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From Poverty to Prosperity: A National Strategy to Cut Poverty in Half

From Poverty to Prosperity: A National Strategy to Cut Poverty in Half Mark Greenberg Executive Director, Task Force on Poverty Center for American Progress June 2007 CAP’s Poverty Task Force After Katrina, CAP convened a Poverty Task Force—a diverse group of experts and leaders.

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From Poverty to Prosperity: A National Strategy to Cut Poverty in Half

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  1. From Poverty to Prosperity: A National Strategy to Cut Poverty in Half Mark Greenberg Executive Director, Task Force on Poverty Center for American Progress June 2007

  2. CAP’s Poverty Task Force After Katrina, CAP convened a Poverty Task Force—a diverse group of experts and leaders. Task Force Charge: ∙Make the case for why the nation should address poverty. ∙Make recommendations for what should be done about it.

  3. Task Force Members Angela Glover Blackwell, Founder and CEO, PolicyLink (co-chair) Peter B. Edelman, Professor of Law, Georgetown University (co-chair) Rebecca Blank, Dean, Gerald R. Ford School of Public Policy, Henry Carter Adams Collegiate Professor of Public Policy, University of Michigan Linda Chavez-Thompson, Executive Vice President, AFL-CIO Reverend Dr. Floyd F. Flake, President, Wilberforce University Wizipan Garriott, Law Student, Board President of the He Sapa Leadership Academy Maude Hurd, National President, ACORN Charles E. M. Kolb, President, Committee for Economic Development Meizhu Lui, Executive Director, United for a Fair Economy Alice M. Rivlin, Senior Fellow and Director, Greater Washington Research Program, Brookings Institution Barbara J. Robles, Associate Professor, Arizona State University Robert Solow, Professor Emeritus, Massachusetts Institute of Technology Dorothy Stoneman, Founder and President, YouthBuild USA Wellington E. Webb, Former Mayor of Denver

  4. Poverty in America (1) • 1 in 8 Americans are poor -- 37 million people • Official measure – below about $20,000 for family of four. Most people believe cost of getting by is about twice that amount or more. • Nearly 1 in 5 children (17.6 percent) poor. • Poverty fell during the 1990s, has grown by 5 million since 2000. • 1 in 3 Americans are poor at some point in a 13-year period. • 5 percent are poor for at least 10 in 13 years. • 1 in 4 jobs do not pay enough to support a family of four at the poverty line.

  5. Poverty in America (2) • Wealth is even more unequal than income; asset poverty is extensive: • Top 1 percent has 19 percent of national income; bottom quintile has 3.4 percent. • Top 1 percent has over one-third of nation’s net worth; bottom two quintiles have less than 1 percent. In 2001, 37 percent of American households were “asset-poor.” • Poverty in US high compared with other developed nations • New UNICEF report: using relative income measure, US ranks 24th of 24 nations on child poverty.

  6. Why We Should Reduce Poverty: Moral and Economic Arguments Persistent poverty is inconsistent with principles of equal opportunity and dignity for all. Reducing poverty will help America remain competitive in the global economy, in which success turns on having an educated, healthy, and adaptable workforce. Poverty is a significant drag on US economy: Holzer et al estimate that persistent child poverty costs America at least $500 billion annually—the equivalent of 4% of GDP, about evenly divided between costs of lost adult productivity and wages, increased crime, and higher health expenditures.

  7. A National Goal Task Force recommends national goal of cutting poverty in half over the next 10 years, setting the nation on a course to end poverty in a generation. ∙ national goal would express importance, establish clear standard against which to measure progress ∙ goal is ambitious but achievable. Between 1964 and 1973, poverty fell by 42%; between 1993-2000, poverty fell by 25% ∙ in UK, having national goal of ending child poverty by 2020 has contributed to dramatic progress

  8. Poverty and the Middle Class • Many of the challenges faced by the poor are faced by millions of Americans. • Many of the strategies that strengthen the middle class can also help the poor, if designed to do so. • But, a strategy that only addresses the middle class risks leaving out millions of low-income Americans. • When a problem is shared by many, the solution be designed to help all in need, with the most help for those who need it most.

  9. A Four-Pronged Strategy Promote decent work:People should work, and work should pay enough for workers and families to avoid poverty, meet basic needs, save for future. Provide opportunity for all:Children should grow up in conditions that maximize their life chances. Adults should have opportunities to connect to work, get more education, live in good neighborhoods, move up in the workforce. Ensure economic security:Americans should not fall into poverty when they cannot work or work is unavailable, unstable, or pays too little. Help people build wealth:People should have assets that protect them during unstable periods and permit them to climb the ladder of economic mobility.

