Pam Songy-Jones is used to having a hectic tax season. As the public annually rushes to meet the April 15 deadline for filing income taxes, the former math major takes time away from her work in property management to provide tax-filing assistance. In years past, Songy-Jones has found employment with various big-name national tax-preparation companies. But this year, she's spending the tax season helping people who enter the nonprofit community group ACORN's offices on Elysian Fields Avenue to take advantage of the Internal Revenue Service-sponsored Volunteer Income Tax Assistance (VITA) program.
-- Since starting in January, Songy-Jones estimates she's prepared taxes for more than a thousand people. The primary tool she and her ACORN co-workers use to help the mostly working poor who come to the VITA site is the Earned Income Tax Credit (EITC). Created during President Gerald Ford's administration, EITC is a refundable federal tax credit designed to help those who EITC supporters say are disproportionately affected by various income taxes, especially the regressive Social Security tax.
-- For the 2004 tax year, the EITC is worth up to $4,300 for workers who earn less than $34,458 annually ($35,458 if married filing jointly) and have two or more qualifying children. The credit goes up to $2,604 for workers who earn less than $30,338 ($31,338 if married filing jointly) and who have one qualifying child. Working adults between the ages of 25 and 64 with no children and are earning less than $11,490 ($12,490 if married filing jointly) are eligible for an EITC worth up to $390.
-- "The EITC is the most effective work support and anti-poverty tool that we have today," said the national advocacy group The Children's Defense Fund, in an extensive report released in February.
-- In past years, critics said that the EITC program suffered from low public awareness. This tax season, Songy-Jones and others at ACORN estimate that roughly half of filers at their VITA site qualify for the EITC, and that the average EITC refund they've seen is roughly $1,200.
-- "Oh, the word is out, believe me," Songy-Jones says. "Now we have people coming in here that made $1,000 last year because they know they're going to get some money back. People that made that kind of money used to run from doing taxes."
SONGY-JONES SAYS THAT ABOUT four years ago, she noticed more and more low-income filers becoming aware of their potential EITC benefit. There's a reason for this local increase in public awareness. Politicians and interest groups alike have been working to get the message out -- through fliers included in water bills, to TV commercials, to door-to-door canvassing -- because the EITC is a federal windfall for the cash-poor city and state.
-- Louisiana ranks second only to Mississippi in percentage of tax filers qualifying for the EITC. For the tax year 2002, the last year for available figures, 27.9 percent of Louisiana taxpayers qualified for the EITC. For the tax year 2002, the EITC resulted in $1.075 billion in federal refunds in Louisiana. The Brookings Institution conducted a 2001 study that found New Orleans to be the highest of 27 EITC cities surveyed nationwide in terms of percentage of qualifying citizens.
-- Though long criticized by fiscal conservatives as a throw-away of federal dollars, the EITC has generally enjoyed bipartisan support, with renewals coming under the administrations of both presidents Ronald Reagan and Bill Clinton. But now the EITC is facing renewed challenges. The current Congress is seeking ways to reduce federal expenditures in the face of a mounting deficit and a shrunken tax base, and debate is currently underway in the House Ways and Means committee. On the chopping block: $18.7 billion worth of the EITC. However, a Senate version of the budget bill keeps the EITC intact, and both sides of the issue are starting major lobbying efforts.
-- Another controversy results from the relation of EITC to Refund Anticipation Loans (RALs), in which tax-assistance companies allow individuals to secure high-cost (in terms of fees and annual percentage rate) loans based on the amount the filer will receive back from the IRS. Payouts are made within days -- sometimes within minutes. Large tax-preparation companies such as H&R Block, Jackson Hewitt and Liberty Tax say that RALs amount to providing a service to clients who need their money quickly. Community groups such as ACORN oppose RALs, saying they essentially amount to predatory lending, or preying on low-income filers.
-- The dispute between the two sides is heating up, with ACORN actively protesting such companies, including an action outside Liberty Tax's headquarters in Virginia Beach, Va., last month that resulted in arrests and a federal lawsuit. Locally, ACORN is concentrating on taxpayer education and free tax help. "We're taking on the big boys," says Stephen Bradberry, the head organizer for the New Orleans ACORN affiliate.
-- Currently in Congress is the Taxpayer Abuse Prevention Act (TAPA), which was re-introduced into the Senate on Feb. 8 by sponsor Sen. Daniel Akaka (D-Hawaii). The bill seeks to prohibit the use of RALs against the EITC, based on an existing model that bans loans based on Social Security checks as collateral. Rep. Jan Schakowsky (D-Chicago) introduced a House version of TAPA.
-- "Corporations are reaping in hundreds of millions of dollars from high-interest loans and service charges, money that should be going to hard-working families who depend on the Earned Income Tax Credit," Schakowsky has stated in support of the bill. "The Taxpayer Abuse Prevention Act is a necessary solution to a growing problem that Congress cannot afford to ignore. We must act quickly before millions of more dollars intended for EITC recipients are drained from the U.S. Treasury right into the coffers of big business."
