Poverty for Profit: How Corporations Get Rich off America’s Poor

POVERTY

FOR PROFIT

How Corporations Get Rich

off America’s Poor

Anne Kim

Contents

Introduction

1.The Price of Paying Taxes

2.Corporate Welfare

3.Bridges to Nowhere

4.Every Body Profits

5.Crime Pays

6.Sheltering Profits, Feeding Industry

Conclusion: Who’s Really Fighting the War on Poverty?

Acknowledgments

Notes

Index

Introduction

District Heights, Maryland, is a suburb of Washington, DC, nine miles southeast of the U.S. Capitol, across the Anacostia River. It’s one of the most segregated communities in the United States, the result of decades of redlining and housing discrimination.¹ Nine in ten of its roughly six thousand residents are Black; less than 3 percent are white.² Though the city’s median household income is a hair below the national median ($69,099 versus $70,784 in 2021), the community is far less prosperous than other DC-area suburbs.³ Its poverty rate is more than double that of affluent Arlington, Virginia, and nearly five times that of its northern Maryland neighbor, Bethesda.⁴ At nearby Suitland High School, part of the Prince George’s County school system, two-thirds of students qualify for free or reduced-price lunch.⁵

The city’s main commercial thoroughfare is Pennsylvania Avenue (you can follow it north straight to the Capitol), which culminates in Penn Station, a massive collection of strip malls at the corner of Pennsylvania and Silver Hill Road. But this is not the kind of shopping center you’d find in mostly white suburbs, with a Panera next to Starbucks and big-box stores like Target and Old Navy. Instead, you’ll find an Ace Cash Express, Penn Station Liquors, dd’s Discount clothing store, and Ashley Outlet, which sells rent-to-own furniture. You’ll also find dialysis centers, bail bondsmen, and predatory tax preparers nearby. Within a ten-minute drive of this intersection is a microcosm of Poverty, Inc.—the vast ecosystem of industries that owe their profits and existence to the exploitation of low-income, often minority, Americans and government programs for the poor.

Across from Penn Station and visible to traffic from all directions is a DaVita dialysis center, a low-slung, gray-white, one-story building with a blue roof. A drive-through liquor store—Open 7 Days, as its signage announces—sits next door. The DaVita center is one of at least four dialysis centers in and around District Heights. US Renal Care runs a clinic inside Penn Station, and there is another DaVita less than ten minutes away in nearby Coral Hills. Three minutes up Silver Hill Road in Suitland, Maryland, is yet another facility, Fresenius Kidney Care.⁶ Because of the wildly inequitable toll that kidney disease takes on Black and low-income Americans, dialysis is big business in places like District Heights, especially when Medicare foots the bill. The vast majority of dialysis services in America are provided by just two companies, whose centers are disproportionately located in low-income neighborhoods—such as District Heights, Maryland—hardest hit by diabetes and kidney disease.⁷

Tax prep is another popular business in District Heights, given the concentration of low-income residents, many of whom are eligible for the federal Earned Income Tax Credit (EITC) for low-wage earners. On busy Marlboro Pike, about a mile away, is an outpost of the tax-preparation franchise Liberty Tax. Known for its costume-clad sign spinners, the company earns much of its revenues from low-income taxpayers claiming the EITC. It charges hundreds of dollars in preparation fees for every return filed, plus hundreds more in fees for instant cash refund advances. This particular office is in a faded strip mall sharing space with a boarded-up barber shop, a tattoo parlor, and the Pretty Girl Intimate Venue. On one drizzly morning in March 2022, a sign holder dressed as a gray-green Statue of Liberty sat huddled on the curb, occasionally flicking his sign toward passing cars (though on this day no one stops).

More than twenty tax-prep firms dot the area, ranging from big franchises such as Liberty Tax, Jackson Hewitt (located inside Penn Station), and H&R Block, to smaller outfits such as Assiduous Tax and Accounting and Nubian Tax Express in nearby Capitol Heights. In 2020, Maryland taxpayers claiming the EITC lost at least $50 million to tax-preparation fees, according to the nonprofit CASH Campaign of Maryland.⁸

Businesses dependent on the combination of poverty and government intervention permeate nearly every aspect of life in District Heights. Need to visit a dentist? There’s Pine Dentistry, a chain of offices heavily reliant on Medicaid patients, especially children. It was formerly known as Kool Smiles before federal fraud charges prompted a rebranding.⁹ (More on this in chapter 4.) Its District Heights office is not far from Penn Station, in a mostly empty strip mall whose other principal tenants are a liquor store, a beauty parlor, and a storefront church.

