In the wake of the COVID-19 pandemic, many states and local governments have temporarily suspended debt collection to ease the financial burden on struggling businesses and families. But a little-known practice has continued for the most part unabated: deducting money from tax refunds to collect overdue debts.
In virtually every state that levies personal income tax, this practice, known as “garnishment,” has been deployed on thousands of tax refunds – as well as on lottery winnings and stimulus checks, among others – during the recession caused by the pandemic.
Last year, seven of the country’s most populous states – California, Georgia, Illinois, Michigan, North Carolina, Ohio and Pennsylvania – collected more than $ 728 million combined through the state tax refunds, based on garnishment data obtained by the Center for Public Integrity.
Michigan, which raised $ 136.5 million in 2020, had the highest garnishment rate of $ 13,546 per 1,000 residents – followed by Ohio, which raised $ 10,161 per 1,000 residents . In three states – Michigan, North Carolina and Ohio – more state tax refunds were seized last year than in 2019, according to a public integrity analysis.
And garnishments appear to have hit the poor and people of color the hardest, trapping them deeper into the debt cycle.
An example: in 2020, the Illinois State Comptroller’s Office collected nearly $ 11.5 million in state tax refunds from Chicago residents at the city’s request. A public integrity analysis of Illinois census and tax refund data found the garnishment rate was higher in zip codes with higher black populations or more people living below of the poverty line.
The foreclosures take a heavy toll on marginalized communities, said Shama Mounzer, executive director of integration in the Wayne Metropolitan Community Action Agency, a Detroit-based non-profit organization that serves low and moderate income residents in financial need.
“They look forward to their tax refunds every year and already have plans for [how to use] them, ”Mounzer said of many Wayne Metro customers. “When they see the toppings, it’s a big hit for them.”
Given its “regressive” impacts, garnishments should be stopped, said Joanna Weiss, co-director of the Fines and Costs Justice Center, a New York-based nonprofit that calls for financial penalty reform in the criminal justice system.
“In the face of the pandemic, trying to raise money now from people – when this is exactly the same population that has been affected in terms of both COVID-19 and the economic crisis – n ‘ is not only cruel but impossible, ”Weiss said. “There is simply no more money.”
Struggling to make ends meet
Across the country, many states, local governments, and courts have long turned to the fee and fines system as a convenient revenue stream that can help close budget deficits, even in lean times.
But studies to have show that fees and fines put a strain on the lives of people in marginalized communities, even leading to their driver’s licenses being suspended for non-payment.
Still, the trend has accelerated, especially in the aftermath of the subprime mortgage crisis of 2008. In the process, garnishing tax refunds has emerged as one of the most reliable ways to collect. overdue debts.
The bulk of debts collected by garnishments are owed to states and, in some cases, local governments and courts – ranging from unpaid taxes, child support obligations and unemployment benefit overpayments to traffic tickets parking, traffic fines and other courts. -the related costs and fines.
With court approval, private parties can also seize tax refunds on their behalf.
In Michigan, garnishment of tax refunds has proven so popular and effective that a local court official even created a step-by-step procedure. to guide to help others apply to the state treasury department.
But the pandemic prompted officials in two states to rethink the whole idea.
In February, the California Franchise Tax Commission announced that he had suspended practice, with the exception of the collection of child support obligations. The move is similar to the temporary suspension the agency put in place at the start of the pandemic last year.
“The ongoing public health emergency continues to have a severe economic impact on many Californians,” State Comptroller Betty Yee said in a statement announcing the suspension, which lasts until July 31. “We hope this suspension will provide additional relief to taxpayers.”
In Illinois, State Comptroller Susana Mendoza followed suit in March with a limited suspension this applies to “working class” taxpayers who qualify for the state earned income tax credit – amounting to income of up to $ 56,844 per year for a family of four or 15 $ 820 for an individual.
The suspension, which lasts until the end of this year, came after months of lobbying by local advocates – and stories by The Chicago Reporter and Type Investigations which examined the impacts of garnishments in Illinois.
In announcing his decision, Mendoza noted the disproportionate impacts that foreclosures have on the poor. “Although families eligible for the state-earned income tax credit represent only about 15% of the state’s population, they represent 36% of the money withheld from income tax refunds. income, ”she said in a statement. “So, yeah, these fines and fees hit them harder.”
According to the Mendoza office, the suspension would save some 41,000 households about $ 15 million this year.
Home defenders see the suspension as something to build on. “My first reaction was, ‘This is a great starting point.’ And I insist on “starting” because it’s just the beginning, ”said Rose Grillier, Emeritus Co-Chair of POWER-PAC IL, a membership group organized by Community organization and family issues, a Chicago-based nonprofit that has spearheaded efforts to reform the fee and fine system in Illinois.
“Our will now is to make this permanent,” said Grillier. “The premise of this work is not to build municipal budgets on the backs of people who are already struggling, especially the poor or people living in financially struggling communities. “
Advocates in other states are pushing for a similar suspension, but some see it as an uphill battle at a time when COVID-19 infection rates are declining and the economy is showing signs of recovery.
But Wayne Metro’s Mounzer said many people were still so desperate for help. “I don’t see a decrease in needs. It’s an increase in the need for every program that we run here, ”she said. “We have a long list of applicants waiting to be processed every day. I’m talking about thousands of requests just for rental assistance.
Lorray Brown, co-manager of the Michigan Poverty Law Program, said many of his clients expect tax refunds to pay their rent or mortgage.
“These needs are probably even greater because we are now faced with the accumulation of debt,” said Brown, who lobbied state officials – albeit to no avail – to keep checks from rolling out. stimulus to be entered in Michigan. “We have so many people who are behind on rent in our eviction diversion program. It’s incredible.”
But some officials say that, unlike their counterparts in California and Illinois, they don’t have the power to unilaterally stay garnishments in their states.
“In North Carolina, the Department of Revenue enforces tax law as enacted by the legislature and governor and, as a matter of principle, does not take a political position,” said Schorr Johnson, spokesperson for the North Carolina Department of Revenue. “The department does not have the power to stay repayment garnishments under current state law.”
Ron Leix, spokesperson for Michigan Department of the Treasury, noted that many garnishments are based on court orders. “We do not have the power to refuse to execute them or to enforce them,” he said. “So any relief from the garnishment process should come from the legislature, and they took no action.”
If garnishments are to continue, there should at least be a system in place that takes into account people’s ability to pay, said Elisa Della-Piana, legal director of the San Francisco Bay Area Civil Rights Lawyers Committee.
“With wage garnishments, at least here in California, there are some protections that people can get. Their money will not be taken out of their salary if they need money for basic necessities of life – for housing, for food or for a family, ”said Della-Piana. “But this investigation is totally absent from tax refund interceptions – which is a significant problem.”
Weiss of the Fines & Fees Justice Center wants to see alternatives to fees and fines, especially in the context of criminal justice, to reduce the debt burden. Community service, for example, could be imposed instead of fines, she said.
“We have so many people who can’t afford these fines and fees that we have to do more and more draconian things to try and collect money from people who don’t,” Weiss said. . “It doesn’t make sense. We should end all collection practices that do more harm than good.”
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