Will More Aid to Parents Be Permanent?

Happy children standing together

To lift families out of poverty during the pandemic, Congress is on the verge of passing a substantial increase this year in the standard child tax credit as part of President Biden’s broader relief package.

But despite the sharp divide over the $1.9 trillion package, some senators – both Democrats and Republicans – want to permanently increase federal assistance to families. Their goals range from reducing racial inequality and rural poverty to providing more financial stability for middle- and working-class parents.

The prospect of a bipartisan plan for increasing assistance to parents beyond this year is welcomed by advocates for the poor and lower-income workers. The proposals represent a belief “that all of society benefits when children are doing well,” said Myra Jones-Taylor, chief policy officer for Zero to Three, which promotes policies to help infants and toddlers.

Prior to COVID-19, she said 40 percent of infants and toddlers were in families below 200 percent of the poverty limit. Parents “didn’t have the financial resources to meet their [children’s] basic needs,” she said.

The current proposal in Congress for immediate pandemic relief would increase the per-child tax credit in 2021 from the current level of $2,000 to $3,600 for children under age 6 and $3,000 for older children and teenagers. This same increase is included in a bill by Democratic Sens. Michael Bennet of Colorado and Sherrod Brown of Ohio to make the larger tax credits permanent.

Republican Sen. Mitt Romney’s plan is even more generous. The Utah senator proposed $4,200 in annual cash payments for children under 6 and $3,000 for older children, and some Republicans may be willing to go along. Romney’s plan, if passed, “would arguably be the biggest anti-poverty measure since the Social Security Act of 1935,” Samuel Hammond, director of poverty and welfare policy at the Niskanen Center, a Washington think tank, said in an interview.

But Hammond said members of both parties are making serious efforts to alleviate poverty by targeting assistance to children. The United States has the highest poverty rate of any developed country, “because we spend so little on child benefits, and the benefits we do have cut out the poorest families,” he said. The current tax credit is not available at all to the unemployed and low-income families earning under $2,500.

Hammond and Jones-Taylor were among the panelists in a webinar last month at the Urban Institute to explore the pros and cons of each approach – a tax credit versus monthly cash assistance. …Learn More

Federal Minimum Wage is 40% Below 1968

minimum wage figureLargely missing from the debate about raising the federal minimum wage is how much its value has eroded over the past 50 years.

The current federal minimum is $7.25 an hour. If the 1968 wage were converted to today’s dollars, it would be worth about $12 an hour.

At $7.25 an hour, a full-time worker earns just over $15,000 a year before taxes, which is less than the federal poverty standard for a family of two. The Biden administration has proposed more than doubling the federal minimum to $15 by 2025, and one proposal in Congress would begin indexing the minimum wage to general wages so it keeps up with inflation.

A $15 an hour minimum isn’t enough, said one sympathetic Florida contractor who voted in November to gradually increase the state’s mandatory minimum wage to $15. “I’d like to see some of the American people go out there and try to make a living and put a roof over their head and raise a family,” he told a reporter. “It’s literally impossible.”

Customer receiving from McDonald's drive thru serviceBut small businesses say raising the minimum wage would increase their financial pressures at the worst time – during a pandemic. At least 100,000 U.S. small businesses closed last year as governments restricted public gatherings to suppress the virus, and the Congressional Budget Office (CBO) estimates a higher federal minimum could eliminate 1.4 million jobs.

This evidence ignores the complexity of low-wage workers’ situations. Employee turnover is extremely common in low-wage jobs in fast food establishments, for example, and workers frequently have bouts of unemployment that further reduce their already low earning power. Raising the minimum wage could somewhat compensate for their spotty employment and provide more money for essential items. And while the CBO warns of job losses, it also predicts that a higher federal minimum wage would lift 900,000 million workers out of poverty.

Many states have approved incremental automatic annual increases, and a $15 minimum wage has been approved in eight states, including Florida. Voters – over the objections of the Florida Chamber of Commerce – approved raising the state’s minimum wage from $8.65 this year to $15 in 2026.

“We won’t get fifteen for another five years. We need that now,” an Orlando McDonald’s worker, Cristian Cardona, told The New Yorker.

Once again, inflation is a problem. “By the time we get fifteen, it’s going to be even less,” he said. …Learn More

Two workers loading a truck

Who Applies for Disability – and Who Gets it

Blue-collar workers who end up applying for federal disability benefits find themselves in that position for a variety of interrelated reasons.

A dangerous or physically demanding job can either cause an injury or exacerbate a medical condition that could lead to a disability. And people with limited resources in childhood often develop health problems earlier in life, and their circumstances can limit their access to job opportunities, making them more likely to end up in dangerous or physically demanding jobs.

A new NBER study untangles all these factors to clarify who applies for disability and which applicants ultimately receive benefits through Social Security’s rigorous approval process.

Researchers at Stanford and the University of Wisconsin linked a survey of Americans 50 and older to occupational data describing the level of environmental and physical hazards they’ve faced during decades of working. Next, socioeconomic measures of their upbringing – the adults’ descriptions of their childhood health, education, and parents’ financial resources – were layered into the analysis. Finally, the researchers repeated the process, replacing childhood health with genetic data on their predispositions to various disabling illnesses.

Blue-collar and service workers are known to apply for federal disability benefits at higher rates than white-collar workers. But the researchers showed that low socioeconomic status in childhood – by limiting the options for less strenuous jobs – played an even bigger role than workplace demands in whether the workers applied for the benefits.

However, when it comes to who is approved for benefits, physical and mental job requirements were key – and socioeconomic status plays no role. This makes sense because the heart of Social Security’s approval process is a determination that a disabled person is unable to do his previous job or another job appropriate to his age and experience.