If you need a place to live, there’s the Woodland Springs Apartments, a complex of three-story red-brick buildings with about five hundred units, a three-minute drive from Pine Dentistry. Originally built in the 1940s, the complex was renovated in the 1990s through a mix of government subsidies, including the Low Income Housing Tax Credit (LIHTC).¹⁰ Its current manager is Reliant Realty Services, which specializes in low-income properties and manages 10,000 units in six states, according to its website.¹¹ In the fall of 2023, the rent for a two-bedroom, one-bath unit at Woodland Springs was $1,009, well below the average rent for a two-bedroom apartment in District Heights. Many residents also receive rental assistance through the Housing Choice Voucher Program (formerly Section 8).¹² The discount rent, however, comes with other costs. In May 2022, a drive-by shooting at the complex injured two boys, one of them a four-year-old.¹³ In 2017, two men were found fatally shot in one of the complex’s parking lots.¹⁴ Online reviews by current and former tenants complain of roaches, flooding, and safety issues.¹⁵ If your not ready to be getting shot at while walking out of your building then don’t move to woodland springs, one reviewer wrote in 2021. "Horrible place! Roaches everywhere then when it rains or thunderstorms water comes from in the windows [sic] IM READY TO PACK UP AND LEAVE!," wrote another tenant.¹⁶

The federal government spends about $900 billion a year on programs that directly or disproportionately impact poor Americans. This includes about $857 billion a year on antipoverty programs such as the EITC, Medicaid, affordable housing vouchers and subsidies, homeless shelters, the Supplemental Nutrition Assistance Program (SNAP, formerly food stamps), school lunch, job training programs, and cash benefits for welfare.¹⁷ It also includes about $12 billion for child welfare and $7.8 billion for prisons.¹⁸ States and local governments spend tens of billions more, including $80 billion a year on jails and prisons alone.¹⁹

These enormous sums fuel Poverty Inc., the vast collection of industries that make their living off the poor. Collectively, these profiteers pose formidable structural obstacles to reducing poverty. Their business models depend on their ability to exploit low-income Americans, and their political influence ensures a thriving set of industries where everyone profits except the poor—and U.S. taxpayers foot the bill.

Many of these private interests are third-party contractors directly deputized by federal, state, and local governments to administer public programs and services. These include the myriad job-training firms that work with unemployed workers and welfare recipients, the major banks that process food stamp benefits, and private prisons. President Ronald Reagan’s push to privatize government during the 1980s led to an explosion of both nonprofit and for-profit firms that have taken on quasi-governmental duties as social service providers. Private contractors, in fact, now deliver much of the social services poor Americans receive. Companies enjoy multi-million-dollar contracts to act as government agents, determining eligibility, denying or granting benefits, and enforcing sanctions against those who don’t comply with work requirements and program rules. Other firms participate in lucrative public—private partnerships—such as to build public housing—that benefit them more than low-income Americans.

Other industries enmeshed in the corporate poverty complex are ancillary to public systems, such as criminal justice, and exploit the opportunities created by legislation or regulation to make markets for themselves. Bail bondsmen, for instance, offer high-interest loans to those who can’t afford to make bail and collect debts even after an acquittal. Debt collectors pursue unpaid fines and fees and child support on behalf of states and cities, collecting fat commissions. Towing companies profit from impoundments. Dialysis providers rely on a steady stream of low-income, minority patients whose treatment is paid for by Medicare. The result is a coterie of cottage industries dependent on government largesse—and determined to keep their niche. These businesses profit mightily at the expense of poor Americans.

