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Research Papers in Economics

  Heard of the EITC        Received the EITC
All      58.1  38.6
Race   
  Hispanic  27.1  14.6
  Black, Non-Hispanic  68.0  44.3
  Other   73.5  51.5
Education Level   
  Less than High School  39.8  20.4
  High School Graduate  65.0  47.1
  Some College  71.4  50.9
  College +   64.8  37.3
T
rinh Nguyen, a 44-year old single mother who emi-
grated from Vietnam ten years ago, earns around 
$15,000 a year as a seamstress in one of Seattle’s 
garment factories. She lives with her two children 
in one of Seattle’s public housing communities, though she 
hopes one day to be able to buy a house. 
In 2002, she received a ﬂyer—in Vietnamese—from a lo-
cal nonproﬁt that explained that she might qualify for the 
Earned Income Tax Credit (EITC). The ﬂyer directed her to 
a Volunteer Income Tax Assistance (VITA) site at a nearby 
community center. Nguyen said she was “amazed” by what 
the volunteer told her—she would receive more than $3,500 
in the form of a refund check from the federal government. 
“It was a lot of money,” said Nguyen. “We were able to use 
it to ﬁx our car and still save some of it for our house.” For 
Trinh Nguyen, the EITC adds signiﬁcantly to the $20-$30 
dollars a month she can normally afford to set aside and 
From Refunds to Assets 
Leveraging the Beneﬁts of the Earned Income Tax Credit 
has helped her to build nearly $7,000 in savings towards the 
down payment on a small condo in Seattle’s International 
District.
Every year, approximately 20 million lower-income house-
holds receive tax refunds through the EITC. The average 
EITC refund is around $1,700; some are as high as $4,000. 
The EITC is now the largest federal program to help the 
working poor, and removes more children from poverty than 
any single federal program.1 Yet estimates suggest that more 
than 4 million households that are eligible for the credit fail 
to claim it.2 Data from the 2001 National Survey of Ameri-
ca’s Families show large disparities in who knows about the 
EITC, disparities that are magniﬁed when it comes to who 
ﬁles for the credit (Figure 5.1). 
Because of the EITC’s effectiveness in reducing poverty, a 
number of efforts have been launched to expand awareness 
of the credit. The Internal Revenue Service promotes free 
20 May 2005
Figure 5.1  Knowledge of the EITC among Low-Income Households (percent)
Source: Maag, Elaine (2005). “Paying the Price? Low-Income Parents and the Use of Paid Tax Preparers,”  
New Federalism Working Paper No. B-64, Washington, D.C.: The Urban Institute.
Low-income households include those earning less than 200% of the federal poverty line.San Francisco’s Working Families Credit
In 2003, San Francisco residents failed to claim approximately $12 million in EITC refunds, money that could have been spent 
to boost the local economy and to defray the high costs of living in the city. In order to raise the visibility of the EITC in the city 
and to get more eligible residents to claim their refund, Mayor Gavin Newsom has taken the bold step of offering an added local 
incentive—the Working Families Credit. 
The Working Families Credit works like this: San Francisco residents with dependent children who claim the EITC on their federal 
income taxes will be eligible to receive an additional payment from the city, probably somewhere between $200 and $300.1 
During the 2004 tax season—the ﬁrst year of the pilot program—over 10,000 San Francisco families claimed the Working 
Families Credit. 
What’s unique about the Working Families Credit is that it relies on a public-private partnership to make it work. Taking the 
city’s tight budget into account, Mayor Newsom earmarked $3 million dollars from the city’s general fund for the two-year pilot 
program, and is turning to the business and philanthropic community to match his commitment of public dollars. 
The city found its ﬁrst partner in H&R Block. H&R Block has donated $1 million toward the credit, all of which will go to payments 
to eligible families. The Mayor’s Ofﬁce worked closely with H&R Block to ensure that their tax preparation services would beneﬁt 
credit applicants and help them to build assets. As part of the collaboration, H&R Block is offering discounts on tax preparation 
($30 for credit eligible families), is waiving account and Express IRA set-up fees,2 and is ceasing to market Refund Anticipation 
Loans (RALs) in San Francisco. 
The Working Families Credit builds on other efforts to raise the visibility of the EITC and to build assets among low-income 
San Franciscans. The United Way of the Bay Area has marketed the credit as part of its Earn It! Keep It! Save It! campaign. At 
Volunteer Income Tax Assistance (VITA) sites, tax preparation volunteers provide information about the credit, talk about the 
disadvantages of RALs, and encourage customers to open bank accounts so that they can receive their federal refund through 
direct deposit. 
Wells Fargo contributes signiﬁcantly to this initiative by providing staff “on-site” at selected VITA and H&R Block locations and by 
offering low-cost checking and savings accounts. It also waives ChexSystems3 and instead considers applicants on an individual 
basis. To help customers build links between their bank account and their savings goals, the Earned Assets Resources Network 
(EARN), a San Francisco-based IDA provider, distributes information about free ﬁnancial literacy classes and how to join an IDA 
program. 
