October 2021

The Problem with Low-Income Tax Credits

The federal tax code offers a nifty tax credit to low-income workers who save for retirement. If only it reached more people.

The Saver’s Credit offers what appears on its face to be a strong incentive: the IRS will return up to 50 percent of the amount low-income workers and married couples put into a retirement plan.

But Barbara Wollan, an 18-year volunteer in Iowa with the Volunteer Income Tax Assistance program, or VITA, which provides free tax preparation to low-income workers, said her clients often don’t qualify. The reason: the tax credit is not what the IRS calls “fully refundable.”

For example, a single person earning $19,750 or less is eligible for a tax credit equal to 50 percent of the amount saved – the maximum retirement plan contribution eligible for the credit is $2,000. The credits are either 10 percent or 20 percent for single workers earning between $19,751 and $33,000. (The income limits are higher for households.)

The catch is that the credit is subtracted from the taxes owed, and low-income people usually pay little or no taxes to the IRS after they take the standard deduction given to all taxpayers. If they don’t owe taxes, they don’t get the credit.

“To dream big about helping low-income people save for retirement, we would make it a refundable credit,” said Wollan, an educator with Iowa State University Extension and Outreach, which distributes research information in her state on topics like finance and agriculture.

Congress is considering providing a refundable credit of up to $500 to single and married savers even if they don’t owe anything at tax time. But lawmakers often get into a political disagreement about whether people who don’t pay taxes should get money back from the IRS.

Wollan feels her low-income clients should be rewarded for making what is, for them, a Herculean effort to save. “When I see that they have contributed to a 401(k) or other retirement account, I just want to jump up and down and cheer and pat them on the back,” she said. But “because their income is so low, they don’t get to take advantage of these credits, and that is so sad.” …Learn More

Man working at desk

Attorneys Secure Disability Benefits Faster

Hiring an attorney or other representative seems to be helping workers who apply for federal disability insurance.

Legal representation dramatically increases the chances that individuals with disabilities will be awarded benefits at the initial level of review of their applications filed with the U.S. Social Security Administration (SSA), new research finds.

Hiring an attorney has been common when applicants appeal an initial denial to an administrative law judge. What’s new is that they are increasingly getting help earlier – when they first file the application – from an attorney or, in some cases, another representative who has passed an SSA test on the agency’s administrative procedures.

But disability experts have debated the value of representatives amid concerns about unscrupulous practices, such as beefing up their fees by dragging out the application process. SSA pays representatives 25 percent of a client’s back benefits that accrue while he or she awaits a decision – up to a $6,000 maximum fee.

This study – the first to examine attorney effectiveness – finds justification for paying the fees. Attorneys increase the share of applicants who are awarded benefits at the initial level of review from a third to more than half, according to the analysis of SSA data for applicants who received an initial decision between 2010 and 2014.

Hiring a representative “leads to earlier disability awards to individuals who would otherwise be awarded benefits only on appeal,” the researchers said. …Learn More

Elderly lady looking out the window

Caregivers Lament Elderly’s COVID Isolation

The magnitude of the tragedy is unfathomable: Americans have lost nearly 187,000 family members living in nursing homes to COVID-19.

Even when residents survive outbreaks in the facilities, their family caregivers experience trauma. Barred from visiting residents during the lockdowns, caregivers observed – on Zoom, over the phone, or from the other side of a nursing home window – loved ones suffering from the devastating impact of isolation.

“To think in her final year[s] when she is most vulnerable and most in need of love and support from her children and was denied this for 6 months is in my opinion devastating,” one caregiver said in a survey of 518 caregivers, the vast majority of them women and mainly daughters.

Granted, nursing homes – and the entire country – were not prepared for a once-in-a-century pandemic that has been difficult to control, given that COVID-19 is often asymptomatic. The lockdowns were a health precaution. Many nursing homes were also put in an untenable position when COVID-19 created staff shortages as nursing assistants and other workers took time off after contracting the disease or simply quit their jobs. And perhaps better communication between nursing home staff and family members would have eased some of the concerns.

Nevertheless, the caregivers’ perceptions of what unfolded inside nursing homes are alarming. “Anger,” “helplessness” and “heartbreak” were common reactions, conveyed in the survey compiled in the Journal of Aging & Social Policy.

The situation became so untenable for 30 of the caregivers surveyed that they pulled their parent or family member out of a facility and brought them home to live with them.

Four themes pervaded their descriptions of what their loved ones were going through: social isolation, cognitive and emotional decline, inhumane care, and a lack of oversight at the long-term care facilities.

The source of many caregivers’ concerns were nursing homes’ decisions to confine residents to their rooms to prevent contagion. But one caregiver said that while her mother’s facility went to great lengths to keep her healthy, the staff did little to ease her isolation: “Almost no effort has been made to ensure [her] mental health due to the isolation. Staff rarely stay and visit with Mom, no special in-room activities or stimulation has been attempted.” …Learn More

Retirement blocks

Change to Social Security Impacts Decisions

In 1983, Congress introduced gradual increases in the eligibility age for full Social Security benefits from 65 to 67. The increases, starting in 2000 and continuing today, have meant larger reductions in the monthly checks for people who sign up for their benefits early.

This was a major cut to Social Security benefits, and it has had an impact. Retirement rates have declined among workers in their early 60s as they delayed retirement to make up for the larger penalties for claiming their benefits early, a new study found.

