In Case You Missed It…

December 16, 2011 at 4:32 pm

This week on Off the Charts, we focused on the payroll tax cut, unemployment insurance (UI), federal taxes, health policy, state budgets, and our special series on safety net programs.

  • On the payroll tax cut, Richard Kogan explained why the cut in non-defense discretionary funding in the House payroll tax-UI bill would likely lead to cuts in important programs such as education, housing, and Head Start, rather than an extension of the current pay freeze for federal employees (which will likely occur anyway).
  • On UI, Chad Stone pointed to new data showing that 3.3 million people would lose benefits under the House payroll tax-UI bill, compared with extending current law.  He also debunked the claim that UI benefits have dissuaded millions of unemployed workers from taking a job.
  • On federal taxes, Chye-Ching Huang noted a recent Organisation for Economic Co-operation and Development (OECD) study that found large and growing income inequality in the United States and other countries and suggested ways to address it.
  • On health policy, Paul Van de Water highlighted our report on the problems with the new Ryan-Wyden premium support proposal for Medicare.  Edwin Park discussed why allowing insurers, as part of health reform, to measure the health status of their enrollees themselves would create a greater risk of error and fraud.  Judy Solomon also cautioned that a provision in the House payroll tax-UI bill to hike health reform subsidy repayments would likely cause 170,000 people to go without subsidized health coverage.
  • On state budgets, Phil Oliff explained why Florida Governor Rick Scott’s proposed increase in education funding would still leave the state in a big education funding hole.
  • On our special series on safety net programs, Arloc Sherman explained that these programs have held the line against poverty and hardship but warned that the expiration of temporary programs and coming budget cuts threaten to weaken the safety net.  Donna Pavetti emphasized the need for Congress to improve TANF upon its renewal in 2012, and Barbara Sard discussed the role of federal housing assistance in fighting homelessness and helping families obtain decent housing.

In other news, we released reports on the House UI proposal, a provision in the House payroll tax bill that would threaten health reform, a balanced budget amendment before the Senate, the Ryan-Wyden Medicare premium support proposal, key things to know about unemployment insurance, and problems with allowing insurers to withhold data on enrollees’ health status.

Taking Stock of the Safety Net, Part 3: Helping Families Afford Decent Housing

December 16, 2011 at 3:39 pm

No one wants to spend the holidays without a safe place to call home.  Yet a growing number of families with children are homeless; a recent report estimated that one in 45 children in the United States was homeless during 2010.

Also, 7.1 million households — with 16.6 million people — paid more than half of their incomes for rent or lived in severely substandard housing in 2009, a jump of more than 20 percent since 2007.  (The Department of Housing and Urban Development [HUD] considers housing unaffordable if it consumes more than 30 percent of a household’s income.)

These problems would be much worse without federal rental assistance, which enables nearly 5 million low-income households to rent modest housing at an affordable cost, typically 30 percent of household income.  (Click here for state-by-state information.)  More than half of these households are headed by people who are elderly or have disabilities; roughly one-third are families with children.

While their primary purpose is to help families obtain decent-quality, affordable housing and thereby avert homelessness, federal rental assistance programs also lifted about 3 million families out of poverty in 2010.  And recent research shows that families that had the opportunity to use a housing voucher to move to a less-poor neighborhood are less likely to suffer from extreme obesity and diabetes — a benefit with potentially important savings in health costs, as well as improved quality of life.

Unfortunately, only one in four households that qualify for housing assistance receives it, due to limited funding.  And the number of families receiving federally funded rental assistance has remained static over the past decade, despite growing need (see graph).

HUD Rental Assistance Has Remained Flat Despite Increase in Need

Worse, major programs that have proven effective at helping families find stable housing will serve fewer families next year, again because of limited funding.

  • The $1.5 billion for homelessness prevention that Congress provided in the 2009 Recovery Act likely averted an even sharper increase in family homelessness in 2010, yet most local housing agencies will exhaust these funds well before the end of next year.
  • HUD’s final fiscal year 2012 budget cuts total program funding by $3.7 billion (9 percent) below the 2011 level.  Public housing and programs that promote the production of affordable housing will face the largest cuts.  But even the programs that fared relatively well in the budget — such as the Housing Choice Voucher program, which helps more than 2 million low-income families — will likely serve fewer families next year due to inadequate funding.

Also, the increasingly severe caps on most “discretionary” spending due to take effect starting in 2013 under the Budget Control Act will make it difficult to prevent further severe cuts in housing assistance.

Problems with the Ryan-Wyden Medicare Proposal

December 16, 2011 at 1:07 pm

We issued a report today on the new proposal for Medicare premium support by House Budget Committee Chairman Paul Ryan (R-WI) and Senator Ron Wyden (D-OR).  As our report explains, the proposal:

differs in key respects from how many media reports are describing it.  Despite claims to the contrary, it likely would shift substantial costs to beneficiaries rather than protect them from such cost increases, could lead to the demise of traditional Medicare over time rather than preserve it, and likely would produce few savings.

Click here for the full report.

Taking Stock of the Safety Net, Part 2: Meeting Families’ Basic Needs Through TANF

December 15, 2011 at 2:17 pm

About 3.5 million children and 1.1 million parents receive cash assistance each month from the Temporary Assistance for Needy Families (TANF) program to help cover their basic needs.

