Analysis

Boosting Economic Mobility through the EITC

The Earned Income Tax Credit (EITC) is one of our nation’s most effective anti-poverty programs, helping more than 6.5 million Americans—including 3.3 million children—avoid poverty in 2012. The EITC also has the rare distinction of being regularly showered with bipartisan support—no small feat in a historically gridlocked Congress.

In addition to reducing financial hardship in the near term, extensive research shows that the EITC is also an investment in the future health and wealth of our nation. For example, a more generous EITC substantially reduces the incidence of low birth weight, a key indicator of both infant health and later-life outcomes. Recognizing these benefits, lawmakers made important improvements to the EITC under the American Recovery and Reinvestment Act of 2009, including boosting the credit for married couples and larger families. These improvements should be made permanent before they expire in December 2017.

In a new Center for American Progress report, we offer new ideas to build on the EITC’s success, strengthening the credit in order to increase economic mobility. In addition to boosting the EITC for childless workers—a recommendation that has been embraced by Democrats and Republicans alike—and lowering the age of eligibility (currently 25) to include younger workers without children, we propose making the EITC a gateway to higher education and training through the Pell Grant program. We also propose an “Early Refund” option which would allow workers to receive a portion of the earned credit in advance of tax-time, lessening the need to turn to predatory payday loans in order to make ends meet. Finally, we recommend that strengthening the EITC should go hand in hand with raising the minimum wage in order to maximize the effectiveness of both policies for low-income working families.

Sharron, a bus driver in Montgomery County, Maryland, volunteers at her local Volunteer Income Tax Assistance (VITA) site and knows first-hand how important the EITC is for struggling families. For low-income single parents with children, for example, the EITC can boost earnings by as much as 45 percent. For someone like Sharron, however—working full-time at minimum wage, but without dependent children—the estimated EITC next year will be just $22. If the EITC were boosted for childless workers, her credit would increase to about $542.

In addition, Sharron recently suffered an unexpected loss of income. A few weeks ago, she was transferred by her employer, and her work is on hold while the transition takes effect. As of last week she was still waiting, with no paycheck, and very little money left in her bank account. She doesn’t know what she’ll do if she has to wait much longer.

For workers like Sharron, financial shocks don’t wait until tax time. When faced with an unexpected drop in income, a medical bill, or a broken-down car, many low-wage workers are forced to turn to payday lenders for immediate financial help. But the triple-digit annual interest rates that these lenders typically charge can quickly turn a small loan into a vicious spiral of debt. To help workers like Sharron avoid these predatory loans and make ends meet, we propose an “Early Refund” option of up to $500.  While that might seem modest compared to an average EITC of $2,335, it exceeds the size of the typical payday loan, which is $375.

Weathering emergencies isn’t the only reason to allow workers to access a portion of the EITC they have earned prior to tax season. A shortfall of cash may prevent families from making beneficial investments in their own future. A required training course for a new job, a summer math camp for a talented child—these are small expenditures today that pay significant dividends tomorrow. But these opportunities for advancement are often no longer available come spring when a family finally receives its EITC.

The EITC could be bolstered as a tool for economic mobility in other ways as well. Individuals who receive federal assistance through the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), and several other types of public benefits are automatically eligible for the maximum Pell Grant; we recommend automatic eligibility for EITC recipients as well. This would streamline the process for receiving federal aid for higher education and training and put educational advancement within reach for more low-income workers and their families.

Strengthening the EITC to promote financial security, encourage savings, and increase access to education and training would not only increase its effectiveness in combatting poverty, but also create new pathways to the middle class.

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Analysis

Poverty and Homelessness are Human and Civil Rights Issues

In 1962, Thomas Kuhn wrote The Structure of Scientific Revolution. In it he defined and popularized the concept of “paradigm shift”.  Kuhn argues that scientific advancement is not evolutionary, but a “series of peaceful interludes punctuated by intellectually violent revolutions”, and in those revolutions “one conceptual world view is replaced by another”.

I feel that we need a paradigm shift in how we perceive the problems of poverty and homelessness and that it is time, right now, for an intellectually violent revolution.

We can start by no longer calling efforts to address poverty a ‘War on Poverty’. However well-intentioned that phrase might have been in its original use, it has come to mean something else entirely over time. A war on poverty now implies that poverty, and the poor, are enemies we must overcome as a society.

