Child poverty and welfare reform

Child poverty and welfare reform

Children and Youth Services Review, Vol. 17. Nos. I/2. pp. 333-345.1995 Pergamon [email protected] 1995 Elsevia Science Ltd Printed in the USA. All right...

905KB Sizes 2 Downloads 120 Views

Children and Youth Services Review, Vol. 17. Nos. I/2. pp. 333-345.1995

Pergamon

[email protected] 1995 Elsevia

Science Ltd

Printed in the USA. All rights reserved. 019s74w95 $9.50 + 00

0190-7409(95)ooo14-3

Epilogue

Child Poverty and Welfare Reform Duncan Lindsey University of California, Los Angeles

Before beginning a caveat is in order. It can be misleading to examine issues of child poverty and welfare reform within a narrow context that fails to consider the broader issues of wealth and power. The United States is an enormously wealthy and prosperous country. Millions of Americans live in abundance. Privately held wealth is estimated to be more than 25 trillion dollars. But the wealth is unevenly distributed. Some families have achieved enormous wealth and its attendant advantage while others have been left out. Discussions of welfare are difficult because they expose and highlight our fundamental views on fairness and equity. How can millions of children in the United States live in such destitution and poverty as is found in many of our large urban and even rural communities? With such great wealth, it is difficult to understand all the hoopla raised about the costs of welfare. The money the Federal government spends on AFDC represents less than onethousandth of the nations wealth. Yet, major efforts are afoot to reduce this piddling amount. Liberals who defend the interests of the poor and are accused of sponsoring behavior that perpetuates poverty. But even the liberals are unsure of their support for the poor. The poor are powerless-they rarely vote and are unable to contribute to financing campaigns. The children of the poor are at the mercy of public goodwill which may be no match to the conservative forces powered by wealth and influence allied against them. Why all the hoopla over the poor? They have no wealth and receive almost no income. I think there is a larger reason and it needs to be recognized and examined. With the end of the cold war we have lost our main enemy. Since the collapse of communism the new enemy has become the poor-mainly welfare mothers and their children. The main threat the poor present is not financial. Federal spending on AFDC is less than 15 billion dollars a year of a total federal spending that exceeds $1,500 billion (or less than 1 percent). The poor have nothing and receive very little (see Figure 1). Reprint requests should be sent to Duncan Lindsey, School of Public Policy and Social Research, 247 Dodd Hall, University of California at Los Angeles, Los Angeles, CA 90095 1452 USA [[email protected]].

333

Lindsey

bouom

20%

30%

40% m

Figure 1 Distribution

50%

Wealth m

60%

70%

80%

QOYo

top

Income

of Wealth and Income in the United States by Decile.

Source: Extrapolated

from Avery, Elliehausen, & Cammer (1984a,b); Chawla (1990); Congessional Budget Office (1992); Gramlich, Kasten, & Sammartino (1994,238); Rose (1992).

The poorest 10 percent in the United States have no wealth and their actual income is less than one-fifteenth of the top ten percent. Yet some analysts suggest that the problem in the United States is that “the poor sit in the wagon and make the rest of us pull.” Thus, they simply ask that the poor get out and help pull. Yet it is the poor who staff the low end jobs that pay less than poverty level wages (Handler, 1995). The poor do the menial and hard labor. Why are the poor such a highly emotional concern? After all, they have nothing and what they get from the government is minuscule compared to the benefits provided other groups. Moreover, focusing on the poor diverts attention from the major problem facing the United States and that is the increasing disparity between rich and poor and the decline of the middle class. During the last decade the United States has experienced moderate economic growth. If all citizens had participated in this economic growth, the incomes of the middle class would have risen substantially. But the middle class did not share in the economic growth. The median income in the United States has remained virtually unchanged during the decade. According to research by Paul Krugman (1992) at MIT, the new wealth created during the last decade went to the top, while the middle class gained nothing. The top 10 percent received 94 percent of the new wealth, while the bottom 90 percent shared the remaining 6 percent.

