February 26, 2016 In the Stacks

Surviving Poverty in a Post-Welfare Reform America

By Danshera Cords, Visiting Professor of Law, University of Pittsburgh School of Law, Pittsburgh, PA

$2.00 a Day: Living on Almost Nothing in America, by Kathryn J. Edin and H. Luke Shaefer, Hardcover, $28.00 (September 1, 2015), ISBN-10: 0544303180; ISBN-13: 978-0544303188

In $2.00 a Day, Kathryn J. Edin and H. Luke Shaefer create a clear but disheartening picture of conditions faced by those surviving the deepest poverty in the United States. Through six case studies selected to explore a variety of ethnographic backgrounds, Edin and Shaefer illustrate the grave crisis facing a growing number of Americans. Their case studies demonstrate the failure of the system to provide opportunities for those left behind in the wake of the elimination of the cash safety net during welfare reform in the 1990s and the loss of low-wage jobs during the Great Recession.

At first blush this book and its news of grinding poverty may not seem tax related, but many of the welfare reforms of the last two decades have been implemented through the Code and are administered by the Service. Two tax changes intended to help those less well off include the 1996 expansion of the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC), which improved conditions for the working poor, and more recently, the Patient Protection and Affordable Care Act of 2010 (ACA), which sought to improve access to health care, especially for the poor. Thus, it seems appropriate to consider what recent studies of poverty tell us about the need for, or efficacy of, tax-based efforts to address these issues.

Following up in 2010 on work she had conducted in the early 1990s on the spending patterns of the nation's welfare recipients, Professor Edin began noticing dramatic changes in cash expenditures. She began to encounter people who had no apparent access to any source of cash. Edin asked whether there really were very poor who were receiving no cash and if so, what was the cause of this development. Without access to cash, day-to-day survival becomes extraordinarily difficult.

Interviews in the 1990s with the very poor showed that the poor generally received Aid to Families with Dependent Children (AFDC), Food Stamps, housing assistance, and some other types of in-kind and cash assistance; consequently, they limped along with an expectation that they would eventually find a job and no longer need welfare.1 Now, however, Edin found that there was a group for whom there was no source of cash aid, little aid for nutritional support, and little housing support—in spite of the group's strong desire to work. This resulted in a greater sense of helplessness.2 The one heartening finding, substantiated elsewhere, was that the working poor had become better off, in part because of refundable tax credits.3 Indeed, recent research shows that the number of Americans living below the poverty line in 2012 was exponentially lower than it was in the 1960s at the beginning of the war on poverty.4

While teaching at Harvard for a semester, Edin teamed up with Shaefer, a leading expert on the Survey of Income and Program Participation (SIPP) administered by the U. S. Census Bureau. Shaefer's expertise with the SIPP dataset was critical to the successful completion of the project.5 The SIPP dataset contained information on household income and cash resources going back decades: that information would help answer the exact questions Edin's research raised.

Although focused on welfare, Edin's and Shaefer's research has important implications for tax reform. Their conclusions and recommendation are timely and significant as we consider the broader implications of the role that the tax system and the Service should play in anti-poverty programs and health-care administration.

Thinking through these recommendations and prescriptions for helping the poor and working poor gain access to steady nutrition, access to healthcare, jobs and job training, and housing we must bear in mind the things we already know. The EITC brings millions of people out of poverty each year at a low administrative cost.6 That cost, however, is in the form of higher error rates and more audits.7 The Patient Protection and Affordable Care Act of 2010 provides millions of people with access to health care, but it may not provide access to everyone who needs it or to all of the health care services needed, any more than Medicare or Medicaid do.8

Although the working poor are often in a better position than they were in the early 1990s because of these programs, calls for changes and reduction of benefits continue, based on discontent with the high error rates.9 Such tax-based anti-poverty programs also raise the costs of tax administration above the level that the current Congress is willing to support. The Service is currently underfunded and short staffed: it has little capacity to take on oversight of new social programs without a budget increase from an unwilling Congress.10

According to Edin and Shaefer, those who have fallen out of the work force—e.g., those who have been injured or have a disability, who lack skills or education, who are unable to find work, whose financial instability creates situations that prevent them from maintaining employment, or who cannot work for some other reason—are unable to find a safety net that will allow them to get back on their feet and get back into the mainstream, no matter how strongly they desire to work. Edin and Shaefer use their case studies to demonstrate how these difficulties result from welfare reform and to explore some of the hard choices these families face on a daily basis in order to keep their families safe, fed, and clothed. Reading these stories can be heart wrenching. In places, though, a reader may find the narrative somewhat heavy handed in guiding the reader to the authors' conclusions.

