Study Shows Tax Return Delay Could Hurt Low-Income Families

Millions of low- and moderate-income Americans who claim certain tax credits will have to wait weeks longer than usual this year for their federal income tax refunds because of a new law aimed at reducing fraud.

The delay could prove costly for countless families “in relatively vulnerable financial circumstances,” finds a new study from the Brown School and the Tax Policy Center.

The Protecting Americans from Tax Hikes Act (PATH Act) of 2015 requires the Internal Revenue Service to hold refunds claiming the Earned Income Tax Credit (EITC) and the Additional Child Tax Credit (ACTC) until Feb. 15. Because of weekends and the Presidents Day holiday, the IRS said in a recent statement that affected taxpayers may not have access to their refunds until the week of Feb. 27.

“Many of these families file their returns early and use refunds quickly to pay down debt or for spending on necessities,” said Stephen Roll, research assistant professor at the Brown School’s Center for Social Development and co-author on the study.

“Delaying refunds will likely lead to additional financial hardships for some of these families, who in previous years had received and used their refunds before Feb. 15,” he said.

The study, “Delaying Tax Refunds for Earned Income Tax Credit and Additional Child Tax Credit Claimants,” is co-authored by Elaine Maag, senior research associate at the Tax Policy Center, and Jane Oliphant, program manager at the Center for Social Development.

“For the average American household, the tax refund is a nice yearly bonus that likely does not impact their finances in any major way,” Roll said. “However, for EITC or ACTC households affected by this delay in the refund, the tax refund is often the biggest single payment they’ll receive in a year.

“Imagine that you didn’t have much in savings and your income was entirely taken up by your expenses,” he added. “Then imagine that, without much warning, an entire month’s worth of your income just didn’t come for two or three weeks longer than you expected. That’s potentially what these households are facing.”

For the 2016 tax year, the Tax Policy Center estimates that on average EITC beneficiaries with children will receive a $3,314 tax credit. The median EITC or CTC family with children reported only $400 in liquid assets, and 69 percent reported credit-card debt at a median rate of $2,000. Fewer than half of these families reported they could access
$2,000 in an emergency, and barely one-third are homeowners.

What can impacted families do?

“Filing early may help, but only to an extent,” Roll said. “Even if you file on Jan. 23, the first day that the IRS begins accepting returns, there will still be a delay until at least the 15th of February.  Filing early ensures that families will receive their refund as quickly as possible.”

Beyond that, Roll said, there are steps families can take to minimize the impact of this delay.

“For example, families should be aware of this delay and try to avoid taking on extra debt, and high-cost debt in particular, at a point when they may have to wait weeks to pay it off,” he said. Additionally, families may be tempted to rely on ‘refund anticipation loans’ that function as short-term loans to provide the expected value of the refund early.

“While these loans can potentially provide families with quick cash when they need it, they can also come with a number of fees or hidden costs that may cause more harm than good,” Roll said.

Blue Cross Report: Social Services Critical to Improving Health

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In a new report by the Blue Cross Blue Shield Foundation, social, behavioral, and environmental factors are shown to determine a staggering 60% of one’s overall health. The report provides overwhelming support for increased investment in, and collaboration with, social services as a way of improving overall individual and community health.

The report’s key findings include:

-Providing housing support for low-income, high-need individuals can result in net savings due to reduced health care costs. The net savings range from $9,000 per person per year to nearly $30,000 per person per year for the Housing First model, a harm-reduction approach in which adults who are homeless and who have behavioral health conditions are provided supportive housing.

-Nutritional assistance for high-risk women, infants, and children as well as older adults and people with disabilities lowers infant mortality rates, improves birth weights, reduces nursing home admissions, and significantly lowers federal and state Medicaid costs.

-Vulnerable populations experience health gains when their care is coordinated across primary, specialty, behavioral, and social services and that hospitalizations and emergency department visits are demonstrably reduced.

-Partnerships between health care and social service providers, particularly housing service providers, have been effective in improving health outcomes in certain high-need populations.

-Income support programs, specifically the Earned Income Tax Credit (EITC) and Supplemental Security Income (SSI), were associated with better health outcomes for those individuals who qualify for such programs.

