Rubio Proposal to Replace EITC Would Likely Come at Expense of Working-Poor Families with Children

January 9, 2014 at 5:14 pm

We’ve explained that Senator Marco Rubio’s proposal to convert federal safety net programs into a mega-block grant would weaken the safety net.  His wage supplement proposal is seriously flawed as well:  it would help low-income childless workers — an important goal — but likely at the expense of low-income working families with children.

Senator Rubio proposes to replace the very successful Earned Income Tax Credit (EITC) with a “wage enhancement program” to supplement the earnings of low-wage workers.  Unlike the EITC, this new program (based on the limited information now available) apparently would give the same size wage supplement to workers regardless of whether they are single or married or have any children.

Currently, the EITC for families with children is much larger than the EITC for childless adults and phases out at higher income levels.  In addition, to limit cost and target benefits on families that need it most, the EITC is available to low-income working families based on the family’s total adjusted gross income, not each family member’s individual earnings.

It is heartening that Senator Rubio acknowledges that wages for many workers are too low to make ends meet and that government has an essential role in helping to address this problem.  And, he is right that low-wage childless adults in particular get too little help.

But unless Senator Rubio intends to spend much more on his proposed wage enhancement program than we now spend on the EITC, his proposal would have to dramatically cut the earnings supplements that the EITC now provides to low-income working families with children.

Here’s why.  Some 97 percent of the EITC goes to families with children; less than 3 percent goes to workers without children.  The Rubio proposal appears to envision that millions of childless adults who don’t qualify for the EITC now would qualify for the new wage subsidies.  Paying for those new benefits for childless adults would necessarily require cutting the EITC for workers with children, unless Senator Rubio intends to significantly increase overall federal spending in this area.

The EITC kept 6.5 million people — including 3.3 million children — above the poverty line in 2012 and reduced the severity of poverty for 8.3 million other children.  If we shift resources from the EITC for families with children to earnings supplements for workers without children, child poverty will rise.

Cutting the EITC for families with children would also weaken it as a work incentive for parents and diminish the longer-term positive impacts that income supplements such as the EITC have on children’s educational outcomes.

We strongly agree that expanding earnings supplements for low-income workers who aren’t raising children should be a priority.  It would reduce poverty among these workers.  It also could raise employment rates among single adults, as the larger EITC available to families with children has been shown to do among low-income parents.  That is why many analysts across the political spectrum (see here, here, and here) have called for expanding the childless workers’ EITC without cutting the EITC for families with children, as would occur under legislation that Senator Sherrod Brown (D-OH) and 32 co-sponsors have introduced in the Senate and Representative Richard Neal (D-MA) and 47 co-sponsors have introduced in the House.

Rather than expand help for low-income childless workers at the expense of children in low-income working families, we should finance such an expansion by paring back inefficient tax expenditures, which policymakers could do as part of tax reform.

The 50th anniversary of President Johnson’s call for a War on Poverty has prompted new discussions about poverty, opportunity, inequality, and mobility.  Although Senator Rubio’s specific recommendations are poorly designed, it’s helpful that discussion is starting on how to make further progress in reducing poverty.  We hope policymakers will look for opportunities for bipartisan agreement on some steps forward.

Rubio Block-Grant Proposal Would Weaken Safety Net, Not Strengthen It

January 9, 2014 at 4:59 pm

Senator Marco Rubio (R-FL) spoke eloquently yesterday about the aspirations of people living in poverty, but his proposals would represent a significant step backward in efforts to reduce poverty — weakening the safety net for low-income children, seniors, and people with disabilities and almost certainly increasing child poverty.

This post will address the one of his two main proposals: to block-grant most federal safety net programs.  A follow-up post will address his proposal to scrap the Earned Income Tax Credit and replace it with a sketchily outlined “wage enhancement program.”

Senator Rubio proposes to end most federal safety net programs — including unemployment insurance, SNAP (formerly food stamps), Medicaid, and housing assistance — and replace them with one mega-block grant to states.  The plan apparently would set funding for the block grant at what the federal government would spend on these programs under current law.  States would have near-total flexibility in using the funds.

This proposal has deep flaws.  For example, it would dramatically weaken the safety net’s ability to respond to recessions.

Funding for key programs such as SNAP, unemployment insurance, and Medicaid adjusts immediately and automatically when need rises.  The recent recession provided powerful proof of the value of this “counter-cyclical” response, as safety net programs averted what would have been a much larger increase in poverty (under an expanded poverty measure that includes the income from these safety net programs), given the doubling of the unemployment rate.

In addition, key safety net programs like SNAP, Medicaid, and unemployment insurance expand and contract at different rates in different localities and states, reflecting variations in economic conditions, changes in population size and job availability, and the like.  As a result, they respond effectively to changes in need across the country.