  10. Task Force Recommendations (1-6) 1. Raise and index the minimum wage to half the average hourly wage. 2. Expand the Earned Income Tax Credit and the Child Tax Credit. 3. Promote unionization by enacting the Employee Free Choice Act. 4. Guarantee child care assistance to low-income families and promote early education for all. 5. Create two million new “opportunity” housing vouchers and promote equitable development in and around central cities 6. Connect disadvantaged and disconnected youth with school and work.

  11. Task Force Recommendations (7-12) 7. Simplify and expand Pell Grants and make higher education accessible for residents of each state. 8. Help former prisoners find stable employment and reintegrate into their communities. 9. Ensure equity for low-wage workers in the Unemployment Insurance system. 10. Modernize means-tested benefits programs to develop a coordinated system that helps workers and families. 11. Reduce the high costs of being poor and increase access to financial services. 12. Expand and simplify the Saver’s Credit to encourage saving for education, homeownership, and retirement.

  12. Other key components of an overall strategy Other key issues include: • Health care for all • K-12 reforms • Comprehensive immigration reform with a path to citizenship • Retirement security • Work-family balance

  13. Measuring Impacts of Selected Recommendations CAP contracted with the Urban Institute to model the impacts of some of our recommendations: ∙Urban Institute used the Transfer Income Model, a microsimulation model that uses Census Bureau survey data and detailed information about program rules to simulate tax, benefit, and health programs. 4 recommendations, separately and together: ∙ Increasing the minimum wage to 50 percent of the average non-supervisory wage. ∙ Increasing the EITC for childless workers, extending it to 18- to 24-year olds who are not full-time students, increasing it for families with 3+ children, and excluding half the earnings of the lower-earning spouse if doing so resulted in a larger EITC. ∙ Making the Child Tax Credit fully refundable. ∙ Making child care subsidy assistance available to all working families with incomes below 200 percent of the poverty line, and expanding and making refundable the Child and Dependent Care Tax Credit.

  14. How UI Measured Poverty In modeling the effects, Urban Institute drew on poverty measurement methodologies recommended by the National Academy of Sciences (NAS). Urban Institute began by calculating income and poverty rates under the official poverty measures and then, consistent with NAS recommendations: ∙ subtracted tax liabilities and added tax credits ∙ included Food Stamp benefits and housing subsidies as income ∙ subtracted out-of-pocket child care costs from income Urban Institute then adjusted poverty thresholds to make number of poor under our measure equal to number of poor under official U.S. measure.

  15. Cumulative Impacts Implementing the four policies together would: • Result in 9 million fewer people in poverty. • Reduce poverty rate to 9.1 percent – a record low. • Reduce number of people living in extreme poverty—below 50 percent of the poverty line—by 2 million, from 3.3 percent to 2.5 percent. All races would experience poverty reduction: ∙ African-American poverty would fall from 21.4 percent to 15.6 percent ∙ Hispanic poverty would fall from 21.4 percent to 12.9 percent ∙ White poverty would fall from 8.7 percent to 7 percent

  16. Also Modeled Also modeled: Raising Food Stamp participation from 60 to 85 percent: ∙ 1.4 million fewer people in poverty (a 4 percent decline) Eliminating restrictions on benefits eligibility for legal immigrants: ∙ 170,000 fewer people in poverty (.5 percent decline) Creating 2 million new housing vouchers: ∙ 1.8 million fewer people in poverty (5 percent decline)

  17. Cost of Implementing Task Force Recommendations: ~$90 billion $90 billion equals 0.8 percent of GDP. Annual costs to the U.S. associated with persistent childhood poverty alone total $500 billion—the equivalent of nearly 4 percent of the GDP.

  18. Where Would $90 Billion Come From? More balanced federal tax policies could finance our proposed recommendations: Through 2006, tax legislation enacted since 2001 has had a direct cost of $1 trillion, according to Joint Committee on Taxation and Congressional Budget Office estimates. Center on Budget and Policy Priorities finds that if the 2001 and 2003 tax cuts are extended and relief from the Alternative Minimum Tax is continued: ∙ top 1 percent of households will receive more than $1 trillion in tax cuts over the next decade ∙ in 2008 alone, the tax cuts to households with incomes exceeding $500,000 are projected to total $66 billion ∙ the value of the cuts to households with incomes exceeding $200,000 is projected to reach $100 billion

  19. From Poverty to Prosperity: A National Strategy to Cut Poverty in Half Mark Greenberg Executive Director, Task Force on Poverty 1333 H Street NW, 10th Floor Washington, DC 20005 (202) 481-8160 mgreenberg@americanprogress.org Thanks to Avi Perry and Abby Witt for their help in preparing this presentation. Special thanks to Avi Perry and Abby Witt for their contributions.

