The Center's work on 'Federal Policies' Issues


2009 Recovery Act Kept Millions out of Poverty

February 18, 2014 at 3:06 pm

The Washington Post points out that the 2009 Recovery Act, signed five years ago yesterday, accomplished much more than its critics acknowledge.  When it comes to using the safety net to keep people out of poverty, for example, the Recovery Act was probably the most effective piece of legislation since the 1935 Social Security Act, as our 2011 analysis explained.

Six Recovery Act provisions — three new or expanded tax credits, two expansions of unemployment insurance, and a SNAP (food stamp) benefit expansion — kept 6.9 million Americans out of poverty in 2010.  This estimate uses an alternative poverty measure based on National Academy of Sciences recommendations (a forerunner to the Supplemental Poverty Measure that the federal government now regularly reports) that considers the effect of government benefit programs and tax credits as well as cash income.

As the graph shows:

  • Expansions in the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) kept 1.6 million people out of poverty.
  • The Making Work Pay tax credit, which expired at the end of 2010, kept another 1.5 million people out of poverty.
  • Expansions in unemployment insurance benefits kept 3.4 million people out of poverty.
  • Expansions in SNAP benefits kept 1 million people out of poverty.

These figures total more than 6.9 million in part because some people were kept above the poverty line by more than one program.  The 6.9 million total, though, counts each person only once.

And, as the graph shows, existing (pre-2009) policies to promote family income also kept millions of Americans out of poverty in 2010.

Moreover, these are just the initial effects of government assistance on recipient households.  They don’t show the ripple effect across the economy as government assistance allowed struggling consumers to continue to buy goods and services, despite the crippling recession, contributing to economic growth.

To be sure, these figures don’t mean that government assistance staved off all, or even most, recession-related hardship.  But they show that government assistance kept millions of Americans above the poverty line during the worst economic downturn since the Great Depression.  That’s no small accomplishment.

New Evidence That Subsidized Jobs Programs Work

September 9, 2013 at 3:31 pm

Thirty-nine states and the District of Columbia used $1.3 billion from the TANF (Temporary Assistance for Needy Families) Emergency Fund to place more than 260,000 low-income adults and youth in temporary jobs in the private and public sectors during the Great Recession.  Now, from the Economic Mobility Corporation (EMC), there’s new evidence that these subsidized jobs programs did what they were supposed to do:  help disadvantaged individuals during hard economic times to boost their incomes and improve their chances of finding unsubsidized jobs when the subsidized jobs ended.

The EMC study shows that these programs helped businesses as well as job-seekers weather the worst of the recession.  It found:

  • Participation in subsidized employment programs led to significant increases in employment and earnings. Participants in four of the five programs covered by the study were much more likely to have an unsubsidized job in the year after working in a subsidized job than in the year before joining the program.  The findings from Florida are especially noteworthy because researchers could compare participants with applicants who were eligible for the program but didn’t receive a subsidized job.  There, participants earned an average of $4,000 more in the year after the program than in the year before it, compared to a $1,500 increase for people in the comparison group.
  • The programs were especially effective for the long-term unemployed. In Mississippi and Florida, average annual earnings of the long-term unemployed rose by about $7,000 after participating; in Los Angeles and Wisconsin, they rose by about $4,000.  In all four sites, earnings rose much more among the long-term unemployed than among people who had been unemployed for shorter periods.
  • Employers reported hiring more workers than they would have otherwise and workers with less experience than their usual hires. Two-thirds of the employers interviewed for the study said that they created new positions for subsidized workers.  Over half said they hired people with less work experience than their usual hires. 

  • Most participating employers reported multiple benefits from the program. These included expanding their workforces, serving more customers, and improving their productivity.     

We’ve called the TANF Emergency Fund, which expired three years ago, a “win-win-win” because of its benefits for unemployed people, businesses, and communities.  This new study provides hard evidence of the program’s accomplishments.  It’s not too late to build on that success.

This year, at least five states — Nebraska, Colorado, California, Minnesota, and Rhode Island —expanded state funding or provided new funding for subsidized employment for TANF recipients or other disadvantaged individuals.