Child Welfare and Welfare Reform

335

The declining economic condition of the middle class is the result of economic policies championed during the last decade. These policies have delivered handsomely for the wealthy.’ However, these same policies have contributed to the declining prospects of the middle class and the deterioration among the poor. The middle class wonders why they have not benefited from the material advances of the last decade. In this setting the poor serve as a convenient scapegoat for the anger of the middle class. If the poor can be blamed then little consideration will be given to the tax policies of the last decade which are the main cause of the decline of the middle class. Yet, the poor have not benefited from the economic policies of the last decade-their situation has gotten worse. Twenty years ago the top ten percent of income earners paid a higher tax rate than the middle class-70 percent versus 30 percent. This progressive tax policy tempered the accelerating advantage of wealth. However, tax changes reduced the differential to 50 percent versus 30 percent in the first Reagan term and then to 28.3 percent versus 28.8 percent (an end to progressive income tax) in the second term (Gramlich, Kasten, & Sammartino, 1994). This differential was achieved by cutting taxes on the wealthy with the hope that they would be more productive and pay more taxes because of their improved economic circumstances. The hope was not realized and the United States saw its Federal debt increase from 1 trillion to 4 trillion during the decade of the 80s. During the last decade virtually nothing was done to address the problems of the poor. The creative energies of legislative reform during the last decade were directed toward capital accumulation and tax reduction-policies targeted to meet the needs of the wealthy. The needs of the poor were not addressed. Yet now we enter a new era where the economic losers-the poor-are blamed not only for their own ill fate but for the larger ills of society. On the horizon is new legislation designed to punish the poor and their childme for their poverty. These actions are not so much mean spirited as an attempt to shift blame. We all have an interest in solving the problems of the poor. The fewer who are poor among us the better off we all are. The question for social policy must be whether the legislation we enact will in the long term allow the poor to participate in the wealth and abundance of our great country. On serious reflection we all know that these punitive policies will only perpetuate poverty and increase the pain and suffering of the least affluent among us. But debate over these policies will also divert attention from the larger issue of the decline of the middle class and the shift of wealth and prosperity toward the top. What kind of country do we wish to have? How lopsided shall we allow for the distribution of wealth and income? 1. According to Kevin Phillips (1993) the top 10% of families increased the income by more than 100 billion dollars a year in 1989 as a result of the income tax cuts passed in 1986 alone.

Lindsey

336

These questions are not only answered by the marketplace. answered, in large measure, by tax and economic policies.

They

are

This Issue of Children and Youth Services Review In the seventeen year history of Children and Youth Services Review we have never published as large an issue. This is a first. The topic examined in this issue is the central concern for child welfare-child poverty. No other social problem on the public stage is more important. Elections offer feedback on public satisfaction with the direction and accomplishments of government programs and policies. Two years ago national elections resulted in the unseating of an incumbent president. A mood of hope that the problem of child poverty, which had not been addressed for years, seemed to rise to center stage (Lindsey, 1993). The new First Lady had a long history of concern and interest in children’s issues. Unfortunately the promise was short lived. Instead of tackling the broad issue of child poverty, reform focused on promoting a narrow program called family preservation that was backed by a well organized special interest group (Adams, 1994). Thus, the major change in child welfare policy was inclusion of $1 billion over several years for family preservation services within the Omnibus Budget Reconciliation Act of 1993. Yet family preservation represented a dead end (Rossi, 1994) that did nothing about child poverty. As Senator Moynihan pointed out at the time, the program simply provided more money for an intensive casework services approach which had not proven effective. More important, funding family preservation (or intensive casework services) distracted attention from the larger and more fundamental issue of child poverty. Child Poverty What do we know about child poverty-its dimensions, causes, and consequences? How has child poverty been affected by government policies? How extensive is child poverty in other countries? These are the central concerns of the empirical studies presented here. The papers are written by researchers from a number of different fields including economics, sociology, child development, and social work. The impact of these studies is to improve our understanding of the challenge and opportunity of ending child poverty. Children who are raised in poverty experience more than the simple stress and strains of living on the margin. The developmental consequences restrict both their cognitive and physiological growth (Hill & Sandfort, 1995, this issue). Data from the National Longitudinal Study of Youth indicate that there are substantial long-term deficits which result from living in poverty (Korenman, Miller, & Sjaastad, 1995, this issue). Yet, as the research by

Child Welfare and Welfare Reform

337

Zaslow and colleagues (1995, this issue) indicates, programs designed to improve the employment opportunities and life circumstances of AFDC mothers also rebounds to their children and is crucial to shaping their children’s development.

