A bad time for the working poor

Note: There’s a lot of mathification in this diary. I did my best to get everything right, but I stopped being math-infallible when we switched from times tables to algebra ‘n stuff. If anyone notices any mistakes, please bring them to my attention and I’ll correct them.


Our Governor is fond of referring to “struggling Vermonters” whenever he needs to dismiss ideas for tax increases he doesn’t approve of. Such talk ought to prompt a hearty chuckle from the press corps, since the idea usually involves a tax hike on people in his own bracket, who are, by no stretch of the imagination, struggling.

Meanwhile, the Gov is engaging in a real-life test of that old saying about straws on camel’s backs, and his guinea pigs are the Vermonters who truly are struggling — the working poor*. There’s the proposed cut in the Earned Income Tax Credit; the planned five-year lifetime cap on Reach Up benefits; and the likely prospect of higher premiums and/or out-of-pocket health care expenses when Vermont transitions from Catamount/VHAP to Vermont Health Connect in 2014. Each of these proposals has attracted a goodly amount of criticism from lawmakers and advocacy groups, but I haven’t seen anyone try to tot up the cumulative burden of all these proposals. How many straws are we piling on the camel’s back?

*Excellent piece in today’s New York Times about our jobless recovery. Well worth using one of your ten freebies a month, if you don’t subscribe. In brief, it reports that the federal budget sequester may throw hundreds of thousands out of work, but the stock markets are riding high because investors know that corporate profits will remain strong, no matter how badly the rest of us are getting screwed. As one analyst, struggling to avoid the moral implications, put it: “So far in this recovery, corporations have captured an unusually high share of the income gains.” Uh-huh.

We’ll start with something that’s not at all the Governor’s doing, but it’s part of the picture nonetheless. I’m talking about the end of the federal payroll-tax holiday at the beginning of this year. That alone means a two-percentage-point tax increase for low- and middle-income Vermonters.

The payroll tax holiday had to end sometime; it exacerbated the long-term shortfalls in Social Security. But it’s a highly regressive tax, since it applies to incomes up to $113,700.  

So even before we get to the Governor’s budget, the working poor are already 2% in the hole. Easy math: for someone earning $30,000 a year, it’s a $600 tax increase. (If you’re making $113,700, it’s a $2,274 tax increase. And if you pull down a million per year, it’s… er… a $2,274 tax increase. Wouldn’t want to burden those “struggling” millionaires.)

Okay, with the payroll tax as the backdrop, let’s move on to Shumlin’s proposals.

Earned Income Tax Credit. The EITC is a federal program; Vermont provides a supplement worth 32% of the federal credit, which amounts to $25 million out of the general fund. Governor Shumlin has proposed pulling $17MM out of the EITC to pay for improved access to child care for low-income workers. In 2011, the average Vermont EITC was $574; if the Governor has his way, that average would presumably drop to about $184. The EITC is determined by income and family size, so the impact on a particular recipient is hard to measure; but let’s say the average recipient would see an effective tax increase of $390.

And the effect is worse for those with lower incomes; if you’re a family with three kids making $20,000, the Vermont EITC would drop by $1,250. That’s a big-ass tax increase, pardon my French.

The Governor has trumpeted the “fact” that the cost of Vermont’s EITC rose by 49% between 2003 and 2011. However, as I have previously noted, that number is grossly misleading. More than half the increased cost is because more Vermonters qualify for EITC support — a byproduct of the weak economy and jobless recovery. The rest of the increase is due to the rate of inflation. The actual purchasing power of the average EITC payment has basically stayed the same. Inconvenient for the Governor’s argument, but true nonetheless.

And about that child care access. The following unpleasant numbers are courtesy of Jack Hoffman of the Public Assets Institute. The Shumlin plan, he says,

…raises income taxes on 44,000 poor working tax filers to expand a program that supports about 7,000 families. There are about 5,900 families now receiving the child care subsidy and the estimate is that another 900 families will be served with the expansion. In some cases, families will lose some of their tax credit and also see a reduction in their child care costs, which could be viewed as a trade-off. However, about two-thirds of the families in the child care program-about 4,000 families-now receive a 100 percent child care subsidy-because they are at or below 100 percent of the federal poverty level. The expansion of the subsidy program will not improve their family finances. They don’t pay for child care now because they can’t afford to, and they won’t pay under the expansion. However, they will lose much of their EITC making these families poorer.

In short, Shumlin’s EITC cut is a bad deal for almost all recipients. Also, many of the working poor face multiple obstacles to work — transportation, health, lack of relevant skills, a large number of really sucky jobs that don’t pay the bills. Better access to child care may or may not even help the small minority of EITC recipients who would benefit from the Shumlin plan.

All in all, a lot of EITC recipients would lose hundreds of dollars, while a fraction would get some improvement in child-care access. Which may or may not make a difference in their ability to stay in the workforce.

Maybe that’s why House Speaker Shap Smith has pronounced the EITC cut all but dead.

Reach Up. I covered some of this in yesterday’s post, “Shumlin’s package is coming apart.” But here’s a little more.