In an article published this week by TalkPoverty called How We Punish People for Being Poor  Rebecca Vallas points out the sundry ways our society blithely exploits the poor.  There are also news reports every day depicting how we harass, fine, incarcerate and abuse people for the ‘crime’ of being poor.

But these articles and reports do not address the underlying issue of why our society feels it has the right to punish people for being poor.

Rather than point out the reasons for that, and analyzing them – we need a paradigm shift away from the attitudes and beliefs that allow these kinds of abuses to take place as a matter of course.

So how do we do this?

We need to start by viewing and treating poverty and homelessness as what they are: human and civil rights issues.

We need to start by viewing and treating poverty and homelessness as what they are: human and civil rights issues.

We’ve seen this happen before: Blacks were characterized as inferior to Whites (and treated that way); women were thought of as window dressing for men’s lives (and treated that way); and LGBT people were dismissed as abnormal (and treated that way).

Nothing fundamentally changed in how we viewed these groups of persons until we started recognizing them as fully human, entitled to the same human and constitutional rights as anyone else.

The same has to happen now with the poor.  Here are my specific recommendations:

Decriminalize homelessness. But don’t stop there; let’s make it a criminal offense, a hate crime, for anyone caught abusing the poor and homeless just for being poor or homeless.

A national Housing First mandate. Housing is the humane and dignified solution to homelessness, not isolating, abusing, fining and imprisoning.

Do whatever it takes to force every state to accept Medicaid expansion. Basic healthcare is a human right; not something that should be denied for short-sighted political reasons.

Well, I’d like to stop right there. One of the problems of trying to address poverty and homelessness is there are so many sub-issues one can get lost in them all and end up accomplishing nothing.

This Friday, October 10th, marks World Homeless Action Day. Let’s observe it by beginning to recognize poverty and homelessness as conditions of human existence—protected by moral and civil law—and not as social abnormalities that need to be warred against psychologically, emotionally and physically.

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Analysis

The Unfair Price: Poverty in the LGBT Community

Two weeks ago, the U.S. Census Bureau released updated poverty numbers for 2013. You probably already know the depressing story – poverty rates remained relatively unchanged across the country; the rate of poverty for children dropped by two percentage points, but still nearly one-in-five American children lives in poverty.

What you may not know is what the numbers look like for LGBT Americans. Our latest report, Paying an Unfair Price: The Financial Penalty for Being LGBT in America, examines how anti-LGBT laws drive economic insecurity for LGBT people, including higher rates of poverty.

LGBT people disproportionately struggle with poverty. Twenty percent of LGBT people living alone have annual incomes of less than $12,000 compared to 17% of non-LGBT people living alone. Transgender people are four times more likely to have incomes under $10,000 per year than the general population despite having higher rates of education.

Poverty(click to expand the infographic)

There is a clear connection between economic insecurity and anti-LGBT laws. Nineteen states lack almost any form of legal protections for LGBT people, and that has a real, tangible economic impact. When a gay or lesbian worker can be fired legally in 29 states; when a transgender person can be denied comprehensive health insurance in 42 states; or when a lesbian couple can be evicted in 29 states—the economic toll adds up.

ThreeFailures

All LGBT Americans are affected in one way or another, but the impact of these penalties is felt most acutely by those who are most vulnerable: LGBT families with children; older same-sex couples; and LGBT people and families who are already living near or below the poverty line, including a disproportionate number of LGBT people of color and LGBT people living in rural communities.

When LGBT people are already poor, they have no ability to absorb these financial penalties. For example, a transgender person in a state lacking housing protections can be evicted without cause or warning. She then finds herself unable to piece together a security deposit for a new apartment or to afford a more expensive apartment leased by a landlord who doesn’t discriminate.

Struggling LGBT people also lack the financial resources needed to secure legal protections for themselves and their families. For example, a second-parent adoption—which allows a non-biological parent to be recognized as a parent—can cost more than $2,000. For a poor lesbian couple, this expense is too much to bear. Without a legal tie between parent and child, the couple is left to simply hope for the best, a potentially devastating situation should the legal parent die.

Our report includes a number of stories that show the devastating effect of discrimination.  But we also need more data about poverty in the LGBT community if we are to improve the economic security of all people living in the United States. LGBT people were absent in the released U.S. Census poverty numbers, although it is indeed possible to examine data on same-sex couples, as our research and research by others have shown. As for single LGBT people—since the Census doesn’t ask about sexual orientation or gender identity—researchers cannot track their poverty rates. Government surveys need to be modernized to include gender identity and sexual orientation in order to fully understand the scope of poverty and find the most effective policy solutions.

