TAX CREDITS FOR THE WORKING POOR: A CALL FOR REFORM.

• Author: Ryan, Kerry A.

1. INTRODUCTION 931 II. PROPOSALS & ARGUMENTS 933 III. EVALUATING CLAIMED ADVANTAGES OF REFORMS 938 IV. CONCLUSION 942 I. INTRODUCTION

   We are in a historic moment as a country as the economic fallout from the COVID-19 pandemic continues. Historically marginalized communities (women, people of color, low-income workers) are suffering a disproportionate share of the burden of this crisis, with unemployment concentrated among these workers. (1) As in prior recessions, the current economic crisis is exposing structural weaknesses in our work-based safety net, including two refundable (or partially refundable) tax credits: the earned income tax credit (EITC) and child tax credit (CTC). (2) The work requirement, timing, and mode of delivery of these tax subsidies make them particularly unattractive as vehicles to deliver emergency economic aid to these vulnerable subpopulations. Job or income loss may reduce or eliminate eligibility for these benefits, and a tax refund containing these benefits may arrive too late to provide much-needed relief.

   Of course, the global pandemic merely exacerbated the economic insecurity of the working poor. Many of these families experience spells of intra-annual income loss due to changes in household composition, employment, and/or disability status. (3) The lumpiness of the EITC and CTC payments prevent them from smoothing income and consumption for low-income families, who experience boom and bust cycles over the course of a year. Instead, families accumulate debt during the year in anticipation of receiving their annual windfall in the form of a large tax refund.

   The question thus becomes: can we modify these tax subsidies to allow them to better serve their target populations? Michelle Drumbl answers that question affirmatively in her book, Tax Credits for the Working Poor (Tax Credits). (4) Tax Credits describes the history and importance of the EITC, examines the shortcomings of its implementation, and proposes modifications to the tax credit's design and administration to increase its effectiveness as an antipoverty supplement for low-income working families. In crafting her recommendations, Drumbl draws on her extensive advocacy experience representing low-i ncome taxpayers before the Internal Revenue Service (IRS), existing EITC scholarship (including her own), and the experience of other countries with similar tax-based social benefit programs.

   While Drumbl convinces me of the need for, benefits of, and feasibility of implementing her administrative reforms, I raise concerns about cost, complexity, and framing. I juxtapose her reimagined EITC against the family benefit schemes of her benchmark countries and proposals put forth by other tax credit reformists. This analysis suggests that Drumbl can enhance the policy coherence and antipoverty effectiveness of her design proposals by targeting them at a non-work contingent family tax credit.

   A recent proposal by President Biden embodies this approach. Biden's plan incorporates most of Drumbl's design modifications but applies them to a fully refundable CTC rather than to the EITC. (5) This is an emphatic endorsement of Tax Credits from the highest levels of government, making this book a must-read for anyone interested in using the I.R.C. to improve the lives of vulnerable Americans during this current COVID crisis and beyond.

   After this Introduction, Part II surveys the substance of Tax Credits. It describes Drumbl's main proposals, and her arguments in support of each. Part III evaluates whether Drumbl's EITC restructuring achieves its claimed benefits. In doing so, it raises the possibility that her reforms might be more effective when applied to the modified CTC rather than to the EITC. Part IV concludes this Review.

2. PROPOSALS & ARGUMENTS

   Tax Credits first traces the historical evolution of the EITC from a work incentive to an antipoverty program. (6) Drumbl then synthesizes existing research (her own and that of others) to detail the modern challenges faced by the IRS in administering the EITC program. (7) While there are advantages in delivering the EITC through the tax system (lower administrative costs, recipient preference, and high participation rates), she describes the trade-offs as "the stubbornly high improper payment rate, [taxpayer] noncompliance, predatory lending practices [by tax return preparers], and identity theft." (8) Government responses to these problems include delaying the EITC until eligibility is confirmed or recouping improperly distributed credit amounts through the examination process. By channeling her clients' experiences, Drumbl effectively conveys the devastating negative financial consequences to low-income families of EITC delay, denial, or recoupment.

   Drumbl's next move is to link the identified administrative challenges to certain unique characteristics of the EITC--self-declaration of eligibility on the tax return and delivery of the benefit in one large lump sum as part of the annual tax refund. (9) For Drumbl, these are the key variables that hinder effectiveness of the credit and require reform. Interestingly, EITC proponents typically cite these precise features as the ones that give the EITC a comparative advantage over traditional social welfare programs, such as Temporary Assistance to Needy Families (TANF). (10) One contribution of Tax Credits is to move us away from using welfare as the sole frame of reference in evaluating the EITC program. Drumbl instead draws inspiration for her restructuring from EITC-analogues in other countries. In her view, while the United States (US) may have been a first mover in enacting an in-work, tax-based, social benefit...