Wealth and Income Disparity

This book highlights a trend often overlooked in the discussion of increased wealth inequality—i.e., the plight of the poorest of the poor and the way that poverty plays out in their daily lives. We all know that the wealthiest among us live in wealth that is nearly unimaginable, but we either do not know or we avoid thinking about the squalor in which the poorest live as they survive with little or no cash, often little access to health care for adults, and frequently in a desperate struggle for shelter because of long waiting lists for housing subsidies, sharing housing, or moving from one shelter to another. For most of us, the degree of instability in daily life for the poorest of the poor may be less imaginable than the incredible luxury of daily life for those of immense wealth. Indeed, many Americans find it hard to accept that these people who are truly poor live here in our own back yards.

On a worldwide basis, the World Bank defines deep poverty as about $2 per person per day.11 Worldwide, an estimated 2.2 billion people live in desperate property. In the United States, such abject poverty is much less common but in many ways much more disturbing. Worldwide, $2-a-day poverty is declining, while in the United States such poverty has been increasing since welfare reform passed in 1996.12 Further, researchers have mostly ignored such deep U.S. poverty: in fact, Edin and Shaefer found that no one had conducted a thorough analysis of U.S. poverty at this level.13 Shaefer's work with the SIPP data showed that during some period in 2011 nearly one in twenty-five U.S. families experienced $2-a-day poverty.14 In more concrete terms, $2-a-day poverty that year affected more than 1.5 million families with more than 3 million children.15

Many of us—we who analyze tax laws, read budget forecasts, discuss debt levels, and pay attention to legislation scores—are accustomed to thinking in millions, billions or even trillions of dollars. Indeed, on a personal level, few of us give a second thought in the morning to picking up a $5 or more cup of our favorite coffee beverage if we need a little pick-me-up, are running late, or just because. From that reference point, it can be hard to imagine surviving in a situation in which the norm is families that share housing, cash and cash equivalents of $2 a day per person or less. It seems incredible that such poverty is even possible in this country.

In this book, Edin and Shaefer use the case study method, which creates a context in which those of us who are fortunate enough not to have experienced these conditions can attempt to understand how these individuals and families live in a world without cash. In selecting families, they looked for a representative city, a place with long-term poverty, a place that had experienced a recent decline in economic affluence since the 1970s, and a place experiencing recent recovery from decades of long-term poverty. They chose Chicago, Illinois; rural hamlets in the Mississippi River Delta; Cleveland, Ohio; and Johnson City, Tennessee.16 Each case has some unique characteristics but shares the common thread of many who live in a nearly cashless world.

Welfare Reform

As noted at the outset, welfare reform perhaps should have little connection with tax. The two have, however, become inextricably intertwined because of the EITC, the CTC, the ACA, and intermittent job creation tax credits (among various other items in the Code designed to protect those with low incomes from too-high taxes, such as the personal exemption and low initial rate).

Congress first enacted the EITC in 1975 as a means of providing more of a safety net by returning payroll taxes to the working poor.17 The EITC became part of the "welfare reform" debate during the administration of President Ronald Reagan, when Congress increased the EITC as a way of encouraging work among the working poor.

Many of the ideas that formed soon-to-be President William Clinton's original proposal for major welfare reform came from a doctoral thesis by David Ellwood.18 Ellwood recommended providing greater support to the working poor and providing a means by which those on welfare could become workers.19 He concluded that the welfare system was "a flawed method of helping people who are poor and disadvantaged. Welfare brings some of our most precious values— involving autonomy, responsibility, work, family, community, and compassion— into conflict."20

Ellwood's first recommendation was to improve the economic position of the working poor through a massive expansion of the EITC. Today, the EITC lifts more than 3 million children out of poverty each year. This is a substantial improvement and a true win for reformers as well as poverty rights activists.