Anne Stuhldreher, a Senior Research Fellow at the New America Foundation who helped design the Working Families Credit, 
says that tax time offers a unique opportunity to help low-income households open bank accounts. “Tax time is the right time to 
help lower-income families begin to build savings and assets,” said Stuhldreher. “These are ‘win-win’ opportunities for ﬁnancial 
institutions to grow new customers and for community groups to help people stabilize their ﬁnancial lives.” 
1   During the pilot phase, the amount the Working Families Credit will pay out is dependent on the success of private-sector  
fundraising efforts.
2   The Express IRA allows clients to open a retirement account with as little as $300. The initial contribution can be funded from the 
individual’s tax refund. After a client has reached $1,000 in savings, the client can roll the Express IRA into a more traditional retirement 
product. About 23,000 account holders have moved their money to retirement vehicles offered by H&R Block Financial Advisors. 
3   ChexSystems maintains records of bank customers that have either bounced checks or committed fraud in the last ﬁve years. Banks often 
access ChexSystems when reviewing an application of a new customer for a checking account.
Box 5.1 
tax preparation for low-income tax ﬁlers through its VITA 
program. Local community organizations can sponsor VITA 
sites, and the IRS provides free training for the volunteers, 
free electronic ﬁling software, and bulk quantities of forms 
and publications. Financial institutions often partner with 
VITA sites to offer low-cost bank accounts to EITC eligible 
families. Foundations and non-proﬁts have also developed 
campaigns around the EITC. For example, the Annie E. 
Casey Foundation launched the National Tax Assistance for 
Working Families Campaign (NTA) in 2003 to increase EITC 
ﬁlings across the nation. The program doubled the number 
of families that received free tax preparations at NTA sites, 
from 97,000 in 2003 to nearly 160,000 in 2004.3 Not only do 
these programs provide free tax help and information about 
21 May 2005the EITC, they also educate consumers about the disadvan-
tages of Refund Anticipation Loans, which can signiﬁcantly 
reduce the size of a family’s refund check.
Governmental support can also signiﬁcantly increase pro-
gram participation rates. Efforts in the state of Washington, 
for  instance,  demonstrate  that  government  outreach  can 
greatly boost the number of EITC ﬁlers. In 1998, the IRS 
estimated that 40 percent of eligible Washingtonians were 
not applying for the EITC. The state made the decision to 
spend a modest sum of money—$316,000—to develop an 
EITC awareness campaign. The campaign included direct 
mail, radio, transit and television advertising, public service 
announcements, internet information, and distribution of 
posters throughout the state. A toll-free hotline distributed 
EITC  information  and  forms  and  referred  callers  to  free 
tax assistance sites. State employees also contacted nearly 
8,000 welfare-to-work clients to make sure that they knew 
about the EITC. As a result of this effort, an additional 3,667 
households in Washington applied for the credit, adding $29 
million in EITC refunds to the local economy in a one-year 
period.4 In an innovative program in San Francisco, Mayor 
Gavin Newsom is piloting a local tax credit to increase the 
number of city residents who claim the EITC (Box 5.1: San 
Francisco’s Working Families Credit).
There is also a growing recognition that the EITC can dovetail 
with asset building policies and programs. Participants in the 
United Way of King County’s IDA program, for example, 
can deposit their EITC refund into their IDA account, and 
receive up to $1,500 in matching funds. Utah Saves is link-
ing the EITC with a statewide initiative to encourage savings 
and retire debt. The goal is to reduce the rate of personal 
bankruptcy ﬁlings in Utah—the highest in the nation—by 
providing low-cost bank accounts and ﬁnancial education. 
Given that federal refunds to low-income families total 
approximately $30 billion,5 the potential for leveraging the 
credit for asset building is substantial. The EITC successfully 
lifts millions of families out of poverty each year; the goal 
now is to expand efforts to help those millions of families 
use the EITC to build wealth and invest in their future.
For a list of resources on the EITC, as well as information 
on how to volunteer or host a free tax preparation site for 
next year, please visit www.pointsoﬂight.org/programs/eitc/
facts.cfm.  
The San Francisco Fed’s website has a new look!  
Please visit the newly designed Community Affairs Department’s portal at  
www.frbsf.org/community
to learn more about us and to access this and other issues of “Community 
Investments”, complete with live links to resources and references. Feel free to direct 
comments and questions about the website to naomi.cytron@sf.frb.org.
