Higher Earnings Cut Support for Poor Families

I've spoken before of the tricks conservatives have embedded in the welfare regs to make the poor ineligible for help the instant they raise their heads above water. The National Center for Children in Poverty has released a study done in Pennsylvania that shows that those tricks, developed under Reagan, are still very much in use.

About 85 percent of low-income children have parents who work, and most have at least one parent working full-time, year-round. Nonetheless, many of these parents are unable to afford basic necessities for their families, such as food, housing, and stable child care. Even a full-time job is not always enough to make ends meet, and many parents cannot get ahead simply by working more. As earnings increase—particularly as they rise above the official poverty level—families begin to lose eligibility for work supports. At the same time, work-related expenses, such as child care and transportation, increase. This means that parents may earn more without a family experiencing more financial security. (1) In some cases, earning more actually leaves a family with fewer resources after the bills are paid.

The Family Resource Simulator, developed by the National Center for Children in Poverty, illustrates how this happens. This web-based tool allows users to chart a hypothetical family’s progress in the workforce and to see how public policies reward and encourage employment—and sometimes discourage parents from earning more.

Low Income in Pennsylvania: The Petersons

The Petersons live in Philadelphia with two children, ages 4 and 6. The federal poverty level for such a family is $18,850 per year. (2) For simplicity, the Simulator assumes that the Petersons begin with no income; then one parent enters the workforce and steadily increases hours to full-time employment. After that, the second parent begins part-time work and gradually moves into full-time employment. When the Petersons’ employment requires outside child care, both children go to child care centers (the 6-year-old goes after school). The Petersons pay taxes on their earnings, and when they qualify, they receive the federal Earned Income Tax Credit (EITC) and the federal Child Tax Credit. In addition, the Petersons receive food stamps and public health insurance.

As the Petersons’ earnings increase, their child care and transportation expenses increase, and they begin to lose eligibility for the benefits that support work (see Figure 1). The parents lose public health insurance coverage well before the family’s income reaches the federal poverty level, when one parent is working less than 30 hours per week, and the other is not employed. This simulation assumes that the Petersons have insurance through an employer (nationally, only 9 percent of part-time workers have employer-based health care benefits (3)). Without this benefit, the Petersons would have to pay substantially more or go without health insurance. By the time both parents are working full-time, together earning about $30,000 per year, the family is no longer eligible for food stamps, and the EITC has nearly phased out.

Figure 1: Peterson Family


The Petersons’ resources, even with tax credits, food stamps, and public health insurance, don’t exceed expenses until their earnings reach $45,000. Increased earnings initially yield steady increases in the family’s net resources. However, as the family’s earnings double from $15,000 to $30,000, the combination of increased child care and transportation costs, the loss of food stamps, and the phasing out of the EITC results in a net loss of $4,700 in resources after expenses. At $47,000—two and a half times the federal poverty level—the family has about $1,200 in resources available to them after basic expenses are paid. That’s just $100 per month for a family raising two children.

Thousands of families in Pennsylvania have resources and expenses similar to the Petersons. There are 411,000 low-income families living in the state, and 121,000 of them have a preschool-aged child (under age 6). Among low-income families in Pennsylvania, 82 percent have at least one parent who works, and 51 percent have a parent who works full-time, year-round. Forty-six percent are two-parent families.

There are other examples on the NCCP site, and they show quite graphically the way supports are kicked out from under low-income families at the earliest possible moment, long before they are no longer needed. I've seen some families break up under the strain, and others where the worker lost his/her job or was forced to cut their hours back because of the pressures losing that support created (absence from work due to child-care responsibilities when pre-school support was withdrawn was the most common cause). The study concludes:

Challenges for Policymakers

Federal and state budget woes threaten existing work supports for low-income families. Nearly half the states have reduced access to child care subsidies by lowering income eligibility limits and/or increasing family co-payments. More than 30 states have approved or proposed cuts to their public health insurance programs that affect low-income children and/or parents’ access to coverage. Many of these changes hit families just above the poverty level the hardest. Pennsylvania, for example, has a state-funded health insurance program designed to serve low-income parents with income above the Medicaid eligibility limit. But enrollment in the program is capped, and as of May 2004, the state was only enrolling parents who had applied before the end of March 2003. (8) At the same time, unemployment remains high, and job creation has been slow. As policymakers respond to the difficult choices they face, understanding the impact of public policies on the resources and work incentives of low-income working families is critical.

You'd think a human of normal intelligence wouldn't have to be told that, wouldn't you?