Poverty: Proven, Practical Solutions

May 22nd, 2011 - by admin

Friends Committee on National Legislation – 2011-05-22 15:48:59


Poverty: Proven, Practical Solutions
Friends Committee on National Legislation

WASHINGTON (March/April 2011) — When the economy weakens and millions of people no longer have jobs, whose problem is it? When generations of families stay in poverty, or escape only to be dragged back by health problems or responsibility for an ailing family member, whose problem is it?

Poverty most directly affects individuals, but it is also a problem shared by the community as a whole. For people of faith, scriptural instructions on how to live with one another teach about the richness that is created and preserved in the ties among us. Economists and sociologists point to the opportunity cost of not incorporating all of the members of a society into its creative and productive capacities. Justice advocates look directly at the fairness of extreme wealth versus grinding poverty. Effective responses to poverty incorporate all of these perspectives.

Our country’s history tells the story of practical solutions that can successfully reduce poverty. When the country has invested in job creation, developed programs like Social Security to provide sustained income for the elderly, provided income supports that help raise children and families out of poverty, and funded food programs to ensure that no child goes hungry in the United States, it has made a difference in fragile lives.

Census data show that current safety net programs cut the number of people living in poverty almost in half, according to an analysis by the Center on Budget and Policy Priorities (“Public Benefits: Easing Poverty and Ensuring Medical Coverage”). Income support programs like Social Security; Supplemental Security Income (SSI); unemployment insurance; veterans cash benefits; refundable tax credits; and means-tested benefits like food stamps, rental assistance and energy assistance helped keep 27.4 million people out of poverty in 2003. The effect is especially dramatic for the elderly; 80 percent of elderly people in the United States are lifted out of poverty by safety net programs.

Yet as Congress has embraced a priority to reduce the budget deficit by cutting government spending, many members have turned first to these proven, effective programs. Head Start; energy assistance; and nutritional supplements for Women, Infants, and Children, for example, are slated for deep cuts in the House-proposed spending bill for 2011. Here are some examples of the programs that are helping millions of people, right now, stay afloat.

Social Security makes a difference. In 2008, 20 million people in the United States were being kept out of poverty by Social Security benefits. The Center on Budget and Policy Priorities estimates that, without Social Security, 45.2 million elderly people in the United States would have had incomes below the federal poverty line in 2008 ($10,400 for a single person). These benefits also kept 1 million children and more than 5 million disabled adults out of poverty.

Children’s Health Insurance Program (CHIP). In 2009, with unemployment at a historic high, the number and percentage of children without health insurance did not rise. Why? Even though many children lost the coverage they had through their parents’ employers, they had an alternative: public programs like CHIP and Medicaid. The programs worked the way they were supposed to — as a safety net. Congress reauthorized CHIP in early 2009 and expanded coverage to include 4.1 million more children.

Head Start. This program been around since the 1960’s, and its effectiveness is well-documented. A study of 600 Head Start graduates in San Bernardino County, California, showed increased earnings, employment, and family stability and decreased welfare dependency, crime costs, grade repetition, and special education.

Other studies show that those who attended a quality early childhood program are about three times as likely to be homeowners by age 27 compared to those who did not, according to two studies in 1993 and 2003. Head Start children are significantly less likely to have been charged with a crime than their siblings who did not participate in Head Start, and young women who have experienced a quality early childhood program are one-third less likely to have out-of-wedlock births.

Low Income Home Energy Assistance Program (LIHEAP). This program makes a critical difference to low income families by helping them pay for home energy costs and meet the basic needs of safe housing. The program served a record 9 million households in 2010. Current funding for 2011 is less than two-thirds what it was in 2010, in spite of growing numbers of households that need assistance.

Emergency Contingency Fund for TANF (the Temporary Assistance for Needy Families). This small program, part of the economic stimulus bill passed in 2009, was directed to states and local communities to create jobs. Twenty-six states applied for and received funds, used mostly for wages over a two-year period, resulting in 250,000 parents and youth who receive TANF benefits being placed in jobs.

About 17 percent of the 2010 federal budget provided income supports and social programs that are specifically focused on low-income families and individuals. (Medicaid, by itself, amounted to another 9.7 percent.) Some of these programs provide interventions, such as education, training, early childhood education, child care, and job placement that can help a family become more self-sufficient and move out of poverty. Other programs alleviate the hardships of poverty, such as hunger, illness, homelessness and cold. Needs for these programs increase, of course, when the economy sours and unemployment goes up.

Often lost in the debate about the budget deficit is the real need for our government to invest in the programs that can make these kinds of differences in peoples’ lives in our communities.

In addition to the budget cuts that Congress is debating now, some members are advocating long-term proposals, such as a cap on all federal spending according to formulas based on the Gross Domestic Product or revenues from the previous year, that would mean the federal budget could never respond to the increased needs brought about by a recession, but could only address poverty in the “good times.”