Families turn to TANF at times of major economic or personal distress, usually when they have lost a job or are facing a crisis such as fleeing an abusive situation or caring for a sick child.  Many also face serious personal and family challenges, such as mental or physical health problems.  In spite of the barriers they face, nearly all adult recipients must look for work and participate in approved work activities for 20 to 30 hours per week in order to receive benefits.  Most recipients receive assistance for two years or less.

Congress created TANF as part of the 1996 welfare reform law to serve two different functions:  (1) help parents find and maintain employment and (2) provide a safety net for families when they cannot work.  Unfortunately, flaws in TANF’s design have limited its success on both fronts, and the economic downturn has exposed its serious weaknesses.  In fact, TANF has grown weaker at the very time that the need for it has increased.

Number of Families Receiving AFDC/TANF Benefits for Every 100 Families in Poverty

  • In 1996, TANF helped 68 families for every 100 families in poverty; in 2009, it helped just 27 families for every 100 families in poverty (see graph).
  • In 1995, TANF’s predecessor, Aid to Families with Dependent Children (AFDC), lifted 2.2 million children out of “deep poverty” — that is, it lifted their family’s income above 50 percent of the poverty line.  In 2005 (the last year for which these data are available), TANF lifted just 650,000 children out of deep poverty.   Half of the poverty line in 2011 is $9,265 for a family of three.
  • TANF benefit levels are so low that they do not, in any state, raise a family’s income above 50 percent of the poverty line.  In most states, TANF benefits are worth at least 20 percent less than when TANF was created, after adjusting for inflation.  In 2011, six states — the highest number ever in one year — cut their already low TANF benefits.

TANF is up for renewal in 2012.   Congress should use this opportunity to make improvements like:

  • Strengthening access to the program. A big reason why so many families who need TANF don’t receive it is that many states have made it unnecessarily difficult to apply for (and remain on) it because federal TANF rules essentially reward states for reducing their caseloads.  Families who need temporary cash assistance to meet their basic needs should not be left out in the cold.
  • Redefining how TANF measures state performance. States receiving TANF funds must have a certain percentage of their TANF caseload participating in work activities.  The easiest way for states to meet this requirement is to avoid serving families with the biggest employment barriers, even though they are the very families that most need the help.  Instead, the federal government should measure state programs according to how well they help people gain a foothold and advance in the work force.
  • Giving states funds to create subsidized employment programs. The TANF Emergency Fund, for example, enabled states to provide subsidized jobs in the private, public, and non-profit sectors for nearly 250,000 otherwise unemployed parents and youth, but it expired last September.  When unemployment is high and jobs are scarce, states need additional options to help maintain TANF’s focus on work.

It’s the Great Recession, Not the Great Vacation, That’s Responsible for High Unemployment

December 15, 2011 at 1:55 pm

Two competing narratives frame the debate about why unemployment remains so high even though the economy has been growing for more than two years.

The mainstream “Great Recession” narrative holds that the economy fell into a deep hole in 2008 and has been climbing out of it so slowly because demand has grown so slowly.  Jobs continue to be very hard to find, no matter how hard unemployed workers look for them; employers are reluctant to hire until they see stronger signs that their sales will pick up soon.

The “Great Vacation” narrative holds that unemployment insurance (UI) benefits — in particular, the added weeks of benefits for the long-term unemployed that Congress has funded in the past few years — have dissuaded millions of unemployed workers from taking a job.  If, then, jobless workers would get off their duff (or if we would give them a good swift kick there), unemployment would plummet.

That narrative seems to be motivating the latest House UI proposal, which curtails the number of weeks of UI benefits available, would allow states to alter the fundamental social insurance nature of the program, and includes a number of “reforms” that would make it more difficult for workers who lose their jobs through no fault of their own to have access to the program (see our critique).

Research strongly rejects the Great Vacation narrative, notwithstanding the efforts of some economists to misrepresent that research.  As Brad DeLong points out, for example, Casey Mulligan cites a study in arguing that UI benefits are a major cause of higher unemployment — but that study actually sums up the research (as of early 2010) as suggesting that only an eighth to a third of the rise in unemployment since the start of the recession resulted from the added weeks of benefits, with the true effect likely at the lower end of that range.

A more recent analysis from Berkeley economist Jesse Rothstein finds even smaller effects:

The estimates imply that UI benefit extensions raised the unemployment rate in early 2011 by only about 0.1-0.5 percentage points, much less than is implied by previous analyses.

Rothstein also found that more than half of this small increase in the unemployment rate occurred as workers receiving those added weeks of UI benefits stayed in the labor force looking for work, rather than drop out in discouragement.

When the unemployed stop looking for work, that reduces the unemployment rate (which only counts people actively looking for work), but it doesn’t help them or the economy or result in more workers having jobs.

To be sure, some UI recipients have slipped past state UI administrators’ efforts to ensure that they search for a new job and take a suitable one when it’s available.  It’s also true, as Casey Mulligan says, that “the recession and lack of recovery have more than one cause.”

But it would be a serious mistake to conclude that the truth lies somewhere in the middle between the Great Vacation and Great Recession explanations — like saying that Philadelphia lies somewhere in the middle between New York City and Los Angeles.  If you rely on the Great Vacation explanation, you’ve barely started your journey to understanding why unemployment is so high.