[House Hearing, 110 Congress]
[From the U.S. Government Printing Office]




                               before the

                            SUBCOMMITTEE ON

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                     U.S. HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             FIRST SESSION


                             APRIL 26, 2007


                           Serial No. 110-34


         Printed for the use of the Committee on Ways and Means

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                      COMMITTEE ON WAYS AND MEANS

                 CHARLES B. RANGEL, New York, Chairman

FORTNEY PETE STARK, California       JIM MCCRERY, Louisiana
SANDER M. LEVIN, Michigan            WALLY HERGER, California
JIM MCDERMOTT, Washington            DAVE CAMP, Michigan
JOHN LEWIS, Georgia                  JIM RAMSTAD, Minnesota
RICHARD E. NEAL, Massachusetts       SAM JOHNSON, Texas
MICHAEL R. MCNULTY, New York         PHIL ENGLISH, Pennsylvania
JOHN S. TANNER, Tennessee            JERRY WELLER, Illinois
XAVIER BECERRA, California           KENNY C. HULSHOF, Missouri
LLOYD DOGGETT, Texas                 RON LEWIS, Kentucky
EARL POMEROY, North Dakota           KEVIN BRADY, Texas
MIKE THOMPSON, California            PAUL RYAN, Wisconsin
JOHN B. LARSON, Connecticut          ERIC CANTOR, Virginia
RAHM EMANUEL, Illinois               JOHN LINDER, Georgia
EARL BLUMENAUER, Oregon              DEVIN NUNES, California
RON KIND, Wisconsin                  PAT TIBERI, Ohio
BILL PASCRELL JR., New Jersey        JON PORTER, Nevada

             Janice Mays, Chief Counsel and Staff Director

                  Brett Loper, Minority Staff Director



                  JIM MCDERMOTT, Washington, Chairman

FORTNEY PETE STARK, California       JERRY WELLER, Illinois
ARTUR DAVIS, Alabama                 WALLY HERGER, California
JOHN LEWIS, Georgia                  DAVE CAMP, Michigan
MICHAEL R. MCNULTY, New York         JON PORTER, Nevada
SHELLEY BERKLEY, Nevada              PHIL ENGLISH, Pennsylvania

Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
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converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
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                            C O N T E N T S



Advisory of April 19, 2007, announcing the hearing...............     2


John Podesta, President, The Center for American Progress........     6
Linda Gibbs, Deputy Mayor for Health and Human Services, City of 
  New York.......................................................    12
The Reverend Larry Snyder, President, Catholic Charities USA.....    20
Gordon Berlin, President/Chief Executive Officer, Manpower 
  Demonstration Research Corporation (MDRC)......................    41
Isabel Sawhill, Ph.D., Senior Fellow, Economic Studies, The Cabot 
  Family Chair, The Brookings Institution........................    26
Lawrence M. Mead, Ph.D., Professor of Politics, New York 
  University.....................................................    34

                       SUBMISSIONS FOR THE RECORD

Jonathan Barry Forman, statement.................................   127
Matthew Melmed, statement........................................   129
New America Foundation, statement................................   134
Social Inclusion for the United States, statement................   146



                        THURSDAY, APRIL 26, 2007

             U.S. House of Representatives,
                       Committee on Ways and Means,
        Subcommittee on Income Security and Family Support,
                                                    Washington, DC.

    The Subcommittee met, pursuant to notice, at 1:00 p.m., in 
room B-318, Rayburn House Office Building, Hon. Jim McDermott 
(Chairman of the Subcommittee), presiding.
    [The advisory announcing the hearing follows:]



                            SUBCOMMITTEE ON


                                                CONTACT: (202) 225-1025
April 19, 2007

                     McDermott Announces Hearing on

                     Proposals for Reducing Poverty

    Congressman Jim McDermott (D-WA), Chairman of the Committee on Ways 
and Means Subcommittee on Income Security and Family Support, today 
announced that the Subcommittee will hold a hearing on proposals for 
reducing poverty. The hearing will take place on Thursday, April 26, 
2007, at 1:00 p.m. in room B-318 Rayburn House Office Building.
    Witnesses will range from a Deputy Mayor of New York City, where 
new anti-poverty initiatives are underway, to leaders on the front 
lines in charitable organizations like Catholic Charities, to experts 
from social research organizations and think-tanks.
    In view of the limited time available to hear witnesses, oral 
testimony at this hearing will be from invited witnesses only. However, 
any individual or organization not scheduled for an oral appearance may 
submit a written statement for consideration by the Committee and for 
inclusion in the printed record of the hearing.


    According to the most recent statistics (2005), there were 37 
million Americans living in poverty, including nearly 13 million 
children. After prior years of decline, the number and percentage of 
Americans in poverty began to climb after the year 2000, resulting in 
an additional 5.4 million Americans living below the poverty line. Poor 
Americans suffer various hardships, including reduced access to 
economic and educational opportunities, substandard housing, inadequate 
diet, greater levels of crime victimization, and diminished health.
    Local governments, academic experts, religious leaders, and many 
others have suggested a variety of proposals to reduce poverty in 
America. Many of these suggestions focus broadly on increasing the 
returns from work, expanding access to quality education, reaching out 
to disconnected populations, and strengthening existing safety net 
programs. As a starting point, some have advocated the United States 
adopt a goal to significantly reduce poverty by a date certain.
    In announcing the hearing, Chairman McDermott stated, ``We are 
beginning to hear a chorus of voices urging action on poverty. Leaders 
in city government, social research and charitable organizations have 
proposed specific steps they think will make a positive difference. 
This hearing allows us the opportunity to hear, discuss and evaluate 
these proposals to reduce poverty in America.''


    The hearing will focus on proposals to reduce poverty in the United 


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noted above.


    Chairman MCDERMOTT. Good morning. I am sorry I'm a little 
bit late, and I apologize for that. I like to start on time.
    We are here today to ask some tough questions and explore 
some reasonable responses to concerns about economic 
opportunity and activity and poverty in America. Without such 
an examination, we are doomed to repeat the images of 
desperation and deprivation so vividly exposed by Hurricane 
Katrina. Hurricane Katrina was an opportunity for America to 
see the soft underbelly of this economy.
    When income inequality continues not only to grow, but to 
accelerate, we should ask why, and what can be done. When the 
number of Americans struggling in poverty climbs by over 5 
million over the last 5 years, we should ask why, and what 
could be done. When two-thirds of poor families have a working 
mother or father, we should ask why, and what could be done. 
When America has one of the highest poverty rates among all the 
relatively prosperous countries of the world, we should ask 
why, and what we can do.
    Fortunately, a growing number of people have begun to ask 
these questions, and suggest some answers. Leaders in city 
government, social research, and the faith community have 
started to say there is a better way.
    Today we will hear from some of those who say now is the 
time to make a difference, and we will hear that we need to do 
more to make work pay through a higher minimum wage and 
improved tax policies. We will hear about the need to increase 
access to educational opportunities, starting with pre-school. 
We will hear about the need to provide a fair unemployment 
insurance system for low-wage workers, an issue we have already 
begun to address in this Committee.
    Finally, we will hear recommendations in many other areas, 
including improved housing policies, greater outreach to 
disconnected youth, more help in promoting savings, and 
increased child care assistance.
    The House has begun to act on some of these suggestions, 
such as increasing the minimum wage, and I expect us to make 
progress on some of these others in the coming months. Now, 
change may come incrementally, but you have to start a course 
in the right direction. I don't expect Members of this 
Subcommittee to agree with every one, or even most of the 
proposals put forward, but all of us have a special area of 
interest that we believe should be emphasized.
    We do not need complete consensus on the road map to agree 
on our final destination. We all want to reduce poverty and 
increase economic opportunity. Some of the witnesses today will 
suggest that we set a goal toward that end. I would hope that 
is one suggestion that might garner broad bipartisan support. 
Our moral compass, and our economic common sense, tell us that 
we can no longer leave so many fellow citizens outside the 
doors of opportunity.
    Some might cite the cost of expanding opportunity and 
reducing poverty, but surely, inaction has even a higher cost. 
We cannot any longer afford the lower productivity and greater 
social problems that poverty brings. We should commit ourselves 
to reducing poverty in America.
    I now yield to my Ranking Member, Mr. Weller.
    Mr. WELLER. Well, thank you, Mr. Chairman, and thank you 
for conducting today's hearing. I also want to welcome our 
panelists, and thank you for taking time to appear before this 
Subcommittee today on ideas for reducing poverty.
    Reducing poverty was one of the motivations behind the 
work-based 1996 welfare reforms, which reduced poverty for key 
groups, like African American children, to all-time lows. 
Today, we will hear a variety of specific proposals to do more.
    Some are time-tested and elementary. For example, we will 
learn that if young people finish high school, get married 
before having children, and work full-time, the odds are great 
they will avoid poverty and live a middle-class life. We should 
do anything we can to promote that kind of outcome.
    Still, millions do not follow that path, and poverty has 
remained stubbornly high, despite progress and increasing work, 
and reducing welfare dependence. As a result, our Chairman, Mr. 
Rangel, and others are suggesting we set a national goal of 
reducing poverty by 50 percent over the next 10 years. That's a 
worthy goal.
    Before doing so, we should also ask if we are accurately 
measuring poverty today, so we can know if we have succeeded in 
cutting poverty in half.
    One senior Member of this Subcommittee has his doubts. He 
stated flatly in 2004 that using a deficient poverty measure 
that fails to accurately reflect the impact of important 
economic policy and societal changes may create misperceptions 
about the effectiveness of public policy, and ultimately lead 
to misguided policymaking.
    Mr. Chairman, you have shown the precedent of having some 
slides, and I have a few slides today, which I am happy to 
share with the Subcommittee. This senior Member of this 
Subcommittee went on to suggest, ``Is today's official poverty 
rate inaccurate? Since the sixties, major policy changes have 
altered the social safety net, increasing the resources 
available to low-income individuals. The official poverty 
measure does not reflect these and other important changes that 
affect the material well-being of low-income Americans.''
    So, today's poverty rate, by failing to count, literally, 
tens of billions of dollars and antipoverty benefits, provides 
an inaccurate picture of poverty. Now, my colleagues, they know 
who this mystery Member of this Subcommittee is and he is a 
respected senior Member of the Committee. None other than our 
colleague, Congressman Pete Stark of California, when he wrote 
in 2004, as a senior Democrat on the Joint Economic Committee, 
this statement.
    Analyst Doug Besharov, of the American Enterprise 
Institute, using Census Bureau data, found that for 2004, using 
the correct inflation adjustment and counting all household 
income results, results in a poverty rate of about 7.9 percent, 
not the official rate of 12.7 percent. That's not all. Using 
the Stark formula, just like Pete Stark's report suggested, 
taking the next logical step of counting non-cash benefits like 
welfare work supports, food stamps, and housing assistance, 
resulted in a poverty rate of about 5.1 percent, as reflected 
in the slide.
    That is a 60 percent reduction from the official poverty 
rate--again, going from 12.7 percent to 5.1 percent, using the 
Pete Stark formula for determining poverty.
    Granted, no definitional changes will change the income of 
any individual family, but better understanding of who is poor 
will allow policy-makers to more accurately judge how current 
antipoverty programs work. We will then be better positioned to 
decide what changes are needed.
    Some of our witnesses today will call for $90 billion in 
increased antipoverty spending, on top of the $600 billion we 
already spend each year. That would be paid for by new tax 
increases, even though others have suggested these same tax 
increases also be used to fix the alternative minimum tax, pay 
for national health care, and many other proposals that are 
floating around this Congress.
    Setting that tax hike, double counting aside, before we add 
up half-a-trillion dollars in new spending over the next 5 
years, shouldn't we actually count what we are spending on 
current antipoverty programs? Otherwise, this exercise becomes 
just one more way for the government to redistribute income, 
without ever knowing whether it's the poor who are actually 
    Again, to use my colleague, Pete Stark's, words, ``That 
would be misguided policymaking.'' I look forward to the 
testimony we will receive. Again, Mr. Chairman, thank you for 
this hearing.
    Chairman MCDERMOTT. Thank you. We have an excellent panel 
here today. We will start on the far left--or my far left. John 
Podesta, the Center for American Progress.