Progress in Ending Poverty Thirty years ago the extent of poverty among the elderly was greater than it was among children. Almost 40 percent of the elderly lived in poverty. Today, less than 10 percent of the elderly live in poverty. Effective social programs-primarily Social Security and SSI-virtually ended poverty for senior citizens. During this same time period, however, the extent of child poverty has remained unchanged. In fact, the rates of child poverty now are slightly higher than before. Overall child poverty rates are more than 20 percent. Why the discrepancy in ending poverty? More than 40 percent of Black and Hispanic children live in poverty. Martha Ozawa (1995, this issue) points out that federal expenditures for the elderly dwarfs those for children and is largely responsible for the ending of poverty among the elderly and its continuance among children. The problem of child poverty does not seem likely to end. Today, more than two out of three Black children are born out-of-wedlock (see Figure 2). These children on average are likely to spend many years in poverty. The rate of out-of-wedlock births for white children is increasing faster than for Black children. Today, the rate of white children born out-of-wedlock is equal to the rate for Black children thirty years ago. As seen in Figure 2, the major factor contributing to the rise in out-of-wedlock births is the rise in teenage mothers who do not get married. The rise in out-of-wedlock births for Black children has closely paralleled the rise in teenage mothers who do not get married. In fact, during this period teenage birth rates have declined. What has changed is the marriage rate among teenage mothers after an unplanned pregnancy. As research by Wilson (1987) and others has demonstrated, this is largely the result of decreasing employment opportunities for Black males and the unavailability of “marriageable” men. What seems to be contributing to the persistence of child poverty? Child poverty in industrialized countries is primarily the result of children living with a lone parent, usually the mother. The research reported by Lee Rainwater (1995, this issue) indicates that poor children in the United States live in lone parent households that have very different “income packages” than found among their counterparts in other countries. The major difference is that poor children in the United States fail to receive either child support or a children’s allowance. In most European countries child support is assured (Kamerman & Kahn, 1990). As a result of the failure to collect child support,

338

Lindsey

60%

1960

1964

1968

1972

1976

e

Teenage Mothers who are Unmarried

@

Out-of-Wedlock (Black)

1980 a

1984

1988

1992

Out-of-Wedlock (White)

Figure 2 Out-of-Wedlock Births by Race and Teenage Mothers Who Get Married in the United States, 1960-1992. Source: National Center for Health Statistics, vital Statistics Report (1994); Zill and Rodgers (1988); Children’s Defense Fund (1994).

the major income support program for children in the United States, Aid to Families with Dependent Children (AFDC), has had to make up for the lost income. In this sense, AFDC has become a bundled income package composed of assistance to families that fail to receive child support or a children’s allowance. The research by Rainwater also demonstrates that poor children in the United States fail to receive a children’s allowance. This is because the current approach to providing a children’s allowance in the United States is based on a tax deduction provided to parents. This approach results in providing a benefit to children whose parents have adequate income and denying the benefit to children whose parents do not have substantial income (Lindsey, 1994,244-250). The net effect of this approach is to penalize children of the poor for something over which they have little or no control. Other advanced economies provide a children’s allowance to all children, including the poor. Since poor children fail to receive a children’s allowance

339

Child Welfare and Welfare Reform

0% <20

25

35

45

55

65

75

85

95

105

115

125

135

145

150+

Tax Rate (as Percent) on Additional Earnings Figure 3 Distribution of Tax Rates Paid on Additional Earnings for AFDC Families (1994). Source: Giannarelli and Steuerle (1994, Figure 3). +Average marginal tax rate for 1990 (Gramlick, Kasten, & Sammartino, 1994,242). The average marginal tax rate for the top 1 percent was 28.8%. down from 50.1% a decade earlier.

in the United States, AFDC has again had to pick up the difference. As a bundled income package for poor children AFDC has thus come to include: 1) a “children’s allowance” portion, 2) a supplement to make up for failed child support collection, and 3) an income assistance payment for the unemployed mother. The Limits of Bundling Income Protection into AFDC The problem with bundling the various components of income protection into one single program-AFDC-is that the program is viewed as providing a “means-tested” income support payment which should be taken back as soon as the recipient has earnings. However, the child support component and the children’s allowance component of AFDC should be provided even as the mother goes back to work. A bundled approach results in an extraordinary high effective tax rate on earnings for single mothers. As seen in Figure 3, research by Giannarelli and Steuerle (1994) suggests that nationwide mothers receiving AFDC are able to keep on average iess than 30 percent of their earnings (see Figure 3). In fact, working AFDC mothers pay perhaps the highest tax rates in the land. For almost a quarter of AFDC recipients, additional earnings produce no net income benefit.

