BILL ANALYSIS �
SCR 12
Page A
SENATE THIRD READING
SCR 12 (Liu)
As Amended April 25, 2011
Majority vote
SENATE VOTE :24-15
REVENUE & TAXATION 6-2
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|Ayes:|Perea, Beall, Charles | | |
| |Calderon, Cedillo, | | |
| |Fuentes, Gordon | | |
| | | | |
|-----+--------------------------+-----+--------------------------|
|Nays:|Donnelly, Nestande | | |
| | | | |
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SUMMARY : Urges state and local governments and community
organizations to promote education and awareness of the federal
Earned Income Tax Credit (EITC) and other credits, as provided.
Specifically, this bill :
1)States all of the following:
a) Since its enactment, the EITC has brought the income of
millions of families above the poverty level and has had a high
participation rate relative to other programs for low-income
Americans;
b) The EITC has been expanded by a series of Democratic and
Republican Presidents of the United States;
c) The EITC is available to taxpayers who work, but do not earn
high incomes and may often struggle to make ends meet;
d) Working California individuals may be missing out on a
federal refund of up to $5,666 because they are not aware of the
EITC;
e) According to the Internal Revenue Service (IRS), up to 25% of
eligible taxpayers nationwide may fail to claim the EITC because
they are not aware of the credit or of free assistance to claim
the credit;
f) The IRS and other organizations collaborate with local
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agencies to offer Volunteer Income Tax Assistance (VITA) to
raise awareness of the EITC;
g) Employers can help increase the take-home pay of their
employers by making employees aware of the EITC;
h) The federal EITC increases California's revenue and
stimulates the local and state economy; and,
i) Every year an estimated $1 billion is lost to hardworking
families and the California economy because of failure to claim
the EITC.
2)Resolves that:
a) The Legislature urges state and local governments and
community organizations to promote education and awareness of
the federal EITC and other tax credits that help working
families persevere through difficult economic times; and,
b) The Secretary of the Senate transmits copies of this
resolution to the author for appropriate distribution.
FISCAL EFFECT : None
COMMENTS :
1)The Author's Statement. The author states that, "This resolution
urges state and local governments and community organizations to
promote education and awareness of the Earned Income Tax Credit
(EITC) in order to help working families persevere through
difficult economic times. The EITC is a refundable tax credit
designed to relieve the financial burden on low-income working
families and stimulate the economy. EITC refunds can range from a
few hundred to several thousand dollars. When spent, these monies
fuel the local economy. It is estimated that Californians fail to
claim over one billion dollars of EITC refunds every year. This
resolution is one step to increase utilization of the EITC. It is
more important than ever to seize opportunities to help the working
poor."
2)The EITC: Background. The EITC is a refundable federal income tax
credit, which was originally created in 1975, in part, to offset
the burden of Social Security taxes on low and moderate-income
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working households and to provide an incentive for those taxpayers
to work. The value of the EITC was expanded in 1990 and 1993. The
amount of the credit is determined by the taxpayer's earnings and
family size. If the amount of the credit exceeds the taxpayer's
federal income tax liability, it results in a tax refund for those
who claim and qualify for the EITC. As such, it provides
assistance to families even if they do not have any tax liability.
In some respect, the EITC functions like other federal programs
that provide a benefit to poor families; however, it is different
in that it requires a qualifying taxpayer to have earned income in
order to claim the credit. Since the EITC is usually not used to
determine eligibility for Medicaid, Supplemental Security Income,
food stamps, low-income housing or most Temporary Assistance for
Needy Families payments, it can provide important monetary relief
for families in need.
Advocates of the federal EITC argue that the EITC program is one of
the federal government's largest and most successful anti-poverty
programs. It incentivizes individuals, including single parents,
to join the workforce which, in turn, reduces the need for public
assistance. It also helps to minimize income disparities between
the rich and poor. Research shows that the EITC credit is an
effective tool for supporting work and alleviating poverty by
supplementing the earnings of minimum-wage workers. (A. Avalos and
S. Alley, Left on the Table, New America Foundation, March 2010, p.
5). The EITC program is considered "to be cheaper and even more
efficient than other programs designed to alleviate poverty,
without producing many of the negative incentives that other
traditional welfare programs can produce, such as discouraging
employment. Ibid. Critics, however, point to evidence of
fraudulent EITC claims at the federal level and argue that it
violates principles of sound tax policy to provide a credit to
individuals with no underlying tax liability.<1>
3)Potential Impact on the State's Economy. It was estimated that, in
2009, 2.4 million California residents would claim $4.95 billion in
EITC refunds. However, researchers agree that a large amount of
EITC refunds go unclaimed: anywhere between 17.8% and 25%. And it
appears that
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<1> Advocates counter that, while low income Californians often have
no income tax liability, they do pay payroll, sales and excise taxes.
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California has the highest EITC non-filer rate of 24.9%, which is
higher than the national rate of 17.8%. (Participation in the
Earned Income Tax Credit Program for Tax Year 1996, IRS-Small
Business Self-Employed research, 2002, IRS). Thus, 800,000
Californians failed to claim over $1.2 billion worth of EITC
dollars in 2009. The largest amounts of unclaimed EITC refunds
were due to residents of the counties of Los Angeles ($370
million), San Bernardino ($84.9 million), San Diego ($77.7
million), Riverside ($76.7 million), Orange ($63.4 million), Fresno
($45.6 million), Sacramento ($41.3 million), Kern ($37.9 million),
and Tulare ($31.2 million). Residents of the poorest counties in
California, such as Fresno, Merced and Tulare, show the largest
number of EITC returns by percentage of the total returns and also
the largest average of EITC payments. (Left of the Table, p. 6).
Various studies demonstrate that the EITC refund payments have a
significant impact on state and local economies. (See, e.g., Left
on the Table by New American Foundation and How Can California Spur
Job Creation by D. Neumark of the PPIC, 2010). If California
taxpayers had claimed the $1.2 billion of EITC refunds otherwise
due to them in 2009, it would have generated $1.4 billion in
business sales, $311 million in wages, and nearly 8,200 jobs in
California. The lost opportunity resulted in a loss of $88 million
dollars in federal taxes that were supposed to come back to the
state.
4)Duplication of Effort? To qualify for the EITC, an individual must
be employed. Both the federal and state laws require employers to
notify all employees that they may be eligible for the EITC. Under
federal law, an employer must provide an employee with Form W-2, a
substitute of W-2, Notice 797 or a written statement with the same
wording as Notice 797. Under California's law, an employer must
also notify the employees about the EITC within one week before or
after the employer provides the employees with their annual wage
summary (e.g. a Form W-2 or a Form 1099). Employers are required
to either hand the notice directly to each employee or to mail the
notice to each employee's last known address. Furthermore, all
California employers must post a statement about the EITC in the
workplace. Given the existing federal and state notification
requirements applicable to every employer in California, would
another notification simply be a duplication of effort by the state
department or local government?
5)Cost and Effectiveness of Notification. SCR 12 urges state and
local governments and community organizations to promote education
and awareness of the EITC. It does not, however, specify the ways
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of increasing such awareness; nor does it appropriate the funds to
cover the costs associated with promoting the EITC awareness. The
time and costs associated with notifying qualifying individuals of
their potential eligibility for the EITC may become a daunting task
for some state agencies, local governments and/or community
organizations. On balance, it is unclear how effective this
resolution will be in reaching its intended goal of increasing the
number of California taxpayers claiming the EITC refunds.
Analysis Prepared by : Oksana Jaffe / REV. & TAX. / (916) 319-2098
FN: 0001265