    Mr. PODESTA. Progress. Thank you, Chairman McDermott, and 
Mr. Weller. I appreciate the opportunity to be here. I am the 
president of the Center for American Progress. I want--again, I 
want to say thank you for letting me speak about the central 
challenge for policy-makers in society at large today, which is 
how to best address and reduce the ranks of the poor and build 
a strong and growing middle class.
    As my written testimony outlines, the Center put together a 
group of--a 14-member task force of national experts and 
leaders. Just yesterday we released a report, ``From Poverty to 
Prosperity,'' which was the result of the work of over a year 
by that task force. Chairman McDermott mentioned Hurricane 
Katrina. We really put this task force together in response to 
what we saw, and the devastation that we saw, as a result of 
Hurricane Katrina.
    It proposes a four-part strategy to reach a very important 
goal, which is to cut poverty in America in half, within a 10-
year period. It does so by promoting decent work, providing 
opportunity for all, ensuring economic security, and helping 
people build wealth. It lays out 12 concrete steps in order to 
achieve that goal.
    I do want to acknowledge a couple of people. The cochairs 
of the task force, Peter Edelman, who is here with me today, 
who is one of my colleagues at Georgetown University Law 
Center, and Angela Glover Blackwell, the CEO of Policy Link, 
who serve as the cochairs of the task force. I'm also joined by 
Mark Greenberg, the task force executive director, and Indivar 
Dutta-Gupta, who is sitting behind you, who was one of our 
staff people, who joined the Subcommittee staff. It was good 
steal, I have to tell you.
    I don't have time to go into the details of the entire 
report, so I would really just like to make four brief points.
    First, the current status of the poor and low-income 
families in America is bad, and getting worse. As you all know, 
the United States has one of the highest poverty rates of any 
developed country in the world, defined by any measure, Mr. 
Weller. Even with an economy that produces $13 trillion 
annually, 37 million Americans live below the official poverty 
line, including nearly one-fifth of our children. Sixty million 
Americans live in extreme poverty. Roughly one-quarter of 
African Americans and Native Americans, and one-fifth of 
Hispanics are poor.
    All told, there are more than 90 million Americans that can 
be classified as low-income, and that's what this task force 
really focused on, people living under 200 percent of the 
official poverty line, who face a constant struggle to keep 
ahead and avoid falling into severe economic hardship.
    The other part I would make is that the situation is 
getting worse. The number of poor Americans is growing again. 
The Federal minimum wage has remained flat. Funding for key 
Federal programs has remained flat.
    My second point is that it doesn't have to be this way. 
There are proven, cost-effective means for combating poverty 
and building a stronger middle class. Partnering with the Urban 
Institute, the Center's task force modeled 4 of the 12 
recommendations focusing on: raising the minimum wage; the 
EITC; child tax credits; and expanding child care support for 
working families.
    Taken together, those four recommendations alone would 
reduce poverty by 26 percent, according to the Urban 
Institute's modeling. That would mean over 9 million fewer 
people living in poverty, a national poverty rate of 9.1 
percent, the lowest in recorded U.S. history. The racial 
poverty gap would be narrowed, child poverty would drop by 41 
percent. The number of people in extreme poverty would fall by 
over two million, and millions of low and moderate income 
families would benefit.
    My third point is that we cannot expect to reduce poverty 
and strengthen the middle class without a serious Federal 
strategy and coordinated effort. Our country has made great 
strides in reducing poverty in the past. In the 10 years 
between 1964 and 1973, poverty fell by an astounding 42 
percent. In the 8 years between 1993 and 2000, when I served in 
the White House, poverty fell by 25 percent.
    How did that occur? Each period, there was a nearly full 
employment economy, there were sound Federal and State policies 
that focused on rewarding work, individual initiatives, 
supporting civic institutions and communities, and a sustained 
national commitment that led to significant progress.
    I think for those of us who worked in the Clinton 
Administration, we recognize that the success in fighting 
poverty and growing the middle class required a serious 
commitment, leadership, and the full force of Federal, State, 
and community action, and it required a growing private sector, 
growth that was key, but poverty reduction, I think we also 
understood, wouldn't occur just naturally or simply through the 
miracle of the marketplace.
    Finally, my last point is that fighting poverty will not 
require extensive new bureaucracy, or encourage greater 
dependency amongst the poor. Americans are right to expect that 
anti-poverty efforts should honor work and personal 
responsibility. That's what this report is all about. We know 
that policies such as the Earned Income Tax Credit, and 
expanded child care, and raising the minimum wage, can fight 
poverty in a lean and efficient manner.
    So, again, our recommendations could be fully paid for by 
an alternative set of tax policies. I think that the goal is 
worthy of a great Nation, which is to cut the poverty in half 
in the next 10 years. What would that mean? Twenty million 
fewer Americans living in poverty. There would be more working 
Americans, dramatically fewer working people in poverty, 
stronger, more vibrant communities, and millions of children 
beginning their lives with vastly more opportunity than they 
have today.
    With that, let me turn to the other panelists. Thank you.
    [The prepared statement of Mr. Podesta follows:]
             Prepared Statement of John Podesta, President,
                    The Center for American Progress
    Thank you, Chairman McDermott and Members of the Subcommittee. I am 
John Podesta, President and Chief Executive Officer of the Center for 
American Progress. I am also a Visiting Professor of Law at the 
Georgetown University Law Center. I appreciate the opportunity to speak 
with you today about a central challenge for policymakers and society 
at large today: how best to reduce the ranks of the poor and build a 
strong and growing middle class.
    As you well know, the U.S. has one of the highest poverty rates of 
any developed country in the world. Even with an economy that produces 
$13 trillion annually, 37 million Americans live below the official 
poverty line, including nearly one-fifth of our children. Sixteen 
million Americans live in ``extreme poverty'' (defined as a family of 
four living on less than $10,000 per year or an individual living on 
about $5,000 annually). Roughly one quarter of African Americans and 
Native Americans, and over one-fifth of Hispanics, are poor. All told, 
more than 90 million Americans can be classified as ``low income'' 
(living on less than about $40,000 per year for a family of four), 
meaning they face a constant struggle to keep ahead and avoid falling 
out of bare minimum economic existence.
    In February of 2006, the Center for American Progress convened a 
diverse group of national experts and leaders to examine these and 
other issues of poverty and to make recommendations for national 
action. I'd like to acknowledge Peter Edelman, who is here with me 
today and who, along with Angela Glover Blackwell, served as a co-
chairman of the Center's Task Force on Poverty.
    Our Task Force was formed in the wake of Hurricane Katrina, a 
searing national event that exposed the desperate condition of many of 
our fellow citizens who were jobless, underemployed, and incapable of 
exercising the most basic elements of self-survival due to their 
    In its report, the Task Force calls for a national goal of cutting 
poverty in half in the next ten years and proposes a strategy to reach 
the goal. The report calls for the Congress, the president, and the 
next administration to join this effort and set our country on a course 
to end American poverty in a generation. We recommend a strategy that 
promotes decent work, provides opportunity for all, ensures economic 
security, and helps people build wealth.
    The taskforce started with the belief that our Nation has both a 
moral and an economic obligation to address poverty. The persistence of 
millions of our fellow citizens living in economic hardship amid great 
national wealth violates America's basic commitment to human dignity, 
freedom, and advancement for everyone. Poverty also imposes enormous 
costs on our society in terms of the lost potential of our children, 
lower productivity and earnings, poor health, and increased crime and 
broken neighborhoods.
    A recent report commissioned by the Center for American Progress, 
co-authored by Harry Holzer, Diane Whitmore Schanzenbach, Greg Duncan, 
and Jens Ludwig, concludes that allowing children to grow up in 
persistent poverty costs our economy $500 billion dollars per year in 
lost adult productivity and wages, increased crime, and higher health 
expenditures. Before I describe our strategy and recommendations in 
more detail, I'd like to quickly discuss some of the misleading ideas 
that define many discussions of poverty. First, poverty is not just a 
``poor person's'' issue. It affects us all in distinct and important 
ways. Too often, discussions of poverty are treated as if they're 
unrelated to the issues facing the middle class. But large numbers of 
Americans--both low-income and middle class--are increasingly concerned 
about uncertain job futures, downward pressures on wages, and 
decreasing opportunities for advancement in a global economy. 
Employment for millions of Americans is now less secure than at any 
point in the post-World War II era. Jobs are increasingly unlikely to 
provide health care coverage and guaranteed pensions. The typical U.S. 
worker will change jobs numerous times over his or her working years 
and must adapt to rapid technological change. One-quarter of all jobs 
in the U.S. economy do not pay enough to support a family of four above 
the poverty line.
    It is in our Nation's interest that those jobs be filled and that 
employment rates be high. It is not in our Nation's interest that 
people working in these jobs be confined to poverty. Large numbers 
would benefit if more jobs paid enough to support a family. Some issues 
are distinct, particularly for the smaller group of Americans in long-
term, persistent poverty. But much of the agenda to reduce poverty is 
also one to promote opportunity and security for millions of other 
Americans, too. Second, poverty is not unconquerable. Our country has 
made great strides against poverty in the past. With the right mix of 
policies and societal action, we can make even greater strides in the 
future. Fueled by years of inaccurate characterizations of past efforts 
(``We fought a war on poverty and poverty won,'' as Ronald Reagan 
stated) many Americans are left to conclude that little can be done 
beyond providing private charity and urging the poor to do better. 
Nothing could be farther from the truth. The United States has seen 
periods of dramatic poverty reduction. Amid the strong economy of the 
1960s and the War on Poverty, the poverty rate fell from 22.4 percent 
to 11.1 percent between 1959 and 1973. In the 1990s, a strong economy 
was combined with policies to promote and support work; the poverty 
rate dropped from 15.1 percent to 11.3 percent between 1993 and 2000. 
In each period, a near-full employment economy, sound federal and state 
policies that focused on rewarding work, individual initiative, 
supportive civic institutions and communities, and a sustained national 
commitment led to significant progress. In the last six years, our 
Nation has moved in the opposite direction. The number of poor 
Americans has grown by five million. The federal minimum wage has 
remained flat. Funding for key federal programs that help people get 
and keep jobs has been stagnant or worse. Third, fighting poverty does 
not mean the poor will become more dependent on government. To the 
contrary, as our Task Force report shows, smart policies to fight 
poverty will actually increase the value of work and the commitment to 
work and help low-income families become more economically self-
sufficient in the long run. A false argument exists that anything done 
by the Federal Government to combat poverty naturally leads to negative 
consequences. In fact, we know that policies such as the Earned Income 
Tax Credit and expanded child care provisions encourage work and strong 
    Therefore, our Task Force has recommended a four-part strategy to 
fight poverty:
    Promote Decent Work. We start from the belief that people should 
work, and that work should pay enough to ensure that workers and their 
families can avoid poverty, meet basic needs, and save for the future.
    Ensure Opportunity for All. Children should grow up in conditions 
that maximize their opportunities for success; adults should have 
opportunities throughout their lives to connect to work, get more 
education, live in a good neighborhood, and move up in the workforce. 
Ensure Economic Security. Americans should not fall into poverty during 
times when they cannot work or work is unavailable, unstable, or pays 
too little to make ends meet. Help People Build Wealth. All Americans 
should have assets that allow them to weather periods of flux and 
volatility and to have the resources that may be essential to upward 
economic mobility.
    Our strategy is based on the reality that poverty is complex and 
that the faces of the poor are many. No single approach or policy 
solution could viably move huge numbers out of poverty. Good jobs and 
benefits matter. Solid education matters. Safe and enriching 
neighborhoods matter. Opportunities to increase assets and wealth 
matter. Economic security and access to health care matter. Protections 
for the most vulnerable matter. Personal initiative, strong families, 
and corporate responsibility matter. We understand that some 
policymakers highlight the importance of promoting marriage as a 
strategy for reducing poverty. Research consistently finds that all 
else being equal, children growing up with both parents in a healthy 
marriage are more likely to fare better over time in terms of social 
and educational outcomes. At the same time, all else is often not 
equal. Children with loving parents can and do thrive in a range of 
family structures. Government policies should find ways to support 
marriage, such as eliminating the marriage penalty in the EITC, but 
they should also support families in ways that recognize the range of 
settings in which children grow up. In more general terms, our basic 
strategy is to offer solutions to help replace America's cycle of 
poverty--the tens of millions of people consigned to destitution every 
year because of our collective inability and unwillingness to prevent 
it--with a new cycle of prosperity.
    We believe that decent work should be at the center of this new 
approach. Nothing is more important to the cycle of prosperity than 
good jobs--with adequate income and benefits--that allow people to take 
care of their families and start building assets.
    Along with a job that pays a livable wage, strong personal 
character and individual initiative help to build strong and stable 
families. Strong families, in turn, help to build stable, safe, and 
caring communities. Communities foster good schools and encourage a 
culture that takes pride in personal achievement and educational 
success--all essential elements of economic mobility. Research clearly 
shows that educational attainment and personal qualities that value 
success and achievement early in life are directly correlated to higher 
wages and a better quality of life later in life.
    Educational achievement leads to enhanced job prospects and 
increased earning potential. As wages rise, opportunities to build 
wealth and assets through increased savings, homeownership, and small 
business investments increase one's life prospects and bring additional 
funds to neighborhoods, communities, and local schools.
    As economists and academics have shown, assets provide insurance 
and cushions against unforeseen economic shocks. They encourage people 
to focus long term and improve their own intellectual and creative 
development. They increase self-sufficiency and help people move away 
from public support. And they encourage people to become active in the 
actions of government and society. Rising wages and wealth in turn 
provide new opportunities for the overall economy and a better quality 
of life in our neighborhoods and communities. To flesh out this 
strategy, we specifically recommend 12 steps for federal, state, and 
local governments, non-governmental actors, individuals, and businesses 
to take in order to move millions of Americans from poverty to 
prosperity. 1. Raise and index the minimum wage to half the average 
hourly wage.  At $5.15, the federal minimum wage is at its lowest level 
in real terms since 1956. The federal minimum wage was once 50 percent 
of the average wage, but is now 30 percent of that wage. Congress 
should restore the minimum wage to 50 percent of the average wage, 
about $8.40 an hour in 2006. Doing so would help over 4.5 million poor 
workers and nearly 9 million other low-income workers.
    2. Expand the Earned Income Tax Credit and Child Tax Credit. As an 
earnings supplement for low-income working families, the EITC raises 
incomes and helps families build assets. The Child Tax Credit provides 
a tax credit of up to $1,000 per child, but provides no help to the 
poorest families. We recommend tripling the EITC for childless workers, 
eliminating the marriage penalty by disregarding half of the lower-
earning spouse's wages if doing so would result in an increased EITC 
for the family, and expanding help to larger working families. We 
recommend making the Child Tax Credit available to all low- and 
moderate-income families. Doing so would move 2 million children and 1 
million parents out of poverty. 3. Promote unionization by enacting the 
Employee Free Choice Act. The Employee Free Choice Act would require 
employers to recognize a union after a majority of workers signs cards 
authorizing union representation and establish stronger penalties for 
violations of employee rights. The increased union representation made 
possible by the Act would lead to better jobs and less poverty for 
American workers. 4. Guarantee child care assistance to low-income 
families and promote early education for all. We propose that the 
federal and state governments guarantee child care help to families 
with incomes below about $40,000 a year, with expanded tax help to 
higher-earning families. At the same time, states should be encouraged 
to improve the quality of early education and broaden access to early 
education for all children. Our child care expansion would raise 
employment among low-income parents and help nearly 3 million parents 
and children escape poverty. 5. Create 2 million new ``opportunity'' 
housing vouchers and promote equitable development in and around 
central cities.  Nearly 8 million Americans live in neighborhoods of 
concentrated poverty where at least 40 percent of residents are poor.
    Our Nation should seek to end concentrated poverty and economic 
segregation, and promote regional equity and inner-city revitalization. 
We propose that over the next 10 years the Federal Government fund 2 
million new ``opportunity vouchers,'' designed to help people live in 
opportunity-rich areas. Any new affordable housing should be in 
communities with employment opportunities and high-quality public 
services or in gentrifying communities. These housing policies should 
be part of a broader effort to pursue equitable development strategies 
in regional and local planning efforts, including efforts to improve 
schools, create affordable housing, assure physical security, and 
enhance neighborhood amenities. 6. Connect disadvantaged and 
disconnected youth with school and work. About 1.7 million poor youth 
ages 16 to 24 were both out of school and out of work in 2005. We 
recommend that the Federal Government restore Youth Opportunity Grants 
to help the most disadvantaged communities and expand funding for 
effective and promising youth programs--with the goal of reaching 
600,000 poor disadvantaged youth through these efforts. We propose a 
new Upward Pathway program to offer low-income youth opportunities to 
participate in service and training in fields that are in high demand 
and provide needed public services.
    7. Simplify and expand Pell Grants and make higher education 
accessible to residents of each state. Low-income youth are much less 
likely to attend college than their higher-income peers, even among 
those of comparable abilities. Pell Grants play a crucial role for 
lower-income students. We propose to simplify the Pell Grant 
application process, gradually raise Pell Grants to reach 70 percent of 
the average costs of attending a four-year public institution, and 
encourage institutions to do more to raise student completion rates. As 
the Federal Government does its part, states should develop strategies 
to make post-secondary education affordable for all residents, 
following promising models already underway in a number of states.
    8. Help former prisoners find stable employment and reintegrate 
into their communities. The United States has the highest incarceration 
rate in the world. We urge Congress to pass the Second Chance Act, 
which will support successful models for reintegrating ex-offenders 
into their communities through job training and education 
opportunities, drug and mental health treatment, housing and other 
necessary services. Every state should establish an Office of Reentry 
Policy, which will oversee statewide reentry efforts and partner with 
local reentry commissions.
    9. Ensure equity for low-wage workers in the Unemployment Insurance 
    Only about 35 percent of the unemployed, and a smaller share of 
unemployed low-wage workers, receive unemployment insurance benefits. 
We recommend that states (with federal help) reform ``monetary 
eligibility'' rules that screen out low-wage workers, broaden 
eligibility for part-time workers and workers who have lost employment 
as a result of compelling family circumstances, and allow unemployed 
workers to use periods of unemployment as a time to upgrade their 
skills and qualifications. 10. Modernize means-tested benefits programs 
to develop a coordinated system that helps workers and families. A 
well-functioning safety net should help people get into or return to 
work and ensure a decent level of living for those who cannot work or 
are temporarily between jobs. Our current system fails to do so. We 
recommend that governments at all levels simplify and improve benefits 
access for working families and improve services to individuals with 
disabilities. The Food Stamp Program should be strengthened to improve 
benefits, eligibility, and access, and the Temporary Assistance for 
Needy Families Program should be reformed to strengthen its focus on 
helping needy families find sustainable employment.
    11. Reduce the high costs of being poor and increase access to 
financial services.
    Despite having less income, lower-income families often pay more 
than middle- and high-income families for the same consumer products. 
We recommend that the federal and state governments address the home 
mortgage foreclosure crisis through expanded mortgage assistance 
programs and by new federal legislation to curb unscrupulous practices. 
And we propose that the Federal Government establish a $50 million 
Financial Fairness Innovation Fund to support state efforts to broaden 
access to mainstream goods and financial services in predominantly low-
income communities.
    12. Expand and simplify the Saver's Credit to encourage saving for 
education, homeownership, and retirement. For many families, saving for 
purposes such as education, a home, or a small business is key to 
making economic progress. We propose that the federal ``Saver's 
Credit'' be reformed to make it fully refundable. This credit should 
also be broadened to apply to other appropriate savings vehicles 
intended to foster asset accumulation, with consideration given to 
including individual development accounts, children's saving accounts, 
and college savings plans.
    We believe these recommendations will cut poverty in half. The 
Urban Institute, which modeled the implementation of one set of our 
recommendations (using a methodology drawn from recommendations of a 
National Academy of Sciences expert panel), estimates that four of our 
steps would reduce poverty by 26 percent, bringing us more than halfway 
toward our goal. Among their findings:

      Taken together, our minimum wage, EITC, child credit, and 
child care recommendations would reduce poverty by 26 percent. This 
would mean over 9 million fewer people in poverty and a national 
poverty rate of 9.1 percent--the lowest in recorded U.S. history.
      The racial poverty gap would be narrowed. White poverty 
would fall from 8.7 percent to 7.0 percent. Poverty among African 
Americans would fall from 21.4 percent to 15.6 percent. Hispanic 
poverty would fall from 21.4 percent to 12.9 percent and poverty for 
all others would fall from 12.7 percent to 10.3 percent.
      Child poverty and extreme poverty would both fall. Child 
poverty would drop by 41 percent. The number of people in extreme 
poverty would fall by over 2 million.
      Millions of low- and moderate-income families would 
benefit. Almost half of the benefits would help low- and moderate-
income families.

    The combined cost of our principal recommendations is in the range 
of $90 billion a year--a significant cost but one that is necessary and 
could be readily funded through a fairer tax system. An additional $90 
billion in annual spending would represent about 0.8 percent of the 
Nation's gross domestic product, which is a fraction of the money spent 
on tax changes that benefited primarily the wealthy in recent years. 
Consider that:

      The current annual costs of the tax cuts enacted by 
Congress in 2001 and 2003 are in the range of $400 billion a year.
      In 2008 alone the value of the tax cuts to households 
with incomes exceeding $200,000 a year is projected to be $100 billion.

    Our recommendations could be fully paid for simply by bringing 
better balance to the federal tax system and recouping part of what has 
been lost by the excessive tax cuts of recent years. We recognize that 
serious action has serious costs, but the challenge before the Nation 
is not whether we can afford to act, but rather that we must decide to 
act. What would it mean to accomplish a 50-percent reduction in 
poverty? In concrete terms, it would mean that nearly 20 million fewer 
Americans would be living in poverty. It would mean more working 
Americans, dramatically fewer working people in poverty, stronger, more 
vibrant communities, and millions of children beginning their lives 
with vastly more opportunity than they have today. It would mean a 
healthier population, less crime, more economic growth, a more capable 
workforce, a more competitive Nation, and a major decline in the racial 
inequities and disparities that have plagued our Nation. I think this 
is a vision of society worth fighting for. Reducing poverty is the 
right thing to do and critical for the success of our Nation and our 
people. I urge Congress to consider the ideas presented here as proven, 
cost-effective ways to strengthen our Nation and our people.
    In doing so, remember the words of Robert F. Kennedy in challenging 
all of us to create a better society:

          ``The future does not belong to those who are content with 
        today, apathetic toward common problems and their fellow man 
        alike. Rather it will belong to those who can blend vision, 
        reason and courage in a personal commitment to the ideals and 
        great enterprises of American society.''

    Thank you, Mr. Chairman and Members of the Subcommittee for 
inviting me today. I'd be happy to take any questions you may have.


    Chairman MCDERMOTT. Thank you very much. Our next witness 
is Linda Gibbs, who is the deputy mayor for health and human 
services for the City of New York.