Lindsey

340

I

/

No Earnings $13,241

I

I

ti

J2,kKl

With earnings

I

I

ss,doo

$7,500

of: 0

o

q

I

I

$10,doo $12,kN

$5,000

I

I

I

$15,000 $17,500

$~o,ooo

Figure 4 Disposable Income and Gain from Working for AFDC Recipient with Two Children Under Bundled and Unbundled Benefits.

Source: Author’s computations.

Bane and Ellwood (1994) provide a typical example with a single mother and two children receiving AFDC in Pennsylvania. If the mother works half the year full-time at minimum wage she would earn roughly $5,000 of which she would be able to keep about $1,290 (see Figure 4). If this same mother works an additional half year at full-time she would only be able to keep $633 of her $5,000 in additional earnings (see Figure 4). Because earnings cancel AFDC benefits for these mothers, the improvement they gain from working is sharply reduced. In view of the high effective marginal tax rate they confront, it is surprising that so many mothers work. Unbundling AFDC High tax rates discourage work. Currently there is a concern expressed about capital gains because it is more than 30 percent. Yet, AFDC recipients pay an effective tax that exceeds 70 percent on average and often even more than

Child Welfare and Welfare Reform

341

100 percent. To change the tax situation of families receiving AFDC will require unbundling the AFDC program and ensuring that all children receive child support and a children’s allowance. Child support can be assured by shifting it to the tax system and providing a universal child support collection system (Lindsey, 1994, 239-242). Current child support collection efforts have essentially failed (see Edin, 1995, this issue). The problem with current efforts at improving child support collections is that it operates within a court based system that has proven ineffectual. California has pioneered in child support collection efforts. In a recent quarter more than $47 million was spent to collect about $77 million for AFDC families. Nationwide it costs about $1 to collect $2. The administrative costs do not include hidden court costs, jail costs for non-paying fathers, and district attorney fees that are not billed. If child support were collected using modified tax tables for noncustodial parents, then administrative costs could be dramatically reduced. Today, the limited child support which is collected for the nine million AFDC children annually amounts to less than 564 a day-and even this meager amount rarely goes to the family. Instead, it is used to offset both administrative and AFDC costs. If indirect child support assistance were unbundled and separated from AFDC it could reduce the size of the AFDC payment now required by more than one half. If this were combined with a guaranteed child exemption, the amount of the AFDC payment could be reduced by almost 60 to 70 percent. A reduced AFDC payment would mean that when the mother works her earnings would not be canceled out by a forfeited welfare payment. The effective marginal tax rate for working AFDC recipients could be cut from more than 80 percent to less than 40 percent. As seen in Figure 3, a mother with two children who earned $5,000 would keep $2,798 if AFDC were unbundled instead of $1,290 under the current structure. If this same mother earned $10,000 she would be able to keep $6,023 rather than $1,923. This would substantially increase the incentive to work. Lifting the tax burden created by bundling AFDC would go a long way toward ending the so-called “welfare trap.” Unbundling AFDC would result in making work pay. Welfare Reform and Child Welfare One of the major themes in recent discussions of welfare reform has been the suggestion that responsibility for welfare (AFDC) be turned over to the states. This would be an unfortunate development that could set back progress against child poverty for decades. There are three main reasons why transferring responsibility for welfare to the states would be a mistake: 1) states would compete to provide least benefits so as to encourage the out migration of child poverty and to discourage families with poor

