How Detroit is maximizing tax credits for the working poor

A volunteer with the Accounting Aid Society helps a Detroit resident with his taxes. A citywide push last year to increase the number of eligible residents claiming the Earned Income Tax Credit yielded $74 million for working residents. The city is expanding the program this tax season. (Accounting Aid Society)

As millions of Americans scramble to file their income taxes before Tuesday’s deadline, city leaders can ponder this sobering fact: Many of their residents, including those with the greatest financial needs, are missing out on one of the biggest tax credits out there.

The Earned Income Tax Credit (EITC), a benefit the federal government offers low- to moderate-income workers, puts as much as $6,300 into the pocketbooks of those who claim it. Residents of 29 states can claim a state match as well. Yet many of those eligible don’t know about it — or mistakenly believe they don’t qualify. One in five of those who do qualify don’t pursue it. Collectively, they’re leaving billions of dollars unclaimed.

Detroit is working hard to change this locally — and setting a model for other cities to follow. Last year, after the city boosted its outreach and free tax preparation services, it saw an additional 18,150 residents claim the credit — an increase of 24 percent over 2016. That meant an injection of $74 million additional dollars into the city economy.

For individual residents, this was money they could use to pay bills, save for tuition, start a business, or make a down payment on a new home. “For most of our clients, this is the largest check they get all year,” said Kathleen Hatke Aro, president of the Accounting Aid Society, a Detroit nonprofit that provides free tax help.

Detroit’s EITC push began in 2016, when Mayor Mike Duggan first heard about how much money his residents were leaving on the table. Detroit has one of the lowest median incomes and highest poverty rates in the country, and Duggan saw the EITC as low-hanging fruit in the city’s quest to improve residents’ fiscal health.

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The Mayor had strong people and partners to call on to lead the effort, including Lisa Howze, a certified public accountant who was then Duggan’s Chief Governmental Affairs Officer. Other partners included the Accounting Aid Society, United Way for Southeastern Michigan, and Bloomberg Associates, a pro-bono consulting service set up by former New York City Mayor Michael Bloomberg, who had developed similar successful EITC strategies during his time in office.

These four partners formed a working group and developed a program around two key elements. First was a communications campaign to encourage Detroiters to file their taxes — it’s the only way to claim the earned income credit. Mayor Duggan kicked off the campaign with a press conference, which sparked a lot of news coverage in local media outlets. In addition, notices went out in water bills, ads went up on buses, billboards were donated by OUTFRONT Media, and local nonprofits spread the word among their clients.

“So often, people say, ‘Oh, I only made $8,000 last year and won’t owe anything, so I won’t bother to file,” Howze said. “But in order to get the credit, you have to file the return. So part of it is educating the public that you, too, have to file, no matter how little you made.”

Second, the partners expanded the network of free tax help available to Detroiters. Part of that effort was to create a new virtual tax-prep program they called “Drop and Go,” modeled after a similar system used in New York. This gave residents the option to leave their tax information — at Goodwill or with one of eight other partners — to be scanned into a server. Trained volunteers then completed the returns before sending them back to the residents to sign and file. In 2017, Detroit processed 292 returns this way.

This year, Detroit is expanding the program. There are more sites for dropping off tax information, and Detroit-based Quicken Loans has come on board as a funder. By the end of last week, Detroiters had filed 429 returns using Drop and Go, representing nearly 50 percent growth over last year’s total. Drop and Go appears poised for continued growth in Detroit’s ongoing EITC effort.

Mayoral leadership was key to Detroit’s success, said Rose Gill Hearn, a principal with Bloomberg Associates who worked on the project. Not only did Duggan make the initiative a top priority, he dedicated close to $200,000 per year to the effort. That investment was crucial to bringing other partners on board, and is expected to continue. “To help put $74 million extra dollars into the pockets of Detroiters,” Hearn said, “that’s a heck of a return on investment.”

Celebrating public sector progress and innovation in cities around the world. Run by @BloombergDotOrg’s Government Innovation program. bloombergcities.org

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