By eliminating the entitlement status of programs like Medicaid, SNAP, and unemployment insurance — and instead providing a fixed annual amount of money allocated among states under a pre-set formula, based on data that become available only with a lag of months or a year or more — block-granting sacrifices the timely, effective, and targeted counter-cyclical response that these programs provide.

Indeed, no block-grant proposal has ever been designed for these programs that provides a full, prompt, counter-cyclical response; a block grant simply cannot do that.  As a consequence, under the Rubio proposal, hardship would inevitably rise in many areas during recessions — likely by substantial amounts.

The Rubio proposal also would wipe away important protections in current law that ensure, for example, that all poor children have access to nutrition assistance and health coverage.  States could shift federal funds from less popular groups to groups with more political clout, such as from very poor families to families with moderate incomes.

In addition, block-granting key safety net programs could very well lead to funding cuts over time.  Politically, it’s much easier for policymakers to shrink a block grant that supports a vast array of purposes spread across 50 states — and claim that states can compensate by improving efficiency or rooting out “waste, fraud and abuse” — than to cut specific types of assistance for specific groups of people such as low-income children, seniors, or people with disabilities.

The history of recent decades bears this out.  Funding for most major block grants focused on low-income households has eroded in inflation-adjusted terms, often by large amounts.

The block grant proposal also allows policymakers to argue that states could expand safety net benefits for certain beneficiaries without having to identify the cuts needed to pay for such expansions.

Senator Rubio suggested yesterday, for example, that states could use their added flexibility to eliminate marriage penalties in Medicaid, presumably by providing Medicaid to couples at substantially higher income levels than current law allows.  But he didn’t identify any offsetting cuts in Medicaid, SNAP, or other low-income supports to pay for that.  (Medicaid already spends far less per beneficiary than private insurance, and SNAP provides less than $1.40 per person per meal, on average.)

To be sure, greater state flexibility could be valuable in certain areas.  For example, governors of both parties have suggested that a number of the rules in Temporary Assistance for Needy Families (TANF) are too rigid and make it harder for them to help parents find jobs.  But that is a far cry from abolishing virtually every means-tested program and simply putting money on the stump for state politicians to do with it as they please.

With nearly 50 million Americans living in poverty, there is important work to do.  But block-granting the safety net would weaken anti-poverty efforts.

Recognizing the War on Poverty’s Successes — and the Work That Remains

January 7, 2014 at 12:36 pm

As we approach the 50th anniversary of the War on Poverty tomorrow, we’ve issued a new chart book and a commentary explaining the progress we’ve made in fighting poverty, the success of the safety net, and the factors that have kept poverty from falling further.

The commentary concludes:

All told, the nation has made substantial progress against poverty and poverty-related conditions over the last half-century.  Although rising income inequality and growing numbers of single-parent families pushed upward on poverty, on balance poverty declined thanks in large part to the safety net improvements, along with other factors such as increases in education and women’s work and other changes in the family.  Yet, poverty, inequality, and racial disparities remain high.  Today’s challenge is to take what we have learned and strengthen efforts to reduce poverty and hardship and to promote broad economic opportunity.

Click here to read the full commentary, and here for our chart book on the War on Poverty.

Pursuing “Flexibility” Over Replacing Sequestration Is a Distraction — or Worse

November 12, 2013 at 4:20 pm

Many policymakers want to give the President one of Congress’s preeminent powers — to decide how to spend federal funds — so he can shift sequestration cuts from one program to another in hopes of avoiding some of sequestration’s worst effects.  Yet these “flexibility” proposals, which some policymakers want to include in current budget negotiations, can’t solve the two basic problems that the President and Congress face on this year’s budget.

First and most important, overall funding levels under sequestration are simply too low.  While proponents often sell flexibility as a way to shrink the sequestration cuts in certain popular areas, they seldom note that this can only occur if the cuts in other areas get deeper, thus making the impact on those other areas even worse.

The second problem is the risk posed by funding allocations that are out of date.  Allocations become outdated when Congress does not adjust them annually through regular appropriations bills (or “omnibus” legislation that packages these bills together) but instead adopts continuing resolutions that reflect prior-year allocations, even if circumstances or priorities have changed.  Last year, Congress funded fewer than half of all federal agencies through regular appropriations legislation; it funded the rest through a continuing resolution that reflected priorities of one or even two years earlier.

These two problems — sequestration and the absence of regular appropriations bills — are, of course, interrelated.  Sequestration’s low funding requirements invariably force cuts to programs with strong popular support, making it more difficult for Congress to pass appropriations bills.  But without new appropriations bills, outdated funding priorities remain in place, intensifying the effects of the cuts.

