This story is co-published with public integrity center, a non-profit investigative news organization in Washington, DC
In the wake of the COVID-19 pandemic, several state and local governments temporarily suspended debt collection to ease the financial burden on struggling businesses and families. But a little-known practice has continued mostly unabated: to collect outstanding debt by deducting money from tax refunds.
In virtually all states that levy personal income tax, the practice, known as “garnishment,” has been applied to thousands of tax refunds – including lottery winnings and stimulus checks, among others – during the pandemic-induced recession. During.
Last year, the seven most populous states in the nation — California, Georgia, Illinois, Michigan, North Carolina, Ohio and Pennsylvania — collected a combined more than $728 million from state tax refunds, according to garnishment data obtained. was. public integrity center.
Michigan, which collected $136.5 million in 2020, had the highest garnishment rate of $13,546 per 1,000 residents — followed by Ohio, which collected $10,161 per 1,000 residents. In three states — Michigan, North Carolina and Ohio — more state tax refunds were garnished last year than in 2019, a public integrity analysis shows.
And it appears that decoration is hitting the poor and people of color hardest, trapping them in a cycle of debt.
A case in point: in 2020, Illinois State Comptroller’s Office The city collected approximately $11.5 million in state tax refunds from residents of Chicago at the request. A public integrity analysis of census and Illinois tax refund data found that zip codes with higher black populations had higher garnishment rates or more people living below. threshold of poverty.
Shama Maunjar, executive director of Integration, said decorations have a huge impact on marginalized communities Wayne Metropolitan Community Action Agencyhandjob A Detroit-based nonprofit that serves low- and middle-income residents with financial needs.
“They wait for their tax refund every year and are already planning [how to use] them,” Maunger said of many of Wayne Metro’s customers. “When they see the decor, it’s a big hit for them.”
Given its “regressive” effects, the decoration should be halted, said Joanna Weiss, co-director of Fines and Fee Justice Center, a New York-based nonprofit that seeks reform of monetary sanctions in the criminal justice system.
“In the face of the pandemic, trying to collect money from people now – when this is the same population that has been harmed in terms of both COVID-19 and the economic crisis – is not only cruel but impossible,” Weiss said. “Just no more money.”
struggle to meet your needs
Across the country, many states, local governments and courts have long replaced the fee and penalty system as an easy revenue source that can help fill budget gaps even in the short run.
Nevertheless, the trend has accelerated, especially after the subprime mortgage crisis in 2008. In the process, garnishment of tax refund has emerged as one of the most reliable ways to collect outstanding debt.
The bulk of the debt collected by garnishments is owed to states and, in some cases, local governments and courts—from unpaid taxes, child-support obligations and overpayments of unemployment benefits to parking tickets, traffic fines and other court cases. -Related fees and fines.
With the approval of the court, private parties can also make a tax refund on their behalf.
In Michigan, tax refund garnishment has proven so popular and effective that a local court official even created a step-by-step guide To help others make requests to the State Treasury Department.
But the pandemic prompted officials in the two states to rethink the whole idea.
in February, California Franchise Tax Board announced that it was suspended In addition to collecting child-support obligations, the practice. The move is similar to the temporary suspension imposed by the agency at the start of the pandemic last year.
“The ongoing public health emergency is having a serious economic impact on many Californians,” State Controller Betty Yee said in a statement announcing the suspension. “We hope this suspension will provide additional relief for taxpayers.”
In Illinois, State Comptroller Susanna Mendoza followed suit in March with a limited suspension This applies to “working-class” taxpayers who qualify for the state’s earned income tax credit—an income amounting to $56,844 per year for a family of four or $15,820 for a single individual.
The suspension, which runs through the end of this year, comes after months of lobbying by local advocates – and stories The effects of garnishment in Illinois were examined by the Chicago Reporter and Type Investigation.
In announcing his decision, Mendoza noted that the decoration had an adverse effect on the poor. “Though households that qualify for the state earned income tax credit are only 15% of the state’s population, they account for 36 per cent of the money withheld from income tax refunds,” he said in a statement. “So, yeah, these fines and fees hit them hard.”
According to Mendoza’s office, the suspension would save an estimated $15 million in about 41,000 homes this year.
Local advocates see the suspension as something to move forward. “My initial reaction was, ‘This is a great place to start.’ And I insist on the ‘beginning’ because it’s just a beginning,” said Rose Grillier, co-chair emeritus of Power-Pac IL, a membership group organized by the US. Community events and family issues, a Chicago-based nonprofit that has led efforts to reform the fee and penalty system in Illinois.
“Our campaign now is to make it permanent,” Grillier said. “The whole premise of this work is not to build the budgets of municipalities on the back of people who are already struggling, especially those from poor or economically challenged communities.”
Advocates in other states are pushing for a similar suspension, but some see it as an uphill battle at a time when the COVID-19 infection rate is down and the economy is showing signs of recovery.
But Wayne Metro’s Monger said many people are still as desperate as ever for help. “I don’t see a decrease in requirements. It is an increase in the needs of every program we run here,” she said. “We have a long list of applicants waiting to be processed every day. I just hire I am talking about thousands of applications for assistance.”
Laure Brown, Co-Managing Attorney Michigan Poverty Law ProgramSaid that many of its customers are hoping for a tax refund to help cover their rent or mortgage.
“Those needs are probably even greater because what we are facing now is an accumulation of debts,” said Brown, who lobbied state officials — albeit unsuccessfully — to prevent stimulus checks from being garnished in Michigan. “We have a lot of people who are behind on rent in our eviction diversion programme. It’s unbelievable.”
But some officials say they have no authority to unilaterally suspend decorations in their states, unlike their counterparts in California and Illinois.
“In North Carolina, the Department of Revenue administers tax legislation enacted by the legislature and the governor and, as a matter of policy, does not take policy positions,” said Shore Johnson, the spokesman. North Carolina Department of Revenue. “The department does not have authority under current state law to suspend refund garnishment.”
Ron Leakes, spokesperson Michigan Department of the Treasurynoted that many decorations are based on court orders. “We don’t have the authority to execute them or refuse to enforce them,” he said. “So any relief from the garnishment process would have to come from the Legislature, and they haven’t taken any action.”
If decorations are to continue, there should at least be an arrangement that takes into account people’s ability to pay, said Alyssa Della-Piana, legal director Committee of Lawyers for Civil Rights of the San Francisco Bay Area.
“With wage garnishments, at least here in California, there are some protections that people can have if they need to, for basic living necessities — for housing, for food, or for family,” Della-Piana said. “But that investigation is completely absent from the tax refund intercept – which is a significant problem.”
The Weiss of the Fines and Fee Justice Center wants to look at alternatives to fees and fines to reduce the debt burden, especially in the context of criminal justice. For example, community service can be fined, she said.
“We have so many people who can’t afford these fines and fees that we have to do more and more drastic things to try to collect money from people who don’t have any,” Weiss said. “It’s not making sense. We must end any collection practices that are doing more harm than good.”