                   SERVICES, CITY OF NEW YORK

    Ms. GIBBS. Thank you, Mr. Chairman. Thank you for inviting 
me to participate in this panel today. Let me start by saying 
that New York City, under the leadership of Mayor Bloomberg, 
has made great improvements in critical areas that are needed 
to break the cycle of poverty.
    So, we began with focused efforts on: reforming our 
education system; requiring personal responsibility for welfare 
recipients; developing a five-borough economic development 
strategy; setting up an aggressive public health agenda; and 
committing to an affordable housing plan. Those are the 
building blocks that I believe were necessary for us to really 
take on the issue of poverty in New York City.
    As a city, we believe that poverty is not an inevitable 
condition of life for the almost 20 percent of our residents 
who are living below the poverty line. Even with all the 
impressive investments that we have made, at any given point in 
time almost one in five New Yorkers live in poverty. We don't 
believe this is acceptable.
    A hallmark of the Bloomberg Administration is of tackling 
problems often seen to be insurmountable, like crime and like 
failing schools. Poverty is another example where we are 
committed to addressing it in a thoughtful and systematic way. 
We will, however, also need the help of the State and Federal 
Governments in these efforts.
    I would first like to share some of the strategies that we 
are undertaking at the local level. Just over a year ago, the 
mayor appointed a Commission for Economic Opportunity to look 
at this issue. Co-chaired by Dick Parsons of Time-Warner and 
Geoffrey Canada of the Harlem Children's Zone, the commission 
members worked hard to survey the field, engage interested and 
knowledgeable participants, and look closely at different 
approaches to reducing poverty.
    I would also note that Kevin Sullivan, out of Catholic 
Charities of New York City, who is here with us today, was also 
a member of the commission.
    Last fall, the recommendations of the commission were 
released in its report. They identified three strategic groups 
to focus on: working poor adults; young adults between the ages 
of 16 and 24; and children under the age of 5. Nearly 700,000 
of our 1.5 million people living in poverty fall into 1 of 
these 3 groups.
    The commission's recommendation was, to have success, we 
needed to be targeted and focused, and really tailor 
recommendations specific to those populations.
    With the working poor, we have 340,000 New Yorkers who are 
working, who live in poverty. By focusing on the working poor, 
we hope to build on gains that have been made in the last 
decade of welfare reform, by addressing the ever-widening 
skills gap, and raising the living standards of low-wage 
    In particular, we will highlight the access to work 
supports, those benefits that are available to individuals who 
have earnings. We will focus on building new career pathways in 
ways that are not traditional to the history of our workforce. 
We will focus on workforce training.
    What is really significant here--and I don't have this 
figure nationally--but over the past 15 years, the number of 
households in poverty that are poor in New York City has gone 
from 29 percent up to 46 percent. So, increasingly, households 
in poverty are working in New York City.
    The second group that the commission focused on was young 
adults between the age of 16 and 24. Almost 25 percent of our 
young adults live below the Federal poverty line. Many of them 
are not engaged in either school or work, and the commission 
focused a great deal on strategies to work with the 
disconnected youth. Also, not to assume that education was not 
a priority, that many of them can be reconnected to education.
    Strategies include preventing disengagement from school and 
work, and developing creative approaches to re-engage them.
    Our third group of focus was children under the age of 
five. Over 185,000 children in this age category, or nearly 1 
out of every 3, live in poverty. By investing in children under 
the age of five with critical interventions, like universal 
pre-K, child care, and at-home nursing programs to work with 
at-risk pregnant women before birth, we believe we can break 
the cycle of inter-generational poverty by making investments 
in their long-term human capital development.
    In December, after considering the commission's 
recommendations, the Mayor announced the creation of a center 
for economic opportunity to implement the recommendations, and 
invested $150 million annually toward the implementation of 
this work. Agencies in the city will be held accountable for 
how effectively these new strategies impact the poor and 
individuals in communities, and reduce poverty. Only those 
solutions that are proven to work will be continued. Those that 
don't will be discontinued.
    This includes: piloting the use of conditional cash 
transfers in New York City, which have been tried in other 
countries with great success, but have not yet been tried in 
the United States. In New York City, we will call this program 
Opportunity New York City, and will privately raise money to 
provide for these conditional cash transfers.
    The mayor's belief is, as a very innovative, non-
traditional approach in New York City, it's a perfect example 
of how foundation partners can come to support new initiatives. 
We will begin this program with foundation support. We have 
already raised $42 million of the $50 million necessary for the 
2-year program.
    The concept is that the program incentivizes behaviors that 
we know will break the cycle of poverty, conditioned on human 
capital development of, particularly, the children in the 
family, health care, education, and, to the extent that the 
families comply, they will receive a transfer payment.
    The city is also initiating a child care tax credit, which 
will be refundable for poor households for up to $1,000 per 
child under the age of 3. We have implemented another--a number 
of the 37 recommendations of the commission already.
    Although New York City has taken on the challenge to fight 
poverty at the local level, we cannot do it alone. I am 
encouraged by the success of welfare reform in helping single 
mothers transition to work, and it serves as an example of how 
large-scale government programs can make a critical difference.
    However, it only provides a piece of the solution, leaving 
a gap in programs that target men in the same way. Work rates 
for men are decreasing. So, as we saw tremendous growth in the 
employment of single mothers, during that same period the work 
rates for men dropped.
    Inequalities in income are increasing, and more of the 
people living in poverty, as I mentioned, are working. The 
result for the poor, single-parent families is that they lack 
an essential second income that would allow them to move the 
poverty line.
    Chairman MCDERMOTT. Could you summarize? All of your 
written speech will be put on the record.
    Ms. GIBBS. Okay. My apologies. Well, I was getting to the 
most important point, the Federal recommendations.
    I think what we really want to do is to take those lessons 
that we learned from Federal welfare reform, and understand how 
we can replicate them, how we can airlift them over to those 
populations that have not benefited. Specifically, for the 
single adults.
    I would like to reiterate the recommendations that have 
been made by John this morning. We believe looking at the 
earned income tax credit for single adults is very promising, 
and we would like to think and work with you more on that.
    I would like to add a last point, which is the importance 
of the question of how we measure poverty. There was a great 
frustration that the commission felt, and that the Mayor has 
expressed, as we really try to understand, with these changes, 
when so many of the things that happen don't count toward the 
calculation of poverty, both on the revenue side--whether those 
income transfers are counted in household income--but also on 
the expense side, the fact that the Federal poverty line itself 
does not reflect a true cost of what it takes for a poor family 
to be able to meet the basic standards of living, and is 
without regional variation.
    So, we also believe that in order to tackle this issue, we 
need to understand, much more clearly what it means to be poor. 
Thank you.
    [The prepared statement of Ms. Gibbs follows:]
       Prepared Statement of Linda Gibbs, Deputy Mayor for Health
                  and Human Services, City of New York
    Thank you Chairman McDermott and members of the Ways and Means 
Subcommittee on Income Security and Family Support. I am pleased to 
testify before you today on New York City's plan for addressing poverty 
in New York City.
    Let me start by saying that New York City, under the leadership of 
Mayor Bloomberg, has made great improvements in critical areas needed 
to break the cycle of poverty.
    Focused efforts to reform our education system, require personal 
responsibility from welfare recipients, develop a five borough economic 
development strategy, set an aggressive public health agenda and commit 
to an affordable housing plan--which includes an unprecedented 
commitment to build 165,000 units of affordable housing--has set the 
platform to seriously explore and discuss strategies that will have an 
impact on poverty.
    As a City, we believe that poverty is not an inevitable condition 
of life for almost 20 percent of our residents who are living below the 
poverty line. Even with all the impressive investments we have made, at 
any given point in time almost 1 in 5 New Yorkers lives in poverty. 
This is unacceptable given the prosperity of the City and the economy. 
However, New York City is not alone with a poverty rate that exceeds 
the national average. Cities like Los Angeles, Chicago and Philadelphia 
face similar struggles.
                    Poverty Rates 20 Largest Cities
                          United States, 2005


    Source: American Community Survey, U.S. Census Bureau, 2005.

    A hallmark of the Bloomberg administration is tackling problems 
that often seem insurmountable, like crime and failing schools. Poverty 
is another example of a problem that may seem beyond the ability of a 
city to impact, but we are committed to addressing it in a thoughtful 
and systematic manner. We will, however, also need the support of the 
federal and state governments in our endeavors.
NYC Commission for Economic Opportunity
    I first would like to share with the subcommittee our strategy at 
the local level. Just over a year ago, Mayor Bloomberg announced the 
creation of the New York City Commission for Economic Opportunity. The 
Commission was a public-private taskforce charged with devising 
specific strategies to help low-income New Yorkers move out of poverty. 
Members of the Commission were asked to look critically at the 
experience of poverty for our residents and pinpoint strategic areas 
where a targeted approach could make a difference.
    The Commission members worked hard to survey the field, engage 
interested and knowledgeable participants, and look closely at 
different approaches to reducing poverty. It was an extremely 
exhaustive process where many of the best thinkers in New York, the 
Nation and beyond were consulted. Time Warner Inc. Chairman and CEO 
Richard D. Parsons and Harlem Children's Zone President and CEO 
Geoffrey Canada were the Co-Chairs of the new Commission and other 
members included key civic leaders, like Monsignor Kevin Sullivan from 
Catholic Charities.
    The Commission based its recommendations on the following shared 

      Hard work and shared responsibility fuel our economy
      All New Yorkers should share in the rewards of economic 
growth and prosperity
      Government and the private sector must work together to 
reward work and support working families
      Context is critical--poverty cannot be reduced outside of 
the network of families, religious institutions, schools and other 
community institutions

    Last fall, the recommendations of the Commission were released in 
the report, ``Increasing Opportunity and Reducing Poverty in New York 
City.'' The report brought to light the severity of poverty in New York 
City. Of almost 8 million New Yorkers, more than 1.5 million 
individuals are living in poverty--three times the entire population of 
Boston. Poverty is geographically concentrated in 11 percent of the 
City's census tracks--with over 40 percent of the population in those 
communities living below the federal poverty line. In addition, another 
19 percent of the population is low-income; earning between 100-199 
percent of the poverty line.
    The Commission identified three strategic groups to focus on:

      working poor adults;
      young adults between the ages of 16 and 24; and
      children under the age of five.

    Nearly 700,000 New Yorkers who live in poverty fall into one or 
more of these groups.
Working Poor
    There are approximately 340,000 working New Yorkers who live in 
poverty. By focusing on the working poor, New York City will be able to 
build on the gains made in the last decade of welfare reform by 
addressing the ever-widening skills gap and raising the living 
standards of low-wage workers.
    We discovered in our analysis of New York City that the percent of 
families in poverty who work has gone up from 29 percent in 1990 to 46 
percent in 2005, highlighting the need to create solutions to address 
this population through access to work supports, career pathways, and 
workforce training.


    Source: U.S. Census Bureau. Analysis performed by the Department of 
City Planning, City of New York.

Young Adults Between the Ages of 16 and 24
    Almost 25 percent of New York City's young adults aged 16 to 24 
live below the federal poverty line. By concentrating on this 
population, it will be possible to redirect the lives of youth at a 
critical transition point. Strategies for this population include 
preventing disengagement from school and work and developing creative 
approaches to re-engage those youth already disconnected.


    Source: 2001 Population Survey (CPS), U.S. Census Bureau. Tabulated 
by Northeastern University Center for Labor Market Analysis 2001; and 
2000 United States Census Data. Note: baseline census data utilized for 
percentage calculation includes 15 year olds in each city population.

Young Children Under the Age of Five
    Over 185,000 of New York City's young children, nearly one out of 
every three, live in poverty. By investing in children under five with 
critical interventions, like universal pre-k, childcare and at-home 
nursing programs to work with at-risk pregnant women before birth, we 
can break the cycle of inter-generational poverty and improve the life 
chances of young children.


    Source: American Community Survey 2005

Center for Economic Opportunity
    After reviewing the Commission's report, the Mayor announced his 
endorsement of the recommendations and established the Center for 
Economic Opportunity (CEO) to bring the initiatives to fruition. The 
Center is responsible for working with City agencies to implement the 
programs, manage the budget and conduct rigorous evaluations of the 
initiatives. The Mayor directed the City agencies to develop an action 
plan to turn the recommendations into real programs and policies under 
the direction of the Center.
    In December, the Mayor announced the creation of the Innovations 
Fund, a $150 million yearly commitment to test and pilot the 
Commission's recommendations. Included in this fund is $25 million in 
private donations that the Mayor committed to raising towards a 
conditional cash transfer program. I'm pleased to report that we have 
already raised $42 million of the $50 million needed to test this 
program for two years. In addition to the $25 million in private funds 
for this year, the City has committed $75 million in public funds ($69 
million City and $7 million in federal and state funds). That will be 
coupled with the City's $42 million Child Care Tax Credit and $11 
million in baseline funding from existing successful poverty reduction 
    Agencies will be held accountable for how effectively their new 
strategies impact poor communities and reduce poverty, and only the 
solutions that work will continue to get funded and expanded.
Office of Financial Empowerment
    One of the strategies recommended by the Commission is the creation 
of the Office of Financial Empowerment that will address issues of 
family economic success. It is the first office of its kind to be 
created by any city in the country.
    The office will institutionalize key recommendations of the 
Commission to increase financial literacy, to help to build savings and 
assets and to protect consumers from predatory and fraudulent practices 
that can have a disproportionate impact on the poor. It will work to 
empower and provide residents of lower-income communities with the 
tools and education they need to make more informed financial 
Opportunity NYC
    Another example of the innovative strategies New York City is 
piloting includes the use of ``conditional cash transfers,'' which have 
been tried in other countries with great success but not yet in the 
United States. Mexico has had the most rigorously evaluated program, 
which has demonstrated improved health and education outcomes of 
participants and a reduction in poverty.
    This program in New York City will be called ``Opportunity NYC'' 
and will use privately raised money to provide the conditional cash 
transfers. Opportunity NYC will encourage activities like higher 
attendance in school, more parental involvement in education, greater 
use of preventative health care and the development of career skills.
Childcare Tax Credit
    The mayor also announced a City commitment to fund a local child 
care tax credit. The proposed tax credit is based on the federal and 
state credit, but would target resources to families with young 
children three years old and under with a household income less than 
$30,000. These families often experience the greatest difficulties 
finding and paying for child care. Eligible families that leverage this 
credit, in conjunction with the federal and state credit, would have 
the support needed to consistently participate and stay connected to 
the labor force.
Political Will and Commitment At All Levels
    Although New York City has taken on the challenge to fight poverty 
on a local level, we cannot do it alone. We need support and 
cooperation from all levels of government in order to have a 
comprehensive strategy.
    I am encouraged by the success of welfare reform in helping single 
mothers transition to work and it serves as an example of how a large-
scale government program can make a critical difference. However, it 
only provides a piece of the solution leaving a gap in programs that 
target men in the same way.
    Work rates for men are decreasing, the inequalities in income are 
increasing and more people living in poverty are working. The result 
for poor, single parent families is that they lack an essential second 
income that would allow them to move above the poverty line.
    There are a number of ideas and proposals on how to apply the 
lessons learned from welfare reform to address the growing inequalities 
in our society. We all need to continue to work together to devise the 
next set of strategies that will be effective in addressing poverty on 
a national level. I am excited that so many people are here today who 
care about this issue and that the Ways and Means Committee has taken 
such leadership by holding a series of hearings on poverty.
Federal Recommendations
    I encourage the Federal Government to look towards the tax system 
as one way to tackle the complicated issue of income inequality and 
poverty by increasing and expanding the Earned Income Tax Credit, one 
of the most effective anti-poverty tools provided by the Federal 
Government. As you may know, New York City has worked extensively to 
increase the number of residents who apply for the EITC, including 
mailing out the forms to residents who qualify.
    Other critical areas that we strongly encourage Congress to support 

