SaveFirst Legislative Agenda

SaveFirst goes to Montgomery in 2009! A new major effort that we have launched during our third year is to organize all students participating in SaveFirst to work together to encourage the Alabama State Legislature to pass the Alabama Taxpayer Protection & Assistance Act (SB201) and reform the commercial tax preparation industry. Basing our own model legislation upon statutes that states from around the country have enacted, this legislation will provide oversight over the industry by requiring all commercial tax preparers to pass a minimum proficiency exam, obtain an annual license, and fulfill continuing education requirements. Utilizing hundreds of college students not only brings more attention to this important effort, it also inspires the students themselves to believe in the efficacy of collective action and to continue to work for structural changes to solve societal problems.

Need for Legislation

The federal Earned Income Tax Credit (EITC), the federal government’s largest antipoverty program, was established by Congress in 1975 for low-wage, working individuals and families as a refundable tax credit designed to “make work pay.”  Many low-income households are eligible for the EITC and other tax credits, but are unaware of their existence and thus do not apply for the annual refunds.  Moreover, many who do not have the resources or knowledge to file their own taxes instead rely on costly commercial tax preparers.

In 2005, more than 492,000 working families in Alabama claimed an estimated $1 billion through the federal EITC.  However, with more than 75% of EITC recipients in Alabama paying a commercial preparer to complete their taxes, Alabama families lost more than $78 million to tax preparation and refund anticipation loan costs – a figure which places us 48th in the nation.  That extra $78 million could have made a tremendous contribution to helping lower-income families secure health insurance, pay down debts or put food on the table.

Additionally, many consumers are convinced to take out a Refund Anticipation Loan (RAL)—a predatory one-to-two week loan secured by and repaid directly from the proceeds of a consumer’s tax refund, offered at exorbitantly high interest rates, ranging from about 50% to over 800% APR.  Because RAL facilitators rarely provide clear disclosures as to the nature of their products, many consumers are unaware that they are paying to borrow their own money at exorbitant interest rates and that they could receive their refunds in as little as one week without a RAL.

Read the National Consumer Law Center report on high cost, low value of RALs.

To be a hairdresser in Alabama, an individual must have certain training, obtain a license, and pay a fee to the state.  To prepare taxes in Alabama, an individual must do none of these things.

There are currently no educational qualifications, no training standards, and no licensing requirements that must be met to become a paid tax preparer in Alabama.  Anyone who can rent a storefront can set up shop as a tax preparer.  Although there are many competent and knowledgeable paid tax preparers who operate with integrity, there are others who are inadequately trained and more interested in pushing needless products that inflate their businesses’ profits (e.g., refund anticipation loans, investment schemes) than in serving the best interests of their clients.  The average fee charged to families for tax preparation services, often requiring less than an hour of work, is approximately $250.