The piggy banks featured on the front cover are housed 
in the Federal Reserve Bank of San Francisco’s Fed 
Center, which is a permanent installation designed to 
interactively teach the public about the functions of the 
Federal Reserve Bank. Visitors can also learn about 
monetary policy and view some of the most rare and 
valuable antique currency in the United States. Free 
tours of the Fed Center in San Francisco are available 
throughout the week; to learn more or to schedule a tour, 
please  visit  www.frbsf.org/federalreserve/visit/tours.
html or call 415-974-3252 for more information.
22 May 2005Savings In The Spotlight
1  Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore (2003). “Recent Changes in U.S. 
Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” 
Federal Reserve Bulletin 89(1): 1-32. 
2  Transaction accounts include checking, savings and money market deposit accounts, money 
market mutual funds, and call accounts at brokerages.
3  Aizcorbe et al., Federal Reserve Bulletin 89(1): 1-32.
4  Ray Boshara (2003). “The $6,000 Solution,” The Atlantic Monthly, January/February 2003, 
pp. 91-95.
5  Arthur B. Kennickel (2003). “A Rolling Tide: Changes in Distribution of Wealth in the U.S., 
1989-2001,” Federal Reserve Paper, March 2, 2003, p. 9.
6  Ray  Boshara  (2005).  “Individual  Development  Accounts:  Policies  to  Build  Savings  and 
Assets for the Poor,” Welfare Reform & Beyond Policy Brief #32, Washington, D.C.: The 
Brookings Institution. Ray Boshara (2002). “Assets Necessary for Getting Ahead,” Seattle 
Post-Intelligencer October 11, 2002, p. B7.
7  Thomas Shapiro and Edward Wolff, eds. (2001). Assets for the Poor: The Beneﬁts of 
Spreading Asset Ownership. New York: Russell Sage Foundation.
8  Lillian Woo, F. William Schweke, and David Buchholz (2004). Hidden in Plain Sight: A 
Look at the $335 Billion Federal Asset-building Budget, Washington, D.C.: Corporation 
for Enterprise Development.
9  Michael A. Stegman (1999). Savings for the Poor: The Hidden Beneﬁts of Electronic 
Banking. Washington D.C.: The Brookings Institution Press.
10 Ray Boshara, Seattle Post-Intelligencer October 11, 2002, p. B7.
11 Comptroller of the Currency (2005). “Individual Development Accounts: An Asset Building 
Product for Lower-Income Consumers,” Community Development Insights, February 2005. 
Ellen Seidman and Jennifer Tescher (2004). From Unbanked to Homeowner: Improving 
the Supply of Financial Services for Low-Income, Low-Asset Customers, paper prepared 
for the Joint Center for Housing Studies, Harvard University. 
12 The American Dream Demonstration (ADD) was designed by CFED and the Center for 
Social Development (CSD) to evaluate and analyze the potential of IDA programs to build 
assets among the poor. See gwbweb.wustl.edu/csd/asset/add.htm for more information.
13 Mark Schreiner, Margaret Clancy, and Michael Sherraden (2002). Final Report. Saving 
Performance in the American Dream Demonstration: A National Demonstration of 
Individual Development Accounts. St. Louis: Center for Social Development. 
14 Ibid.
15 Robert Kuttner (2003). “Sharing American’s Wealth: The Policies and Politics of Building a 
Larger Middle Class,” The American Prospect, Volume 14, Issue 5.
16 Mark Schreiner (2004). Program Costs for Individual Development Accounts: Final 
Figures from CAPTC in Tulsa. St. Louis: Center for Social Development.
17 Guat Tin Ng (2001). “Costs of IDAs and Other Capital-Development Programs,” 
Working Paper No. 01-8. St. Louis: Center for Social Development.
18 Ray Boshara, Welfare Reform & Beyond Policy Brief #32; Robert Kuttner, The American 
Prospect, 14:5.
19 Federal  Reserve  Bank  of  Cleveland  (2004).  “Individual  Development  Accounts:  An 
Endangered Wealth-Creation Strategy?” Community Reinvestment Forum, Winter 2004.
20 For example, income guidelines for AFIA grants are 200% of the poverty level, while grants 
from the Federal Home Loan Bank IDEA program are directed at households who make less 
than 80% of area median income.
21 Comptroller of the Currency, Community Development Insights, February 2005; Robin 
Newberger  (2003).  “Financial  Institutions  and  Participation  in  Individual  Development 
Account Programs,” Proﬁtwise News and Views, Spring 2003. Chicago: Consumer and 
Community Affairs Division of the Federal Reserve Bank of Chicago.
22 The Aspen Institute (2003). Individual Development Accounts: How to move from a 
program for thousands to a product for millions. Washington, D.C.: The Aspen Institute.
23 Federal Reserve Bank of Cleveland, Community Reinvestment Forum, p. 11.
24 Reid Cramer, Leslie Parrish, and Ray Boshara (2005). Federal Assets Policy Report and 
Outlook. Washington, D.C.: New America Foundation.
