Native American Tax Dollars
Ana Marie Argilagos, Senior Consultant, Annie E. Casey Foundation
The Annie E. Casey Foundation is dedicated to building
better futures for disadvantaged children and their families. Much of
the Foundation's work in recent years has been driven by the idea that
kids do well when their families do well, and families do better when
they live in supportive communities. While this principle was derived
from work in urban areas, the Foundation recognizes that large numbers
of residents in Indian Country also struggle to meet their families' needs.
One strategy that the Foundation has found to be
a valuable tool to increase the incomes of low- and moderate-income families
is the Earned Income Tax Credit (EITC). The EITC is a refundable credit
offered through the federal tax system (and 17 states) and is the single
largest federal aid program supporting working families. It provides more
dollars to working families than any other federal program.
- At $32 billion dollars, the EITC is larger than
food stamps and Temporary Aid for Needy Families (TANF) combined
- Eight times the size of the Workforce Investment
- Ten times the size of Community Development Block
The maximum federal EITC refund for tax year 2004
will be $4,204 per year a substantial sum of money for any family.
As such, the EITC provides a powerful work incentive and anti-poverty
tool that has benefited millions of low-income families since its inception
in 1975. Unfortunately, millions of EITC dollars go unclaimed each year.
National figures estimate that between 15 and 20 percent of eligible families
do not claim the EITC; for Indian Country, the numbers are much higher
since a disproportionate number of non-filers are found in areas of concentrated
poverty. And although the EITC is perceived as a greater opportunity for
large cities, in fact EITC receipt is higher in rural areas than in cities
($7.8 billion vs. $7.7 billion). EITC receipt tends to be particularly
high in much of Indian Country. According to Alan Berube of the Brookings
Institution, there are 17 zip codes where over 70 percent of tax filers
claimed the EITC in 2000; of these, nine are located in Indian Country.
What is not known however, is how many Native Americans that qualify for
the EITC do not claim this tax credit. The assumption is that this could
be a much larger number.
There are many reasons working families do not claim
the EITC. They may think they are not eligible, or they may simply not
know about it. In addition, some families may fear that filing for taxes
will "tip off" the IRS or other agencies looking for those who
are pursued by creditors or behind in their child support payments. A
person might not have a legal liability-that is, he/she earns below the
tax liability threshold and is not legally required to file-but by not
filing forfeits the credit. Other issues such as language, culture, lack
of local tax preparers and cost of tax preparation may also impede eligible
families from filing tax returns altogether.
Nationally, 68 percent of EITC filers get their refunds
through commercial tax preparers. These companies can charge up to $200
to file a simple return. Complicated returns cost much more and there
are extra fees for doing the EITC form and electronic filing. Many families
are offered "rapid refund" services or refund anticipation loans
that further erode the money they should be receiving through their tax
refunds. Low-cost or free preparation methods can offer a much-needed
service to families while conserving income in rural communities.
Noel Brown, manager of the Tribal Business Information
Center (TBIC), located on the Cheyenne River Sioux reservation in Eagle
Butte, SD, recognized the need for reasonably priced access to tax preparation
service. The area has one of the highest unemployment rates in the U.S.
(over 70% in Ziebach County). Most of his clients are self-employed, many
in home-based, retail, service, construction, and agriculture industries.
Four years ago, individuals had no option but to drive 90 miles to reach
a paid preparer. Lower income individuals often did not have access to
a car, and would have to hire someone to get them there. They would then
be charged very high fees by a paid preparer, and if they wanted their
refund right away, they would be charged an additional fee. Several days
later, they would have to hire someone else to take them to pick up their
Today, Noel runs a successful Volunteer Income Tax
Assistance (VITA) site and community members can receive 100 percent of
their returns by using the services of TBIC. In 2003, his staff assisted
over 600 individuals with free income tax preparation assistance. TBIC
prepared taxes for more individuals than any other VITA site in the state
(second only to the Ellsworth Air Force Base) and helped families secure
over $1,200,000 in refunds. Noel is interested in expanding his services
by linking the EITC to financial literacy, savings, and Individual Development
Accounts because many of his clients want to acquire a home or start a
home-based business. He explains, "the EITC is an important resource
for working families, providing the extra money that many need in these
tough economic times. The EITC is also beneficial to tribal economies,
financially strengthening families throughout the community."