The malign impacts of these corporate interests help explain poverty’s seeming intractability. Nearly sixty years after President Lyndon B. Johnson declared unconditional war on poverty, poverty remains stubbornly persistent, to the frustration of both policymakers and the public.²⁰ At the end of 2022, the official national poverty rate was 11.5 percent—half of what it was in 1959 but far from LBJ’s goal not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it, especially among the Americans most likely to be poor.²¹

Despite nearly $2 trillion in federal aid deployed during the coronavirus pandemic, roughly one in four households headed by single women (24.7 percent) lived in poverty in 2022.²² The overall Black poverty rate was more than half again that of whites (17.1 percent versus 10.5 percent), while Hispanic poverty stood at 16.9 percent.²³ Children under eighteen were also half again as likely to be in poverty compared to seniors over age sixty-five (15.0 percent versus 10.2 percent). Black children were more than twice as likely to be impoverished compared to whites (21.6 percent versus 9.7 percent).²⁴

What many Americans think of as the American Dream—the ability to rise into the middle class and beyond—is also fading. Twice as many Americans today live in neighborhoods with a poverty rate of 30 percent or more compared to a generation ago.²⁵ Children born in the poorest fifth of households have a less than 10 percent shot at reaching the top 20 percent, according to Harvard University researcher Raj Chetty, and only about half of sons can expect to earn more than their fathers.²⁶ Downward mobility is a threat. A Black child born in the top fifth of households, finds Chetty, is as likely to fall to the bottom as they are likely to remain at the top.²⁷

Too many Americans face structural barriers such as low-quality schools, housing segregation, mass incarceration, and lack of access to good jobs. The nation has yet to undertake systemic reforms that recognize and rectify these historic inequities. Government antipoverty programs could also be more generous. In 2017, for instance, government benefits and tax relief lifted more than 39 million Americans out of poverty, according to one analysis, and lowered the poverty rate by 12 percentage points.²⁸ Bigger investments could certainly mean greater impacts.

But while federal underinvestment is one reason the war on poverty has stalled, more money isn’t enough to fix what’s gone wrong with U.S. social policy.

Poverty profiteers undercut the efficacy of federal antipoverty programs by diverting desperately needed dollars from poor families and subverting federal policies to their own benefit. Low-income Americans pay the price of keeping these businesses afloat, while taxpayers wonder why government programs don’t work. These entrenched for-profit interests contribute to persistent poverty in multiple ways: (1) they are often ineffective, failing to deliver services that will improve low-income Americans’ lives, or they are actively harmful; (2) they are often wasteful and inefficient, diverting needed resources from the populations they are charged to assist; and (3) they are resistant to reform, blocking efforts to improve programs that could also endanger their revenue streams. Bail bondsmen have organized to oppose bail reform and the abolition of cash bail, while the dialysis industry has spent hundreds of millions to shape federal and state policy. In California, dialysis companies poured $233 million into political campaigns from 2017 to 2020 to defeat regulatory measures aimed at their industry.²⁹

The failure of the war on poverty is a failure of investment. But as this book argues, it’s also a failure of governance that demands reckoning if U.S. social policy is to succeed.

The chapters that follow describe the multiple industries that are infiltrating almost every aspect of the lives of the poor—health care, housing, justice, job training, and nutrition. They also explain how these businesses are aided and abetted by public policies such as the wholesale privatization of government services and the political influence these industries wield on lawmakers and regulators.

In the many years I’ve spent writing about social policy, I’ve seen that much of the political conversation around poverty is binary—focused either on individual behavior or on the adequacy of government programs. Many conservatives, for instance, favor policies to incentivize personal responsibility, like work requirements for people on welfare. Many liberals, however, want to boost federal funding or create new programs, like a universal basic income guaranteed to all households as a monthly stipend.

This book, however, seeks to open new ground by spotlighting the often pivotal role of private industry as intermediaries between government and people in poverty. As I argue in this book, these companies are not neutral administrators of government programs; they’re a silent but powerful pillar of the poverty bureaucracy, with interests often at odds with both the government and the people they purport to serve. This corporate colonization of U.S. social policy, moreover, didn’t occur in a vacuum but rather in the confluence of history, politics, ideology, and opportunism. It’s a context that helps explain how the business of poverty has become so entrenched and why it ultimately may prove hard to unravel without a sincere commitment to the reform of governance. But by showing how the current political and policy logjam on poverty has enabled the rise of the industries I describe, I hope that liberals, conservatives, and centrists alike can find common ground in the pursuit of better and more accountable governance, the more efficient use of taxpayer dollars, and the elimination of blatant corporate abuses. Though a breakthrough might be unlikely, given the current state of U.S. politics, consensus-driven, incremental change can still ultimately lead to larger reforms.