      Increase the Child Care and Development Fund by a minimum 
of $6 billion over 5 years
      Restore funds to the Child Support Enforcement Incentive 
Grant as proposed in legislation by Chairman McDermott
      Remove restrictions on rehabilitation and other 
activities that were recently placed on the TANF Program
      Allow states to integrate and count job search as an 
integral part of all TANF employment-related activities
      Provide funds to measure poverty at the local level

    I would like to explain my last point a little further. When the 
Commission tried to better understand poverty locally, we faced several 
hurdles in obtaining current and useful data. This is because either it 
did not exist or the samples were too small to produce reliable 
results. Investing time and resources in measures that are longitudinal 
and localized will help inform states and localities on how best to 
target resources. It is an important role the Federal Government can 
take to support states and cities in the fight against poverty.
    I look forward to returning to share the results of what we have 
learned from our programs once they are fully up and running and when 
the evaluations produce empirical results.
    Thank you for this opportunity to share our initiatives to reduce 
poverty. I invite all of the members of the Committee and your staff to 
New York City to see some of our efforts first hand.


    Chairman MCDERMOTT. Thank you.
    Reverend Snyder.

                         CHARITIES USA

    Rev. SNYDER. Thank you, Chairman McDermott, and Ranking 
Member Weller. I appreciate the opportunity to testify at 
today's hearing on proposals for reducing poverty in our 
    Catholic Charities USA is one of the Nation's largest 
private networks of over 1,500 social service agencies and 
institutions, providing essential human services to almost 7.5 
million people, annually.
    Catholic Charities agencies and institutions, nationwide, 
provide vital social services to people in need, regardless of 
their religious, social, or economic background. Some of the 
services provided by Catholic Charities agencies include: child 
care services; workforce development; mental health services; 
and other programs to help families become and remain self-
    Catholic Charities agencies have worked for more than a 
century to serve those in need, and to empower them to build 
lives of dignity and economic security. The passage of welfare 
reform began the shift by the Federal Government of both the 
conversation about the poor in this country, and the 
responsibility for the poor.
    The shift in responsibility to the States has been passed 
on to our local communities and local agencies, in many cases.
    So, as the number of individuals on welfare declined, the 
number of individuals accessing emergency services at agencies 
like Catholic Charities, has steadily increased. In 2005, our 
agencies experienced a 14 percent increase in these requests. 
While the resources from the Federal Government continue to 
decline, the need in our communities continue to increase.
    Through our daily work at Catholic Charities agencies 
across the country, we see the impact of poverty on families. 
The many misconceptions about the nature of poverty in the 
United States reinforced the commonly held view that poverty is 
due to failures and deficiencies of individuals, rather than 
the failures of structures that we put in place through the 
economic and political choices that we make, as a Nation.
    While it is true that individual choices and behaviors do 
influence one's chances of living in poverty, these individual 
behaviors are frequently outweighed by the structures and 
policies that impact the poor. The experiences of our agencies 
are well supported by the numbers presented in the U.S. Census 
data, and independent research studies by some of my fellow 
panelists and government officials.
    In 2006, Catholic Charities USA published a policy paper 
entitled, ``Poverty in America: A Threat to the Common Good.'' 
In January of this year, in this very room, we launched a new 
campaign to reduce poverty in America.
    The campaign is the result of conviction and passion to 
make the plight of the poor a priority in the wealthiest Nation 
in the world. This campaign calls upon policy makers, faith-
based groups, civic leaders, and concerned citizens, to make a 
systematic and concerted effort to cut poverty in half by 2020. 
Now, if we can do that by 2017, we would be delighted.
    The great American tradition has been that if you work 
hard, you can provide a better life for you and your family. 
This is the bedrock of the American dream. Unfortunately, 
today, too many Americans are working hard, but still cannot 
make ends meet. It is a moral crisis to a country as wealthy as 
the United States, that 37 million Americans live in poverty. 
The entire Catholic Charities network is committed to working 
hard and refocusing our efforts to see that this number is 
    In my written testimony, you will find many policy 
proposals. Due to the limited time, I would refer you to those.
    Can we cut poverty in half? I believe that we can make 
significant progress if the country, as a whole, comes together 
to do so. Reducing poverty in this country will take a great 
deal of leadership, partnership, and accountability.
    Two organizations who have successfully partnered with 
local governments are here today: Catholic Charities of the 
Archdiocese of New York, who have been part of a number of 
initiatives, including the employment and trading programs 
there; and Catholic Charities of the Archdiocese of Chicago, 
which has developed a program around asset-building.
    Between Brooklyn, Queens Diocese, and the New York City 
Archdiocese Catholic Charities, they provide a significant 
portion of the child welfare services in New York City. Our 
agencies continue to work in effective partnerships with the 
Mayor's office, the kind of partnerships that need to be 
promoted at all levels of government if we are going to be 
successful in building a country where poverty is history.
    An important component of our campaign will be engaging 
clients. Empowering those that we serve is critical. While 
serving the poor is something we do very well, we need to take 
the next step, and create partnerships with government that 
empower the poor, so that they can be accountable and able to 
serve themselves.
    Thank you for the opportunity of testifying today.
    [The prepared statement of Rev. Snyder follows:]
      Prepared Statement of The Reverend Larry Snyder, President,
                         Catholic Charities USA
    Chairman McDermott, Ranking Member Weller, and members of the 
Subcommittee on Income Security and Family Support, thank you for the 
opportunity to testify at today's hearing on proposals for reducing 
poverty in our Nation.
    I am Fr. Larry Snyder, president of Catholic Charities USA. 
Catholic Charities USA is one of the Nation's largest private networks 
of over 1,500 social service agencies and institutions, providing 
essential services to over 7.4 million people annually in communities 
across our Nation.
    Catholic Charities agencies and institutions nationwide provide 
vital social services to people in need regardless of their religious, 
social, or economic background. Some of the services provided by 
Catholic Charities agencies include nutrition assistance, child care 
services, workforce development, health care services, and other 
programs to help families become and remain self-sufficient.
    Catholic Charities agencies have worked for more than a century to 
serve those in need and to empower them to build lives of dignity and 
economic security. Over the last several years, Catholic Charities 
agencies have seen a steady increase in the number of families seeking 
assistance. In 2005 we saw a 14 percent increase in emergency services.
    A 2006 survey of Catholic Charities agencies shows requests for 
help are growing much faster than the resources to provide assistance, 
putting continued strain on social services. This is occurring in 
communities as diverse as Las Vegas, NV; Lubbock, TX; and Charlotte, 
Increasing Need
      72 percent of Catholic Charities agencies report an 
increase in the need for financial assistance
      64 percent report an increase in the need for food 
      53 percent report an increase in the need for mental 
health services
      45 percent report an increase in the need for 
prescription assistance
      44 percent of the agencies cite an increase in the need 
for temporary housing
Who is Seeking Help?
    We have seen more working families, more single parents, and more 
grandparents seeking such basics services as housing, shelter, and 
food. Too many of these families are just holding on and are struggling 
to make ends meet:

      81 percent of agencies cite an increase in the working 
poor seeking help
      68 percent of local agencies report an increase in the 
number of families coming to them for help
      56 percent are seeing more seniors

    The great American tradition has been that if you work hard you can 
provide a better life for you and your family. This is the bedrock of 
the ``American Dream.'' Unfortunately, today too many Americans are 
working hard but cannot make ends meet.
Poverty in the United States
    Through our daily work at Catholic Charities agencies across our 
Nation, we see the impact of poverty on families. The many 
misconceptions about the nature of poverty in the United States 
reinforce the commonly held view that poverty is due to failures and 
deficiencies of individuals, rather than the failures of structures 
that we put in place through the economic and political choices we make 
as a Nation. While it is true that individual choices and behaviors do 
influence one's chances of living in poverty, these individual 
behaviors are frequently outweighed by the structures and policies that 
shape the opportunities of people who are poor.
    By age 60, more than half of all Americans will have experienced 
poverty at some point in their lives for a year or more. Of these, 
about one half will have lived in poverty for four years or more. 
Having a job does not preclude living in poverty. Two out of three 
families with incomes below the poverty level have at least one member 
who is employed.
    Almost half of all people living in poverty--about 47 percent--are 
white and non-Hispanic. However, African Americans and Hispanics are 
much more likely to live in poverty than other population groups. For 
example, while the poverty rate for non-Hispanic whites is 8 percent, 
the rate for African Americans is 24.1 percent, for Hispanics, 21.8 
percent, and for Native Americans, 23.2 percent. For children, the 
poverty rate for white children is 10 percent, while it is 28 percent 
for Hispanic children, 27 percent for Native American children, and 33 
percent for African American children. The number of Hispanics living 
in poverty is now about the same as the number of African Americans 
living in poverty.
    The experiences of Catholic Charities agencies are well supported 
by the numbers presented in U.S. Census data, independent research 
studies, and the media:

      The number of people who are poor by official government 
standards is 37 million, a number that is equal to the combined 
populations of Missouri, Kansas, Oklahoma, Colorado, Nebraska, Iowa, 
Minnesota, North Dakota, South Dakota, Wyoming, Nevada, Idaho, Utah, 
and Alaska. \i\
    \i\ Calculation based on U.S. Census data, 2004.
      Poverty is not limited to a small minority of our 
citizens. More than half of all Americans will experience poverty for 
at least one year during their adult life (ages 20-65). \ii\
    \ii\ Mark Rank. One Nation, Underprivileged. 2005, New York: Oxford 
University Press, p. 93.
      25 million people in our Nation sought help from food 
banks last year--an increase of 18 percent since 1997. \iii\
    \iii\ America's Second Harvest Network, Hunger in America, 2006.
      The highest rates of poverty are among children, 
especially children of color. \iv\
    \iv\ U.S. Census data, 2005.
      African Americans, Latino Americans, and Native Americans 
are about three times as likely to live in poverty as are whites. \v\
    \v\ Idem.
      More than 7 million people living in rural areas are 
poor--a poverty rate of 17 percent.
      Millions of Americans do not fall below the official 
federal poverty levels. However, they are asset poor and are at risk of 
falling into poverty with a single emergency.
The Moral Imperative for Reducing Poverty
    Far too often, in our communities we see the suffering of children 
who do not have access to adequate health care and nutrition. We see 
the plight of the working families who struggle to hold down two and 
three jobs just to make ends met--yet they cannot feed their children 
or find affordable housing. These struggles for survival put incredible 
strains on family life and often contribute to the break up of 
marriages and families. We see the difficulties faced by senior 
citizens who are dehumanized and demoralized when they have to choose 
between utilities and food. Many seniors who need special diets and 
adequate nutrition for their medications, lack access to adequate food. 
Working adults should earn enough to support their children in dignity 
and should not be relegated to standing in line for food for their 
children from their local food pantry or soup kitchen. Our Nation's 
seniors should not have to choose among eating, shelter, and purchasing 
    Today more than 37 million Americans live in poverty. This is a 
moral crisis for a country as wealthy as the United States. In 2006 
Catholic Charities USA published a policy paper, Poverty in America: A 
Threat to the Common Good. Earlier this year, we launched the Campaign 
to Reduce Poverty in America. The campaign calls upon policymakers, 
faith-based groups, civic leaders, and all citizens to make a 
systematic and concerted effort to cut poverty in half by 2020.
    The existence of such widespread and long term poverty amidst such 
enormous wealth is a moral and social wound on the soul of our country. 
Even while the economy as a whole prospers, this scourge of poverty is 
getting worse, and the harm it inflicts on our entire Nation continues 
to grow. After several years of decline in national poverty level, we 
have seen a steady increase since 2000, with over 5 million new 
Americans falling into poverty.
    The fact that this powerful economy is leaving so many behind is a 
sign that something in our social and economic system is seriously 
broken. Unlike natural disasters such as hurricanes and floods, poverty 
in the United States is a human-made disaster. It is not a force of 
nature beyond our control; rather it is the result of economic, social, 
and political choices that we Americans have made, both as individuals 
and as a society.
    As a Christian and Catholic organization, we are deeply troubled 
and frustrated by the fact that the issue of poverty has been largely 
ignored in our national debate for decades. Poverty has worsened in 
recent years and now afflicts more than one out of every eight families 
in our Nation. Meanwhile, the Federal Government has substantially 
reduced the resources devoted to assisting those who are impoverished, 
and states have been unable or unmoved to act. There has been a 
conscious and deliberate retreat from our Nation's commitment to 
economic justice for those who are poor. Poverty remains our Nation's 
most serious political blind spot and it remains a threat to the common 
good and the future strength of our Nation.
    Human dignity is a core principle in Catholic social teaching. 
Poverty is a fundamental violation of human dignity and also a form of 
violence against the God who is present in every human person. As Pope 
Benedict XVI has said, ``[W]ithin the community of believers, there can 
never be room for a poverty that denies anyone what is needed for a 
dignified life.'' \vi\ As these words suggest, human dignity makes 
sense only if it is viewed in the context of community, because we are 
fundamentally social beings, bound together in the human family. If our 
society is to combat poverty successfully, then we will need a renewed 
sense of community, a renewed commitment to the common good.
    \vi\ Pope Benedict XVI, ``God Is Love,'' December 25, 2005, 20.
    Human dignity is protected by basic human rights. Among these are 
the right to life and the basic necessities of life such as food, 
shelter, clothing, health care, education, and employment at a livable 
wage. Included in these fundamental rights is the right to participate 
in decisions that affect one's life and one's future. For those living 
in poverty, this means that they have a right to participate in the 
process of their own development.
    Catholic social teaching affirms the idea that every right carries 
with it a set of responsibilities, both on the part of the individual 
and the community. Thus, for example, all people have a right to health 
care, but they also have a duty to act responsibly in living a healthy 
life and caring for the physical and mental well-being of their bodies. 
They are responsible for their own decisions and actions. At the same 
time, society has a responsibility to ensure that everyone has access 
to decent health care, and individuals have a responsibility to 
contribute to the common good by helping society reach this goal. 
Catholic teaching asserts that one of the principal means by which 
society and the state must defend human dignity is by giving priority 
to the needs of the poor.
Specific Public Policy Recommendations
    The causes of poverty are complex. Identifying solutions to reduce 
poverty will take many different strategies and efforts from all 
sectors of the country. Catholic Charities agencies have a long history 
of serving and advocating on behalf of those who live in poverty. 
Utilizing this experience, we have identified several policy proposals 
in our policy paper that we believe will be an effective start to help 
cut poverty in half by 2020.
    Improvements to the health care system, creating good jobs at a 
living wages, improvements to our housing policies, and changes to our 
tax system are among the changes we propose. We propose changes in two 
broad categories:

    1.  Implementing more equitable wage measures, specifically 
creating more livable wage jobs and raising the wages of existing low-
paying jobs.
    2.  IInvesting more of our common wealth in social welfare policies 
for low-income people.
Creating Good Jobs and Raising Wages
    In recent years, despite increases in the overall productivity of 
the workforce, wages for most workers have been stagnant or falling in 
real terms. For several decades before 1980, productivity growth and 
compensation rose together. American workers were more productive and 
they shared equitably in the gains from their productivity. Since 1980, 
workers have continued to become more productive, but they generally 
have not shared in the gains from their increased productivity. While 
raising the minimum wage is important, much more needs to be done in 
the long run to increase wages of low-income workers. We applaud the 
diverse efforts across the country to promote ``living wages'' by means 
of legislation. We also support the efforts to promote the general 
principle of livable wages by means of education and advocacy involving 
both the private and public sectors. Finally, declining union 
membership has played an important role in the failure of wages to keep 
pace with inflation for low- and middle-income workers.
Invest in Social Programs for Low-Income People
    Federal and State Governments should invest in social policies that 
provide security and opportunities to low-income families and 
individuals. These policies fall into four major categories:

      Protecting families from economic risks;
      Strengthening families;
      Promoting life-long learning; and
      Promoting long-term economic security and asset building
Protect Working Families from Economic Risks
    Work is the bedrock of the American culture, much more needs to be 
done to improve existing income support programs to ensure that they 
provide adequate protection to all workers.

      Improve the Temporary Assistance for Needy Families 
(TANF) program. In the 1990s, there were substantial increases in 
single-parent employment and reductions in poverty. Employment rates 
have remained relatively high since then, but poverty has increased 
significantly over the last five years. This suggests that many parents 
remain in low-wage jobs that do not provide enough income to support 
their families. At the same time, recent changes to TANF create further 
restrictions to economic mobility for low-income families. Catholic 
Charities USA strongly supports work as the core of the TANF program. 
But we also believe that a comprehensive plan that incorporates work 
with education and training has shown the most success. TANF programs 
must be flexible enough to recognize that not all families are ready to 
work and must address these barriers.
      Improve access to safe and stable child care. Every child 
deserves quality child care and the early education they need to get a 
strong start in life. They also need to be safe and secure when their 
parents are working. For many low-income families, access to child care 
determines the choice between work and training, on one hand, and a 
lifetime of poverty on the other. Unfortunately, federal child care 
funding continues to be insufficient to meet the needs of working 
families, and even fewer families can gain access to quality child 
care. The Federal Government should provide adequate child care funding 
to allow more low-income parents to place their children in safe, 
nurturing, learning environments while they are working or going to 
school. Improve the Earned Income Tax Credit (EITC) to be more 
inclusive. The EITC is a critical support program that provides a 
strong incentive to work and helps lift millions of children out of 
poverty. The EITC has been enhanced by a number of states through 
state-EITC programs that provide additional benefits to the federal 
program. While the federal EITC averages $2,100 for families with 
children, it is extremely limited for adults without children and for 
non-custodial parents. \vii\ In addition, low-income workers under the 
age of 25 are completely ineligible for the EITC even though they have 
one the highest unemployment and poverty rates of workers. Expanding 
the benefits of EITC to non-custodial parents and other young adult 
workers could reduce poverty and hardship and help ``make work pay'' 
for all Americans.
    \vii\ The credit for workers not raising children averages about 
$220; this credit is available only to workers with incomes of less 
than about $11,750 (less than $13,750 for a married couple without 
      Reform unemployment insurance. Unemployment insurance 
provides most low-wage workers with limited protection against the 
risks of unemployment. Researchers at the Urban Institute recently 
concluded that unemployment insurance ``plays a relatively small role 
in reducing poverty and slows the rise of poverty during labor market 
downturns.'' \viii\ The unemployment insurance system should be 
strengthened to provide greater protection against the economic loss 
that low-income workers experience as a result of unemployment.
    \viii\ Similarly, in a report title titled Unemployment Insurance: 
Role as Safety Net for Low-Wage Workers is Limited, the Federal 
Government Accountability Office (GAO) noted that in the 1990s low-wage 
workers were twice as likely to be unemployed, but less than half as 
likely to receive unemployment insurance.
Support Policies that Strengthen Families and Marriage
    The Catholic community has consistently affirmed the vital 
importance of strong family life as a foundation for raising children. 
Children clearly do better economically and emotionally when raised by 
two parents in a stable, healthy marriage.

      Extend services, benefits, and training to low-income 
men. For decades, federal policies have not provided sufficient support 
to low-income men to help more of them become part of a stable family 
unit. We encourage the Federal Government to enhance and support 
programs that strengthen families. This includes providing support to 
programs that help young men develop the skills necessary to become 
better fathers. By supporting low-income men and fathers in a more 
comprehensive way, we can reduce many of the challenges that cause 
families to fall apart and children to fall into poverty. Provide more 
support to low-income parents. Poor children desperately need the 
support of both parents. The legislative agenda for improving support 
to low-income parents should focus on policies that help keep famines 
together by providing stronger support for marriage and two-parent 
families; more support for parents who are disconnected from their 
children due to incarceration; and reform to the child support system 
to encourage the presence of fathers in the lives of their children. 
Recent improvements in the child support system have increased family 
income and reduced child poverty. Thirty-six percent of poor children 
and 50 percent of near poor children received child support payments in 
2001. \ix\ Further, improvement to this program is critical to help 
lift more low-income children out of poverty.
    \ix\ Elaine Sorensen, Urban Institute, Child Support Gains Some 
Ground, 2003--http://www.urban.org/publications/310860.html
      Improve the Child Tax Credit. The child tax credit 
provides nearly $50 billion in subsidies to families with children. 
This makes it the largest federal cash assistance program for children, 
but most of its benefits do not go to low-income families. The current 
credit provides $1,000 per child. Like the EITC, it is refundable, but 
current law excludes families with income under $11,000. As a result, 
millions of children are excluded from the credit. This exclusion falls 
disproportionately on Hispanics and African-Americans--19 percent of 
Hispanics and 28 percent of African-Americans receive no credit because 
their income is too low, compared to only 9 percent of whites. The 
child tax credit should be extended to all low-income families with 
      Improve protection and care of abused, neglected, and 
abandoned children and youth. Catholic Charities agencies across the 
country provide an array of child welfare services--children under 18 
make up 29 percent of the number of clients we serve. While a number of 
federal programs contribute to the intervention and prevention of child 
abuse and neglect, the systems supported by these programs have 
historically been fragmented and inadequate in meeting the needs of 
many vulnerable children, youth, and families. More efforts are 
required to sustain and expand the current level of services and create 
a full continuum of appropriate and timely support services for 
individual, family caregivers, and the agencies that provide care.
Promote Long Term Learning
    Education and skills training are essential to the long-term 
success of our Nation's youth and adults. Education is a fundamental 
part of creating a competitive workforce and a strong economy that 
benefits all. Not only is education necessary for economic advancement, 
it also has wide-ranging social benefits that promote the common good.

      Expand access to quality ``Pre-K'' education. Research 
has shown that investing in early education for pre-school age children 
can make a lasting difference in children's lives, including increased 
high school graduation rates, reduction in adult criminal activity, and 
increased employment and incomes. \x\
    \x\ See Robert G. Lynch, Exceptional Returns, (Washington, D.C.: 
Economic Policy Institute, 2004), 9-17.
      Ensure access to post-secondary education and job 
training. Education and training improve the odds of advancement for 
low-wage workers and are an absolutely necessary part of a larger 
strategy to fight poverty and build an economy that works for all.
Promote Long-Term Economic Security
    A critical part of reducing poverty for more Americans is to help 
families develop strategies for long-term economic security. This not 
only involves reforms to the Nation's social welfare and workforce 
systems, it also involves creating other opportunities for families to 
build assets and achieve the American dream.
    Can we cut poverty in half by 2020? We firmly believe that we can 
and we must.
    Catholic Charities agencies have had a long history of serving and 
advocating on behalf of those who live in poverty. We will continue to 
fight for policy changes that provide more opportunities for more 
Americans. We believe we must cut poverty in half to make our county 
whole. Of course we realize that these proposals will have a cost, but 
we also understand that a society as wealthy as ours cannot continue to 
abandon those who are the least among us.
    Our Catholic partners and other social service advocates must 
continue to work together to accomplish the goal of reducing poverty. 
Our local agencies have long history of developing unique partnerships 
and through our Campaign to Reduce Poverty in America we well continue 
to look for new opportunities. Only through partnerships between 
government and community leaders will we develop the capacity and the 
scale necessary to attack poverty in a comprehensive and sustained way. 
If we are going to cut poverty in half, we must all be accountable and 
willing to make the tough choices that it will take.
    Thank you for the opportunity to testify. Catholic Charities USA 
stands ready to assist the subcommittee as it moves forward in 
developing policies to provide more economic mobility for the millions 
of Americans living in poverty as well, as those just above the poverty 
level who are still struggling to make ends meet.


