Safety Net

Love Your Tax Refund? Here’s a Bipartisan Proposal to Make It Even Better.

With Tax Day come and gone, confusion over 1040s, 1099s, and W-2s has given way to enthusiasm for tax refunds. “Better than Christmas” is how one low-wage worker described her refund, and she’s hardly alone. Dozens of workers have compared tax season to Christmas, winning the lottery, and even an act of divine intervention.

That’s because for millions of Americans, tax time is a big boon—their refund is the single largest check they’ll receive all year.  In fact, for lower-income tax filers, their annual refund can amount to 30 percent or more of their income for the entire year, providing a rare period of financial security in a year full of financial distress. These filers spend their refunds mostly on paying down debts, investing in their kids and their own future, and putting some savings away.  For the rest of the year, though, a near majority of Americans are financially insecure, lacking even the most basic savings to deal with an emergency like reduced work hours or car trouble.

And that’s the problem with tax season: it’s just one short season. But life goes on and financial security shouldn’t end when that refund check is gone. A new bipartisan bill, the Refund to Rainy Day Savings Act, introduced by Senator Cory Booker (D-NJ) and Senator Jerry Moran (R-KS), aims to stretch out the positive impact of tax season by boosting emergency savings and year-round financial security.

The legislation tackles that goal in two simple ways. First, it allows all tax filers to opt in to a new Rainy Day Savings program at tax time. Under this program, when tax filers check a box on their 1040, a full 20 percent of their refund is saved for six months, accruing interest over the course of that period. Six months later, that deferred refund is put into their direct-deposit account. (Any account that is direct-deposit eligible can be used, including prepaid cards.) Filers would still get a sizeable refund at tax time, but they also get to set some aside for the year ahead and earn interest on it.

The second big component of the bill is designed specifically for low-income households. The Refund to Rainy Day Savings Act creates a new research and evaluation pilot program run by the Department of Health and Human Services to test out different models of savings matches for tax time. Driven by the needs of local anti-poverty practitioners and the populations they serve, this program will invest in innovative strategies to help lower-income households build savings and become financially secure. For example, as we’ve written previously, a pilot site could set up a 50 percent match for opting into the program. If the family saves $500 of their tax refund, they’ll receive $750 plus interest in six months. For reference, $750 is larger than the typical high-interest payday loan.

levin tax refundThe legislation also provides research funding to evaluate what works and what doesn’t in the field of matched savings for low-income families and individuals, paving the way for future reforms that could scale up countrywide. This is what real evidence-based policymaking looks like.

Of course, the Rainy Day Savings program won’t eliminate financial insecurity. Families need adequate income to get by day-to-day, not just savings to weather emergencies. Low-wage workers who can’t claim children on their tax return in particular will continue to lose out under the current tax code unless Congress acts to stop taxing them into poverty. And a deferred refund won’t work for everyone. Some households will need immediate access to their tax refund. It makes sense—it’s their money and they should have access to it when they want and need it.

But the Refund to Rainy Day Savings Act takes a critical step in the right direction. It’s the first bipartisan bill of its kind aimed at expanding emergency savings and financial security. It creates a new tool that could help millions of low-wage workers take better control of their financial lives. And it will do that while simultaneously laying the groundwork for future large-scale reforms.

The good news is that it won’t take an act of divine intervention to boost financial security for millions of lower-income Americans—just an act of Congress. When two senators from two different parties can come together to announce something like this legislation, the rest of Congress should take notice and make it happen.

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Media and Politics

Why Support for Fighting Poverty is Already Higher Than You Think

Public support for fighting poverty is growing.

A muchpublicized poll from Harvard’s Institute of Politics last week finds that millennials increasingly favor government action to reduce poverty and expand opportunity. In fact, 47 percent of those between the ages of 18-29 agree that “basic necessities, such as food and shelter, are a right that government should provide to those unable to afford them.” That’s up from 43 percent last year and 42 percent in 2014.  A similar number of millennials—45 percent—believe the government should spend more to reduce poverty.  That’s a dramatic increase from the 40 percent who shared this view in 2015, and the 35 percent who did in 2013.

But what the media missed in covering this poll is that these numbers actually understate the broad, bipartisan support for key safety net programs that help low- and moderate-income Americans.