Congress should follow their lead.  One place to start would be to redesign the TANF Contingency Fund as an employment fund that states could use to provide subsidized jobs or otherwise invest in evidence-based employment programs that significantly increase the job prospects of people receiving or eligible for TANF.  That would help redirect scarce resources to states with the greatest need for jobs and help create jobs for those whom the tepid recovery has left behind.

Immigration Bill’s “Back Taxes” Amendment Much Harder to Implement than Senator Hatch Suggests

June 14, 2013 at 2:50 pm

As our new report explains, some senators are proposing amendments to the immigration bill that would make its long and difficult path to citizenship far more difficult — in some cases undermining the fundamental goal of enabling undocumented workers to legalize their status.

One such proposal, from Senators Orrin Hatch (R-UT) and Marco Rubio (R-FL), would require immigrants seeking legal status to prove they have paid all of their taxes since they entered the country before adjusting to a legal status.

On the Senate floor Wednesday, Senator Hatch claimed that the IRS is well-positioned to determine such individuals’ tax liability, even when workers lack earnings and tax records:

The IRS is well experienced at estimating the tax liabilities for people who, for whatever reason, lack the records that normally support a tax return. . . .  Using bank records, credit card statements, housing records, and other evidence of an individual’s lifestyle, the IRS is able to construct returns and estimate tax liabilities for nonfilers who are U.S. citizens and resident aliens.  The same process can be used for immigrants looking to certify they no longer owe any Federal taxes.  That is not a tough thing to do…

But the IRS does not routinely try to use such records to guesstimate people’s incomes.  These are extreme methods, which it resorts to in only a very small number of cases each year.

Senator Hatch is essentially arguing that it would be workable — and a good use of taxpayer money — to require the IRS to conduct extensive field audits of very large numbers of undocumented immigrants seeking legal status.

The audits would be very complicated in many cases; many of these workers’ past employers will be difficult to locate, will not have records for cash transactions made years ago, and (for obvious reasons) may be reluctant to cooperate.  Moreover, many of these immigrants likely will not have bank records or credit cards, will have moved many times, and will have been working in the United States for many years or even decades, so reconstructing their records for this entire period could prove extremely difficult.

The IRS’s experience in estimating a family’s income based on its “lifestyle” is largely restricted to a very small number of generally high-income people and small businesses where there is a large disconnect between their reported income and the person’s lifestyle or the business’s spending and the IRS has reason to believe large-scale tax evasion may have occurred.  The IRS has never used this method for large numbers of low-income workers.

Given that an estimated 11 million people are eligible to legalize under the bill, the increased workload for the IRS would be tremendous.  Of the 187 million individual and business tax returns filed in 2011, the IRS examined just 1.7 million — fewer than 1 percent.  Moreover, over 70 percent of these audits were conducted by mail (where information is requested and provided by mail) and were not the complex, intensive audits that Senator Hatch envisions.

Based on the total cost of current IRS enforcement efforts and the number of returns examined each year, each field examination would clearly cost thousands of dollars.  This means that the cost of conducting vast numbers of complicated audits, as Senator Hatch evidently envisions, would run into the billions.

Senator Hatch has not proposed any new funding for the IRS to conduct such audits or indicated that large numbers of new IRS staff would be hired.  If the IRS tried to implement his proposal, it would have to divert a very large portion of its total enforcement resources, probably for a number of years, from enforcement activities that yield a much higher return for the Treasury to auditing millions of legalizing workers, most of whom have modest incomes.

In 2012, the IRS conducted 31,700 field audits of corporations, leading to a total of $20 billion in recommended additional tax assessments — an average of more than $600,000 per review.  When both individual and business field audits are considered, the average tax assessment is close to $60,000.  Diverting IRS resources away from these high-return audits to try to reconstruct earnings records from modest-earning immigrants almost surely would result in a net loss of revenues to the Treasury, not the gain that Senator Hatch suggests.