I do not come to this book as a dispassionate observer. As the child of Korean immigrants who struggled to establish themselves in this country, I’ve benefited personally from some of the programs I write about here. Medicaid helped care for my grandmother in the last few years of her life. Free school lunches kept me fed when our family’s grocery budget was $30 a week. I don’t doubt the support these programs provided as my parents worked to secure a place for us in the middle class. My goal with this book is to help ensure that the nation’s safety-net programs are as effective as they can be.

The infrastructure of poverty is big business. And as such, it is a major component of the systemic barriers low-income Americans face. No systemic understanding of poverty can be complete without a hard look at the businesses that profit from—and perpetuate—the structural disadvantages that hold back so many Americans.

1

The Price of Paying Taxes

At the Rogers Car-Mart in Rogers, Arkansas, you can both buy a used car and get your taxes done—a combination not uncommon in many low-income neighborhoods. The buy here pay here dealership offers financing regardless of your past credit history (bad credit and/or no credit), previous repossession, or bankruptcy.¹ It’s one of 151 Car-Mart locations nationwide that offers on-site tax preparation through Tax Max, a Tampa-based company that works with three thousand car dealerships across the country.²

Preparing a federal Form 1040 at the Rogers Car-Mart costs $149, according to the salesperson I spoke with in the spring of 2022. A state return costs an additional $49. I’d also pay a $93 bank fee if I got a refund, plus a $27 check printing fee if I wanted the dealership to loan me an advance on my money instead of waiting for the IRS to cut the check. The grand total would be $318—or about 15 percent of the average federal refund in 2022 of $2,201.³ The remainder, the salesperson told me, could go toward the down payment on a car, such as the 2017 Chevy Trax with 114,000 miles or the 2020 Kia Soul with 67,000 miles in the Car-Mart inventory that day.⁴ I could get my taxes done, qualify for a refund, and walk out with every penny due to me going to the dealership instead.

That, of course, is the idea.

In addition to places like Car-Mart, Tax Max works with money services businesses (such as check cashers), collections companies, and even mobile home dealers—all with the goal of helping these companies capture a chunk of their customers’ tax refunds each spring. You can send your customer down the street to file their taxes, but that refund can take 7 days or as much as 7 WEEKS to arrive, says the company’s pitch to prospective partners on LinkedIn.⁵ That’s 7 to 50 days for them to continue shopping and change their mind. Tax Max allows you to capture that sale on the spot and print the customer’s tax refund on-site, in YOUR printer! (sic).

Tax Max’s CEO is a gray-haired, fifty-something, Florida-based entrepreneur named Bill Neylan. According to his LinkedIn bio, Neylan founded his first tax-prep firm in 1995, two years after graduating from the University of South Florida with a degree in accounting.⁶ After starting out with a handful of dealerships in Florida, his bio says, his firm bought Tax Max, along with another company called Tax Deals 4 Wheels. Today, he’s something of an industry impresario. In 2021, he helped launch BHPH United, a new trade association for buy-here-pay-here car dealers that holds its annual summit in Las Vegas.⁷ At the end of a short YouTube video promoting the organization’s inaugural event, which attracted nearly four hundred attendees according to its website, Neylan yanks down the lever of a giant neon-bordered slot machine, signifying the jackpots to be had in his business.⁸ Are you in? I’m in. I’m definitely in, he says.