Estimating the effect of this change on retirements is challenging, so the researchers compared actual retirement rates after the reform with their estimates of what the rates would’ve been if Congress had not increased the full retirement age. They also calculated the retirement rates a few different ways. Their main estimate, based on three decades of U.S. Census data, was notable, because it showed a substantial decline in retirements at age 62, which is the first time workers can collect Social Security – and the age that exacts the biggest penalty in the form of a smaller monthly check.

At ages 63 to 65, the penalties for claiming early shrink – and the effect of the reform was less noticeable.

But the main estimate of retirement rates – the incidence rate – showed that the 1983 increase in retirement penalties had a significant impact on 62-year-olds. The incidence rate is the number of people in a given year who retire at 62 as a percentage of everyone in their birth cohort.

The results showed that 10 percent of the men – all workers born after 1937 – left the labor force when they were 62. That’s about 5 percentage points less than the rate would’ve been without the reform.

For women, the incidence rate at 62 was 8.4 percent, which is about 2 points less than if there had been no reform. Their response may have been more muted because women retire for different reasons than men. …Learn More

A stack of newspapers

Headlines Sway Perception of Social Security

Each new reminder in the annual Trustees’ Report that Social Security’s trust fund will be depleted sometime in the 2030s causes a new round of angst. Some 40 percent of the workers in one poll expect to receive nothing from Social Security when they retire.

The media often play into this sense of unease with sensational headlines like “Social Security and Medicare Funds Face Insolvency” (The New York Times) or “Trust Fund to Run Dry in 2035” (Fox Business).

While these headlines do their job of attracting readers’ attention, they don’t reflect the fact that the payroll taxes paid by employers and employees will keep rolling in. If policymakers take no steps to prevent the depletion, the tax revenues will still cover about three-fourths of future retirees’ benefits, according to the 2021 Trustee’s Report released in August.

But a new study by the Center for Retirement Research shows that headlines focused on the trust fund’s potential depletion can fuel misperceptions about Social Security’s viability. In reaction to news stories with alarming headlines, some workers in an online experiment said they would alter their retirement plans.

The experiment was conducted during the June lull in the pandemic when COVID was less of a distraction. Everyone in the experiment saw the same article – except for the headline and the first sentence, which essentially repeated the headline.

The workers who read articles with headlines emphasizing the trust fund’s depletion predicted they would start their benefits about a year earlier – presumably hoping to protect them somehow by locking them in early – than those who saw the staid headline – “Social Security Faces a Long-Term Financing Shortfall.”

Two headlines in the experiment sent a more blunt message: “Social Security Fund Headed Toward Insolvency in 2034, Trustees Find” and “The Social Security Trust Fund Will Deplete its Reserves in 2034.” The people who saw a final headline, which alluded to the trust fund’s depletion – “Revenues Projected to Cover Only 75 Percent of Scheduled Social Security Benefits after 2034” – said that they, too, were more likely to start their benefits earlier.

Headlines also influenced how much workers in the experiment expect to get from Social Security when they retire. …Learn More

healthcare.gov home page

ACA Insurance in the Time of COVID-19

The urgency of the pandemic ushered in important changes to the Affordable Care Act (ACA), including a steep reduction in premiums for health insurance policies purchased on the state and federal exchanges through the end of 2022. Now Congress is debating reforms such as making the larger premium subsidies permanent and broadening the reach of the federal-state Medicaid program beyond the expansion introduced in the 2010 ACA.

We spoke with Tyson Lester, an independent insurance agent in southern California, about what the changes so far have meant for consumers. Tyson is licensed to sell policies in California, Florida, and Texas.

Tyson LesterTyson Lester

Has the Affordable Care Act promoted disease prevention and care during the pandemic?

Some of the best feedback we got from our clients was about using the telehealth and remote options in their policies. It’s been an option for quite some time, but it was utilized more frequently during COVID-19. People were able to access primary care physicians, receive consultation and be diagnosed with COVID over the phone. It was amazing. It helped them because: 1) they were able to just make a phone call; 2) they were able to receive good consultation; and 3) if testing was necessary, they were able to go to a testing facility.

In response to COVID, did you see a rush into ACA policies last year?

ACA enrollment increased last year, but consumers’ response to the pandemic was mixed. In 2020, 12 states and Washington D.C. temporarily reopened their health insurance exchanges but people didn’t have the additional premium assistance to make it more affordable. In the remaining states, working people who lacked employer health insurance didn’t have the ACA as another option for coverage when the pandemic hit.

As for the workers who did have employer health insurance last year but then lost their jobs, they had to make a tough decision between whether they wanted to elect their employer’s COBRA, which is expensive, go uninsured, or go on the insurance exchange. But many people weren’t fully aware of the ACA’s longstanding option: when someone loses group health insurance from their employer, they can buy what’s known as a special enrollment ACA plan. In Texas, for example, part of the reason for last year’s increase in the uninsured population, in the midst of COVID-19, was that people who lost their jobs – and their employer coverage – weren’t even aware the ACA exchanges were available to them. We actually put a flyer together for this specific topic last year, because it was so important.

In March, the American Rescue Plan significantly increased the ACA premium subsidies through December 2022. What has been the effect?

For anybody who was previously enrolled, the American Rescue Plan significantly reduced premiums in California, Texas, and Florida and potentially their total out-of-pocket costs. As a result of the larger subsidies, I saw an influx of new customers throughout this year on California’s exchange, which – unlike most other states – opened a special enrollment for all of 2021. Earlier this year, the federal exchange opened, which caused an influx of customers too. This is where Texas, Florida and many other states sell their ACA policies. All states on the federal exchange shut down again in August but will reopen for 2022 in November. …
Learn More