A Vox/Morning Consult poll last month found that 60 percent of people ages 18-29 would be willing to pay additional taxes to fund “welfare benefits, such as help for women with infants or children, or nutrition programs”—significantly higher support than the Harvard findings.  A majority—51 percent—would also pay more taxes to provide additional income assistance for those living below the poverty line.

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Moreover, support for antipoverty programs is not limited to younger voters.  53 percent of Gen Xers—those between the ages of 45 and 54—support more benefit funding for women, infants or children.  And when it comes to Social Security, a majority of voters in every age group would be willing to pay additional taxes to fund the program—including 56 percent of millennials. In fact, a Pew poll this year found that 54 percent of respondents from all age groups think aiding those in poverty should be a “top priority” for Congress and the President this year.

The lesson from this data is clear: the American public overwhelmingly supports investments that expand opportunity for low- and moderate-income people, and they are even more sympathetic when asked about specific programs.  This sentiment shouldn’t come as a surprise.  From Medicaid to Pell Grants, Americans have long supported public efforts to reduce health care costs, improve education, and expand opportunity.

Now they just need their leaders to listen.

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Safety Net

Why Student Loan Debt Harms Low-Income Students the Most

Four years ago, student loan debt in America topped $1 trillion. Today, that number has swelled even further, with some 43 million Americans feeling the enduring gravity of $1.3 trillion in student loan debt.

While student debt may not intuitively register as something that plagues the poor, student debt delinquency and defaults are concentrated in low-income areas, even though lower-income borrowers also tend to have much smaller debts. Defaults and delinquencies among low-income Americans escalated following the Great Recession of 2008, a period when many states disinvested from public colleges and universities. The result was higher costs of college, which has led to larger loans.

Low-income students are often left at a dramatic academic disadvantage in the first place. For example, students who work full-time on top of college classes can’t cover the cost of tuition or living expenses, and working while in school can actually shrink the chance of graduating altogether. Moreover, these students are less likely to have access to career counseling or outside financial resources to help them pay for school, making the payoff negligible at best.

The inequity is so crushing that an alarming number of these students—predominantly students of color—are dropping out of school altogether. One-third of low-income student borrowers at public four-year schools drop out, a rate 10 percent higher than the rest of student borrowers overall.

When it comes to for-profit colleges, the story gets even worse. These institutions often target prospective students who are low-income while falsely assuring positive job and economic prospects upon graduating. Many students do end up dropping out, and even those who do graduate do not always receive a quality education that leaves them prepared for success—or with an income that matches up with their monthly loan payments. Their degrees too often cannot compete in the job market, leaving many of these students jobless.

A dream of a higher education shouldn’t be a sentence to years—or an entire lifetime—of poverty.

This confluence of factors explains why borrowers who owe the least tend to be lower-income, and are the most likely to fall behind or default on their monthly payments. As the Mapping Student Debt project has found, people with more debt are less likely to default on their loan payments because they have the most access to wealth, whether through family money or financial assets or educational degrees. And it’s not hard to connect the dots. The biggest borrowers tend to be the biggest earners, so those who take out large loans to pay for graduate or professional school are less likely to default or fall behind because they’re in high-earning jobs. The Department of Education estimated that 7 percent of graduate borrowers default, versus 22 percent of those who only borrow for undergraduate studies. Default can actually lead to an increase in student loan debt because of late fees and interest, as well as a major decline in credit, ineligibility for additional student aid, and even wage garnishment at the request of the federal government.

Fortunately, there are solutions already in place that can help borrowers get out of default and back on their feet.  For borrowers with federal loans, the Department of Education has a number of income-driven repayment programs (IDR) that cap a borrower’s monthly payment to as low as 10 percent of their discretionary income. Rather than being saddled with debt and an income that doesn’t realistically allow for repayment, borrowers can take advantage of programs such as PAYE, REPAYE, and Income-Based-Repayment to make their monthly loan payments proportional to their income. And some low-income borrowers might even qualify to pay nothing at all if they fall beneath certain income levels.

These plans won’t just help borrowers with high debt balances.  IDR is especially helpful for borrowers with smaller balances because it reduces the monthly burden while keeping more money in pockets to cover expenses for food, housing, and other basic needs that borrowers must choose between in the face of overwhelming monthly payments.

Yet woefully few borrowers are aware of these plans that have the potential to make sure low-income borrowers aren’t paying more than they can afford. Fully 51 percent of student loan borrowers nationwide are eligible for these programs but only 15 percent are enrolled.