Last year, the Ysleta del Sur Pueblo tribe near El
Paso, Texas joined the "Strong Families, Strong Future" EITC
campaign coalition in El Paso and provided a facility on the reservation
that served as an e-file tax preparation site-one of only three in the
county. Volunteers from the tribal community and El Paso County prepared
187 tax returns (including 50 with EITC), and collected over $149,000
in refunds. This year, the coalition plans to include financial literacy,
IDA opportunities, and representatives from financial institutions who
can connect individuals with savings accounts and other financial resources.
Dine College, located on the Navajo Nation in Arizona,
is an example of a VITA program that operates out of a tribal college.
Student volunteers are recruited and trained to provide free tax filing
assistance. In the case of Dine College, students undergo a rigorous training
developed by the Albuquerque Technical Vocational Institute (TVI) to be
certified as VITA volunteers. Students receive college credit for their
participation, and more importantly, experience in their field.
Tribes interested in ensuring that their members
are keeping the money they are entitled to can easily include information
about the EITC in existing outreach efforts such as public service announcements,
flyers and paycheck stuffers (the IRS and the Annie E. Casey Foundation
both provide free outreach and publicity materials that can be used to
launch tax campaigns). Another idea is to build information about the
EITC into existing financial literacy curriculums or to leverage EITC
by connecting it to IDAs and other savings programs.
While many families use their EITC refunds to meet
immediate needs such as paying utilities or rent, or to make large purchases
like a car or washing machine, some families may be able to use part of
their refund for savings and asset building activities. A crucial element
of a successful campaign is connecting taxpayers to opportunities to build
assets, and ultimately wealth. There are many potential asset building
opportunities to consider, including financial literacy training, debt
counseling, savings strategies, investment clubs or IDA programs. These
asset building strategies can be effective ways to help families improve
their long-term financial futures.
Tribes should work with community development financial
institutions (CDFIs), credit unions, and banks that have an interest in
serving Native American populations to establish accounts for unbanked
filers to receive direct deposit or to provide low cost check cashing
services. A number of institutions around the country have already enjoyed
the success and benefits of partnering with a tax prep site including:
Legacy Bank in Milwaukee; Shorebank in Chicago; US Bank in Sacramento;
Bank One in Dallas; Members First Credit Union in Louisville, KY and Bethex
Credit Union in New York City.
To help communities interested in launching campaigns,
the Annie E. Casey Foundation formally launched the National Tax Assistance
for Working Families Campaign.
The campaign stresses the importance of designing campaigns to meet the
unique needs of individual neighborhoods and locales. The first year's
campaign theme was "Earn It, Keep It, Save It" a reminder
that qualified working families not only need to claim the tax credit,
but also should avoid losing a chunk of their tax return and credit by
paying unnecessary fees or accepting refund anticipation loans (RALs).
According to a recent research study from the Brookings
Institution, Rewarding Work Through the Tax Code: The Power and Potential
of the Earned Income Tax Credit in 27 Cities and Rural Areas,
low-income families are losing much of their refunds to high-cost tax
preparers and costly fast-cash loans that charge annual percentage rates
ranging from 67 to 774 percent. In 2002, those loan products cost EITC
recipients across the country an estimated $750 million.
The first year of the National Tax Assistance
for Working Families Campaign was resoundingly successful. Sites affiliated
with the campaign returned more than $55 million in EITC money to low-income
families through the preparation of more than 96,000 federal tax returns.
Plans are being finalized now for the 2004 tax year campaign, with several
more urban and rural locations joining the national group including a
few that are focused on working with American Indian families and in the
US-Mexico border area. Part of this effort includes working with First
Nations Development Institute to develop a module highlighting the benefits
of EITC. This curriculum is being designed for use as stand-alone material
or can be incorporated into the existing Building Native Communities:
Financial Skills for Families
our Native American Resources webpage
Marie Argilagos works in the Planning, Research and Development Unit
at the Annie E. Casey Foundation in Baltimore, Maryland. She provides
strategic direction for the foundation's initiatives in the southwest
border region and in American Indian communities. Before coming to the
foundation, she served as special assistant to the Department of Housing
and Urban Development deputy secretary. While there, Ms. Argilagos advised
on a wide array of policy issues and played a central role in shaping
the President's Interagency Task Force for the Economic Development of
the Border. Ms. Argilagos holds a master's in public administration from
the Kennedy School at Harvard University.