  20. Appendix • Task Force Recommendations • Rationales • Details

  21. 1) Raise and Index the Minimum Wage to Half the Average Hourly Wage The need for action: ∙ at $5.15, the federal minimum wage is at its lowest level in real terms since 1956 ∙ minimum wage and EITC combined now provide less income than the minimum wage alone during much of the 1960s and 1970s ∙ minimum wage is about 30% of average wage for non-supervisory workers, compared to 50% during much of the 1950s and 1960s Task Force recommends: Raise the minimum wage to 50 percent of average wage – this would have been $8.40 in 2006.

  22. 2A) Expand the Earned Income Tax Credit The need for action: EITC has had dramatic success in raising employment and incomes for families with children, but provides little help to childless workers: ∙ maximum EITC for childless workers in 2007 is $428, barely 15 percent of EITC for workers with one child ∙ of 24 million poor adults, about 60 percent have no children or are noncustodial parents ∙ over 3 million poor childless adults—1.6 million of whom work—are between ages 18 to 24 and so are currently ineligible for EITC for childless workers. Families with three or more children have a poverty rate of 25 percent, versus 13 percent for families with one or two children. Task Force recommends: Increase EITC for childless workers to 20 percent of initial earnings. Allow EITC to childless workers between ages 18-24 who are not full-time students. For two-parent families, exclude half the earnings of the lower-earning spouse if that would result in a larger family EITC. Increase EITC for families with 3+ children to 45 percent of initial earnings.

  23. 2B) Make Child Tax Credit Fully Refundable The need for action: Current credit provides no benefit to poorest families because it is nonrefundable: ∙ only families with earnings exceeding $11,300 benefited in 2006 ∙ poorest 10 million children receive no help, another 10 million receive only partial credit ∙ in 2005, half of African-American children, 46 percent of Hispanic children, 18 percent of white children received no credit or partial credit Task Force recommends: Make the CTC fully refundable and available to all low-income children.

  24. 3) Promote Unionization by Enacting the Employee Free Choice Act The need for action: Unionized workers have higher pay, higher rates of health coverage, and better benefits than do their non-union counterparts. Share of private sector workers in unions has fallen to a historic low of 7.4 percent. In 2005, 31,000 workers were fired for union activity. Task Force recommends: Adopt employee Free Choice Act, which would: ∙ require employers to recognize a union after a majority of workers authorizes union representation ∙ provide for mediation and arbitration of first-contract disputes ∙ establish stronger penalties for violation of employee rights

  25. 4) Guarantee Child Care Assistance to Low-Income Families, and Promote Early Education Opportunities for All The need for action: In 2002, poor families spent 25.7 percent of their income on child care, while wealthier families only spent 6.9 percent. Subsidy assistance only reaches about one in seven eligible families, and payment rates are often too low to help purchase high-quality care. Families with incomes below $20,000 receive less than 1 percent of benefits from the Child and Dependent Care Tax Credit (CDCTC). Task Force recommends: Replace federal block grant with guaranteed child care assistance for all working families with incomes below 200 percent of the federal poverty line. Create a federal Early Care and Education Strategy Fund. A restructured CDCTC, made refundable and expanded to cover 50 percent of allowable expenses for lower-income families.

  26. 5) Create Two Million New “Opportunity” Housing Vouchers and Promote Equitable Development in and Around Central Cities The need for action: In 2000, 8 million people lived in areas of concentrated poverty. In 2005, 17 million households spent more than 30 percent of their income on rent—exceeding the federal definition of affordability. HUD estimates that less than 25 percent of eligible households receive housing assistance. Task Force recommends: 2 million new federal “opportunity vouchers” over ten years, with connections to case management and services. Both supply and demand strategies should focus on expanding access to “communities of opportunity.” Incorporate equitable development strategies into economic development efforts.

  27. 6) Connect Disadvantaged and Disconnected Youth with School and Work The need for action: In 2005, 1.7 million poor or near-poor youth ages 16-24 were out of school and out of work. Only about 70 percent of youth—and about half of African-Americans and Hispanics—graduate from high school on schedule. African-American 20-24 year olds living in high poverty central city neighborhoods have an employment rate of just 48 percent. Task Force Recommends: Communities should develop strategies to reach all youth. Congress should restore funding for and expand Youth Opportunity Grants. Federal government should expand funding for effective youth programs, expanding capacity to serve 600,000 youth. Create a new Upward Pathway program, providing education, service, and workforce training in high-demand fields that provide a needed public service (such as health care, environmental protection, and homeland security.)