It is time to put an end to the financial penalties that LGBT Americans face simply because they are LGBT. Policymakers at the local, state, and federal levels need to update laws to prohibit discrimination against LGBT people in areas ranging from hiring to housing to credit. Policymakers also need to update the legal definitions and regulations of “family” so that LGBT families have access to the same protections and benefits that are available to other families.

Our policy responses to poverty in America are destined to fall short if they fail to address the economic experiences of LGBT families and individuals.

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Analysis

How We Punish People for Being Poor

This past weekend, I was part of a panel discussion on MSNBC’s Melissa Harris Perry with New York Times reporter Michael Corkery, whose reporting on the rise in subprime auto loans is as horrifying as it is important.

In what seems a reprisal of the predatory practices that led up to the subprime mortgage crisis, low-income individuals are being sold auto loans at twice the actual value of the car, with interest rates as high as 29 percent. They can end up with monthly payments of $500—more than most of the borrowers spend on food in a month, and certainly more than most can realistically afford. Many dealers appear in essence to be setting up low-income borrowers to fail.

Dealers are also making use of a new collection tool called a “starter-interrupter device” that allows them not only to track a borrower’s movements through GPS, but to shut off a car with the tap of a smartphone—which many dealers do even just one or two days after a borrower misses a payment. One Nevada woman describes the terrifying experience of having her car shut off while driving on the freeway. And repossession of their cars is far from the end of the line for many borrowers; they can be chased for months and even years afterward to pay down the remainder of the loan.

Predatory subprime auto loans are just the latest in a long line of policies and practices that make it expensive to be poor—something I saw every day representing low-income clients as a legal aid attorney.

Predatory subprime auto loans are just the latest in a long line of policies and practices that make it expensive to be poor

Low-income individuals are much more likely to be hit by bank fees, such as monthly maintenance fees if their checking account falls below a required minimum balance—balances as high as $1,500 at leading banks such as Bank of America and Wells Fargo—not to mention steep overdraft fees. For the more than 10 million U.S. households who lack a bank account, check cashers charge fees as high as 5 percent. This may not sound like much, but consider a low-income worker who takes home around $1,500 per month: She’d pay $75 just to cash her paychecks. Add in the cost of money orders—which she’ll need to pay her rent and other bills—and we’re talking about $1,000 per year just for financial services.

Whether or not they have a bank account, very few low-income families have emergency savings, and more than two-thirds report that they’d be unable to come up with $2,000 in 30 days in the event of an emergency expense such as a broken water heater or unexpected medical bill. Out of options, many turn to payday loans for needed cash. Jon Oliver, host of Last Week Tonight, gave this important issue perhaps the best treatment I’ve seen in some time, detailing how families who turn to predatory payday loans can end up trapped in an inescapable cycle of debt at 400 percent annual interest.

Then there’s the rent-to-own industry.  Through weekly installments, low-income families with bad credit or no credit can end up paying as much as two and a half times the actual cost of household basics like a washer and dryer set, or a laptop for their teen to do his homework.

Grocery shopping can bring added costs too. For families who can’t afford to buy in bulk, the savings Costco offers are out of reach. And for those without a car, living in low-income neighborhoods without a convenient supermarket, it’s either cab or bus fare to haul groceries back, or swallowing the markup at the neighborhood corner store.

And then there’s the issue of time. Something I heard about frequently from my clients when I was in legal aid was how much extra time everything takes when you’re poor. Many told of taking three buses to work and back, and spending as many as five hours in transit to get to and from their jobs every day. Those who needed to turn to public assistance to make ends meet would describe waiting at the welfare office all day long simply to report a change in their income.

Also worth noting is the criminalization of poverty and the high costs that result. In a nationwide trend documented by the National Law Center on Homelessness and Poverty, a growing number of states and cities have laws on the books that may seem neutral—prohibiting activities such as sidewalk-sitting, public urination, and “aggressive panhandling”—but which really target the homeless. (The classic Anatole France quote comes to mind: “The law in its majestic equality forbids the rich as well as the poor to sleep under bridges, to beg in the streets, and to steal bread.”)

Arresting a homeless person for public urination when there are no public bathroom facilities is not only a poor use of law enforcement resources, it also sets in motion a vicious cycle: The arrested individual will be unable to afford bail, as well as any fees levied as punishment, and nonpayment of those fees may then land him back in jail.

