Policy Paper

Left on the Table

Unclaimed Earned Income Tax Credits Cost California's Economy and Low-income Residents $1 Billion Annually
  • By Antonio Avalos and Sean Alley
March 9, 2010 |
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The Earned Income Tax Credit (EITC) is one of the federal government’s largest resources for working low-income Americans. It is widely regarded as the nation’s most effective and efficient anti-poverty program and has been expanded by a series of Democratic and Republican presidents. Hundreds of thousands of Californians, however, fail to claim EITC refunds, which range from a few hundred to several thousand dollars. The families and individuals who miss out are not the only losers when these refunds go unclaimed. Local economies never benefit from this money. These dollars are never spent at local businesses so fewer jobs are created, fewer wages are paid, and eventually less tax revenue goes to state and local governments. These refunds are a foregone economic stimulus for California.

This report examines the economic impact of the EITC program in California, each of its 58 counties, and select major cities. First, the authors examine the amounts of claimed and unclaimed EITC refunds. They then estimate the economic impact of EITC dollars that are injected into the state’s revenue stream. Third, they estimate the foregone economic impact of unclaimed EITC refunds.

The full text of the report is attached at right.

Primary Findings

The Earned Income Tax Credit has a substantial impact on the California economy

• In 2009, the authors estimate that 2.4 million California residents will claim $4.95 billion in EITC refunds, more than the combined total wages of all home health care workers and electricians in California.

• As these refunds are spent, they will spur $5.5 billion in sales for California businesses, who in turn will create 33,000 jobs, pay $1.32 billion in new wages, and bring $390.5 million in tax revenue to state and local governments.

• EITC refunds vary significantly by county. Nearly one third of the total EITC funds in the state (almost $1.5 billion) went to Los Angeles County. Smaller counties such as Alpine, Sierra, and Trinity claimed less than $2 million altogether.

• The ten California counties with the largest dollar amounts of EITC refunds in 2006 (the last year for which zip code level data is available) were Los Angeles ($1.48 billion), San Bernardino ($339.7 million), San Diego ($310.7 million), Riverside ($306.4 million), Orange ($253.5 million), Fresno ($182.3 million), Sacramento ($165.3 million), Kern ($151.6 million), Tulare ($124.9 million), and Alameda ($116.4 million).

• Not surprisingly, residents of the poorest counties in the state (such as Fresno, Merced and Tulare) show the largest number of EITC returns as a percentage of the total returns filed. These counties also have the largest average EITC payments; well above the state average in both categories.

Too many Californians fail to claim these refunds

• In 2009, an estimated 800,000 Californians, about one in five who are eligible, will fail to claim $1.2 billion in EITC refunds.

• On average, families not claiming the credit would have received a refund amounting to $1,400.

• The following counties missed out on the largest amounts of EITC refunds: 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), Tulare ($31.2 million), and Alameda ($29.1 million).

• The following counties are likely to have more than twenty percent of EITC eligible filers fail to claim their refunds: Los Angeles, San Bernardino, Sacramento, Fresno, Kern, Merced, Stanislaus and Tulare.

When EITC refunds go unclaimed, businesses and the economy suffer

• Because $1.2 billion in EITC refunds will go unclaimed in 2009, California businesses will lose out on $1.4 billion in sales and 8,200 jobs will not be created.

• Most of the foregone economic impact is concentrated in Los Angeles, Riverside and San Bernardino counties. Because of unclaimed EITC refunds, these counties lose out on $600 million in business sales, and a combined foregone employment impact of over 3,700 jobs.

• Due to low participation in the credit program, the San Joaquin Valley (Fresno, Madera, Merced, Kern, Kings, San Joaquin, Stanislaus and Tulare) suffers a foregone business sales impact of more than $180 million and a foregone employment impact of over 1,100 jobs.

• The foregone economic impact of the EITC program is not spread uniformly across counties, but is felt more acutely in counties where the presence of likely non-filers is higher. These are counties with: (1) high concentrations of Hispanics; (2) significant numbers of low-income individuals; (3) high participation in the food stamp assistance programs; (4) significant numbers of families with no qualifying children.