Minimum Wages, EITC, and Prison Recidivism

Frankfurt      Professor Fred Brooks of Georgia State University shared with me a dense academic paper by Amanda Agan and Michael Makowsky, economics professors at the universities of Rutgers and Clemson respectively.  The title of the paper was “Minimum Wage, EITC, and Criminal Recidivism,” which is not normally the kind of thing that comes into your email inbox and is greeted with an “Oh, boy!”  Upon closer reading though, maybe that’s the wrong way to think about finding such a paper, because the professors did some heavy data lifting to allow them to postulate interestingly on the impact of raising the minimum wage, especially, whether it would reduce the incidence of former prisoners finding themselves back behind bars because of the what they term the “unemployment effect” and the calculation of the costs and benefits of working lower waged jobs versus the likely income from illegal activity.

They looked at six-million records of prisoner release in more than a dozen states in a relatively short period up to 2014.  They compared the release data with records of return and the impact of minimum wage increases in the same areas up to a maximum hourly wage at the time of $9.50 per hour.  What they seem to have found is that the recidivism rate was a little under 3% less for every fifty-cent increase in the minimum wage in a locality for both men and women former prisoners.  They found a significant decrease for women when there was an increase in Earned Income Tax Credits, though they could not find the same for men.  All of that is very, very interesting.  They hesitate to speculate on the policy impacts, but of course that’s not a problem for me.

When they look at the different impacts of EITC for women they speculate that it has to do with the fact that many are single women heading households with children.  They seem not to factor in the additional childcare credit that EITC provides households with children that might provide significantly more appreciable benefits to women in such situations that single men ex-prisoners trying to navigate the highly discriminatory job market for ex-cons.

They don’t decry the impact of frozen minimum wages federally and in many of these states, but of course I can, since the marginal impact of a fifty-cent increase might yield much lower rates of recidivism in states where we won one-dollar an hour increases or, as they point out in the future, any areas where a significant improvement up to $15 an hour is achieved.  They also don’t condemn the short-sightedness of conservative, Republican legislatures attempting to refuse to allow cities to increase minimum wages within their boundaries in Alabama, Florida, Louisiana, Texas and elsewhere even though proportionately the incident of prison population is more minority and more urban and the releases are also coming into cities.  Allowed to have higher minimum wages, as many areas have approved at the ballot box, could drastically reduce crime rates as well as lower the percentages of those returning to jail.

The mind boggles at the potential policy impacts that this study hints might be possible with fair wages and equitable wage distribution.  Is anyone listening out there?

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The IRS Enables the Return of Refund Anticipation Loans

New Orleans   Refund anticipation loans or RALs, as they were known, were one of the most predatory products on the market in their heyday targeted solely to low-and-moderate income workers who were most desperate for their tax returns. They were on the other side of the digital divide so less likely to file with the IRS electronically. The money was theirs, and tax preparers, especially the big boys of the market, H&R Block, Jackson & Hewitt, and Liberty Tax Services all exploited this desperation.

This was a 21st century national campaign for ACORN, and we forced the first negotiations with H&R Block after 330 actions in a 6 week time period during the height of the tax season, and eventually ended up with agreements with all three of the companies to wind down RALs. Disclosures of the interest rates were part all of the agreements, but it didn’t really matter since even if it said the interest rate on the loan to get their money one week earlier than the IRS would deliver it would cost them 349%, displayed in a poster or on the computer screen, if you have to have the money to pay rent or buy groceries or fix the car and you have to have it right now, disclosures, no matter how predatory don’t matter. Eventually we got HSBC to withdraw as the primary lender to the companies for RALs for what they termed, “reputational reasons” because the loans were so exploitative. Finally, the IRS and eventually other government agencies jumped in and also condemned RALs, and they finally faded from the market.

Now, thanks to the IRS, they are back, and there is even less doubt about the potential victims now. In 2017, the IRS decided to deliberately delay refunds until February for any taxpayer that claimed the earned-income tax credit or the child tax credit. These credits are only available to lower income workers. Presidents from Clinton to Bush to Obama have argued that EITC is the best and largest “anti-poverty program in the United States.”

On their website the IRS claimed they were concerned about an “error rate” of between 20 and 27% for filers in order to justify these delays. Something is fishy here. This is the IRS. The error rate should be an exact number based on information they have at hand on how many corrected filings they required, so giving a fudged number raises questions in my mind. Furthermore, their advice is to preparers who enable incorrect filings, which the IRS concedes are largely based on the complexity and confusion involved in the EITC program. Why was the pain not pushed to the preparers, rather than the families filing who were delayed unreasonably in receiving their returns? Oh, and meanwhile the number of audits of higher income filers is in the dumps now!

The preparers saw an opportunity and seized it by offering RALs again. Admittedly, these were no-interest loans this time offered against the amount of the return, and they had loan limits depending on the company’s policies. The big boys report over 1.5 million RALs are reported already this tax season with a month to go. Block did 840,000, Liberty175,000, and Jackson Hewitt 485,000. For the preparers, this is just the cost of customer acquisition, since it is cheese in the trap to catch low-income workers who would be forced to fork over the preparation cost to get their refunds.

No matter how much sugar you put in the coffee, this is once again the IRS partnering with private preparers to expand their businesses. The only real question is how long it will be before RALs are back in full and terrible force again?

The only good news in this tawdry story is that overall filings are down so far this year, so some people at least have decided to wait all of the vultures out.

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