In an extreme example, in the state of Arkansas, missing a rent payment is a criminal offense. If a tenant is even one day late with the rent, his landlord can legally evict him—and if the tenant isn’t out in 10 days, he can wind up in jail.

In yet another penny-wise and pound-foolish trend, states and localities are increasingly relying on enforcement of traffic violations—as well as fines and fees levied on individuals involved with the criminal justice system—as sources of revenue. In Ferguson, Missouri, the city relied on rising municipal court fines to make up a whopping 20 percent of its $12.75 million budget in 2013. Ability to pay is often ignored when it comes to these types of fines and fees, leaving individuals stuck in a cycle of debt long after they’ve paid their debt to society. While debtor’s prison was long ago declared unconstitutional, failure to pay can be a path back to jail in many states.

It’s good to see the New York Times, Melissa Harris-Perry, and others paying attention to these injustices. But that’s just the first step. If we are truly interested in building an America that is defined by opportunity, we must commit to enacting public policies that support rather than impede upward mobility.

Editor’s Note: To watch both segments of the Melissa Harris-Perry show that featured Rebecca as part of a panel discussing the high cost of being poor click here and here.

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Analysis

Out of the shadows and out of poverty: Reducing poverty through immigration reform

The Census Bureau recently released new data on poverty in the United States. While the coverage that followed provided an overview of the new numbers, and in the case of TalkPoverty examined policy choices that would dramatically reduce poverty, there is one important issue that received little attention: the potential for immigration reform to create a pathway out of poverty, by enabling undocumented immigrants to work legally and maximize their earnings.

Today, there are an estimated 11.3 million undocumented immigrants living in the US. Under current immigration law, these individuals are barred from working legally and, as a result, regularly self-select into jobs that minimize their risk of detection and deportation. Most undocumented workers ultimately find themselves in low-wage jobs where they are susceptible to exploitation and unable to exert their labor rights. In fact, researchers have found that undocumented workers are nearly three times more likely to experience wage theft than legal workers. It’s a simple fact: our broken immigration system is forcing families to live under precarious financial conditions.

Our broken immigration system is forcing families to live under precarious financial conditions.

Thankfully, there are smart and much needed policy changes on the horizon.

As Republican House Speaker John Boehner refuses to hold a vote on immigration reform, President Obama is expected to take administrative action.  While the President’s action would be limited and temporary, it would greatly improve the financial security of undocumented immigrants.

Through executive action, the president can focus enforcement resources on high-priority targets, such as criminals and those who threaten national security, while permitting a specific group of people to apply for a temporary work permit and a reprieve from deportation. This process is known as deferred action and would likely be extended to undocumented immigrants who have been in the U.S. for a significant number of years and have family ties here. But what does this immigration fix have to do with poverty?

Everything.

The acquisition of temporary work permits would allow undocumented workers to apply for jobs that best match their skills, thereby maximizing their earning potential. Equally important, the ability to work legally decreases the likelihood that these workers will be victims of labor abuses, ranging from wage theft to unsafe working conditions.

A recent report by the Center for American Progress estimated that greater labor market mobility and stronger workplace protections would increase the average undocumented immigrant’s earnings by 8.5 percent, or an additional $1,872 each year.  This increase in income is equivalent to 37 percent of average food expenditures—or 27 percent of average transportation costs—for families earning between $30,000 and $39,999 annually (which is the average income bracket for families with an undocumented immigrant).

It’s clear that the fiscal benefits of deferred action would pull some immigrant families out of poverty, keep others from slipping into it, and strengthen the financial security of all of these families.

But it’s not just the families of undocumented immigrants who would benefit from deferred action, all Americans would be better off. As undocumented immigrants receive temporary work permits, they will transition from the informal to formal economy and begin paying taxes legally. In fact, allowing undocumented immigrants who have been in the U.S. for at least 10 years to apply for work permits would increase payroll tax revenues by an estimated $33 billion over five years—that means more resources for vital programs like Social Security that benefit everyone.

Only congressional action will completely fix our broken immigration system. And it’s only through permanent reform that the US will fully realize the fiscal benefits of bringing undocumented immigrants out of the shadows. But until Congress takes up immigration reform, executive action would begin the process of fixing our system.

As Americans wait for President Obama to announce which executive actions on immigration he will take, they should remember that a step toward fixing our immigration system is a step toward greater financial security for everyone.

 

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