More Data Needed to Help Reduce Benefit Participation Gaps

While the Earned Income Tax Credit and traditional Child Tax Credit lifted 10.6 million people above the poverty line (including 5.5 million children) and made 17.5 million people less poor (including 6.4 million children) in 2018, millions of eligible people—primarily those with very low incomes falling below the required federal tax filing threshold, or “non-filers”—are not receiving the benefits. To help devise strategies to reduce those gaps, a new paper from the NYU Law Tax Law Center calls for greater transparency and data collection by the Internal Revenue Service to develop a better sense of who uses the tax credits and who doesn’t. Co-author Kathleen Bryant spoke with Spotlight recently about the paper; the transcript of that conversation has been lightly edited for length and clarity.

Before we get into the substance of the paper, would you like to give some very basic background on the two programs?

Absolutely. The EITC has been around since 1975 and supplements the wages of low-income workers and the Child Tax Credit helps offset the costs of raising kids. And there are some important design features related to both the EITC and CTC that come up again and again in conversations about access and how the programs are delivered. Both programs phase in as income rises, plateau at a maximum benefit amount and then phase out as income falls, so not everyone is eligible for the same benefit amount. Of course, benefits also vary depending on the number of children that you have for both programs. Maximum benefits for the CTC are $2,000 per child and for the EITC it varies, ranging from about $560 for childless adults, around $3,700 for an adult with one child, and up to about $6,900 for those with three or more children.

And just for clarity, we’re talking about the regular CTC, not the expanded CTC?

Yes, exactly. We are back to pre-American Rescue Plan design and parameters for both the EITC and CTC.

So, in terms of what we do know and what we don’t know about the true size and characteristics of the population falling into what we would call the EITC and CTC participation gaps, the IRS reports federal and state program participation rates for the EITC each year. There’s no law or administrative requirement forcing the agency to do this. It’s something they do voluntarily. And according to those estimates, the EITC’S federal participation rate, the share of eligible people claiming the EITC, was about 79% in the most recent tax year that we have available.

This participation rate is subject to real uncertainty, however, and there’s pretty limited transparency about how these program participation rates are actually calculated, largely because the IRS doesn’t publish up-to-date, detailed methodology documents. The IRS also does not annually publish dollar claim rates for the EITC, which would be the share of EITC dollars that eligible people are receiving rather than the share of eligible people receiving the credit. A couple years back, the Treasury Inspector General for Tax Administration  estimated that the program’s dollar claim rate was about 85%, and this rate is slightly higher than the filer participation rate of 80% because the people missing out on EITC benefits are generally eligible for lower benefit amounts. We also don’t actually even get from the IRS the total number of people eligible for the EITC, as well as the total number falling into the EITC participation gap. Lastly, we do not get disaggregated EITC participation rates for different demographic groups—we also don’t get each group’s total share of the EITC program participation pie.

And on top of that, the IRS could just decide to stop doing any of that since it’s not mandated by law, correct?

Exactly. And so, everything that I’ve just said, just to be clear, applies to the EITC. We get absolutely nothing on a regular basis from the IRS on CTC program participation. They only publish a topline EITC federal or state program participation rate. So, in short, we have some very topline estimates, capturing the extent to which folks are not claiming the EITC, but those estimates are subject to uncertainty, and they could be more robust in certain ways. And then we know even less on the CTC side of the equation.

And before we get into ways to change that level of reporting and analysis, would any changes require action by Congress or are these things the IRS could do on its own?

The IRS could voluntarily decide to both increase the transparency around their estimates, disaggregate them, and include dollar claim rates and so on. That’s definitely something that the IRS could choose to do but has for the time being has just decided to stick with the topline measures.

And as someone who’s obviously spent a lot of time looking at this, do you think that it would be better to have a law so that it’s locked into place and would not be subject to changes of administration or changes of leadership at the IRS?

The paper does explore the strengths and limitations of a legal regime, but it doesn’t come down on a specific side.

Was there anything done on the expanded CTC in terms of increasing transparency that could be used as a model?

The IRS did publish counts of the number of people that received advanced CTC payments and that was really helpful. The IRS and other government agencies also did some proactive outreach to folks that they thought might be eligible for payments and that’s certainly something that we hope could be emulated even for the CTC and EITC as they currently stand.

So, tell me about the things you would like to see adopted.

The paper surveys all the various reasons that both tax filers and non-tax filers aren’t claiming the EITC and CTC and also explores some of the evidence that we do have around which specific interventions might be most effective at boosting program participation. We have some evidence about why 20% of eligible tax filers ostensibly are not claiming the EITC, for example, but the point that the paper really tries to drive home is that we don’t actually have a really strong evidence base on which of these interventions are most important and would be most salient at boosting participation. And so that’s part of the reason that the paper revolves around the need for better measurement and research.

One section of our paper talks about this on the outreach and enrollment side. For example, we know from some academic research that’s been conducted over the last 10-plus years about the EITC that in general, broad-based informational campaigns tend not to significantly boost uptake among non-filers specifically. However, awareness campaigns that are coupled with some services or tools that make it easier to actually submit a tax return have been more effective at boosting uptake.

There are unanswered questions around how much you can really boost program participation with outreach and awareness interventions alone, without making bigger, more fundamental changes to the way the programs are designed and delivered. We also don’t have a great evidence base within the realm of outreach and enrollment initiatives, in terms of which specific ones are the most effective at both driving returns for everyone or for specific communities.

And is there any evidence that the IRS is considering changes in either program?

The IRS has made several commitments relevant to EITC and CTC program access in the agency’s Strategic Operating Plan, which governs implementation of the $80 billion investment in the IRS passed under the Inflation reduction Act. There aren’t hyper-specific commitments but there are a number of points that talk broadly about the importance of improving taxpayer services such as increasing the accessibility of tax benefits, making communications with tax filers easier to understand and things like that. I think there’s still more to come on hyper-specific commitments in this space from the IRS, but there’s several different indications that the agency is thinking about these sorts of big questions.