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Tuesday, June 07, 2016

Under Current Poverty Programs, It Pays to Work, Despite House Republicans’ Contentions

From the CBPP:

Commentary: Under Current Poverty Programs, It Pays to Work, Despite House Republicans’ Contentions, by June 6, 2016 by Isaac Shapiro: In the overwhelming majority of cases, adults in poverty are significantly better off if they take a job, work more hours, or receive a wage hike, we found in our recent comprehensive analysis of the data and research related to work and the safety net.[1] Further, various changes in the safety net over the past two decades (including health reform, or the Affordable Care Act) have substantially increased incentives to work for people in poverty.
Nevertheless, leading up to the release of their forthcoming plan to address poverty, House Republicans continue to claim that the low-income assistance system strongly discourages work. They have said that people receiving assistance from these programs often receive more, or nearly as much, from not working — and receiving government aid — than from working. Or they’ve argued that low-paid workers have little incentive to work more hours or seek higher wages because losses in government aid will cancel out the earnings gains. They may repeat such claims in the coming days. But our research has found that these assertions don’t withstand scrutiny. ...
Policymakers should not ignore those circumstances in which marginal tax rates can be quite high. But it’s important they also recognize that such circumstances are concentrated among a small fraction of families with earnings just above the poverty line that receive benefits from a number of programs that phase down simultaneously — and, just as importantly, that reducing such marginal rates involves very difficult tradeoffs.
There are really only two options to lowering marginal tax rates. One is to phase out benefits more slowly as earnings rise; this reduces marginal tax rates for those currently in the phase-out range. But it also extends benefits farther up the income scale and increases costs considerably, a tradeoff that many policymakers may not want to make. The second option is to shrink (or even eliminate) benefits for people in poverty so they have less of a benefit to phase out and thus lose less as benefits are phased down. This reduces marginal tax rates, but it pushes poor families into — or deeper into — poverty and increases hardship, and thus may cause significant harm to children in these families. In effect, the second option would “help” the poor by making them worse off. ...
The solution that some who use marginal-tax-rate arguments to attack safety net programs have advanced in the past — block grants with extensive state flexibility — does nothing to resolve these inevitable tradeoffs. Block grants would merely pass the buck in making these tradeoffs from federal to state decision-makers.

    Posted by on Tuesday, June 7, 2016 at 07:48 AM in Economics, Social Insurance | Permalink  Comments (10)


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