342

Lindsey

children from migrating into the state (as they do already), 2) it would exacerbate the problem of collecting child support, a key element of child poverty, and 3) the opportunity to replicate for children the success achieved bySocial Security in ending poverty for senior citizens would be lost. Sfafe Programs States regularly compete with each other, through tax set asides and subsidized investments in infrastructure, to attract new companies and expand existing industries. The benefits of this competition are job growth and improvements in the states’ economic performance. Likewise, states have competed over the years in building world class systems of public higher education-knowing that the quality of higher education both attracts new industry and provides essential support to existing industry. It makes eminent sense to leave responsibility for the development of these state assets to the states. However, child poverty is not an asset but a liability. Child poverty is a social problem that can be solved at the state level or it can also be pushed away. Experience with state operated AFDC has been that some states offer meager benefits (i.e., Mississippi provides about 20 percent of the benefits provided by New York or California) and make virtually no effort to end child poverty. States that make efforts to relieve child povertythe so-called high benefits states -become magnets. In this competition states continually reduce and limit benefits. In the end, the competition can too easily be one of who provides the fewest benefits and cares the least. The incentives in this situation are too often to ignore and, if possible, export the problem. Child Support As we have seen earlier, the core component of child poverty is the failure to collect child support. One important part of this failure is that collection is a state level responsibility but many absent parents leave the state where their children reside. Establishing, enforcing and collecting child support across states lines is cumbersome and difficult. States have tried for years to improve child support collection with little success. Today, less than onefifth of child support payments that ought to be paid are collected. Fundamental reform of the child support collection system will require a major federal role (Lindsey, 1994,232-242). The Model of Social Security The most successful example of ending poverty in this century is provided by Social Security. From 1966 to 1994 the poverty rate for the elderly

Child Welfare and Welfare Reform

343

declined from almost 40 percent to less than 10 percent. According to Haveman (1988, 82-83), “One of the biggest success stories chalked up to the nation’s redistribution system is its role in pulling up the average standard of living of the nation’s older population. As a group, the elderly are no longer poor-no longer a source of equity or fairness concerns.” Ozawa observes that in 1990 the federal government spent $11,350 per aged person compared to $1,020 per child under 18 (Ozawa, 1993,521-522). The federal govemment’s crucial role in ending poverty among the elderly is unquestioned. What is in doubt is the federal government’s role and responsibility for ending child poverty. If ending child poverty is turned over to the states, it is unlikely that the success in ending elder poverty will be replicated for children. Instead, child poverty may become a permanent fixture of public life peppered with rich variations among the states. Building a Bipartisan

Coalition for Fundamental

Reform

The recent elections have produced an historic shift in the direction of the welfare reform debate in the United States. All agree that welfare as it currently exists has not worked. It has not led to a reduction in child poverty (see Maynard, 1995, this issue). Too many women feel trapped on welfare. There are too few avenues for independence. Welfare reform holds great promise for fixing a system which has clearly failed to lead beneficiaries to independence and prosperity. The new congressional leadership has called for rethinking current approaches. This same leadership has highlighted the linkage between child welfare and welfare (AFDC). AFDC is the major government program affecting poor children in the United States. It is important to understand the impact of welfare reform on child poverty (see Duncan & Yeung, 1995; Hill & Sandfort, 1995, both in this issue). In rethinking welfare reform it will be necessary to examine its impact on affected children (see Zaslow et al., 1995, this issue). Welfare reform provides an opportunity to reform a social program that has remained essentially unchanged for more than fifty years and to adapt it to the inherent nature of the free enterprise market economy. The challenge is to assure that welfare reform provides current AFDC recipients with opportunities to leave welfare and become independent. Government programs and tax policies can be instruments of greed that serve the most powerful or they can be instruments of fairness that ensure opportunity for the least among us. The difficult task of judicious public policy is to keep these in balance. Proponents of a capital gains tax cut, which will provide 65 percent of its direct benefits to the wealthiest ten percent of families (Gramlich, Kasten, & Sammartino, 1994, Table 7.3, 235), from a high of 28 percent to less than 15 percent might also consider approaches to

Lindsey

344

lower the much higher tax rates experienced by working AFDC recipients (the poorest families) in similar fashion. Unbundling the AFDC payment provides one way to do this (see Lindsey, 1994,291-299). The convergence of child welfare and welfare reform provides an opportunity to fundamentally change the way these government programs address the problem of child poverty. Working together in bipartisan fashion may lead to substantial progress against child poverty in the United States as we enter the third millennium. Before us is an historic opportunity to end child poverty and open the door to a new century of prosperity.

References Adams, P. (1994). Marketing social change: The case of family preservation. Children and Youth Services Review, X6,417-431.

