September 20, 2016
Lift SNAP’s Asset Test and People Save
When a low-wage worker has a dental emergency or the car breaks down, it can set off a chain reaction of financial problems. Losing a job due to that car problem is a catastrophe. It’s not an exaggeration to say that having just a little money in a bank account is a lifesaver.
But low-income Americans are discouraged from saving due to the asset limits in joint federal-state assistance programs such as food stamps, Medicaid, and Temporary Assistance to Needy Families. These asset limits create a Catch-22: if the recipient builds up the savings crucial to their financial well-being, they lose their assistance, which is also critical to their well-being.
This illustrates just how difficult it is to design programs to help the poor and low-wage workers. Without asset limits, a relatively well-off person who earns very little would qualify for food stamps. But using asset limits to restrict who qualifies can harm our most financially fragile populations.
New research looking into the impact of asset limits among recipients under the Supplemental Nutrition Assistance Program (SNAP) – once known as food stamps – confirms that asset limits inhibit saving.
“Having a policy where people don’t save or draw down their assets before they apply for benefits can really harm long-term economic success for these families,” said Caroline Ratcliffe, a senior fellow at the Urban Institute who conducted the study. …Learn More
June 2, 2016
Medicaid Expansion: Winners vs Losers
Low-income residents are in better financial shape in the 31 states that have expanded their Medicaid health coverage under the Affordable Care Act (ACA).
That’s the bottom line in a new study finding that they have fewer unpaid bills being sent to collection agencies and their collection balances are $600 to $1,000 lower than their counterparts in non-expansion states. This contrasts with the years prior to the 2014 Medicaid reform, when residents of would-be expansion and non-expansion states had very similar financial profiles.
State decisions about whether or not to expand their Medicaid rolls are having “unambiguous” and “important financial impacts,” concluded researchers at the University of Michigan, the University of Illinois, and the Federal Reserve Bank of Chicago.
Medical crises are expensive for most workers but are virtually insurmountable for low-income Americans. The annual cost of care for someone hospitalized at some time during 2012, for example, was $25,000 – more than many low-wage workers earn in a year.
To address this risk, the ACA expanded Medicaid health coverage to more people and established a new income threshold to qualify at 138 percent of the federal poverty level – or about $16,000 for an individual. A U.S. Supreme Court decision later gave states the option of expanding their Medicaid programs.
The researchers’ findings were based on credit reporting data on 1.8 million individuals between 19 and 64 years old who are living below 138 percent of the federal poverty. They analyzed the impact of Medicaid availability on non-medical debt, such as credit cards, in zip codes with the highest percentage of people under the threshold during 2014 and 2015. [Mortgage debt was excluded.]
The purpose of health insurance is to provide a financial cushion by limiting the spike in out-of-pocket expenditures when a medical crisis strikes. For low-wage workers, this cushion takes the form of Medicaid.Learn More
April 14, 2016
Why Most Elderly Pay No Federal Tax
A March blog post pointing out that a large majority of America’s older population pay no federal income tax seemed to surprise some readers – particularly retirees who must send checks to the IRS at this time of year.
“[M]y annual tax liability is and will continue to be greater than when I was employed,” said one such retiree.
Readers’ comments are always welcome, and this time they’ve thrown a spotlight on a shortcoming of the article. It did not fully explore why most retirees – roughly two-thirds of 70 year olds – pay no federal income tax.
According to a Tax Policy Center report, “Why Some Tax Units Pay No Income Tax,” tax filers over age 65 are the largest single group to benefit from special provisions of the tax code designed to help various types of people. The elderly receiving tax preferences make up 44 percent of filers of all ages who are moved off the tax rolls by these tax breaks, said the Center, a joint effort of the Urban Institute and the Brookings Institution.
Of course, retirees pay all sorts of other taxes, including property tax and state sales and income taxes. But it’s essential for baby boomers to understand this federal income tax issue as they plan for retirement. …Learn More
January 14, 2016
Policy Reduces Elderly Women’s Incomes
Poverty is the scourge of women in old age.
This problem was aggravated, according to a new study, when older workers started claiming their Social Security benefits sooner after the earnings test was lifted in 2000 for those who reach the program’s full retirement age.
The earnings test withholds benefits from older workers earning more than a specified amount – the withheld benefits are returned later, in the form of an increase in monthly Social Security checks. But the earnings test is, nevertheless, often viewed as a tax in the mistaken belief that these benefits are never restored.
