Workers, Stiffed

GENERIC 032502, story, budget surplus finances, economy, JM
This column was written by Robert Gordon and Josh Lynn.

Progressive critics of the budget reconciliation bills now being melded together by a joint House-Senate conference committee usually attack the measures as tax breaks for the wealthy, paid for with budget cuts for the poor.

That's true, as far as it goes. Many of the cuts now being considered — reductions in Medicaid, Food Stamps, and child support enforcement, together with increases in interest rates on student loans — wouldn't even finance one-seventh of the recent tax breaks for Americans making over $380,000.

But progressives might get more traction by arguing a slightly different point: that conservatives are pushing to eliminate incentives for the work of poor Americans as a way to reduce taxes on the accumulated wealth of the most fortunate. In tax policy, many progressives already complain — and rightly so — that President Bush is shifting the tax burden away from capital and onto labor. But the argument equally applies to cuts in programs that provide work incentives by offering the working poor benefits like health care and child care.

Conservative cuts in these benefits are a perverse tribute to changes that conservatives promoted a decade ago in the name of work. Before 1996, when conservatives paid for a tax cut by slashing welfare, they claimed to be doing poor people a favor by saving them from dependency. But with the 1996 welfare reform, conservatives claimed victory in the battle against aid to the "undeserving poor." The new federal program, aptly named Temporary Assistance to Needy Families, suspended welfare payments after five years and mandated that able individuals receiving help be working, looking for work, or training for work at least 30 hours a week.

At the same time, thanks mostly to Bill Clinton, annual spending on supports for the working poor roughly doubled from 1992 to 1999. Because of the expansions in the Earned Income Tax Credit, child care subsidies, and health care programs, poor families who worked hard and played by the rules had a better shot at a decent life. Not that they were rich, but, according to estimates by economists Rebecca Blank and David Ellwood, an average working single mother with two children saw her disposable income rise by $2,500 above inflation in this period. The families were better off — and America was too: Studies by economist John Karl Scholz and others have shown that these initiatives actually increased labor participation among low-income families.

It is precisely such work supports that congressional conservatives would now slice away. For example, some parents who have left the welfare rolls and taken jobs can now continue receiving Food Stamps while their income rises above the poverty line. In the real world, these folks still struggle to put food on the table: We are talking about a single mother working full-time for less than $9 an hour, then paying so much for child care that her disposable income falls below the poverty line. Working families like hers will lose Food Stamps altogether under the House budget.

It's the same story for health care. Today, Medicaid provides coverage for children in low-income families just above the poverty line. Their parents may work full-time and earn the minimum wage, but the House bill promises billions from new charges imposed on such families. A family making about $1300 per month could now pay nearly $70 of that income just for health care. The bill also cuts off guaranteed coverage for services children desperately need, like eyeglasses to see blackboards — just because their parents are "too rich."

Then there is child care. If we are serious about encouraging work for single parents, as we should be, then we must be equally serious about ensuring working parents can afford child care. Otherwise work won't be ennobling for families; it will just be lousy for their children. Yet according to the Center on Budget and Policy Priorities, the House bill would eliminate child-care assistance for 330,000 children by 2010.

Finally, consider child support enforcement. Here's a policy that lifts poor children out of poverty by requiring that their parents, usually fathers, do right by their kids, usually by going to work. Under the House bill, a staggering $24 billion in child support would go uncollected.

Conservatives like to present themselves as pro-growth, but these cuts make little economic sense. With demographers now projecting zero growth in our native workforce over the next 20 years, America will need to expand its labor force and ensure that those who can work do. Conservatives once emphasized how the welfare state could affect work incentives, for better or worse. Parents who lose health care, child care, and Food Stamps when they work "too much" are going to work less.

The grim truth is that encouraging work isn't conservatives' priority. Just as budget cuts are undermining incentives for labor, tax breaks are increasing incentives for passive investment. The 2003 tax cut reduced the top rate on capital gains by 25 percent and the top rate on dividends by nearly 60 percent. These tax breaks allow wealthy investors to pay a lower rate on their income than the people who drive their cars. Yet these are the tax breaks financed by reductions in work incentives.

Liberals are right to point out that conservative budget policies take from the poor and give to the rich. But what is more striking, and ultimately more saddening, is that they betray the deepest commitment conservatives claim to honor: hard work.

Robert Gordon is senior vice president for economic policy, and Josh Lynn is a research associate, at the Center for American Progress.
By Robert Gordon and Josh Lynn
Reprinted with permission from The American Prospect, 5 Broad Street, Boston, MA 02109. All rights reserved