What companies like Tax Max and its brethren are after is a cut of the Earned Income Tax Credit (EITC), the federal government’s most generous tax benefit for low-income workers. In tax year 2022, the federal government refunded about $64 billion to workers and families through the EITC, according to the Internal Revenue Service (IRS).⁹

The amount of the refund depends on the amount of earnings and the number of children in a taxpayer’s household, with the largest benefits going to households earning about $25,000 a year.¹⁰ Benefits diminish (phase out) as workers’ earnings increase.¹¹ The EITC is also a refundable credit, which means taxpayers can receive it even if they don’t otherwise have tax liabilities. While the average EITC refund was $2,043 in 2022, according to the IRS, many families qualify for much more.¹² The maximum EITC for a family with three children, for instance, was $6,935 for tax year 2023, while families with two children qualified for up to $6,164.¹³ For many households, an EITC refund is the biggest chunk of money they see all year.¹⁴ For some families, according to one federally funded analysis, it accounts for as much as a quarter of their annual income.¹⁵

It’s sums like these that are irresistible to tax-time predators, who skim tens of millions of dollars each year from refunds intended for low-income families, blunting the benefit’s impact while keeping themselves rolling in profits. In Maryland, for instance, where 492,000 taxpayers received an average EITC refund of $1,950 in 2022, at least $50 million was diverted to tax preparers, says Robin McKinney, co-founder and CEO of the nonprofit CASH Campaign of Maryland.¹⁶ That’s $50 million not going to groceries, rent, to pay down student debt, or to meet other pressing needs. It’s epic bleeding, McKinney says.

It doesn’t have to be this way. The tax-prep industry’s birth and growth are the direct—if unintended—result of misguided public policies. Convoluted tax laws, for instance, drive taxpayers into the arms of paid preparers who promise to ease the hassle of filing returns. The EITC is especially complex, with plentiful traps for the unwary. Though intended to ensure that only deserving (working) taxpayers receive the benefit, the credit’s complicated provisions create abundant confusion—and a perfect business opportunity for paid preparers. Other aspects of the law specifically burden EITC claimants, such as legislation passed by Congress that delays EITC refunds—and only EITC refunds—until at least February 15 (more on this to come). While the stated purpose of this provision is to allow the IRS more time to check for errors or fraud, its impact has been to buoy the market for refund advance loans and other fast cash products for cash-strapped consumers eager for their refunds.

Meanwhile, the industry has battled hard to preserve the status quo. It’s fought efforts to ensure minimum competency and licensing standards for tax preparers and resisted efforts to simplify the tax code or the process of filing returns. Tax-prep giants H&R Block and Intuit have spent millions to block the government’s efforts to experiment with automatic, return-free filing. In 2016 alone, according to a 2017 ProPublica report, the companies spent as much as $5 million to advance legislation prohibiting the federal government from offering taxpayers this service.¹⁷

What’s happened with the commercial tax-prep industry is a perfect example of how Poverty, Inc., has come to be across multiple sectors of social policy. An otherwise well-intentioned and potentially effective program gets subverted by, and then becomes subservient to, an industry it creates and to which it becomes captive. The result is an abdication of governmental responsibility toward the nation’s most vulnerable citizens, whom profiteers are only too happy to exploit.

Cashing In on Complexity

More than half of U.S. taxpayers rely on paid help to file their taxes, including a majority (54 percent) of those earning less than $40,000 a year.¹⁸ Tax prep is big business. In 2023, the industry was worth $13.9 billion, according to an estimate by market research firm IBISWorld.¹⁹

While on the one hand are mainstream firms like H&R Block and Intuit (the makers of Turbo Tax), the industry also includes outfits like Tax Max and other businesses that target lower-income taxpayers. One government study uncovered a wide array of low-rent enterprises touting tax-prep services at tax time, including a discount shoe store in Maryland (free pair of shoes with tax preparation); a pawn shop in New Hampshire ($5 to $10 discount on buying back previously pawned item), a rent-to-own store in Mississippi (willing to negotiate a discount on rental items), and, of course, used car dealers (free tax preparation with purchase of car).²⁰

Less income should mean simpler taxes—lower-income taxpayers don’t typically qualify for the mortgage interest deduction or other tax breaks that complicate the returns of middle-class filers. The EITC, however, is excessively convoluted. As a social program disguised as a tax benefit, the EITC’s structure reflects the bureaucratic complexity of a government program—including Congress’s exacting preferences for eligibility (i.e., who is deserving).²¹ That’s why so many lower-income taxpayers seek paid help at tax time. One Urban Institute study, for instance, found that among low-income parents, 66.8 percent sought help from tax preparers, including 73.4 percent of those who didn’t finish high school, 71.5 percent of Hispanics, and 73.2 percent of Blacks.²²