Researchers at the U.S. Treasury Department and the University of California at Irvine found that people reacted in one of two ways to lifting the earnings test, both based on the misperception it’s a tax. One response was to work longer – as Congress intended – under the logic that benefits would no longer be unduly “taxed” after workers entered their late 60s. The second and more common response was to claim benefits earlier than one would have prior to the policy change, when workers perceived that delayed claiming was the way to avoid this “tax.”
The earnings test remains in place for beneficiaries younger than the full retirement age – 66 for most boomers. However, the researchers analyzed a broader age range of workers – 62 to 70; even those who haven’t yet reached their full retirement age might change their behavior in anticipation they will soon reach it, and the test will no longer apply to them.
Earlier claiming by men and women, which results in smaller monthly Social Security checks, has fallen especially hard on elderly widows. After a husband dies, the two benefit checks coming into the house are reduced to one. Although widows receive the larger of the couple’s two checks – typically the husband’s – it may not be sufficient to maintain her standard of living. …Learn More
January 7, 2016
Financial Fallout from ‘Gray Divorce’
In the 1960s and 1970s, the baby boom generation had a reputation for breaking down societal norms for behavior – and they’re at it again.
Between 1990 and 2010, the rate of individuals over age 50 who become newly divorced in a year doubled to more than 10 people affected per 1,000 married people, according to Susan Brown, a sociologist at Bowling Green State University. Studies by Brown and others are emerging that show this important trend of “gray divorce” is having negative consequences for baby boomers’ financial security in old age.
“Individuals who go through gray divorce are considerably economically disadvantaged, and they are a growing demographic group,” Brown said. She estimates nearly 650,000 people over 50 were involved in divorces in 2010 alone. …Learn More
October 22, 2015
Polishing the EITC on its 40th Birthday
The Earned Income Tax Credit is a critical lifeline that lifts some 9 million low-income Americans out of poverty – half of them children.
But the federal tax refund program isn’t perfect. The large refunds come just once a year, in the spring tax filing season. A cash crunch is a year-round problem for working families with low or erratic incomes who can’t always pay their bills.
A new study by the Center for Economic Progress identified additional financial benefits from the Earned Income Tax Credit (EITC) when participants in a Chicago pilot project received smaller, regular EITC payments throughout the year.
For example, workers who received the quarterly payments – in May, August, October, and December – were much less likely to have high-rate payday loans than people whose EITCs came all at once, helping program participants to avoid expensive late fees on payday loans. There was also evidence that workers in the EITC pilot accumulated less total debt, though the sample size was small.
The participants surveyed overwhelmingly said they preferred the periodic payments, and they reported lower stress levels than the control group. Shirley Floyd explained why in a previous blog post:
When Floyd receives a one-time tax refund in February, “the entire thing is gone” by March. But each payment she received in the pilot program, she said, allowed her “to do what you need to do.”
The program was run by the Center for Economic Progress, which provides financial services to low-income families. David Marzahl, president, was disappointed that about one-third dropped out of the research pilot, leaving only 217 participants who saw it through to the end. Nevertheless, he feels the pilot confirmed the concept’s potential to help low-income working persons with children and would like to see it expanded into a nationwide program, administered by the IRS. …Learn More
August 4, 2015
Tax Refunds Advanced to Low Earners
Things are looking up for Shirley Floyd of Chicago.
Her daughter just earned a college scholarship, and Floyd has landed a better job. The new job requires the 37-year-old to stand on a concrete floor, sometimes 10 to 12 hours a day, inserting automobile gaskets into cardboard sleeves for shipping. But her earnings, including overtime, are much larger than her $216 biweekly paychecks in 2014, when she was a part-time home health aide.
When Floyd was unable to keep her head above water last year, she received a financial lifeline from a program run by the Center for Economic Progress in Chicago. Under the pilot program, which was supported and funded by the Chicago mayor’s office and housing authority, 343 low-income recipients of the federal Earned Income Tax Credit (EITC) signed up for quarterly advances on their current year’s EITC payments, which they otherwise would have had to wait to receive the following year at tax time.
“It was an awesome program,” Floyd said about the advances, which always seemed to arrive at just the right time. “That pressure is relieved – for a little while. You’re able to do what you need to do.” She also believes quarterly payments are better than a large, one-time tax refund in February, because “the entire thing is gone” by March.
Under the Periodic Payment Pilot Program, low-wage workers with at least one child could get up to 50 percent of their estimated future EITC refunds as quarterly advances, up to a maximum of $2,000 per year. Floyd used her advances of nearly $400 per quarter to pay utility bills, rent, or her daughter’s tuition at a Catholic high school. …Learn More