Shumlin wants to impose new caps on Reach Up benefits: a five-year lifetime cap, and a three-year cap on continuous benefits. As I reported on Sunday, a new Maine study suggests that these caps have devastating consequences for people who live on the edge between employment and joblessness, or between poverty and barely getting by. The Administration’s response is that Vermont’s program would be superior to Maine’s because we will offer more services and guidance to those hitting their Reach Up maximums.

In the long run this might work out — if the economy stays strong and there are enough jobs for those without much education, ha ha. But how will it work in the near future?

Well, we get a pretty good idea form a recent article by VTDigger’s Alicia Freese. If Shumlin’s plan takes effect, nearly 1200 families (nearly 3800 individuals) would hit their Reach Up maximum on day one — October 1, 2013. Of those 3800 people, 2400 are children. More:

Eighty-four percent of the households are single parents. They face, on average, 3.7 “barriers” to finding employment, including lack of transportation, emotional or physical health problems, and no high school diploma.

Of those 1200 households who’d be cut off on day one, 864 will have hit their lifetime cap, meaning they would never be eligible for Reach Up again.

There is some merit to limiting Reach Up, or at least doing everything we can to help recipients succeed. Some recipients do need some incentive, positive or otherwise, to do the hard work of bootstrapping their lives. But the best way to achieve this is to improve the social services network and give case workers the time and tools they need to help their clients, not to impose an artificial cap.

And, I remind the gimlet-eyed among us, the Maine study found that overall expenditures on the poor actually rose after that state imposed a five-year cap. That’s because those people don’t just go away; they rely on other social-service and emergency-assistance programs. If the Maine study is to be believed, the Reach Up cap is penny wise and pound foolish.  

Plus, well, there’s the human suffering and all that.

Health care transition. On January 1, 2014, the Catamount and VHAP programs will cease to exist, their place taken by Vermont Health Connect, the health insurance exchange mandated under Obamacare. The problem is, the benefits for many of the working poor are not as generous under the exchange. Advocates fear that this will cause more people to drop out of the system.

Shumlin tried to close the gap as much as he could — without raising undesirable taxes, of course. He did a pretty good job in terms of premiums; but many people will see higher limits on out-of-pocket costs. Under the Shumlin plan overall, the vast majority of clients won’t see their up-front costs rise (indeed, many will see those costs go down) — as long as they stay healthy. But if they run up big medical bills, they could be stuck with hundreds or even thousands in additional expenses.

Administration officials argue that relatively few people are sick enough to hit their out-of-pocket maximums. But those who do will see a tough situation get even tougher. And Shumlin has resisted all efforts by liberal Democrats and Progressives to add any more premium support. They didn’t even bend to the tune of $800,000, which would have given them two more votes in the House Health Care Committee (Prog Chris Pearson and Indy Paul Poirier) which would have given the bill significant momentum as it moves through the process.

For those interested in the numbers, here is a chart prepared by the Vermont Campaign for Health Care Security. This was released on February 20, but as far as I know it’s still up to date.

Conclusion. Each of Governor Shumlin’s proposed cutbacks is not a death blow, if taken separately. But add them all up — especially with that 2% federal tax increase already on the books — and he would place significant additional burdens on the lives of people who are scraping and scratching to get by. A few hundred bucks can make a huge difference to those who have to think twice about every purchase. Meanwhile, Shumlin is absolutely steadfast on holding harmless those Vermonters who are not struggling at all — his fellow one-percenters.

The Governor says he wants to reform a “cruel” system that traps people in poverty. But his own proposals place new barriers in their path to success. And it’s difficult to see his relatively modest reforms in child care and case-worker support even mitigating the barriers he would impose, let alone giving the poor a better overall chance at making it.  

3 thoughts on “A bad time for the working poor

  1. .. into a vicious system that crushes people.

    P.S. The whole canard re: supporting people in need “trapping them” went out with Parasuco Jeans. Once the statisticians were done proving that most aid recipients need aid for all of 2 years, and those who need aid for longer usually have strong mitigating factors (how many quadriplegic Walmart employees do you know?), and are not being prevented from getting jobs by the aid.

    I hope someone will inform the governor that most of us are acutely aware of the lies inherent in the “welfare reform” playbook, and we aren’t particularly happy to see our governor trotting them out. Our friends and families are going to he harmed if he gets his way, and we resent it.

  2. No tax increases.

    The cost of everything increases. Espcially fees and tax deductions that hit the poor and middle class hardest.

    Meanwhile, our most liberal governor of the most liberal state will not go near asking those who are extremely well off to pay a dime more. Not the Vermont I imagined. Not at all. Can this be changed?

  3. Since the governor adamantly opposes “broad-based” taxes, how about a Vermont tax on the payroll earnings of those who earn more than the federal payroll tax cap (currently $113,700)?

    By my very rapid top-of-the head calculations (based on 2009 VT Tax Dept figures), such a tax would impact fewer than 10% of Vermont taxpayers, meaning, to put it the other way around, that more than 90% of taxpayers would not see ANY tax increase.

    Just a thought.

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