On a Once Forlorn Avenue, Tax Preparers Now Flourish

The New York Times
March 21, 1999

MILWAUKEE, March 20 -- It slopes up from the old Schlitz Brewery, past empty lots, storefront churches, Victory over Violence Park, and the Black Holocaust Museum. It burned in two days of racial violence in 1967. Since then, Dr. Martin Luther King Jr. Drive, once a proud retailers row, has mostly been known as an asphalt emblem of urban distress.

But in the first tax season since the state completed its radical welfare reductions, King Drive has acquired an unlikely new identity -- as a battleground of bookkeepers. From the Federal Building at its southern base to the "Shalom Zone" of churches in the north, the tax preparers have arrived in droves, seeking the business of the neighborhood's new workers.

On a strip once so forlorn it drew a National Guard patrol, H & R Block has decorated a spiffy new office with posters of the Caribbean beaches that beckon those with refunds. Across the street, at its makeshift quarters in an abandoned bakery, Jackson Hewitt, another tax preparation service, has been so busy it has had to double its staff. A few blocks north, at Milwaukee Check Cashers, a tax business is booming behind the bulletproof glass. Tax preparation is such a growth industry here that even a welfare office on King Drive is offering a course in its numerical arts.

Up and down the avenue, the explanation is the same: tough welfare laws are good for business. "With welfare being cut off and everything, everybody's got to go back to work," said Lorenzo Cartman, who manages the H & R Block office on King Drive. "They either work or they starve, and I don't think they want to starve."

Indeed, Mr. Cartman was so confident in his theory -- less welfare means more work -- that he staked his fortune on it, choosing to manage the King Drive store, over other H & R Block offices, because he thought it would be easier to meet his performance goals. "I was thinking, 'First-time filers!' 'People finally moving out on their own!' " he said. "I liked the numbers."

But tax season on King Drive is more than a simple morality play of poor people going to work. It is a showcase of the competing dynamics involved in the makings of a new working class: low pay and large Government subsidies; old habits and new beginnings; streetwise versions of the white lies that accompany tax season everywhere, and a few outright scams.

Tumbling through a temp-job world, former welfare recipients often arrive at tax offices here with a half-dozen wage statements from a single year. (The record for W-2 forms seems to have been set at the Jackson Hewitt office, where one couple counted 22 between them.) But while earnings are low -- $9,087 on the average return prepared by the check-cashing store -- a growing program of wage supplements turns tax time into a bonanza. Few families pay income tax in poor neighborhoods like this, and many collect thousands of dollars in Government bonuses to the working poor.

Indeed, the $29 billion Federal program, called the earned income tax credit, now transfers more money to the needy in a single season than welfare did all year. And because Wisconsin is one of seven states with a similar program of its own, poor people in Milwaukee can receive combined state and Federal payments that augment their yearly earnings by 30 percent, 40 percent, or even 50 percent. A single mother with three children who earns $10,000, for instance, would qualify for the maximum wage supplement, of $5,371. That is in addition to the refund of any taxes withheld.

While the action along King Drive depicts a level of post-welfare success, it also frames deeper questions about the society being reshaped. More poor people are working, no doubt. And some do see themselves with expanded paychecks and dreams, as the architects of the new system had hoped. But others say that working in the entry-level economy is just another way of staying poor. Is this an old underclass? A nascent middle-class? Somewhere in between?

There are hundreds of answers along King Drive this time of year.

Some new workers talk of starting their own business

"I want to do my own day care center in my house," said Debra Morton, who collected a $4,100 supplement on earnings of $6,900 and talks of buying paint and plaster. Ms. Morton has been on and off welfare for more than a decade, but she left about two years ago to become a cashier at a discount store. "Welfare's got a lot of rules now," she said. "It's better for me if I work."

Some want to thank the Lord.

"This has made my day!" shouted Toni Harris, 28, when she learned her earnings of $17,000 would bring her a payment of $1,600. A bank clerk by day, Ms. Harris has a second calling as an author of spiritual poetry, and she had a line ready for the occasion:

There are no words to explain my insight

I just praise God for his power and might.

Some want to take a break.

With $1,000 coming back on earnings of $3,100, Valerie Treadwell, a nursing assistant, plans to continue an annual tradition: taking her female partner to a resort in Green Bay, "to get buck naked and let all our inner feelings out."

Some have no plans at all.

