Under $2 a Day in America, Part 1

March 5, 2012 at 2:03 pm

Note: This is the first in a series of posts on extreme poverty that CBPP will do this week.

Living on less than $2 per person a day is one World Bank definition of poverty for developing nations.  Unfortunately, this threshold is increasingly relevant to the United States, according to a new study from the National Poverty Center.

The number of U.S. households living on less than $2 per person per day — which the study terms “extreme poverty” — more than doubled between 1996 and 2011, from 636,000 to 1.46 million, the study finds (see graph).  The number of children in extremely poor households also doubled, from 1.4 million to 2.8 million.

The figures are for cash income only, although the authors —the University of Michigan’s H. Luke Shaefer and Harvard University’s Kathryn Edin — note that extreme poverty is up even when one counts non-cash benefits like SNAP (food stamps).  We will discuss the connection between these findings and food and housing assistance in follow-up posts.

Extreme Poverty Doubled in Past 15 Years

The authors note an apparent connection between the sharp growth in extreme poverty and the loss of public assistance benefits, stating that “This growth has been concentrated among those groups that were most affected by the 1996 welfare reform.”  The 1996 law replaced Aid to Families with Dependent Children, which primarily provided cash assistance to eligible families, with the Temporary Assistance for Needy Families (TANF) block grant, which provided states with a fixed level of funding which they could use for many different purposes.

The report found that the rate of extreme poverty doubled for households overall but nearly tripled for female-headed households, which make up the bulk of the TANF caseload.

As we’ve explained, TANF’s ability to reach poor families has eroded severely in the past decade and a half.  Whereas, in 1996, TANF provided cash assistance to 68 families for every 100 poor families with children, by 2010 it provided cash assistance to only 27 families for every 100 families in poverty.  Families that have reached welfare time limits are not eligible for any federal cash assistance, and many have serious mental or physical health issues that leave them jobless for long periods.

Also, the sharp decline in the value of TANF benefits over time means that many TANF recipients remain extremely poor.  Benefits are below half of the poverty line in every state.  For a family of three, benefits are only about $2 per person per day in Mississippi and Tennessee and only slightly more than $2 per person per day in Alabama and South Carolina, for example.

Co-author Edin is an authority on the ways in which extremely poor households scraped by day-to-day in the pre-welfare-reform era.  Today, say Shaefer and Edin, “it is unclear how households with no cash income — either from work, government programs, assets, friends, family members, or informal sources — are getting by even if they do manage to claim some form of in-kind [i.e., non-cash] benefit.”

Research has shown that poverty in childhood has a long and harmful reach.  Even modest changes in family income for young children in poor families significantly affect their educational success — and may have a big effect on their earnings as adults.

In Case You Missed It…

March 2, 2012 at 5:32 pm

This week on Off the Charts, we focused on the federal budget and taxes, the economy, state budgets, and health policy.

  • On the federal budget and taxes, Richard Kogan debunked the myth that federal spending is out of control.  Chye-Ching Huang explained why corporate tax reform must be fiscally responsible not just in the early years, but over the long term as well.  We also highlighted our new analysis of Governor Romney’s tax proposal.
  • On the economy, Chad Stone pointed out the need to help workers adjust to losing jobs that will never return.
  • On state budgets, we featured Michael Mazerov’s testimony before Maryland lawmakers on the benefits of corporate tax reform.  Phil Oliff noted that our latest survey of state budget shortfalls shows that states still face a long and uncertain recovery, and he connected the dots between some states’ cutbacks in training programs and their failure to raise adequate revenues.
  • On health policy, Dave Chandra warned that states that wait too long to decide whether to form their own health insurance exchanges will end up with federal exchanges.  He also pointed out that a number of states have passed legislation to set up exchanges and that even more have received federal funding to design and implement them.

In other news, we released reports on Governor Mitt Romney’s tax plan and projected trends in federal spending over the next decade.

Another Downside of a Cuts-Only Approach to State Shortfalls

March 2, 2012 at 5:24 pm

We’ve noted that states’ cuts-only approach to their budgets has resulted in tuition hikes for public higher education that make college less accessible and pose risks to long-term economic growth.  The New York Times today illustrates another downside of cutting higher education funding:  it leads to cuts in college-level training programs for the jobs in greatest demand today.

Weakening these programs at a time when unemployment is high and the recovery is fragile will simply make it harder to match workers’ skills with available jobs and get people back to work.

“At one community college in North Carolina — a state with a severe nursing shortage — nursing program applicants so outnumber available slots that there is a waiting list just to get on the waiting list,” the article notes.

North Carolina could have avoided this problem.  Before enacting its current two-year budget, the state was more than 10 percent short of what it needed to sustain services like higher education, due to the weak economy.  Yet policymakers let a temporary sales tax increase and an income tax surcharge on wealthy households and corporations expire.  Making matters worse, they passed business tax breaks that cost the state over $100 million this fiscal year.  As a result, among other cuts, the state cut higher education funding by nearly $500 million annually.

North Carolina could have done more to protect higher education and meet its need for nurses by taking a more balanced approach that included additional revenues.