By attributing 60% of one’s health to social, behavioral, and environmental factors, Blue Cross Blue Shield is making known that social workers and social service programs are the key to improving the health of individuals and communities. The report opens the door for unprecedented collaboration between social workers and private sector health insurers, who can work together to address patient care as a whole unit.

The report adds to the increasing evidence that integrated healthcare is the future of care delivery. Integrated care involves primary care providers and behavioral/mental health providers working in unison to treat the whole patient. Social workers, who are trained in interdisciplinary collaboration, are uniquely qualified to serve in this capacity.

Most importantly, the message of the report is clear: achieving optimal health is impossible without increased investment in social service programs, especially for vulnerable populations. This provides a major opportunity to advocate on behalf of increased investment in programs that improve health while reducing healthcare costs. When one of the nation’s largest health insurers says that social service programs are critical to the health of our nation, policy makers will have to listen.

The Forgotten Poor: More Children Living in Extreme Poverty

The number of children living in extreme poverty—on $2.00 or less per person per day in a household—grew significantly from 1996 until 2011. In 2011, 3.55 million children in 1.65 million households were living in extreme poverty in a given month. Income included TANF and other direct cash assistance programs, cash support from family and friends, and income from odd jobs and other sources.

The good news—if you can call it that—is means-tested benefits such as food stamps, the Earned Income Tax Credit (EITC), and Section 8 vouchers lifts two-thirds of these households out of extreme poverty, but still leaves 1.17 million children living off the barest subsistence. Research by H. Luke Schaefer, an associate professor of social work at the University of Michigan and Kathryn Edin, the Bloomberg Distinguished Professor in the department of sociology at John Hopkins University, documents the growing number of children being left behind.

helpUsing data from the Survey of Income and Program Participation (SIPP), they were able to determine how many children and families had slipped into extreme poverty since the beginning of welfare reform. Since welfare reform, the number of adults on TANF has decreased dramatically from 4.6 million at its peak to about one million in 2011.

Welfare reform was hailed as a great success as many of these single mothers were able to move into employment as the economy boomed in the 1990s, yet their research shows that a number of these mothers fell through the cracks. With pre-tax cash alone as the measure, children in extreme poverty grew from 1.4 million children in 636,000 households in 1996 to 3.55 million children in 1.65 million households in 2011.

In 2011, using cash alone as the criteria, 37 percent of households living in extreme poverty were headed by a married couple and 51 percent were headed by single females. Adding in means-tested subsidies, just over half of households in extreme poverty were headed by married couples and less than a third by single females, indicating single mothers were benefiting more from the subsidies. Again, using the cash-only measure, the study found that 47 percent of households living in extreme poverty were headed by non-Hispanic whites, and 46 percent by people of color. Adding the subsidies, the proportion headed by non-Hispanic whites rose to 61 percent. Contrary to popular believe, people living in extreme poverty is not limited to single mothers and people of color.

Living at the official poverty threshold for a family of three would roughly equate to $17 per day per person in a household. People living in “deep” poverty or half of the official poverty line would be subsisting on $8.50 per day. Children and families living in extreme poverty are trying to make it with less than one-fourth of the deep poverty rate. There is a severe price to pay. Life at the bottom of the income ladder is fraught with greater risk of homelessness and housing insecurity, lack of nutritious food and a host of other potential health calamities.

Most of these children have little or no chance of ever making it out of poverty. For children living in the stressful conditions of extreme poverty there is an increase in the probability of being victims of child abuse and neglect, being exposed to domestic violence and other traumatic occurrences, lack of educational stability, living in neighborhoods inundated with drugs, crime, and draconian policing policies that lead to criminal records and spending time behind bars. Not much of a future.

So what do we do about this? How can we begin to lift children of extreme poverty? The Hamilton Project at the prestigious Brookings Institute offers a number of poverty policy prescriptions that include increasing early childhood education, increasing mentoring and other support programs for disadvantaged youth, skills-building for low-income workers, support for the minimum wage and expansion of the EITC, among others.

All are good ideas, but it would take a few generations for any of these policies to have any meaningful impact on extreme poverty. Few policymakers seem to have a notion to address the real problem—growing economic inequality. The economic pie is growing, but every bit of the growth is being swallowed up by a handful of extremely wealthy people while the planet’s population continues to grow.

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