-- Rep. William Jefferson (D-New Orleans) supports both TAPA and keeping EITC in the federal budget. Rep. Bobby Jindal (R-Metairie) takes no position on either issue, while the offices of Sens. Mary Landrieu and David Vitter could not be reached by press time.
THE DEBATES OVER THE FUTURE of EITC and RALs are intertwined. Opponents of the EITC dismiss it as government waste, while supporters say it helps low-income families lift themselves out of the poverty cycle. Opponents of RALs say they exploit the poor, while supporters cite RALs as fair tools to offer the working poor and others who need them.
-- "There are plenty of bad deals in this world," John Hewitt, CEO of Liberty Tax and a co-founder of Jackson Hewitt, says, introducing a defense of RALs. Plane tickets cost more than bus tickets, and it's more expensive to send packages via Fed Ex instead of through regular mail via the United States Postal Service. "The difference is speed, the time involved, which is what people want, what they pay for," he says. "They need the money as soon as possible, to pay the bills, to make a late payment on rent, to get the car out of the shop so they can go to work."
-- Hewitt says that the average RAL issued by Liberty totals $2,500, with the fee amounting to $105 with an APR between 60 and 80 percent. He compares that sum to the cost of wiring money via Western Union from Virginia Beach to Kansas City, Mo., which he calculates to be $128. Hewitt says that 16 percent of filers at Liberty Tax take out an RAL, while that figure is much higher at Jackson Hewitt and H&R Block. Calls to both Jackson Hewitt and H&R Block were not returned by press time.
-- Hewitt calls the accusations of ACORN and other RAL opponents both misleading and inappropriate. "In this country, we don't teach people what they need in school: how to be a parent, how to be a spouse, about God or how to handle their money," he says. "That's the crying shame, not a refund anticipation loan."
-- According to the Children's Defense Fund figures for tax year 2002, the $1 billion-plus that Louisiana taxpayers received from EITC was shared among 500,000 people across the state. Of that number, 341,428 (68.2 percent) paid collectively more than $40 million for tax-preparation services. More than one-quarter of a million (236,395, or 47.2 percent) of EITC filers paid an additional $30.7 million for a RAL. By comparison, only 7.3 percent of Louisianans that did not claim an EITC received an RAL that year.
-- In 2002, the typical Louisiana family paid $130 for a RAL and $120 in tax-prep fees, a cost that swallowed 12.1 percent of the total refund. Calculated statewide for the total cost of tax-prep fees and RALs, Louisiana lost about $72 million in refund dollars. The average 2002 EITC refund in Louisiana was $2,064. Louisiana has 19.6 percent of its population living in poverty, with a median income just over $17,000.
-- "Generally speaking, in every area of the country we surveyed, paid tax preparers targeted low-income communities as a place to market their RALs," says Deborah Cutler-Ortiz, director of the family income division for the Washington D.C.-based Children's Defense Fund.
-- In New Orleans, Jackson Hewitt has the most tax preparation offices with more than 50 branches; H&R Block is next with more two dozen branches. Liberty Tax has four locations: on St. Claude Avenue, Uptown on Magazine Street, Manhattan Boulevard on the West Bank, and in Mid City on Broad Street. Locally owned Fast Tax has 17 locations.
-- Cutler-Ortiz says that to stay competitive, paid tax preparers will use "gimmicks and marketing" to lure customers, such as TV commercials that paint the process as a Lotto drawing. Liberty Tax hires workers to dress as the Statue of Liberty and hold signs in front of its locations. This past Saturday, the firm scheduled national street parties with door prizes, free lunches, face painting and balloon animals. On the company's Web site, www.libertytax.com, Martha & the Vandellas' "Dancing in the Street" heralded the parties.
"You don't see mainstream financial institutions in the low-income neighborhoods," Cutler-Ortiz says. "The same bank will put their resources into opening a check-cashing place and charge more for fees than a normal bank would."
-- To counter this, supporters of EITC point to various programs across the country that seek to capitalize on the money received from EITC into what is termed asset-building programs, often termed Individual Development Accounts (IDA). National experts call New Orleans' Total Community Action (TCA) a leader in this field. The Individual Development Account Collaborative of Louisiana, a program at Tulane University that helps low-income workers develop savings and assets, has helped create 300 new homeowners, 151 school graduates and 157 small-business owners.
-- With nine locations around New Orleans providing free tax assistance, TCA files taxes for roughly 3,000 citizens each year and hopes each person will also engage in TCA's programs for IDAs and asset-building, which has helped many further their education, buy a home and more, according to TCA program director T. James Kelley.
-- The EITC is a cornerstone of asset-building programs across the country, says Julie Kruse, a director with the Chicago-based Center for Economic Progress. "You're talking about $78 billion every year entering low-income households," says Kruse. "It's a tremendous opportunity for this country's poor to do financial planning."
-- Is it America's most-accessible way out of poverty? "Absolutely," she says.