The current budget negotiations largely focus on addressing the inadequate discretionary funding levels under sequestration by replacing some or all of sequestration’s cuts with alternative savings from entitlement programs or revenues.  Indeed, the negotiators do not disagree over whether to replace the cuts, only how.  If they agree on higher funding levels for appropriated programs, then Congress can more easily craft appropriations bills that better reflect current needs and priorities.

Once that occurs, there is no need for a flexibility measure that grants broad new powers to the executive branch to shift funds among programs.  (Typically, agencies already have some flexibility within their budgets to shift funds to address changing circumstances.)  Added flexibility becomes relevant only if Congress fails to set more adequate 2014 funding levels and fails to enact appropriations bills, instead relying on a continuing resolution for the rest of the year.  But, even then, flexibility can’t solve the fundamental problem of inadequate funding levels under sequestration.

Negotiators should not spend time now focusing on flexibility.  At best, it’s a distraction; at worst, it could give policymakers the false impression that they can meaningfully reduce the problems created by sequestration in 2014 without raising discretionary funding.

Why the Shutdown Needs to End

October 11, 2013 at 10:09 am

House Republicans unveiled a plan yesterday to raise (or suspend) the debt ceiling for six weeks but leave the government shutdown in place, raising the specter that the shutdown could continue for weeks — maybe all the way until November 22, the GOP’s proposed new debt limit deadline.  There is growing support among policymakers on both sides of the aisle to reopen the government — and here’s why ending the shutdown sooner rather than later is so vital.

Day by day, the real-world problems that the shutdown causes will grow, and more and more of the “make do” steps that federal agencies and states have used to limit the damage will run out.

A shutdown into November could have serious consequences for low-income Americans.  Most or all states would run out of WIC funding, which provides nutrition assistance for nearly 9 million pregnant and postpartum women, infants, and children.  Head Start grantees serving 86,000 children in 41 states are scheduled to receive renewal funding at the start of November; without it, many may have to close.  Home energy assistance— including aid that’s used to pay for once-a-season heating oil deliveries in some states — will be delayed even as the weather turns cold.

States also may have to cut off basic cash assistance for the very poorest families because federal funding through the Temporary Assistance for Needy Families (TANF) program for 2014 is not available. Arizona nearly cut off aid to several thousand families in October before the governor decided to ensure that the state would provide the assistance.  She warned, however, that the state could not pay the federal government’s bills for long and that both TANF benefits and child care assistance for working families could end in November if the shutdown continues.

The shutdown, of course, doesn’t just affect low-income people.  Veterans with service-related disabilities will not receive disability benefits in November if the funding isn’t there.  The Occupational Safety and Health Administration has stopped routine workplace inspections, while the Food and Drug Administration (FDA) has stopped many of its activities to ensure food safety, such as inspecting restaurants and monitoring the quality of imported foods.  Senior citizen centers are waiting for funding for Meals on Wheels and other programs — the longer that the shutdown continues, the more centers will face shortfalls.  National parks remain closed — and local businesses that depend on tourism related to those parks are suffering.  The federal courts have announced that they will operate through October 17 but likely close after that if funding has not been approved.  The Supreme Court also has indicated that it may have to close after October 18.

The impact on states will worsen over time, even as they become less able to fill the funding gap that the shutdown created.  Already, Washington State has furloughed or reduced the hours of half of all staff in the Employment Security Department, the agency that, among other things, administers the unemployment insurance (UI) program.  While funding for UI benefits is unaffected, the shutdown has left states without the funds to administer UI.  Due to the workforce reductions, the agency is no longer investigating fraud, helping veterans find jobs, and auditing employer tax payments, among other things.  Also, Michigan warns that it may have to furlough thousands of workers if the shutdown isn’t resolved by November.

The economic impacts will grow as well.  While furloughed federal workers will likely receive back pay when the shutdown ends, many workers in private businesses and other organizations who are laid off or see their hours reduced because of the shutdown likely won’t.

Even public services that the federal government has deemed “essential” and have continued can only operate without funding for a limited time. Federal workers whose jobs are essential to protecting life and property — federal prison staff, Centers for Disease Control and Prevention (CDC) staff responding to the recent salmonella outbreak, air traffic controllers, customs and border patrol agents, and so on — remain on the job, though they will not be paid until the shutdown ends.  But the agencies providing these essential services have non-personnel costs they need to cover to continue operating effectively.  The clinical center at the National Institutes of Health will need to buy drugs and other supplies.  Customs and Border Patrol agents will need their vehicles repaired and gas to keep them running.  Federal prisons have to buy food for prisoners.  CDC and FDA staff who respond to emergencies have to travel to those sites and run tests.  Because these agencies don’t have 2014 funding, they can’t pay these or other bills during the shutdown.

For now, companies and contractors are providing these services and assuming they will be paid soon.  But that’s not sustainable for an extended time.  Nor is it fair to federal workers and businesses to ask them to finance essential services until Congress gets around to reopening the government.