An applicants’ health is, by definition, always central to whether he qualifies for disability. The final step in the researchers’ analysis used genetic data to get a picture of the applicants’ underlying health – as distinct from the health problems originating from a disadvantaged childhood. …Learn More

Diverse Population Uses Nursing Homes Less

Son with father in wheel chair

Since the 1980s, the share of the U.S. population over 65 has grown steadily. At the same time, the share of low-income older people living in nursing homes has declined sharply.

New research by the University of Wisconsin’s Mary Hamman finds that this trend is, to some extent, being driven by an increasingly diverse population of Hispanic, Black, Asian, and Native Americans. They are more likely to live with an adult child or other caregiver than non-Hispanic whites, due, in some cases, to cultural preferences for multigenerational households.

Nursing home residence is also declining among older white Americans. However, in contrast to the Black population, whites are increasingly moving into assisted living facilities. This creates what Hamman calls a “potentially troubling pattern” of differences in living arrangements that might reflect disparities in access to assisted living care or perhaps discriminatory practices. Notably, the researcher finds that the Black-white gap in assisted living use persists even when she limits her analysis to higher-income adults.

Eight states have seen the biggest drops in nursing home use: Florida, Georgia, Louisiana, New Jersey, New Mexico, North Carolina, South Carolina, and Tennessee. Many of these states have experienced fast growth in their minority populations or have more generous state allocations of Medicaid funds for long-term care services delivered in the home.

Growing diversity is actually the second-biggest reason for lower nursing home residence, accounting for one-fifth of the decline, according to the study, which was funded by the U.S. Social Security Administration and is based on U.S. Census data.

As one might expect, the lion’s share of the decline – about two-thirds – is due to policy, specifically changes to Medicaid designed to encourage the home care that surveys show the elderly usually prefer. …Learn More

Converting a Desire to Save into Saving

 

Save. Budget. Spend less on takeout.

“We know what we need to do,” financial behavior expert Wendy De La Rosa says. “The question is how to do it.”

Consider one of the pandemic’s lessons for workers: it’s important to build up an emergency fund for a potential financial catastrophe. But how to translate that into action?

De La Rosa, who founded the Common Cents Lab to help low-income workers manage their limited resources, has conducted research showing that people can overcome the psychological barriers to saving by changing the financial cues around them.

In this Ted video, she provides three practical tips, one of which she applied to her own life. After spending $2,000 in a single month on a ride-sharing app in Manhattan – “death by 1,000 cuts” – she vowed not to do it again. She did it again anyway.

So, she changed her financial cues. She deleted the credit card attached to her app and linked the app to a debit card with a $300 limit per month.

To change behavior, De La Rosa said, “change the decision-making environment.” …Learn More

Colorful arrows

Big Picture Helps with Retirement Finances

The prospect of retiring opens a Pandora’s box of questions. But one big question dominates all the others: How will I manage my finances when I retire?

This is a vexing problem, and baby boomers could use some help thinking it through. To ease the process, a team at UCLA and Cornell University led by David Zimmerman, a UCLA doctoral student, created an online decision tool. In an experiment, they found that the tool might help future retirees understand how to smooth out their income over many years and make their savings last.

The results are preliminary, and the researchers are refining their analysis. But for the initial experiment, they recruited 400 people, ages 40 through 63. The participants were instructed to use the tool to make three big retirement decisions: starting Social Security, choosing a 401(k)-withdrawal strategy, and deciding whether to purchase an annuity. Their decisions would be on behalf of a 60-year-old who is single and plans to retire in two years. He earns $55,000 and has $250,000 in savings to work with.

The participants were split into two comparison groups. One group received immediate feedback on the impact of each separate decision. For example, when the participants picked a Social Security starting age for the hypothetical person, a chart showed a horizontal line tracking the fixed annual benefit locked in by that decision.

When they moved on to another page and selected a plan for 401(k) withdrawals, a chart showed the age when the savings would probably run out. The final decision was whether to buy a deferred annuity with some portion, or all, of the 401(k) assets. The chart on this page displayed the fixed income the annuity would generate every year for as long as the person lives.

The participants were encouraged to change their decisions as much as they liked to see how a change affected that particular source of income. But the researchers suspected that seeing each decision in isolation doesn’t help to clarify how various decisions work together to determine total retirement income over time.

So, the second group got to see the big picture. The chart in this case displayed the impact of any single decision on the annual income from all sources.Learn More

Map of the United States

Where Will You Retire? This Might Help

The toughest part of Paul and Cathy Brustowicz’s decision to relocate from New Jersey to Summerville, South Carolina, was leaving behind their two grandchildren. The retirees also miss the theater and dinners in Manhattan.

A big advantage of South Carolina, though, is “more house for the money,” Paul Brustowicz said. The couple also had a few old friends who were already living there, and the warm weather is nice, though it, too, involves a tradeoff: high summer humidity and hurricane season. As for amenities, it’s a quick drive to Charleston for dinner, the airport, and the Medical University of South Carolina.

“Overall, it was the right move for us,” he said about the 2012 relocation.

South Carolina ranked a very respectable 14th in WalletHub’s 2021 report on the best and worst states to retire. New Jersey, on the other hand, is squarely in last place because of its steep cost of living.

Also at the bottom of the ranking are New York – another very high-cost state – and Mississippi, which is ranked as having a subpar health care system.

Wallet Hub’s 50-state rankings are based on three categories: affordability, quality of life, and health care. A chart displays each state’s ranking overall and in each category.

Florida, with its year-round sun, golf, and very large retiree community, came out on top. Housing is a relative bargain there, and taxes are low. The tradeoff is the state’s mediocre health care system.

After Florida comes Colorado, which gets high marks all around, and Delaware, which is an affordable retirement spot. …Learn More