Ellwood's second recommendation was that assistance should be accompanied by job training and jobs that pay living wages.21 Ellwood recognized that this might require government-provided jobs, as in the New Deal, or government-subsidized jobs.22 Under the Clinton administration, however, the significant welfare reform implemented in 1997, purportedly intended to tie aid to values respected by both recipients and taxpayers, was touted as replacing handouts with hard work but it did little or nothing to ensure the availability of actual jobs (leading Ellwood and others to quit the administration). Welfare reformers portrayed Temporary Aid to Needy Families (TANF), for example, as a poor program because it lacked any requirement that recipients work while receiving aid, leading to stories of "welfare-queens" and deflecting sympathy away from the truly needy families in which a job had been lost, a parent had died, or some other calamity had occurred.23

Edin and Shaefer found that these "reforms" meant that even the neediest of families were unlikely to receive cash assistance in 2012, regardless of the circumstances. The Supplemental Nutrition Assistance Program (SNAP), formerly known as Food Stamps, is not a true cash-aid program, as its benefits can only be used for limited items and cannot be legally exchanged for other goods or services. (Nonetheless, there is some illegal trade in SNAP benefits at a very high discount.) Even including the value of SNAP as a cash benefit leaves a disturbingly high number of families with little cash with which to buy groceries or pay for water, electric, gas, and other essential goods and services.

The Role of Taxation in Continued Poverty Relief

As enacted, welfare reform provided an increase in the EITC but put time limits on the receipt of many other forms of aid, gave states greater control over the form of payments through block grants, and did not effectively create job training or new jobs for those coming off welfare. The increase in the EITC increased the likelihood that wages from a low-income job would support the employee and his or her dependents.24 As the authors note, however, the EITC's success depends on a person first obtaining a low-wage job, a hurdle that many in poverty cannot overcome.

The Great Recession and its aftermath exacerbated the problems resulting from Congress's failure to ensure the availability of jobs for those who would otherwise fall into deep poverty when it removed the cash-support safety net that once existed. Obtaining even a low-wage job has become increasingly difficult for those who spend time in periods of $2-a-day poverty: Edin and Shaefer note that spending prolonged periods staying with friends and relatives, in shelters, and other alternative arrangements makes it hard for the very poor to effectively look for work.

The authors suggest that we need to focus on ensuring the availability of jobs and services to those who are at times among the $2-a-day poor.25 There is no excuse for a wealthy nation having an increasing portion of the lower-income quintile among the poorest of the poor in the world. Edin and Shaefer advocate government funding for the creation of jobs targeted at this population. They point to the TANF Emergency Fund model.26 Targeted employer tax credits might also be used, but those credits would face the same challenges as all tax credits.

Presented as case studies profiling taxpayers living in varied socio-economic communities, Edin identified common themes among these individuals and families, including a strong desire to earn their own living and a belief that they do not need a government handout. Throughout the book, Edin and Shaefer pause to emphasize the points they want readers to remember and the changes in government policies they support.

$2.00 a Day convincingly makes the case that changes in the welfare system were not intended to eliminate as much aid as they did, but it also carefully documents the way changes doomed the recipients to become stranded. These measures may have been intended to push ablebodied adults to seek work, but they have actually made it even more difficult for the poor to find work. Without a home address or a home phone where a potential employer can reach a potential employee, the jobseeker may never receive an offer or even significant consideration for the job. Without a home or adequate transportation or clothing, a jobseeker cannot arrive on time for interviews or be properly groomed in appropriate attire.

As these case studies show, these are real, insurmountable problems for too many Americans. These problems prevent people, often single mothers who are ready, willing, able, and even eager to work, from finding the kind of low-wage employment that means the difference between their children having full bellies or going hungry. Few of the participants in these studies fit the "welfare queen" image used to disparage welfare recipients during the Reagan administration: the stereotype of a black woman wearing furs and driving a Cadillac to pick up her check at the welfare office.27 Rather, the majority of welfare recipients are white, most are proud, most want to work and do not think of themselves as the kind of people who ask for government aid; nevertheless, as a result of circumstances they cannot control they are unable to support themselves or their families through traditional work.28

This book is a powerful reminder that the frequently discussed growing divide between the rich and the middle class is not the whole story. There is also a growing disparity between the lower middle class and the poorest of the poor. While our tax policy has changed in some ways that help workers who have regular work get out of poverty, through the EITC and the CTC, we have also eliminated the safety net that once kept those unable to find work from living in destitution. Today's society makes living without work income a desperate struggle, yet our government policy has made it nearly impossible for those who are unable to find work to manage, despite their desire to earn their own keep. The lost piece of welfare reform in the 1990s was Ellwood's recommendation for job training coupled with subsidized employment or government-sponsored jobs, when necessary.29

Edin and Shaefer emphasize the importance of TANF and puzzle over its relative inaccessibility in post-welfare reform America and the conversion from AFDC.30 The authors note repeatedly the ways in which advocates of welfare reform described cash grants to individuals and families, given without condition of work or future work, as at odds with American values. Yet emergency cash aid when disaster strikes may be the difference between a family remaining in a stable environment or falling permanently through the cracks into a cycle of $2-a-day poverty. Once there, Edin and Shaefer demonstrate, such poverty is hard to overcome.