"I don't know too much about taxes," said Derenda Turner, 27, who has been on welfare since her daughter was born 12 years ago. With $1,100 in earnings last year -- Ms. Turner worked at Burger King for two months -- she qualifies for a payment of $400. Puzzled but pleased, she made a half-hearted pledge to resume work. "What is it -- an 'earned income tax credit?' " she asked. "I really got to get me a job, so I can get some more."

Since 1990, the number of Wisconsin families receiving credits has grown by 42 percent. And the average payment has nearly tripled to $2,088, counting the state and Federal credits. For families with children, the payments rise until earnings hit $9,500, then level off and slowly decline. Families are ineligible if their earnings exceed $30,000.

While Congress has turned the Federal program into one of the nation's largest anti-poverty efforts, few people have asked what the poor do with the money.

Does it help them build new lives?

Some intriguing hints come from Timothy M. Smeeding and Katherin E. Ross of Syracuse University, who surveyed 830 beneficiaries of the program in Chicago. They found that 26 percent planned to use all the money for immediate needs, like food, rent, utilities or clothes. But more than half planned to spend at least some of it on investments in the future: moving (5 percent); sending themselves or their children to school (9 percent); buying a car (14 percent); or saving (28 percent).

Mr. Smeeding calls that reassuring news. "This program is not just enhancing consumption, but improving social mobility," he said.

New Welfare Law Helps Businesses

As a window into the city's soul, King Drive has a long history. It grew up as North Third Street in the mid-19th century and matured as a fabled stretch of stores. They dazzled an 8-year-old girl named Golda Mabovitch when she arrived from Russia in 1906. "Everything looked so colorful and fresh, as though it had just been created," she wrote decades later, as Golda Meir, after serving as the Prime Minister of Israel.

By the late 1950's, the stores were moving out to the malls, and a poor black neighborhood was left behind.

No one is quite sure how the rioting began on July 30, 1967. Detroit had burned just a week earlier, and Milwaukee was tense when the police responded to a report of broken windows at a Third Street business. When the violence ended 10 days later, 3 people had died and 1,740 had been arrested -- nothing like Detroit, where 43 people died, but enough to leave the neighborhood shunned for a generation.

Every state now has tougher welfare laws, but the program that has hit the Wisconsin streets is especially strict. Virtually everyone receiving cash assistance must join a work program. Rather than work for welfare, most recipients simply seek jobs on their own in the state's strong economy. The rolls in Milwaukee have now fallen 80 percent from their 1986 peak -- to 7,700 families, from 38,400 -- and more than three-quarters of the decline has occurred in the last two years.

Though data on their experiences remains scarce, a recent state survey found that 83 percent had been employed at some point after leaving welfare. In that sense, at least, the program, Wisconsin Works, is living up to its nickname: "W-2."

That has been good news for Jackson Hewitt, the nation's second-largest chain of tax preparers. In a typical year, the offices in Milwaukee see a 20 percent increase in new customers. This year the figure on King Drive is 38 percent.

Business has also increased at Milwaukee Check Cashers, a neon hub at the epicenter of the old riot zone. According to a computer analysis prepared for The New York Times, the store now cashes $129,000 less in welfare checks each month than it did two years ago. But the amount of payroll checks it cashes each month has risen by $355,000. In other words, on that corner of King Drive at least, for every dollar of lost welfare there has been a $2.69 increase in wages.

"We are doing more business than ever with our W-2 clients," said George Franco, the store's president. "Instead of one payment a month, they're cashing checks weekly or biweekly. It's been very positive for our business."

Nearby, sales are up at Nefertari's Beauty Salon, and T-Bone's Pagers is mulling an expansion into cell phones to keep pace with client demands. Among those monitoring King Drive's sidewalk economics is Patrick Hunter, 27, who peddles watches and videos outside the check-cashing store.

"There's a lot more money out here than there used to be," he said. "You got more women working. A lot of people waking up to that -- stability, morals, and values and things."

Then again, a lot of people are waking up to wages that may leave stability beyond reach -- often $6 to $7 an hour and less than full time.

Everyone has to start somewhere, of course. But as 30,000 Milwaukee families begin their post-welfare lives, it remains unclear whether their jobs will prove a stepping-stone or a treadmill.

At 39, Delores Jefferson has packed head cheese at a sausage factory for the last 14 years. But she has never been hired full time, and her wage leaves her whispering in embarrassment: $6.35 an hour. In the past, she has filled in the gaps with welfare. This year, she took a second job at the post office that literally leaves her working around the clock.

