Hearing on How Welfare and Tax Benefits Can Discourage Work

Comments for the Record

U.S. House of Representatives

Committee on Ways and Means

Subcommittee on Human Resources

Subcommittee on Select Revenue Measures

Hearing on How Welfare and Tax Benefits Can Discourage Work

Wednesday, June 27, 2012

By Michael G. Bindner

Center for Fiscal Equity

Chairmen Davis and Tiberi and Ranking Members Doggett and Neal and members of the subcommittees, thank you for the opportunity to submit comments on these issues.  These comments are an update to comments we submitted last September.  We find, however, that they are just as valid. 

Let me first highlight our main point – which is that simply putting people to work in low wage jobs is not enough.  Indeed, if child care and pay are inadequate and these jobs have no future than removing disincentives to work is simply code for slavery.  This should NOT be the goal of public policy in 21^st century America.  Instead, the focus should not be on making people go to work as soon as possible, but instead giving them the skills to make full use of their potential – which most likely involves making up for badly funded rural and inner city schools, where the lack of funding bears some relationship to their ethnic backgrounds.  Failure to recognize the racist roots of poverty in America simply perpetuates the sins of the past.  That is simply honesty, not playing the race card.

The work opportunities available to most TANF participants can easily be described as low wage work and, without significant resources in human development, are likely dead-end jobs.  Such jobs often receive tax subsidies, such as the Earned Income Tax Credit and the recently expired Making Work Pay tax credit.  One must look askance at any programs which transfer the responsibility for providing adequate wages from the employer and the consumer to the taxpayer. 

The expired Making Work Pay tax credit enacted as part of the Recovery Act subsidized low wage labor where the preferred option would be a higher minimum wage, forcing employers and ultimately consumers to pay for the services they receive. Minimum wage laws are necessary because they level the playing field so that employers cannot initiate a “race to the bottom” by allowing workers to compete against each other to offer ever lower wages, often leaving families in the impossible position of having to bid well below what would otherwise be a reasonable standard of living in order to survive.

Increases to minimum wages and benefits, such as mandatory sick leave are, by far, the best incentive to get people to work.  Mandatory sick leave would also help the prospects of health care reform, as parents would no longer be forced to resort to emergency room care because the doctor’s office is closed during working hours, thus decreasing costs for all.

Another area that will help make work more attractive is income support for families.  Such support addresses real market failure in the employment market. It is entirely appropriate to use tax benefits to assure that all families receive a decent wage.

The United States Department of Agriculture estimates that it should cost $1,000 per month per child to provide a decent level of subsistence. The federal government could easily guarantee half of this amount using tax reform, with states providing the other half with coordinated tax benefits.

This credit would replace the earned income tax credit, the exemption for children, the current child tax credit, the mortgage interest deduction and the property tax deduction – and possibly the 10% tax rate.  Any consumption tax prebate should also be included in this total.  This will lead employers to decrease base wages generally so that the average family with children and at an average income level would see no change in wage, while wages would go up for lower income families with more children and down for high income earners without children.

This shift in tax benefits is entirely paid for and it would not decrease the support provided in the tax code to the housing sector – although it would change the mix of support provided because the need for larger housing is the largest expense faced by growing families. Indeed, this reform will likely increase support for the housing sector, as there is some doubt in the community of tax analysts as to whether the home mortgage deduction impacted the purchase of housing, including second homes, by wealthier taxpayers.

One major obstacle in getting TANF recipients into the working world is the quality of skills they bring to the table.  Indeed, a recent survey of the vocabulary of TANF recipients in public housing puts it below the level of the average seven year old.  Not seventh grader, seven year old. 

State based efforts to improve TANF participants to a level of basic – or even advanced literacy – should be applauded.  Indeed, provisions to not only provide remedial education to all who require it should be a mandatory part of TANF reform, not just in states that chose to. 

Literacy training must also be provided to fathers if required.  Indeed, to facilitate this, the restriction on benefits to intact families must be abolished.  Furthermore, compensation for this training should be as rewarding as work, so participation should be compensated at the minimum wage. 

In addition to the wage, participants should also receive the same Child Tax Credit as those who work, as well as the same level of health insurance, which could be offered to them as if they were employees of the education provider – thus ending the second class care they receive through the Medicaid program, as well as the need to pay benefits through large, yet underfunded, social welfare bureaucracies at the state level.  Public housing should be replaced with residential training programs for both parents and children.

Program participants must be treated as adults.  If they are, they can be expected to behave as such.  All too often, the fiscal, welfare and immigration policy of the United States seems designed to provide a pool of low wage workers for the food service industry – from the field to the fast food counter. While these jobs may provide some degree of upward mobility, at times they are akin to slavery.

In the 21st Century, we can do better than that. If some products cannot be produced without what amounts to subsistence wages, than perhaps those products should not be produced at all, either at home or abroad. It should not, indeed it must not, be the policy of the United States Government to shield consumers from paying decent wages to those who feed us.

Establishing a decent level of income through paid remedial training, increased minimum wages and increased family support through an enhanced refundable child tax credit will also reduce the need for poor families to resort to abortion services in the event of an unplanned pregnancy.

Indeed, if state governments were to follow suit in increasing child tax benefits as part of coordinated tax reform, most family planning activities would be to increase, rather than prevent, pregnancy. It is my hope that this fact is not lost on the Pro-Life Community, who should score support for this plan as an essential vote in maintaining a perfect pro-life voter rating.

Thank you again for the opportunity to present our comments.  We are always available to members, staff and the general public to discuss these issues.