The IRS’s current instructions for the EITC involve a forty-four-page booklet with a twelve-step checklist and ten pages of tax tables.²³ In a 2020 special report on the EITC, the IRS’s National Taxpayer Advocate noted eight different formulas for calculating the benefit, depending upon the presence and number of qualifying children, the taxpayer’s earned income, adjusted gross income (AGI), investment income and marital status.²⁴ As the Center on Budget and Policy Priorities points out, the IRS instructions for the EITC are nearly three times as long as the fifteen pages of instructions for the Alternative Minimum Tax, which almost exclusively applies to wealthier taxpayers.²⁵

One especially confusing provision is the definition of a qualifying child, the most important factor determining the generosity of a refund. Here’s how the Taxpayer Advocate describes what it takes to be a qualifying child:

First, the individual must have a specific relationship to the tax filer (son, daughter, adopted child, step child, foster child, brother, sister, half-brother, half-sister, step brother, step sister, or descendent of such a relative such as a grandchild, niece, or nephew). Second, the individual must share a residence with the taxpayer for more than half the year in the United States. Third, the individual must be under the age of 19 (or age 24, if a full-time student) or be permanently and totally disabled.²⁶

Aside from the arbitrariness of its requirements (why six months? Why age nineteen?), these criteria differ from what’s required for the child tax credit, for which many families also qualify.²⁷ (The child tax credit, for instance, can only be claimed for children under age seventeen—versus nineteen or twenty-four under the EITC—and the child must be a U.S. citizen or legal immigrant, which the EITC does not require.)²⁸ The EITC’s three-part test also does not align with the shifting realities and living arrangements of modern families, leading to bizarre and irrational outcomes.²⁹ Because of the shared residency requirement, for instance, a mother who separates from her husband may or may not qualify for the credit depending on when during the year the separation occurred.

This kind of complexity has made millionaires of people like John Hewitt, the founder of the best-known chains in the low-income tax-prep business—Jackson Hewitt and Liberty Tax.

Now in his seventies, Hewitt grew up in Hamburg, New York, a suburb just south of Buffalo, and got his start in the tax business at age nineteen. A graduate of Hamburg High, he went to the University of Buffalo but didn’t finish, according to an interview he gave the Buffalo News on the eve of his fortieth high school reunion in 2007.³⁰ Instead, he took a job with H&R Block, where he became an assistant district manager for western New York in 1971 and then district manager in 1975. In 1981, he and his father built what he said was the first tax-prep software for Apple computers, which would prove essential to growing his empire. The philosophy was to have a decision tree software that made the first-year tax pre-parer as good as a 20-year tax preparer, Hewitt recalls in an episode of his podcast, iCompete, in which he touts the advantages of running a tax-prep franchise.³¹ His goal was to democratize the tax business, which he did with extraordinary success.

In 1982, Hewitt and his father bought the Mel Jackson Tax Service, a small tax-prep franchise that at that point had only six offices, and renamed it Jackson Hewitt. ([Jackson] had died, and his widow was running it, Hewitt told the Buffalo News.) Fifteen years later, the business had exploded to 1,300 offices across the country, all of them franchisees licensing his proprietary software. In 1997, the financial services firm HFS Inc. (now Cendant) bought Jackson Hewitt for $483 million.³²

Hewitt then promptly launched Liberty Tax Service in Canada, which eventually expanded to more than 2,500 locations in the United States, went public in 2011, and is now one of Jackson Hewitt’s principal competitors.³³ Today, Jackson Hewitt and Liberty Tax Service together operate more than 8,000 offices nation-wide.³⁴ In 2018, Jackson Hewitt was acquired by the private equity firm Corsair Capital, which held $10.0 billion in assets as of June 2023.³⁵ In 2021, Liberty Tax was bought by Nextpoint Financial, a special-purpose acquisition company (SPAC) based in Canada.³⁶ In its final annual report as a U.S.-based public company, Liberty Tax reported total revenues of $132 million in fiscal 2019.³⁷

