Thursday, January 07, 2010

Tax Policy Fights Hunger in a Recession

(Reprinted with permission from Institute Notes, the blog of the Bread for the World Institute.  This piece offers great background for Bread for the World's 2010 Offering of Letters)

By Todd Post

At a time of high unemployment rates and a consensus among economists that this will be the norm for some time, it might seem like we’re aiming away from the bull’s eye by targeting tax credits for help against hunger. But Bread for the World’s 2010 Offering of Letters on tax policy changes -- specifically improvements to the Earned Income Tax Credit (EITC), a benefit designed to increase the earnings of low-wage workers -- is dead-on accurate. 

Let me explain why. Low-income families usually depend on two wage-earners. These are also the families most likely to lose their jobs in a high-unemployment economy. In a recession, low-income jobs vanish more quickly than middle- and high-income jobs.

For  low-income families, the  loss of one wage-earner’s income is devastating. Fortunately, help from the Supplemental Nutrition Assistance Program (SNAP) may now become available, when previously the family’s earnings could have been too high to qualify. Unemployment insurance also can cushion the blow. And so does the EITC.
The Earned Income Tax Credit (EITC) can lift wages by up to 40 percent in some households.
It’s true that in many families both wage-earners have lost their jobs. That’s the most tragic of all cases, and this group needs SNAP and unemployment insurance. We don’t know the numbers for sure, but in all probability, fewer families have lost two earners than one, or one of the two (and maybe both) has been forced to work fewer hours.

Without the EITC, low-wage jobs barely allow families to escape poverty. The EITC can lift wages by up to 40 percent in some households. Anybody who discounts the EITC’s importance in a recession fails to appreciate how essential this program is to families where there is one wage-earner when there used to be two.

The optimal solution to poverty would include something other than simply improving the EITC. A higher, regularly adjusted minimum wage, affordable health insurance and child care, more housing assistance, or legislation that makes it simpler for labor to organize are all solutions that should be part of how the country addresses inequalities in the labor market.

But the political reality is that the present government doesn’t want to take a comprehensive approach. The tax code has become the preferred policy area lawmakers in both parties have been willing to use to help poor families. While that may not be optimal, that’s the country in which we live.

(The author is the editor of the Bread for the World Institute's annual Hunger Report).

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