Your members of Congress need to hear that they have a vocal and active constituency in their state or district that is committed to tackling the community-wide problem of poverty and to building on our country’s record of success, not tearing it down.

Decoding the Budget Debate

The budget debate is in full swing in Washington, and this year it seems to be particularly loud and fast. As we all engage in discussions with Congress and with our neighbors, it can be helpful to make sure we have a shared understanding of the perhaps unfamiliar vocabulary being tossed around. Here’s a guide to decoding some of the hot topics in the news.

What’s the difference between a budget deficit and the federal debt?
The U.S. government runs a budget deficit when it spends more than it takes in in any given year. If Congress plans to spend more than it expects the Treasury to receive in taxes and other income, it is planning on deficit spending, which will be covered by borrowing.

Historically, the federal government has often run up deficits. The biggest deficits occurred right after the Second World War. Deficits fell throughout the 50’s and 60’s. President Bill Clinton also inherited huge budget deficits, which he turned into surpluses within just a few years. In both of those eras, economic growth was a prime channel for reducing deficits.

The debt is the cumulative amount that the federal government has borrowed and not yet paid back. Deficit spending adds to the debt; surplus budgets pay back some of the debt.

How does the government borrow money?
A large part of the debt is borrowed internally from U.S. government trust funds, such as Social Security. The Treasury is also authorized to borrow from the public, including banks, investors, and foreign governments. China, for example, is a major lender to the United States. Gross debt includes debt borrowed from U.S. trust funds and from the public; net debt is just the amount borrowed from the public.

Is the federal debt too large?
Accumulating debt isn’t always a bad thing. Debt can enable long-term investment, and it may be necessary to incur debt in an emergency, such as to respond to the economic crisis of the past few years. Most economists agree, however, that the size of the debt burden that the nation now faces is unhealthy and perhaps unsustainable.

Two factors go into this determination. A debt that is so large that it outweighs the productive capacity of the economy will loom large over the economy for too long into the future, and the interest payments on the debt will require a disproportionate share of federal spending every year. For 2012, the Office of Management and Budget projects interest payments of $474 billion, equal to the combined budgets of the Departments of Agriculture, Veterans Affairs, Education, Homeland Security, Energy, and the Environmental Protection Agency.

What is the debt ceiling, and why does Congress have to keep raising it?
The debt ceiling is the total amount that Congress has authorized the Treasury to borrow. As of March 2011, the ceiling is $14.29 trillion. When that ceiling is reached, Congress must raise it or else the United States will not be able to borrow any more money and could have to default on some of its debts. The ceiling has been raised frequently, more than 40 times since 1980.

Predicting when the ceiling will be reached is a tough call even for economists because it requires projections of taxes and other revenues coming in, and the timing of various actual outlays from the Treasury. The Treasury Department now estimates that the debt ceiling will be reached sometime in June.

In some years, Congress raises the debt ceiling without much debate. This year, the discussion is likely to be contentious. Many members of Congress who were elected on a platform of reducing the debt oppose raising the debt ceiling without also enacting systematic ways of keeping the budget in check, such as freezing certain parts of federal spending or capping it based on outside factors. Some members have suggested capping spending at a certain percentage of the gross domestic product (GDP), while others have proposed to limit government spending to the amount of revenue raised in the previous year.

Is it a good idea to freeze or cap federal spending?
These proposals are attractive in Congress for two primary reasons: they are easy to understand, and they sidestep the need to choose among different priorities for federal spending. The downside is that these restrictions can trap the country in a downward spiral.

If a weak economy yields lower revenues one year, a cap or freeze would require the federal government to cut spending in the following year, just when additional spending is needed to help with recovery.

What should Congress do now?
To stabilize the national debt and to stop it from growing as rapidly as it is beginning to grow in relation to GDP, Congress needs to focus on three variables: spending, revenues, and economic growth. In its study, “The Right Target: Stabilize the Federal Debt,” the Center on Budget and Policy Priorities suggests that reducing the annual deficits to about 3 percent of GDP would be sufficient to stabilize the debt over the coming decades.

Spending and revenues must be brought more closely in line with each other. The Pentagon budget is one of the first places Congress should start if it is looking for ways to reduce wasteful spending. Military spending has doubled in the past ten years and the Pentagon has a history of enormous cost overruns. Congress also needs to take on the politically challenging issue of taxes.

The tax cuts that Congress extended in 2010 primarily benefit taxpayers with very high incomes, significantly reducing the revenues that the government can bring in. Revenues from corporate taxes are also at a historic low, as large and wealthy corporations find and promote more and more loopholes to minimize their tax burden. Carefully focused investments in direct job creation will continue to be needed to help the economy grow again to a sustainable level.