A dream of a higher education shouldn’t be a sentence to years—or an entire lifetime—of poverty. With federal IDR programs, the process of paying back any amount of student debt can be much less draining of an obligation, especially for our most vulnerable citizens. It’s on all of us to make sure those who can benefit the most from IDR are aware of it.

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Justice

How We Can Prepare Incarcerated Parents for Reentry

According to the latest estimates, more than 5 million children in this country have had a parent in prison or jail at some point. In fact, parents represent well over half of the individuals serving time in state and federal prisons.

The absence of their parents is just one of the losses these children face—losses that can affect them well beyond childhood. They lose security and stability in every sense of the word, as their remaining parent or other relatives struggle to make ends meet. They also contend with feelings of confusion, fear, anger, and even shame in the face of others’ judgment. And when parents return from prison, their criminal history comes home with them, thwarting their efforts to find a job and safe, affordable housing so they can support their families and fully contribute to their communities.

While a much-needed national debate on reforming our criminal justice system continues to unfold, parents serving time and reentering families today require immediate, practical solutions. State and local policymakers, courts, correctional systems, and community agencies can act right now to enable more parents to succeed as providers for their families and contributors to their communities, giving their children the stability, support, and opportunities they need to thrive.

First, parents need to see and stay connected with their kids during incarceration, a near impossibility when hundreds of miles separate them. State policymakers and judges can make prison-location assignments that allow families to maintain contact as much as possible, and prisons can develop visitation policies and spaces that create environments more suitable for family visits.

Their children, families, and neighborhoods bear heavy burdens in their absence—burdens that persist even after they return.

Correctional facilities also can offer courses that bolster parents’ ability to support and nurture their children while they are in prison, which could further strengthen their relationship with their kids upon their release. National Fatherhood Initiative’s InsideOut Dad, for example, helps incarcerated fathers connect with their families and build parenting skills. Correctional facilities in a number of states, including Alabama, Florida, New Jersey, and Virginia, have used this curriculum, and research shows it improves parenting skills and participating fathers’ contact with their children.

Second, parents need a steady job that pays well so they can properly support their children upon reentry. But many returning to the job market lack the education, training, and employment history that today’s employers seek. Having a criminal record reduces their odds of landing a good job, or even puts them out of the running entirely.

In a new report on parental incarceration, the Annie E. Casey Foundation (where I serve as president and CEO) recommends various ways that states, communities, and correctional facilities, among others, can connect incarcerated and returning individuals with economic opportunities, including jobs.

Prisons, for example, can offer training programs for jobs in high-demand sectors, such as information technology. States can take advantage of recently raised funding thresholds under the Workforce Innovation and Opportunity Act to support such programs, which have seen success in California’s San Quentin State Prison and in Philadelphia prisons. And community-based employment and training programs can look beyond the more typical construction or manufacturing jobs and help parents develop the entrepreneurial skills needed to start a small business.

To ensure returning parents have a shot at good jobs, more states and employers should join the “ban the box” movement, which calls for employers to postpone questions about criminal history until after an applicant has been identified as the most qualified candidate. About 20 states and hundreds of jurisdictions and businesses—including Georgia, most recently—have moved in this direction; more should follow suit.

Finally, all families need safe, affordable places to live if they’re to have any hope of achieving stability. Yet parents with a criminal record can encounter landlords and public housing restrictions that can prevent them from moving forward with their families. More state and local jurisdictions should foster family reunification, when appropriate, by requiring landlords to consider the person—including references for good conduct and type of criminal history—rather than discriminating based on his or her record. Such requirements are already in place in Newark, New Jersey, and Oregon.

We cannot forget that the people behind bars are fathers, mothers, and members of communities, and they don’t serve their sentences in isolation. Their children, families, and neighborhoods bear heavy burdens in their absence—burdens that persist even after they return. And their burdens stand to become ours as a nation if we don’t equip them and their families so that they can shoulder and, ultimately, put down that weight.

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Justice

How Court Debt Erects Permanent Barriers to Reentry

One of the most significant barriers to reentry is the imposition of fines, fees, surcharges, costs, and other monetary penalties (collectively “criminal justice debt”). One-third of California’s released prisoners return home to Los Angeles following their incarceration. They are hobbled not only by restrictive rules, laws and policies relating to their criminal histories, but also by debts that limit their available resources to successfully reenter society.

