In Case You Missed It…

August 26, 2011 at 4:33 pm

This week on Off the Charts, we talked about welfare reform, federal budget and tax issues, Social Security, Medicare, and state economies.

  • On federal budget and tax issues, Paul Van de Water provided examples of spending cuts that will affect all Americans.  Kathy Ruffing outlined new Congressional Budget Office estimates showing that deficits and debt will decline in the coming decade even without large additional spending cuts.  And Chuck Marr showed that a proposed tax holiday for foreign-generated corporate profits would encourage firms to continue shifting income and investments overseas.
  • On Social Security, Kathy Ruffing debunked alarmist reports claiming the disability-insurance program was on the verge of insolvency.
  • On Medicare, Paul Van de Water explained that raising the eligibility age would increase overall health care costs, not reduce them.
  • On state economies, Michael Leachman looked at why some states have fared better than others during the recession.

In other news, we analyzed the proposal to raise Medicare’s eligibility age and examined the new budget estimates from the Congressional Budget Office.  We also updated our backgrounder on unemployment insurance.

TANF at 15, Part IV: Looking Ahead

August 26, 2011 at 2:45 pm

In the 15 years since its creation as part of welfare reform, TANF has performed better than most people expected when the economy was booming and jobs were plentiful, and worse than most people expected during the continuing severe downturn.  Gordon Berlin, the highly respected president of the research organization MDRC — which has conducted the vast majority of evaluations of state welfare reform efforts — laid out the challenge ahead:

Now with unemployment rates at levels unimaginable even five years ago, the context for reform has changed, posing profound questions for Congress as it revisits the law that “changed welfare as we knew it” when it expires next month.

In renewing TANF, which replaced the old Aid to Families with Dependent Children (AFDC) program, Congress should strengthen it both as a work program and as a safety net for unemployed parents and their children.  Congress could help to achieve these goals by making changes that include:

  • Redesigning and adequately funding the TANF Contingency Fund. Congress created the fund along with the TANF block grant to give states extra resources during economic downturns, since the block grant itself doesn’t respond to changes in need.  But the fund was poorly targeted and has provided limited help to states during the current downturn.  Congress can significantly improve the fund by:  (1) making it easier for states with high unemployment to qualify for money from the fund; (2) requiring states to use the fund for activities that respond directly to a weak economy — such as subsidized employment — rather than to simply help cover their ongoing costs; and (3) providing adequate funding.
  • Redefining how TANF measures state performance. Under TANF, each state must have a certain share of its caseload participating in work activities or face fiscal penalties.    The easiest way to meet this target (known as the Work Participation Rate) is to serve fewer families over time and to avoid serving families with significant employment barriers, even though they have the most to gain from employment assistance.  Congress should give states the option to develop alternative measures of success that more adequately reflect TANF’s goals, such as participants’ employment rates and earnings.  States that serve a greater share of families in need should be rewarded, not penalized, for providing a strong safety net to families who have nowhere else to turn for basic support.
  • Redefining TANF’s work requirements to better reflect the diversity of the TANF caseload. Under current rules, only a very narrowly defined set of activities count toward the Work Participation Rate, and these are not a good match for the needs of the current caseload.  Simplifying the work requirements and expanding the types and duration of activities that can count toward the work rate would encourage states to serve more needy individuals, especially those whose employment prospects are the most limited.

Congress should not only strengthen TANF, but do so promptly.  The last time TANF came up for renewal, in 2001, it took Congress more than four years to pass comprehensive reauthorization legislation — a delay that set back state program innovations permanently.  We should not allow the same thing to happen again.

All four posts in the series:

Another Reason Not to Raise the Age of Eligibility for Medicare

August 25, 2011 at 4:25 pm

Austin Frakt describes a problem with raising the age of Medicare eligibility that I didn’t mention in my recent paper.   Namely, retirees whose health benefits are funded by VEBAs (voluntary employees’ beneficiary associations) will take a big hit.  In a new blog, Austin explains how this will happen.

.

.

.

.

.
.
.