Avery, R.B., Elliehausen, G.E., & Canner, G.B. (1984a). Survey of consumer finances, 1983. Federal Reserve Bulletin, September, 679-682. Avery, R.B., Elliehausen, G.E., 8z Canner, G.B. (1984b). Survey of consumer finances, 1983: A secondary report. Federal Reserve Bulletin, December, 857-869. Bane, M.J., & Ellwood, D. (1994). Welfare realities: From rhetoric to reform. Cambridge, MA: Harvard University Press. Chawla, R. K. (1990). The distribution of wealth in Canada and the United States. Perspectives, 2,29-41.

Children’s Defense Fund (1994). State of America’s children 1994. Washington, DC: Author. Congressional Budget Office. (1992). Green book. Washington, DC: Author. Danziger, S.K. (1995). Family life and teenage pregnancy in the inner city: Experiences of African-America youth. Children and Youth Services Review, 17, 183201. Duncan, G., & Wei-Jun, Y. (1995). Extent and consequences of welfare dependence among America’s children. Children and Youth Services Review, 17, 157-l 82. Edin, K. (1995). Single mothers and child support: The possibilities and limits of child support policy. Children and Youth Services Review, 17,203-230. Giannarelli, L., & Steuerle, E. (1994). It’s not what you make, it’s what you keep: Tax ratesfaced by AFDC recipients. Paper presented at the Association for Public Policy Analysis Annual Research Conference, October 27-29, Chicago, Illinois. Grarnlich, E.M., K&en, R., & Sammartino, F. (1994). Growing inequality in the 1980s: The role of Federal taxes and cash transfers. In S. Danziger & P. Gottschalk, Uneven tides, (pp. 225-249). New York: Russell Sage. Handler, J.F. (1995). Looking Back: Welfare reform in the nineties. New Haven, CT: Yale University Press. Haveman, R. (1988). Starting even: An equal opportunity program to combat the nation’s new poverty. New York: Simon and Schuster. Hill, M., & Sandfort, J. (1995). Effects of childhood poverty on productivity later in life. Children and Youth Services Review, I7,9 l- 126.

Child Welfare and Welfare Reform

345

Kameman, S., & Kahn, A.J. (eds). (1988). Child supporr: From debr collecrion to social policy. Newbury Park, CA: Sage Publishers. Korenman, S. Miller, J., & Sjaastad, (1995). Long-term poverty and child development in the United States: Results of the National Longitudinal Survey of Youth. Children and Youth Services Review, 17,309-332.

Krugman, P.R. (1992). The age of diminished expectations: U. S. economic policy in the 1990s. Cambridge, MA: MIT Press Lindsey, D. (1993). Our hopes and dreams for children. Children and Youth Services Review, 15, l-7.

Lindsey, D. (1994). The welfare of children. New York: Oxford University Press. Maynard, R. (1995). Teenage childbearing and welfare reform: Lessons from a decade of demonstration and evaluation research. Children and Yourh Services Review, 17,309-332.

National Center for Health Statistics (1994). Monthly vital starisrics report. Volume 43, No. 5. Hyattsville, MD: U.S. Department of Health and Human Services. Ozawa, M.N. (1993). America’s future and her investment in children. Child Welfare, 72,517-529.

Ozawa, M.N. (1995). Antipoverty effects of public income transfers on children. Children and Yourh Services Review, 17,43-59.

Rainwater, L. (1995). Poverty and the income package of working parents: the United States in comparative perspective. Children and Yourh Services Review, 17,11-41

Rose, S. J. (1992). Social srrarifcarion in rhe Unired Stares. New York: The New Press. Rossi, P. (1994). Review of book entitled, Families in Crisis. Children and Youth Services Review, 16,46 l-465.

Wilson, W.J. (1987). The truly disadvantaged. Chicago: University of Chicago Press. Zaslow, M.J., Moore, K., Morrison, D.R., & Coiro, M.J. (1995). The Family Support Act and children: Potential pathways of influence. Children and Youth Services Review, 17,23 l-250.

Zill, N., & Rodgers, C.C. (1988). Recent studies in the well-being of children in the United States and their implications for public policy. In A.J. Cherlin (ed)., The changing American family and public policy. (pp. 3 1- 115). Washington, DC: The Urban Institute Press.