Hewitt has since focused on a third tax-prep franchise, ATAX, which caters to Hispanic and non-English-speaking taxpayers.³⁸ He announced this effort on March 6, 2019—one day after the expiration of a non-compete agreement between Hewitt and Liberty Tax, according to a 2020 interview Hewitt gave the Franchise Times.³⁹ (ATAX is actually only one of a suite of franchise opportunities Hewitt is now offering under his current venture, Loyalty Brands. In addition to tax prep, potential franchisees can also invest in Zoomin Groomin, a custom mobile grooming franchise for pets, or open up a local branch of The Inspection Boys, which offers Honest and Authentic Home Inspection.⁴⁰) As of the fall of 2023, ATAX had sixty-three offices nationwide. But its growth, the site predicts, is going to be exponential.⁴¹

As Hewitt himself tells it, the secret of his success is simple: The tax code is complex, and taxpayers are fearful. Thousands of people have told me they’re afraid of the IRS, he says in his pod-cast.⁴² Guess how many people have told me they were afraid of the CIA or FBI? Very few or none. So I say, thank you, IRS. That fear of the IRS drives people to have someone prepare their return.

How a Tax Break for the Deserving Poor Became an Industry Cash Cow

For low-income taxpayers, the tax-time anxiety that benefits people like Hewitt isn’t accidental. The forty-four pages of instructions for the EITC are the result of deliberate policy choices intended to limit access.

Like so much of modern U.S. social policy, the EITC was crafted to reward the deserving poor, an idea with deep roots that has fundamentally shaped the politics of poverty in America (more on this in chapter 3). The credit is available only to working taxpayers with earned income to report, and the most generous benefits are reserved for those with children to support. It is only because of its design to make work pay that the EITC has enjoyed enduring bipartisan support since its enactment nearly fifty years ago. At the same time, the statutory and regulatory contortions necessary to ensure that the credit only goes to those deserving of it are responsible for the complexity that’s spawned the likes of Jackson Hewitt, Tax Max, and its competitors. As the credit has grown over the years, additional legislative and administrative changes—including fixes that have gone awry—have only served to entrench the tax-prep industry.

The father of the EITC was Louisiana senator Russell B. Long, son of legendary Louisiana governor and U.S. senator Huey Long (whose life inspired the book and the movie All the King’s Men).⁴³ First elected to the Senate in 1948, days shy of his thirtieth birthday, Russell Long eventually rose to the chairmanship of the powerful Senate Finance Committee, which he ruled from 1965 to 1981.⁴⁴ From that perch, he exercised such profound influence over the nation’s tax laws that the Wall Street Journal reportedly dubbed him the fourth branch of government.⁴⁵ That legacy would come to include the EITC, which Long framed as tax relief for the working poor.⁴⁶

What Long originally proposed, in 1972, was a work bonus equal to 10 percent of wages for low-income workers earning less than $4,000 per year. Speaking on the floor of the Senate, Long described the idea as a dignified way to provide help to a low-income working person, whereby the more he works the more he gets. And, he added, this way will benefit many working poor, many of whom are not on public welfare, and many of whom we hope will not be.⁴⁷

By then, welfare reform was already in the crosshairs of conservative policymakers, including President Richard M. Nixon. Between 1960 and 1970, the number of people on Aid to Families with Dependent Children (AFDC) nearly tripled, from 3.1 million 9.0 million.⁴⁸ If poverty was the pressing social problem of the 1960s, welfare dependency became the social problem of the 1970s, as legal historian Dennis J. Ventry Jr. writes in his political history of the EITC.⁴⁹

Long’s work bonus was an alternative to Richard Nixon’s welfare reform plan, which aimed to replace the federal welfare program with a negative income tax modeled after a 1962 proposal by economist Milton Friedman.⁵⁰ Though Nixon’s Family Assistance Plan (FAP) included a work requirement as a condition of receiving benefits, Long and other lawmakers disliked the idea of a guaranteed income on the grounds it would discourage