"I have to be at the meat-packing plant at 9 A.M.," she said, while having her taxes prepared. "I get off at 3:30 P.M., go home, eat my dinner, be in bed by 5 P.M. Get up at 11 P.M. Be at the post office at midnight, get off at 6 A.M. Get a couple hours of sleep -- be at work at 9 A.M."

"It works," she said.

Tax Preparers Find New Clients

Like their clients, the tax preparers themselves are no strangers to the entry-level economy: they, too, perform low-paid, seasonal work, with uncertain prospects for advancement. Software programs make the work routine, and wages in some offices start as low as $5.50 an hour (with modest end-of-the-season bonuses). Last year, about 22 of the preparers hired by H & R Block had come from the welfare rolls, a recruiting pool for other services, too.

"They're not going to get rich, and I tell them they're not going to get rich," said the manager of one commercial service. "You just hope and pray they don't find a good job, so they'll come back every year."

The low labor costs do not necessarily translate into low filing fees. The Internal Revenue Service sponsors four sites along King Drive where volunteers prepare returns for free. (One is run by the Opportunities Industrialization Center, a state subcontractor, as a job-training program for welfare recipients.) But with as much as half of their annual income tied up in the tax code, many poor people pay commercial services to get the money quickly.

At Jackson Hewitt, the charge for a basic tax return begins at $48. But 65 percent of the clients pay additional fees, starting at $54, for the firm's "Accelerated" electronic service, which secures the money in about two weeks. (It takes about six weeks through the mail.) Another 17 percent pay even more for the "Superfast" program, a loan through an affiliated bank.

The banks issue "Superfast" refunds within three days, and secure their repayment directly from the I.R.S. But the effective interest rate, if calculated on an annual basis, can range from 57 percent to 663 percent, according to bank disclosure forms. (It depends in part on the size of the loan.) Other companies offer similar products and rates. Desperate to pay the rent, clients occasionally surrender nearly $200 in interest and preparation fees on a $500 refund.

The lure of these electronic programs, in addition to their speed, is the absence of up-front costs. Those who file paper returns must front the preparation fees. But electronic filers can have the costs deducted from the refund.

"If I had my druthers, I'd rather not see a customer do "Superfast' or 'Accelerated,' " said Shelly Pipjaert, the manager of Jackson Hewitt's Milwaukee offices. "It's a shame. It's a lot of money. But if that's what the customer wants, that's what the customer gets."

While the tax credit's focus on work, not welfare, has bolstered its political support, there have been recent concerns about its susceptibility to fraud. An audit of the 1994 returns found improper payments in 26 percent of the claims, a worrisome rate with costs approaching $30 billion.

A Tax Bonus Susceptible to Fraud

Some errors simply stem from confusion over the rules. (To qualify fully, for instance, parents must live with their children for at least half the year.) Others come from wholesale fraud. (A woman outside the H & R Block office said she has sold her children's Social Security numbers, for $300, in years when she was ineligible because she did not work.) And still others arise from street-wise bartering that may be as socially sanctioned in some neighborhoods as it is illegal.

Consider, for instance, a single mother on welfare and her children's absent father. She has no earnings; he earns $10,000 a year. Without wages, she cannot receive a refund. Without the children, he is ineligible, too. But if they say their two children spent half the year with him, they could split a combined state and Federal payment of nearly $4,300.

Government auditors would call this fraud, and it is. But some poor families see it differently, especially if the father helps out by paying child support. Ms. Morton, the aspiring day care provider, said she would have no problem in letting her daughter's father claim the child even though he lives in Chicago. "She is his child and he helps me with her," she said. Because she has four other children -- and the value of the Federal credit is capped after two -- her refund would not be affected.

New anti-fraud efforts appear to have doused the more brazen schemes. But because eligibility depends on who lives where, a strict accounting remains difficult.

Among those caught in the Government's snare was Mr. Hunter, the street-corner apostle of new values. He now owes more than $2,000 for illegally claiming his girlfriend's baby by another man. "It wasn't like it was behind her back," he said. "I bought the baby some clothes."

These days, he is caught between self-reproach ("scamming the tax people is illegal") and the argument that filing creative tax returns is an American tradition -- a move toward mainstream values. "Rich people cheat on their taxes, too," he said. As long as people are working, he said, "it's not the same as welfare -- there ain't nobody getting played."

Copyright © 1999 by The New York Times Co. Reprinted with permission.








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