To Reduce the Debt, Follow the Law

August 25, 2011 at 4:08 pm

As my colleague Jim Horney has explained, the Congressional Budget Office’s new budget estimates show that deficits and debt are on a downward path over the next decade if we simply follow the laws already on the books.   That means there’s no need to impose large spending cuts in the near term that go beyond those in the Budget Control Act, which implemented the recent debt-limit deal.


UPDATE, August 26: we’ve revised the graph.

In fact, the CBO projections show that we can stabilize the debt-to-GDP ratio — a key test of fiscal sustainability — even without the second phase of cuts in the Budget Control Act.

The legislation calls for $840 billion in funding cuts in discretionary (non-entitlement) programs over the next decade and assigns a Joint Select Committee to come up with at least $1.2 trillion in additional savings.  But even without those $1.2 trillion in savings, we’d reduce the debt-to-GDP ratio from today’s 67 percent to 66 percent by 2021 (see graph).

What’s the catch?  Policymakers would have to follow other laws that are on the books.  That’d mean letting tax cuts (chiefly President Bush’s tax cuts, which are slated to lapse in 2013) expire on schedule, allowing the Alternative Minimum Tax (AMT) to expand its reach, and going ahead with scheduled cuts in Medicare reimbursements to physicians.  Or — more realistically — it means paying for any measures that Congress enacts after this year to extend current policies in these areas.

The course is clear:  at least for the next decade, policymakers don’t need to pass new laws to curb the deficit; they can follow the laws they’ve already enacted.

TANF at 15, Part III: What Is TANF’s Record of Success?

August 25, 2011 at 3:49 pm

Over the 15 years since President Clinton and Congress reformed welfare in 1996, states have transformed what were previously their AFDC programs, which were primarily focused on providing income support, into work-based systems that tie cash assistance to participation in work or work-related activities such as job search.

In the early years of welfare reform, the combination of a strong labor market and state policies such as work mandates and work supports (like child care assistance) significantly increased employment among participants in TANF, a block grant that replaced AFDC.  At the same time, however, many families left the welfare rolls without gaining employment, leading to a substantial increase in the number of families disconnected from both welfare and work.

Over the years, TANF has become less effective both in assisting working families affected by economic downturns and in helping very-low-income families in crisis.  The result is a weakening safety net that is falling short of its promise to help families become self-sufficient and to protect families with children who are unable to work, often because of health problems.

Employment among single mothers increased substantially during the early years of welfare reform, but many of those early gains have been lost.

.
The data suggest that a strong labor market is central to the success of a work-based assistance system.  In the early years of welfare reform, employment rates increased significantly among single mothers, including those with the lowest levels of education.  However, as the economy has weakened, a substantial portion of the early gains have been lost.

The employment rate among single mothers with less than a high school education started increasing before the creation of TANF.  It peaked in 2000 and then started to decline; by 2009 (the most recent year available) it had fallen back to 54 percent, the same level as in 1997.

TANF caseloads, unlike AFDC caseloads, haven’t responded to changes in the number of jobless single mothers.

.
In most years, the AFDC caseload rose and fell to reflect changes in the number of jobless single mothers.  Beginning in 2002, however, the two trends diverged:  the number of jobless single mothers started rising, while the number of families receiving TANF kept falling.  While TANF caseloads have increased modestly more recently, the gap between the number of jobless single mothers and the number of families receiving assistance remains very wide.

TANF does far less to help families escape deep poverty than AFDC did.

.
TANF benefits are too low to bring many families out of poverty, but they can help reduce the depth of poverty.  Unfortunately, TANF has proven far less effective at lifting families out of deep poverty — that is, incomes below half the poverty line — than AFDC did, mostly because fewer families receive TANF benefits than received AFDC benefits.  (The erosion in the value of TANF benefits also contributed.)

In 2005 (the latest year for which data are available), TANF lifted 650,000 children out of deep poverty — just a fraction of the 2.2 million children that AFDC lifted out of deep poverty a decade earlier.  In 1995, AFDC lifted 62 percent of children who would otherwise have been below half of the poverty line out of deep poverty; by 2005, this figure for TANF was just 21 percent.  If TANF had been as effective at keeping children out of deep poverty in 2005 as AFDC was in 1995, there would have been 1.1 million very poor children in 2005; instead, there were 2.4 million.

All four posts in the series: