Why Use a Tax Credit Instead of a Tax Refund?
If a taxpayer-subsidized savings match is desirable, in most circumstances it would be preferable to finance it through a refund of taxes that the individual pays. However, those who qualify for IDAs have incomes that are so low that in most cases they would not actually pay any federal taxes. As a result, the matches must be funded through other methods. It is true that the mechanism used to fund IDAs is complex, but it does ensure both that the savings matches are used for the planned purpose and that the participants receive financial education that would not necessarily be available otherwise. In addition, the program is structured to meet its goals with a minimum level of day-to-day federal involvement that would otherwise consume money that could be better used to match actual savings. Operating the program through community-based organizations and financial institutions allows the program to meet the special needs of the populations being served. This helps to avoid the usual on