Perhaps the most effective message in this book is the need to do more to help raise up those around us most in need. The book's only real failing is to overlook the importance of properly funding the Service to provide support in this endeavor. As they note, the upfront administrative cost of the EITC is low, but the National Taxpayer Advocate and others have shown that the back end costs in the form of audits and erroneous claims are higher. While the Service may be able to "hand out" the EITC, its current budget and staffing leave it ill-equipped to provide a "hand up" to those who need work, discretionary programs, and other more traditional assistance provided by public assistance agencies. Thus, Congress should provide more funding for the Service to enable it to administer the ACA and EITC efficiently and accurately, but it must also provide more funding, manpower, and expertise to aid these families in dire poverty. If it provides that assistance through the tax Code, it must provide the Service with corresponding staffing and budget increases to administer the programs. ■

1 Kathryn J. Edin & H. Luke Shaefer, $2.00 a Day: Living on Almost Nothing in America, vi (2015).

2 Id.

3 Id. at 8-9.

4 Danilo Trisi, Safety Net's Anti-Poverty Effectiveness Has Grown Nearly Ten-Fold Since 1967, Center for Budget and Policy Priorities (Jan. 8, 2016), available at http://www.cbpp.org/blog.

5 Edin & Shaefer, supra note 1 at xiv-xvi (2015) (generally describing Edin's research, the SIPP dataset, and Shaefer's work with the SIPP dataset). See also, Nina E. Olson, National Taxpayer Advocate, Fiscal Year 2015 Objectives 123.

6 Dennis J. Ventry, Jr., Welfare by Any Other Means: Transfer Taxes and the EITC, The Janet R. Spragens Memorial Symposium: Low Income Workers and the Tax System, 56 AM. U. L. Rev. 1261, 1265 (2007) (noting that "[t]he IRS administers the EITC for about 1.00 to 1.65 percent of benefits paid," and citing Leslie Book, The IRS's EITC Compliance Regime: Taxpayers Caught in the Net, 81 OR. L. REV. 351, 355 (2002)).

7 Olson, supra note 2 (discussing the back-end costs of the EITC). See also Compliance Estimates for the Earned Income Tax Credit Claimed on 2006-2008 Returns, IRS Pub'n 5162 (Aug. 2014).

8 Edin & Shaefer, supra note 1, at 27, 58, 105, 121 (discussing situations where various subjects were unable to get health or dental care that might have made it possible for them to break the cycle of cashless poverty in which they and their families were existing).

9 See, e.g., Treasury Inspector General for Tax Administration, Existing Compliance Processes Will Not Reduce the Billions of Dollars in Improper Earned Income Tax Credit and Additional Child Tax Credit Payments, Rept. No. 2014-40-093 (2014).

10 See, e.g., Nina E. Olson, Written Testimony on The National Taxpayer Advocate's 2014 Annual Report to Congress, Before the Subcommittee on Government Operations Committee on Oversight and Government Reform U.S. House of Representatives, April 15, 2015, at 4 (acknowledging the inadequacy of the current level of funding for the Service, but not advocating that the Service be given a "blank check").

11 http://www.worldbank.org/en/topic/poverty/overview#1.  The United States defines poverty at a much higher amount, averaging about $16.50 per person per day throughout a year, with half that amount considered "deep poverty". Edin & Shaefer, supra note 1, at 19.

12 Personal Responsibility and Work Opportunity Reconciliation Act of 1996, Pub. L. No. 104-193.

13 Edin & Shaefer, supra note 1, at xvii.

14 Id. at xvii.

15 Id. at xvii.

16 Id. at xix-xx.

17 Tax Reduction Act of 1975, Pub. L. No. 94-12 §204(a), 89 Stat. 26 (1975).

18 Edin & Shaefer, supra note 1, at xvi (referencing Elwood's 1988 thesis titled "Poor Support").

19 Id. 19-20.

20 Id. at 19.

21 Id. at 20.

22 Id. at 159-160.

23 Id. at 158-159.

24 Edin & Shaefer, supra note 1, at 21, 61.

25 Id. at xxiv, 159-162.

26 Id. at 159-160.

27 Edin & Shaefer, supra note 1, at 16 (describing an image of a welfare recipient used by former President Ronald Reagan, although black families had never been the majority of welfare recipients).

28 See, e.g., id. at 159.

29 Id. at 160-162.

30 Id. at 7-10, 169-170.