The Times article also notes that state colleges in Michigan, Florida, and Texas (among other states) have “eliminated entire engineering and computer science departments.”  All three states faced budget gaps prior to enacting their budgets for the current year; none took a balanced approach to address those shortfalls.

Indeed, Michigan passed a large tax cut that opened an even bigger hole in its budget, Florida passed a more modest tax cut, and Texas refused to tap into its hefty rainy day fund.  All three states made deep cuts to higher education.

States have begun to recover from the revenue collapse that led to these cuts.  But they are digging out of a very deep hole and it will take years before revenues have returned to normal.  Consequently, states are going to need to raise revenue to prevent additional cuts to services and restore some of the deep cuts they’ve made over the last few years.   “Cutting training for jobs the economy needs most,” as the Times puts it, is hardly a way to build a strong economy.

Can Governor Romney’s Tax Plan Do All That He Says It Will?

March 2, 2012 at 4:01 pm

We’ve issued an analysis of the new tax plan from Governor Mitt Romney.  Here’s the opening:

Unveiling his tax plan on February 22, Governor Romney’s campaign said it would: 1) make permanent President Bush’s tax cuts (but not those enacted under President Obama’s, which are scheduled to expire at the same time and which expanded several refundable tax credits for low- and middle-income families); 2) then cut individual income tax rates 20 percent below the Bush levels, reducing the Bush top rate of 35 percent to a new top rate of 28 percent; 3) repeal the estate tax; 4) repeal the Alternative Minimum Tax; 5) cut the top corporate tax rate by nearly 30 percent (from 35 to 25 percent); and 6) scale back unspecified “tax expenditures,” mainly for high-income people.  It would leave untouched the biggest tax break for high-income households — the 15 percent tax rate on capital gains and dividends — and eliminate capital gains taxes altogether for people with incomes below $200,000.  Governor Romney’s advisers also said the plan would preserve “revenue neutrality” and maintain the current degree of progressivity in the tax code.

As experts at the Urban-Brookings Tax Policy Center (TPC) have noted, it would be virtually impossible to achieve all of the plan’s multiple goals at the same time.  In particular, the Romney tax policy changes would almost certainly add substantially to the deficit.  Assessing the plan, the TPC’s Roberton Williams observed, “Nothing comes to mind to broaden the tax base enough to pay for the lower rates.”

Now, a new TPC analysis (issued March 1) backs up the skepticism with hard facts.  It finds that, absent base broadeners, the Romney plan would cut taxes by $481 billion in 2015 alone, translating into a $4.9 trillion revenue loss over the coming decade.  Most tax experts believe that’s far more than any conceivable set of base-broadeners (i.e., reductions in tax expenditures) could generate, leaving the Romney plan as not “revenue neutral” but, instead, a significant revenue loser.

Moreover, a close reading of the document from the Romney campaign about the plan, as well as Governor Romney’s February 23 op-ed in the Wall Street Journal and statements by Romney campaign advisor Glenn Hubbard, suggest that the plan is not, in fact, intended to be revenue neutral.  Neither the campaign document nor the Romney op-ed actually says it is.  Instead, both state:  “Stronger economic growth and reductions in spending will help to ensure that these tax cuts do not expand deficits.”  In other words, along with scaling back unspecified tax expenditures, the plan relies in substantial part on “dynamic scoring” — an assumption that tax cuts will boost economic growth and, in turn, federal tax revenues — and very deep budget cuts to avoid expanding the deficit.

Finally, the Romney plan would significantly exacerbate the already serious problem of income inequality in America, conferring extraordinarily large tax cuts on the wealthiest Americans while raising taxes on people making less than $30,000 a year.  TPC estimates that people who make over $1 million a year would get an average tax cut of $250,000 in 2015 (increasing their after-tax income by an average of almost 12 percent), while people making between $40,000 and $50,000 would get an average tax cut of $512 (increasing their after-tax income by an average of 1.3 percent), and people making between $10,000 and

$20,000 would pay an average $174 more in taxes (decreasing their after-tax income by an average of 1.1 percent).

Click here for the full report.

While Some States Wait, Others Move Ahead on Implementing Health Reform

March 2, 2012 at 2:53 pm

I noted recently that some states are putting off the decision on whether or not to create a state-run health insurance exchange — part of each state’s option under the Affordable Care Act (ACA) — and so may end up with a federally run exchange as a result.  But, that’s not the whole story.  A number of other states are actually forging ahead and are well positioned to have their state exchanges operating successfully by the January 1, 2014 target launch date.

Twelve states and the District of Columbia (see first map) have enacted legislation or issued an executive order authorizing the establishment of their exchange, which will be new competitive marketplaces that offer individuals and small businesses the chance to shop from an array of private coverage options.  Most of these states have since made considerable progress towards designing and building these novel health insurance marketplaces.

Moreover, 33 states and the District of Columbia (see second map) have received millions in federal establishment grant funding to help them design and implement their exchanges.

So while the story varies from state to state, and can even be quite concerning for a handful, there is still momentum in many others towards the goal of bringing quality and affordable health care to all Americans.