25 Julie Kosterlitz (2005). “The Other Ownership Society,” National Journal (March 5, 2005).
26 Ray Boshara, Reid Cramer, and Leslie Parrish. (2005). “Policy Options for Achieving an 
Ownership Society for All Americans,” Issue Brief #8. Washington, D.C.: New America 
Foundation.
27 For the most recent updates on federal asset building legislation, visit the Policy link at www.
assetbuilding.org.
28 For a more detailed description of these and other policy options, see Ray Boshara et al., 
Issue Brief #8.
Individual Development Accounts
1  Estimates of the number of unbanked vary widely.  The lower bound estimates come from 
Ana M. Aizcorbe, Arthur B. Kennickell, and Kevin B. Moore (2003). “Recent Changes in U.S. 
Family Finances: Evidence from the 1998 and 2001 Survey of Consumer Finances,” Federal 
Reserve Bulletin 89(1): 1-32. Higher bound estimates are developed using data from the 
Survey of Income and Program Participation (SIPP).  
2  Anne Stuhldreher and Jennifer Tescher (2005). Breaking the Savings Barrier: How the 
Federal Government Can Build an Inclusive Financial System. Chicago: The Center for 
Financial Services Innovation.
3  Sandra  Beverly  and  Michael  Sherraden  (1999).  “Institutional  Determinants  of  Saving: 
Implications for Low-Income Households and Public Policy,” Journal of Socio-Economics 
28:457-473.
4  Ellen Seidman and Jennifer Tescher (2004). From Unbanked to Homeowner: Improving 
the Supply of Financial Services for Low-Income, Low-Asset Customers. Chicago: The 
Center for Financial Services Innovation.
5  Michael A. Stegman and Phillip H. Kim (2004). Legitimizing Individual Development   
Accounts (IDA) Within Financial Institutions. Available at www.cfed.org.
6  Robin Newberger (2003). “Financial Institutions and Participation in Individual Development 
Account Programs,” Proﬁtwise News and Views, Spring 2003. Chicago: Federal Reserve 
Bank of Chicago.
7  Center  for  Community  Capitalism  (2003).  Financial  Institutions  and  Individual   
Development Accounts: Results of a National Survey October 2003. Chapel Hill: The 
Frank Hawkins Kenan Institute of Private Enterprise, The University of North Carolina at 
Chapel Hill.
8  Stegman and Kim, Legitimizing Individual Development Accounts.
9  Center for Community Capitalism, Financial Institutions and Individual Development 
Accounts, p.33.
10 Julie Williams (2005). “IDAs Good for Banks and the Unbanked,” American Banker, Friday, 
March 18, 2005.
11 Jeff Rosen (2004). “Individual Development Accounts: Savings Incentives to Build Wealth,” 
Community Investments Online Fall 2004, Ofﬁce of the Comptroller of the Currency.
12 Center for Community Capitalism. Financial Institutions and Individual Development 
Accounts, p. 32.
13 Rosen, Community Investments Online Fall 2004.
The Asset Policy Initiative of California
1  Corporation for Enterprise Development (CFED), State Asset Development Report Card: 
Benchmarking Asset Development in Fighting Poverty, December 2002.
2  EARN staff worked in conjunction with a planning committee of asset-building stakeholders 
including staff members from the California Community Economic Development Association, 
the  Center  for  Venture  Philanthropy,  PolicyLink,  and  The  United  Way  of  Greater  Los 
Angeles.
3  Margaret Clancy, Peter Orszag and Michael Sherradan, College Savings Plans: A Platform 
for Inclusive Saving Policy? Center for Social Development, Washington University at St. 
Louis, February 2004.
From Refunds to Assets
1  Stuhldreher, Anne (2004). “Tax Time—The Right Time: Federal Policy Recommendations 
to Help all Americans Save and Build Assets,” Asset Building Program Issue Brief #5, 
December 2004, Washington, D.C.: New America Foundation.
2  U.S.  General  Accounting  Ofﬁce  (2001).  Earned  Income  Tax  Credit  Participation.   
GAO-02-290R. Washington, D.C.: U.S. General Accounting Ofﬁce.
3  Holt and Associates Solutions (2005). National Tax Assistance for Working Families 
Campaign: Report to the Annie E. Casey Foundation, 2004 Data. Baltimore: The   
Annie E. Casey Foundation.
4  “Washington leads nation in growth of EITC applicants.” State of Washington, Ofﬁce of the 
Governor, Press Release. Nov. 18, 1999.
5  Joint Committee on Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 
2003-2007, December 19, 2002.
Endnotes
23 May 2005

From refunds to assets : leveraging the benefits of the earned income tax credit

http://www.frbsf.org/publications/community/investments/0505/refunds.pdf

From refunds to assets : leveraging the benefits of the earned income tax credit

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Research Papers in Economics