  28. 7) Make Higher Education Accessible The need for action: Lower income students are far less likely to attend college than higher income students, even among students of comparable abilities. College prices have soared over the past two decades, and financial aid has not kept pace. The poverty rate for adults 25+ years old who have only graduated high school is 11 percent, compared to 4 percent for college graduates. Task Force Recommends: Congress should simplify the Pell Grant application process, reduce Pell’s work penalty, and increase the maximum grant to 70 percent of the average cost of attending a 4-year public institution. Congress should provide direct funding to institutions to help raise completion rates for needy students. States should work to make postsecondary education affordable for all residents.

  29. 8) Help Former Prisoners Find Stable Employment and Reintegrate Into Communities The need for action: Federal and state governments release over 600,000 prisoners every year. Two-thirds of released prisoners are rearrested within three years, and about half return to prison. 70 percent of inmates are functionally illiterate, more than half suffer from mental illness, and about 25 percent have serious health problems. Task Force recommends: States should establish Offices of Reentry Policy and interagency commissions to address reentry efforts and offer former prisoners the diverse supports they need for successful community reintegration. States should: ∙ provide job training during incarceration ∙ assist former prisoners in securing reliable housing and employment ∙ eliminate voting restrictions on former prisoners ∙ modify or suspend child support payments during incarceration ∙ reinstate public benefits receipt for former prisoners The federal government should enact the Second Chance Act.

  30. 9) Ensure Equity for Low-Wage Workers in Unemployment Insurance The need for action: Only 35 percent of unemployed workers receive UI benefits, and receipt is lower among low-wage workers. Task Force Recommends: States should: ∙ let workers establish UI eligibility by counting their most recent earnings or showing a sufficient number of weeks of work ∙ grant eligibility to part-time workers and workers that have lost jobs as a result of compelling family circumstances ∙ ensure that UI benefits continue while workers are participating in appropriate education and training programs The federal government should provide incentives to states to make these changes.

  31. 10A) Modernize Means-Tested Benefits Programs Cross-Cutting Recommendations: Legal immigrants should be fully eligible for means-tested assistancein the same manner as are citizens. With few exceptions, means-tested programs should eliminate asset limits in order to promote saving among low-income workers and families. Simplify and improve access to benefits programs for working families, addressing paperwork/complexity, access, high marginal tax rates. Do not require assignment of child support. Treat child support in the same manner as earnings. Improve assistance to individuals with disabilities by reexamining eligibility and benefit rules; intake, assessment, and screening procedures; and program services to ensure that the needs of individuals with disabilities are fully met.

  32. 10B) Modernize Means-Tested Benefits Programs The Food Stamp Program should be restructured to promote raised benefit levels, expanded eligibility, and improved accessibility: ∙ benefit levels should be based on a food plan that reflects the cost of a basic but nutritionally adequate diet ∙ legal immigrants and childless workers should be fully eligible for food stamps ∙ the Food Stamp Program should adopt strategies to raise participation rates above 60 percent ∙ raising food stamp participation rates to 85 percent would lift 1.4 million people from poverty TANF should reach more eligible families and help them enter steady employment: ∙ let states provide education, training, individualized services ∙ let states be accountable for performance goals instead of participation rates

  33. 11) Reduce the High Costs of Being Poor and Increase Access to Financial Services The need for action: Lower-income families often pay more than wealthier families for the same products. The Brookings Institution calculates that if these costs were cut by just 1 percent, it would total $6.5 billion. The Center for Responsible Lending estimates that 1 in 5 mortgage loans originated in the sub-prime market over the past two years will end in foreclosure—with 2.2 million individuals and families losing their homes and as much as $160 billion, primarily in home equity. Task Force recommends: Federal and state government should address the foreclosure crisis and curb predatory business practices. Federal government should establish a $50 million Financial Fairness Innovation Fund to support state efforts to broaden access to mainstream goods and services in low-income communities.

  34. 12) Expand and Simplify the Saver’s Credit The need for action: Only about one-third of low-income families have any savings. Federal tax provisions that help higher-income families save provide little or no assistance to lower-income families. In 2005, for example, taxpayers with incomes under $40,000 received just 2.4 percent of the $62 billion in benefits from the mortgage interest deduction. Task Force Recommends: Make the Saver’s Credit refundable. Simplify its matching structure, provide for direct match. Broaden it to apply to other appropriate savings vehicles intended to foster asset accumulation, such as Individual Development Accounts, children's accounts, or college savings plans.

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