One of my clients, Mr. Smith, is trying to expunge his conviction for petty theft. He owes over $2,000 in restitution, probation costs, and court fees. He cannot pay this hefty sum because he is unemployed—in part because of his criminal history. In reviewing his expungement petition, the judge notes the outstanding restitution and costs, and denies the petition. Mr. Smith has no way out of the debt trap—with his criminal conviction, he won’t be able to secure the job he needs to make sufficient income to pay off his debts.

Criminal justice debts are a growing national trend, but the problem is especially acute in Los Angeles. Due to a strained economy, Los Angeles courts are relying on court fees to revitalize their coffers. These fees go towards state funds for court construction and court operations, as well as locally, to salaries, benefits, and public agency retirement contributions for judges. In the last five years, Los Angeles trial courts collected over $1 billion in late fees (called “civil assessment fees”) charged to defendants when they did not pay their traffic or criminal court debt on time.

Though the fees are small in isolation, the accumulated criminal justice debt can total hundreds or even thousands of dollars for a single person, an overwhelming amount for most people reentering society, 90 percent of whom are poor and a disproportionate percentage of whom are people of color.

Though the fees are small in isolation, the accumulated criminal justice debt can total hundreds or even thousands of dollars for a single person.

These debts are part and parcel of a system that creates permanent debtors out of people with conviction histories. In California, various clean slate remedies allow for expungement of criminal records, providing individuals a better chance to secure jobs, housing, and benefits. However, many financially disadvantaged people are unable to take advantage of these remedies because full payment of fines and fees is a prerequisite. This debt therefore has a damaging effect on housing and employment prospects. Employers and private landlords routinely conduct background checks, which reveal criminal records that cannot be expunged due to financial obstacles. On top of that, wage and tax garnishments are increasingly used to collect criminal debt, which can eat away at one’s income from earnings. As such, criminal justice debt acts as a bar to gainful employment, increases the risk of recidivism, and creates barriers to reentry long after court-ordered sentences are completed.

One such barrier is a suspended driver’s license. In California, a driver’s license can be suspended when a traffic ticket goes unpaid. While some maintain that driving is a privilege, for many people driving is a lifeline. Recently incarcerated people are especially vulnerable to the consequences of driver’s license suspensions because of their persistent financial hardship. They often need to drive to satisfy their parole or post-release supervision conditions. Many reentering parents are also required to drive to visitations and parental classes in order to regain custody of their children post-incarceration. Still, others who have conviction histories find jobs like truck driving, courier services, and home care workers, easier to obtain. These jobs all require a valid driver’s license.

What’s worse, re-incarceration is a serious threat. A recent report by prominent civil rights and legal services groups in California concluded that Blacks and Latinos were systematically stopped, fined, and arrested for driving with a suspended license. This misdemeanor offense carries with it a criminal conviction, a basis for violation of probation or parole, years of probation, and more fines and fees.

What is particularly insidious is that individuals who are unable to pay their debts are given an “option” to convert their fees to jail time or to perform “community service” for a fee. Their labor is then extracted at no cost to the state, but at tremendous cost to the person’s time and job opportunity. Unsurprisingly, this style of debt peonage has reverberating effects across all labor markets. Researchers at UCLA have theorized that it leads to the depression of labor standards and to the displacement of other workers.

In an era when policymakers are, at best, attempting to undo the effects of mass incarceration by decreasing jail populations and promoting out-of-custody rehabilitative programs, re-incarcerating people to “collect” on court debt is extraordinarily punitive. It does unsurprisingly little to deter serious and violent crime. “Repeat” offenders are created out of nothing but shaky finances, despite a person’s genuine attempts to be law-abiding members of society. Moreover, it is a drain on public resources without much gain. California, to date, boasts over $11 billion in uncollected court debt, and over 4 million driver’s licenses suspended for inability to pay court-debt.

Jurisdictions across the country, and especially in California, should reverse this trend by adopting laws that do not punish poverty. Expungements should not depend on the petitioner’s ability to pay outstanding criminal justice debt. Laws like SB 881, which ends driver’s license suspensions for outstanding traffic debt, should be passed to promote the financial independence of those who are seeking a meaningful second chance at life. There must be a dramatic retooling of the way that court debt is imposed, or else the current system is doomed to create permanent barriers to economic security long after incarceration.

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