More realistically, the IRS would never be able to conduct the required audits, so the process of legalizing undocumented workers would grind to a halt for many — leaving the basic goal of the legislation in tatters.  Undocumented workers would remain undocumented and the Treasury would collect less in taxes going forward than if these workers were allowed to come out of the shadows.

Purchasing Power of TANF Benefits Fell Further in 2012

March 28, 2013 at 1:36 pm

Cash assistance for the nation’s poorest families with children fell again in purchasing power in 2012, we detail in our annual update of state benefit levels under the Temporary Assistance for Needy Families (TANF) program.  Most states left their benefit levels unchanged last year, so benefits continued to erode by inflation.

In 37 states, and after adjusting for inflation, benefits are now at least 20 percent below their levels of 1996 — the year policymakers created TANF.

For all states, as of July 1, 2012, benefits for a family of three with no other cash income were below half of the federal poverty line, measured as a share of the Department of Health and Human Services poverty guidelines for 2012 (see map).  Benefits were below 30 percent of the poverty line in the majority of states.

On the other hand, no states cut benefit levels in 2012, and a few took the opportunity to increase the benefit level or to follow through on past commitments to modestly raise benefits or adjust them for inflation.  TANF benefits increased, in nominal dollars, in New York, Ohio, South Dakota, Texas, and Wyoming.

TANF provides a safety net to relatively few poor families:  in 2011, just 27 families received TANF benefits for every 100 poor families, down from 68 families receiving TANF for every 100 in poverty in 1996.  But for the families that participate in the program, it often is their only source of support and without it, they would have no cash income to meet their basic needs.

It’s time for states to halt the erosion of TANF benefits and slowly regain some of the purchasing power that they’ve lost over the past 16 years.

Click here to read the full paper.

TANF Provided a Weak Safety Net During and After Recession

March 4, 2013 at 2:13 pm

Temporary Assistance for Needy Families (TANF), which provides basic assistance to families with little or no income, responded only modestly to the severe recession that began in December 2007, exposing its inadequacy as a safety net, as we explain in a new paper.

We found that:

  • Nationally, the TANF caseload rose only modestly during the downturn and began to decline while need remained high. The caseload did not begin to grow until seven months after the recession started, and it rose only 16 percent before peaking in December 2010 (see chart).  In contrast, the number of unemployed individuals rose 88 percent over this period.  Over the course of 2011, the caseload fell 5 percentage points from that peak, while the unemployment rate remained at or above 8.5 percent throughout the year.

  • Changes in states’ caseloads varied widely. Forty-five states’ caseloads grew between December 2007 and December 2009 but by widely differing amounts, ranging from 2 to 48 percent; in more than half of these states, the increase was 14 percent or less.  After the recovery began, caseloads continued to grow in some states but fell sharply in others.  Between December 2009 and December 2011, 21 states’ caseloads rose from 2 to 56 percent; in 30 states, caseloads fell from 1 to 56 percent.  From December 2007 to December 2011, caseload changes ranged from Oregon’s 81 percent increase to Arizona’s 54 percent decline.
  • Variations in unemployment do not fully explain the variation in state caseload changes. There is no overlap between the ten states with the largest percentage increases in the number of unemployed workers and the ten states with the largest percentage increases in TANF caseloads.  The three states with the largest TANF caseload increases — Oregon, Colorado, and Illinois — ranked 28, 14, and 30, respectively, in the percentage increase in the number of unemployed.  Meanwhile, the three states with the largest TANF caseload decreases — Arizona, Indiana, and Rhode Island — ranked 5, 16, and 23, respectively, in the increase in unemployed workers.
  • In most states, TANF provides a weaker safety net now than it did before the recession. The number of families with children served by TANF for every 100 such families living in poverty fell in 35 states between 2006-2007 and 2010-2011, while it rose in just five states.
  • State actions had a significant impact on TANF caseloads. In response to budget pressures, several states cut TANF benefit levels, shortened or tightened time limits, or made other cutbacks during the recession, contributing to substantial caseload declines.

Our paper on which this post is based is the second in a series on changes in TANF caseloads since the start of the economic downturn.  Click here to read the paper in full, here to read the state-by-state fact sheets, and here to read the first paper in the series.