs are an effective way to boost wages and help lift low- and moderate-income working families out of poverty. The federal credit lifted some 4.8 million people, including 2.6 million children, out of poverty in 2003.

Mott: What EITC-related activities has Mott supported?

Melton: Right now, our work around the EITC focuses primarily on two issues. First, at the federal and state levels we’re trying to improve upon or expand the EITC’s reach and impact. At the federal level, there have been several major EITC expansions, the most recent occurring in 2001. Mott funded some of the policy research and analyses that helped make that expansion possible.

Similarly, we are supporting efforts to increase the number of state-level EITC programs. Presently, they are offered in 17 states and we’d like to see that grow to 20 or even 22 over the next five years. To help make that happen, we’ve funded policy development efforts, such as studies on how much it would cost to implement an EITC, as well as message development and other strategic communications tools to help advocates make a strong case.

Connecting the EITC to other programs and services is a second area of interest. The Foundation has been a leader in advancing asset-building strategies such as Individual Development Accounts (IDAs). IDAs are matched savings accounts that low- and moderate-income families can use to purchase a home, start a small business, or attend secondary education. Research suggests there is a strong link between the EITC and IDAs in helping these families build assets and economic stability. So we’re looking at efforts that attempt to strengthen linkages between these two programs, using the EITC as a “hook” to connect underserved communities with mainstream financial services and asset-building opportunities.

Mott: How has that involvement supported the Foundation’s overall approach to poverty-related grantmaking?

Melton: It all goes back to how we approach our work in the Pathways Out of Poverty program. Whether it’s our education, community organizing or economic opportunity work, in all of these areas we support efforts to help people engage more fully in our economy. And that’s what our EITC work is all about. It’s about encouraging and supporting work by “making work pay” and it’s about using the EITC as a pathway to additional economic opportunities.

Mott: Despite its apparent importance to low- and moderate-income families, I understand that many eligible workers miss out on claiming the EITC. What steps are being taken to improve participation?

Melton: Well, the first step is to increase awareness about the EITC and EITC campaigns by far are the most popular mechanism to do so. Every tax season, a host of organizations find ways to support and participate in EITC outreach efforts. For example, nonprofit agencies make mention of the EITC in their newsletters, employers include notices in employees paychecks, and many utility companies even include notices along with monthly billing statements. These community-wide campaigns can be very effective at getting the word out about the EITC. This is one area where every organization truly has a role to play.

Unfortunately, knowing about the EITC is not enough; people have to actually file a return to get a refund. So, equally important are efforts to increase the number of tax filers. Here, the Internal Revenue Service plays a key role. Through its Volunteer Income Tax Assistance (VITA) program — which has been around for over 30 years — the IRS partners with cities and community-based organizations to provide free filing assistance to low- and moderate-income families. Participating VITA sites receive free software and training materials from the IRS, and many offer free electronic filing of returns.

Between awareness campaigns and VITA programs, the leadership role that many communities are taking to ensure that low- and moderate-income families take advantage of the EITC is very impressive.

Mott: How have activities in the EITC field shaped the Foundation’s grantmaking?

Melton: Much of our grantmaking at the Foundation is informed by what’s going on in a particular field. This is true of our work to expand business ownership among low- and moderate-income families as well as efforts to promote EITCs.

Across our respective fields, the members of the Pathways Out of Poverty team are working to promote open and honest dialogue with our partners and to stay abreast of current thinking. This information helps us tweak existing grantmaking strategies and determine future directions. To this end, the growth — both in terms of number and size — of community-based coalitions and citywide EITC campaigns challenges us to consider whether there is a role the Foundation can play in connecting them to our support for EITC state and federal policy development efforts. Our support for message development and strategic communications, and technical assistance for groups working on the EITC is an experiment in that direction.

Given the links between the EITC and IDAs, the community-level EITC infrastructure also presents opportunities for the Foundation to promote linkages and partnerships between the EITC and asset-building fields. There are outstanding models of this work already underway in several communities throughout the country. The Foundation can play a role in promoting more of these partnerships where they don’t already exist.

Mott: What are Mott’s plans for future grantmaking activities around the EITC?

Melton: Any discussion about future grantmaking activities must start by acknowledging that budget deficits at the federal level and in the states can seriously limit what’s possible in terms of new legislation, new spending. In fact, in some cases what we’re calling success right now looks more like protecting past gains instead of securing new achievements.

We know that being prepared is the best strategy because opportunities can arise at the most unexpected times. Case in point: Illinois recently made permanent its state EITC and expanded eligibility to reach as many as 200,000 more families. What the Illinois campaign was able to accomplish is remarkable when you consider the fact that the state was facing a $5 billion deficit.

Our strategy in the short-term will be to temper practicality with optimism. We’ll continue supporting the development of tools such as polling data, research studies and strategic communications that will help communities make a strong case for enacting or expanding state EITCs. We’ll also continue to support awareness and outreach activities related to the federal credit.

Similarly, we’ll continue to encourage strong linkages between the EITC and asset-building initiatives. There, our efforts will focus on research as well as documenting and disseminating best practices in the field. We’ll likely continue these directions over the next 12 to 18 months. Then we’ll assess our efforts and developments in the field in order to determine how our grantmaking can best support the ongoing evolution and maturation of both fields.