    Chairman MCDERMOTT. Thank you very much. Isabel Sawhill, 
who is a Senior Fellow in Economic Studies, the Cabot Family 
Chair at The Brookings Institution.
    Ms. Sawhill.


    Dr. SAWHILL. Thank you very much, Mr. Chairman. I very much 
appreciate the opportunity to testify, and I agree with the 
goal of reducing poverty in the United States. I think that it 
is a moral imperative, as the last speaker and several others 
have said. I commend the Committee for refocusing on this 
question, and this issue.
    The question, it seems to me, is how we are going to do it, 
and whether we can come together, as a Nation, to get it done.
    My own view is that reducing poverty is going to require a 
focus both on what government needs to do, but also on what 
individuals need to do. We need, in other words, a combination 
of both responsible policies and responsible behavior.
    I would note that the earned income tax credit, for 
example, which has historically had bipartisan support, is a 
wonderful example of this general philosophy. It expects people 
to work, but when they do, it helps them by supplementing their 
    Let me make four additional points. The first is that there 
are many things that we could do to reduce poverty in the 
United States, and I am listening to my colleagues here today 
with great interest.
    To me, the three greatest priorities should be: first, 
getting a good education; second, not having children before 
you marry; and, third, working full-time, if you possibly can.
    Government should expect people to make real efforts to 
comply with those norms. When they do, government should reward 
that behavior, by making sure that if you do play by the rules, 
you will not be poor. Analysis that we have done at Brookings 
shows that individuals who do play by such rules are much less 
likely to be poor than those who don't.
    Next point is that one of the most effective policies that 
we could put in place to ensure that everyone gets a good 
education would be to provide a very high-quality, early 
childhood experience to all children from low-income families.
    Many people seem to believe that education in the pre-
school years may help very young children, but what they fail 
to recognize is that it has dramatic effects on educational 
achievement throughout the Kindergarten through high school 
years, and can even increase college enrollment and adult 
earnings in a very cost-effective way.
    So, the Federal Government, I think, could go further than 
it has in helping to fund such high-quality early education 
programs, perhaps by matching funding to the States, which are 
already very active in this area, and focusing the Federal 
funding especially on programs for lower income children, or 
children living in more disadvantaged neighborhoods.
    The next point I want to make is that too many of our 
teenagers and young adults are having children before they are 
married. Equally important, if not more important, before 
they're ready to be good parents. In my view, the solution to 
this problem resides as much in the larger culture, and what 
parents and faith communities and key adults say and do, as it 
does in any basic shift in government policy, per se.
    However, government could help by: providing resources to 
those in non-profit organizations and in faith-based 
communities who are fighting this battle; by ensuring that its 
own policies do not inadvertently encourage childbearing 
outside of marriage; and by supporting programs that have had 
some success in reducing early out-of-wedlock childbearing.
    We had some news recently that some of the sex education 
programs that have focused entirely on abstinence were less 
effective than many of their advocates have hoped. However, we 
have other examples of programs that do encourage teenagers to 
delay sex until they're older, but also teach them about 
effective means of preventing pregnancy that have been 
    However, I want to re-emphasize that we need a broad range 
of efforts here that includes both government and non-
government institutions.
    Finally--and I would be really remiss if I didn't emphasize 
this--encouraging and rewarding work are also important. I 
support the idea of work requirements in welfare, and perhaps 
in other programs as well, but I also feel strongly that the 
kind of employment we have seen--employment increases we have 
seen--amongst welfare mothers could be a pyrrhic victory if we 
don't find ways to provide more assistance to this group in the 
form of a higher minimum wage, a more generous earned income 
tax credit, and additional child care and health care 
    I will leave it there. Thank you very much.
    [The prepared statement of Dr. Sawhill follows:]
  Prepared Statement of Isabel Sawhill Ph.D., Senior Fellow, Economic 
       Studies, The Cabot Family Chair, The Brookings Institution
    Mr. Chairman and Members of the Committee:
    Thank you for inviting me to testify on what might be done to 
reduce poverty in America. As a Senior Fellow and Co-Director of the 
Center on Children and Families at Brookings, I have done extensive 
work on these issues; although I should note that the views I will 
express are my own and should not be attributed to other staff, 
trustees, or funders of the Brookings Institution. Let me first 
summarize my testimony.
    First, I strongly believe that reducing poverty requires a focus 
both on what government needs to do and on what individuals need to do. 
We need a combination of responsible policies and responsible behavior.
    Second, although there are many things that might be done to reduce 
poverty in the U.S., I want to argue for a focus on three priorities: 
getting a good education, not having children before you marry, and 
working full-time. Government should expect people to make real efforts 
to comply with each of these norms. When they do, then government 
should reward such behavior by making sure that those who play by the 
rules will not be poor. The analysis we have done at Brookings shows 
that individuals who play by these rules are much less likely to be 
poor than those who don't.
    Third, one of the most effective policies we could put in place to 
ensure that everyone gets a good education would be to provide very 
high-quality early education to all children from low-income families. 
Many people believe that education in the preschool years only affects 
young children. In fact, the evidence from both neuroscience and from 
carefully done program evaluations shows that preschool experiences 
have long-lasting effects and may be the most cost-effective way to 
insure that more children are successful in the K-12 years, graduate 
from high school, go on to college, and earn more as adults. The 
Federal Government could further this goal by providing matching 
funding to states that are willing to invest in high-quality early 
education for those living in low-income neighborhoods, starting in the 
first year of life.
    Fourth, too many of our teens and young adults are having children 
before they are married and before they are ready to be good parents. 
In my view, the solution to this problem resides as much in the larger 
culture--in what parents, the media, faith communities and key adults 
say and do--as it does in any shift in government policy per se. 
However, government can help by providing resources to those fighting 
this battle in the nongovernmental sector, by insuring that its own 
policies do not inadvertently encourage childbearing outside of 
marriage, and by supporting programs that have had some success in 
reducing early, out-of-wedlock childbearing.
    Finally, encouraging and rewarding work is also very important. I 
support the idea of work requirements in welfare, and perhaps in other 
programs as well, but I fear that the kind of increased employment 
we've seen among welfare mothers will be a Pyrrhic victory if we don't 
find ways to provide more assistance in the form of a higher minimum 
wage, a more generous EITC, and additional child care and health care 
assistance. In my testimony today--at the suggestion of your staff--I 
will focus especially on preschool education and on the need to 
decrease childbearing outside of marriage and increase the share of 
children growing up in two-parent, married families. But I have written 
elsewhere about the importance of providing additional work supports 
for low-income working families. \1\
    \1\ Isabel Sawhill and Adam Thomas, ``A Hand Up for the Bottom 
Third: Toward a New Agenda for Low-Income Working Families,'' 
Washington, DC: The Brookings Institution, May 2001; Ron Haskins and 
Isabel Sawhill, ``Attacking Poverty and Inequality,'' Opportunity 08 
Paper, Washington, DC: The Brookings Institution, 2007.
The Evidence that Education, Work, and Marriage are Important
    If we could increase education, marriage, and work, poverty rates 
would fall substantially (Figure 1). More specifically, our research 
shows that if all able-bodied adults worked full time, even at the wage 
they currently earn (or, if unemployed, at a rate commensurate with 
their education), poverty would plummet by 42 percent. We also analyzed 
the impact on poverty rates of increasing the marriage rate to the 
level it enjoyed in 1970 by simulating marriages between single males 
and females matched on age, race, and education from Census Bureau 
data. \2\ The effect of this simulation was to reduce poverty 27 
    \2\ In the simulation, the income of the matched individuals were 
whatever the individuals actually reported to the Census Bureau. We 
matched enough couples in this fashion to reproduce the marriage rate 
that existed in 1970 before divorce and non-marital births began their 
rapid increases.
                               Figure 1:

    Insuring that everyone had a high school education reduced poverty 
by 15 percent. It had a less powerful effect than work and marriage. 
That said, I believe that education is more important than these 
results might imply because of its indirect effects on everything from 
improving health to opening up new employment opportunities and making 
people better parents.
    Finally, we compared these three simulations to a doubling of cash 
welfare. This large increase in cash assistance only reduced poverty by 
8 percent.
    Although these results are informative, they may partly reflect the 
fact that people who are better educated, married, and work more hours 
have other characteristics that lead them to have higher incomes. In 
addition, they tell us nothing about how to achieve the kind of 
improvements in education, in marriage rates, and in the extent of 
full-time work that the simulations assume. In what follows, I provide 
my judgment, based on good research, of the most effective ways to 
achieve the first two of these three goals. I also have ideas about how 
to encourage and support work but in the interests of time and space, 
and based on discussions with your staff, I will not address that issue 
in greater detail today.
Improving Educational Outcome among Children from Poor Families
    My first recommendation is that Congress provide additional funding 
for an early education program that we call ``Success by Ten.'' This 
proposal was developed jointly by myself and Jens Ludwig at Georgetown 
University for the Hamilton Project at Brookings. \3\
    \3\ Ludwig, Jens and Isabel Sawhill, ``Success by Ten,'' Hamilton 
Project Discussion Paper, Washington, DC: The Brookings Institution, 
February 2007.
    Success by Ten is a proposal designed to help every child achieve 
success in school by age ten. It calls for a major expansion and 
intensification of Head Start and Early Head Start, so that every 
disadvantaged child has the opportunity to enroll in an intensive, 
high-quality program of education and care during the first five years 
of life. Because the benefits of this intensive intervention may be 
squandered if disadvantaged children go on to spend time in low-quality 
elementary schools, the second part of our proposal requires that 
schools devote their Title I spending to instructional programs that 
have proven effective in further improving the skills of poor children, 
especially their ability to read.
    Our proposal is based on the principle that early intervention is 
particularly important given brain plasticity during these early years. 
Children from different family backgrounds currently experience very 
different types of learning environments during the early years. The 
result is that large disparities in cognitive and noncognitive skills 
are found along race and class lines well before children start school 
and even before they can enroll in the federal Head Start preschool 
program at age three or four. Most of America's social policies try to 
play catch up against these early disadvantages yet most disadvantaged 
children never catch up. Gaps that exist when children enter school are 
nearly as large when they reach high school.
    Findings from a number of rigorously conducted studies of early 
childhood and elementary school programs suggest that intervening 
early, often, and effectively in the lives of disadvantaged children 
from birth to age ten may substantially improve their life chances. 
These long-term benefits include higher educational attainment and 
greater success in the labor market, thereby helping poor children 
avoid poverty as adults. Another consequence would be to substantially 
improve the skills of tomorrow's workforce, thereby enhancing future 
economic performance. These benefits for children would be accompanied 
by benefits for their parents, many of whom are working and need the 
kind of high-quality child care that the program would provide.
    Our proposal would work as follows. A high-poverty school (defined 
as a school in which at least 40 percent of the children are eligible 
for the school lunch program) would form a partnership with a local 
Head Start program or another early childhood program. They would 
jointly apply to the Federal Government for the extra funds that would 
be needed to serve all the poor children in their area. Eligibility for 
the preschool component would be based on family income or could be 
based simply on residence in a low-income neighborhood or school 
    Competitive grants would be made based on the quality of the local 
plan, including willingness to implement the key elements of Success by 
Ten (such as well-qualified teachers, low ratios of children to staff, 
a tested and effective curriculum) and assurances that the two agencies 
(typically Head Start and the local school) could work together. To 
reduce the initial cost of the program, to maintain quality during the 
scaling up of the effort, and to allow for some further learning and 
refinement of the design during implementation, we also propose that 
some local variation be allowed and that the school system maintain 
electronic student-level data on children in their enrollment areas and 
make these available to an independent set of program evaluators. We 
estimate that the cost of the program would be about $6 billion 
annually during the first six years of the program and up to $40 
billion annually when fully implemented.
    One model program of the type we are proposing had dramatic effects 
on children from poor families. Known in the literature as the 
Abecedarian program, it is the only program for which there is rigorous 
evidence for long-term effects on cognitive outcomes like IQ test 
scores. An evaluation of Abecedarian participants at age 21 shows IQ 
scores that are about 0.38 of a standard deviation higher for the 
treatment than the control group, with similarly large improvements in 
reading and math scores.
    Other effects that are arguably as important, such as school 
achievement and completion, are even more impressive. For children who 
received the Abecedarian program intervention, for example, the college 
entry rate is 2.5 times the control group's rate. Teen parenthood and 
marijuana use in the group that received the Abecedarian intervention 
were around one-half of the average rates for the control group that 
did not receive the intervention. Smoking rates were about 30 percent 
lower for those who received the Abecedarian intervention when they 
were children compared with the average for the control group (Campbell 
and others, 2002). More suggestively, arrest rates were lower for 
treatments than controls, although the absolute numbers of those 
arrested in the two Abecedarian groups were small enough that it is 
impossible to prove statistically that this particular difference 
didn't result from chance.
    To preserve and enhance these good results, early childhood 
intervention should be followed up with additional support at least in 
the early grades of school. However, the currently available evidence 
in support of most schooling interventions is quite limited. Based on 
our reading of available research, one of the few programs that has 
been shown to be effective in a rigorous randomized experiment is 
Success for All, which is a comprehensive whole-school reform model now 
in operation in more than 1,200 schools.
    The philosophy of Success for All during the elementary school 
years is to focus on the prevention of reading problems, and the 
primary marker of success is the ability to read. Other subjects are 
important, but emphasis is given to the development and use of language 
through the reading of children's literature. Consistent with this 
emphasis, children receive 90 minutes of daily reading instruction in 
groups that are organized across grade levels based on each child's 
current reading level, which helps teachers to target instruction. 
Students engage in cooperative learning exercises in which they discuss 
stories or learn from each other, which helps reinforce what teachers 
do and builds social skills. Children are assessed at eight-week 
intervals, using both formal measures of reading competency and teacher 
observations. Children who are falling behind are given extra tutoring 
or other help with whatever might be impeding success (such as health 
or behavior problems).
    A recent evaluation of Success for All funded by the U.S. 
Department of Education's Institute for Educational Sciences provides 
rigorous evidence of the program's effectiveness (Slavin and others, 
2005). Two years later, the differences between children in the 
treatment and control schools were positive and statistically 
significant, usually on the order of about 0.2 standard deviations 
(about one-fifth the gap between low and high socioeconomic-status 
    We recommend using Title I money to expand the use of Success for 
All in kindergarten through fifth grade. If and when new evidence 
develops, schools could be encouraged, or even required, to use their 
Title I money on other proven programs.
    Clues about what program ingredients might prove to be most 
important over time come from some of the striking similarities between 
Abecedarian and Success for All. These similarities include an emphasis 
on the development of language and reading skills, frequent assessments 
of children's developmental progress through regular testing, and 
clear, prescriptive curricular materials for teachers to follow that 
stand in contrast with more open-ended teacher--and student-initiated 
learning environments.
Reducing the Number of Single Parents and Encouraging Marriage
    As we have seen, one of the best ways to reduce poverty is to 
decrease the number of single-parent families. If we could return the 
share of children raised in married-couple families to the level that 
prevailed in the 1970s, we could reduce the poverty rate by between 20 
and 30 percent.
    There are two ways to reduce the growth of single-parent families. 
The first is to reduce teen and out-of-wedlock childbearing, the latter 
of which has been the driving force behind the growth of such families 
since the 1980s. The second is to reduce divorce which has leveled off 
since the 1980s but still accounts for more than half of all children 
spending time in a single-parent family.
    The good news is that teen pregnancy and birth rates have declined 
by about one-third since the early 1990s and this has contributed to 
the slower rate of growth in the proportion of children born outside of 
marriage. \4\ The reasons for the declines are not well understood, but 
appear to be related to more conservative attitudes among the young, 
heightened concern about sexually transmitted diseases, and greater 
efforts to prevent teen pregnancy, including both new messages about 
abstinence and the availability of more effective forms of 
contraception. \5\ These declines mean fewer children being born 
outside of marriage, fewer single-parent families, and less child 
poverty. Indeed, the decline in teen childbearing that has occurred 
over the past decade is responsible for more than 80 percent of the 
decline in the number of children under age six living with a single 
mother. Had the teen birth rate not declined between 1991 and 2002, the 
number of children under six in poverty would have been 8.5 percent 
higher. \6\ Reducing teen childbearing has other desirable consequences 
as well, not the least of which is less government spending. Teen 
childbearing costs taxpayers at least $9 billion each year in direct 
costs associated with health care, foster care, criminal justice, and 
public assistance, as well as lost tax revenues. \7\ And because women 
who have children outside marriage are less likely to marry than 
comparable women who do not, a decline in these births should increase 
marriage rates as well. \8\
    \4\ Isabel Sawhill, ``What Can Be Done To Reduce Teen Pregnancy and 
Out-of-Wedlock Births?,'' Welfare Reform & Beyond Brief No. 8, 
Washington, DC: The Brookings Institution, October 2001; Committee on 
Ways and Means Democrats, ``Steep Decline in Teen Birth Rate 
Significantly Responsible for Reducing Child Poverty and Single-Parent 
Families,'' Committee Issue Brief, Washington, DC: Author, April 23, 
    \5\ John S. Santelli, et al., ``Can Changes in Sexual Behavior 
Among High School Students Explain the Decline in Teen Pregnancy Rates 
in the 1990s?,'' Journal of Adolescent Health, vol. 35 (2005): 80-90.
    \6\ Committee on Ways and Means (Democrats), 2004.
    \7\ Saul D. Hoffman, ``By the Numbers: The Public Costs of Teen 
Childbearing,'' Washington, DC: National Campaign to Prevent Teen 
Pregnancy, October 2006.
    \8\ Daniel T. Lichter and Deborah Roempke Graefe, ``Finding a Mate? 
The Marital and Cohabitation Histories of Unwed Mothers,'' in Lawrence 
L. Wu and Barbara Wolfe, editors, Out of Wedlock: Causes and 
Consequences of Nonmarital Fertility, New York, NY: Russell Sage 
Foundation, 2001, pp. 317--343.
    Although there has been progress in reducing teen pregnancy rates, 
young women, and especially young black women, are marrying much later 
than they used to (and in some cases not marrying at all) and are thus 
exposed to the risk of a non-marital birth for longer periods of time. 
So out-of-wedlock childbearing rates remain high as does the rate of 
divorce. The question then is what are the most effective strategies 
for reducing out-of-wedlock childbearing as well as divorce?
    Step one has to be a new set of messages. Part of the decline in 
marriage and the rise in non-marital births can be attributed to a 
culture that has reduced the social stigma of single motherhood. Thus, 
any strategy to reduce the number of single parent families should 
include a component aimed at changing broad cultural attitudes. Many 
younger people, teens especially, have not fully absorbed the message 
about the normative ordering of events that is critical to achieving 
life's goals: finish high school, or better still, get a college 
degree; wait until your twenties to marry; and do not have children 
until after you marry and at least one parent is stably employed. \9\ 
Using the media, as well as the bully pulpit, to broadcast messages 
about this success sequence is one way to reach a broad cross-section 
of society and to get a message about responsibility into the cultural 
ether. \10\
    \9\ More description of this ``success sequence'' can be found in 
Barbara Dafoe Whitehead and Marline Pearson, ``Making a Love 
Connection,'' Washington, DC: National Campaign to Prevent Teen 
Pregnancy, 2006.
    \10\ Sara McLanahan, Elisabeth Donohue, and Ron Haskins, 
``Introducing the Issue,'' Future of Children, vol. 15, no. 2 (Fall 
2005): 3-12.
    A second way to change cultural attitudes and behavior is to fund 
programs that teach both values and relationship skills to younger 
Americans, while insuring that they are well informed about the best 
way to prevent an unwanted pregnancy. Included here is sex education 
that encourages abstinence among teens but also includes accurate 
information about contraception for those who are sexually active. In 
addition, programs that teach responsibility and engage young people in 
constructive activities through community service have shown themselves 
to be effective in reducing teen pregnancy. \11\ An analysis by Julia 
Isaacs for the Brookings Institution suggests that a nationwide 
expansion of one such effective program would cost $1.4 billion, but 
would produce numerous--albeit difficult to measure--benefits including 
a reduction in teen births and abortions. \12\
    \11\ Two of the more effective programs, as identified by Douglas 
Kirby for the National Campaign to Prevent Teen Pregnancy, are the Teen 
Outreach Program (TOP) and the Children's Aid Society-Carrera program. 
These programs focus on youth development, not just on family planning 
or abstinence. See Douglas Kirby, ``Emerging Answers: Research Findings 
on Programs to Reduce Teen Pregnancy,'' Washington, DC: National 
Campaign to Prevent Teen Pregnancy, 2004.
    \12\ Julia Isaacs, ``Cost-Effective Investments in Children,'' 
Budget Options Series Paper, Washington, DC: The Brookings Institution, 
    Yet another way to reduce unplanned pregnancies outside marriage is 
to provide more family planning services to low-income women. Several 
recent studies have found that states provided with family planning 
waivers under Medicaid have successfully reduced unintended pregnancies 
and births and saved money in the process. \13\ Providing low-income 
women greater access to family planning services through Medicaid would 
cost less than $1 million per year, according to the Guttmacher 
Institute. This policy would substantially reduce unintended 
pregnancies. Over a decade's time, these declines in unintended 
pregnancies among low-income women could reduce the number of children 
living in poverty by roughly 600,000. \14\
    \13\ Cost estimate assumes that every state provides Medicaid 
coverage for family planning services for women with incomes less than 
200 percent of the federal poverty line. By enabling women to avoid 
522,000 unintended pregnancies, this type of Medicaid expansion would 
reduce the number of abortions by 16 percent and the number of 
unintended births by almost 18 percent. See Jennifer J. Frost, Adam 
Sonfield, and Rachel Benson Gold, ``Estimating the Impact of Expanding 
Medicaid Eligibility for Family Planning Services,'' Occasional Report 
No. 28, Alan Guttmacher Institute, August 2006; Melissa Kearney and 
Phillip Levine, ``Subsidized Contraception, Fertility, and Sexual 
Behavior,'' NBER Working Paper No. 13045, April 2007.
    \14\ There are about 1.4 million births to unmarried women each 
year. A 17 percent decline in such births would avert 238,000 or 2.4 
million over a decade. If even one fourth of these births would have 
created a poor, single parent family, then 600,000 fewer children would 
be poor. Paul Amato and Rebecca A. Maynard, ``Decreasing Nonmarital 
Births and Increasing Marriage to Reduce Poverty,'' The Future of 
Children vol. 17, no. 2 (forthcoming).
    Another way to reduce single parenting is by teaching relationship 
skills to those who are married or are contemplating marriage. Careful 
evaluations suggest that some premarital education programs reduce the 
risk of divorce. \15\ Doubling the proportion of couples who receive 
premarital education would cost an estimated $184 million, reduce 
divorce rates by as much as 7 percent, and over a decade's time, reduce 
the number of children living in poverty by at least 160,000. \16\
    \15\ Ibid. The best-known and most successful premarital education 
program is the Prevention and Relationship Enhancement Program (or 
    \16\ Ibid. The paper assumes a doubling of current participation 
rates, from 40 percent of couples to 80 percent of couples. Amato and 
Maynard estimate that the decrease in divorce made possible by their 
premarital education proposal would lead to 720,000 fewer single parent 
families over a decade. If one fourth of such families are poor and 
each had 9 children, child poverty would fall by around 160,000 over 
the decade.
    Not all of these pregnancy prevention and marriage education 
programs have been successful and we need to learn more. Recent media 
reports on the effectiveness of abstinence education programs, for 
example, have been quite discouraging. Even so, there is good news to 
report when it comes to sex education interventions. There is now 
persuasive evidence that a limited number of programs can delay teen 
sexual activity, improve contraceptive use among sexually active teens, 
and prevent teen pregnancy. Some of these programs could be fairly 
described as ``traditional'' sex education programs that discuss both 
abstinence and contraceptive use; others focus primarily on keeping 
young people constructively engaged in their communities and schools. 
At the same time, a new and exciting frontier in sex education has been 
embodied in efforts such as the Love U 2 curriculum. These efforts tend 
to teach young people about healthy relationships at the same time they 
teach them about avoiding risky sexual behavior and the value of 
waiting. In short, these efforts are focused squarely on trying to help 
young people understand how to achieve responsible and respectful 
    Allocating increased resources to early childhood education, if 
done right, has an excellent chance of increasing educational 
attainment among children from lower-income families. It will take a 
commitment to high-quality programs that start at an early age and will 
not be cheap. However, everything we know suggests the benefits would 
greatly exceed the costs. At the same time, with less certainty but at 
a much lower cost, it should be possible to increase the share of 
children living in single parent families, thereby both improving their 
longer-term prospects and reducing poverty rates as well.


    Chairman MCDERMOTT. Thank you very much. Now, Dr. Lawrence 
Mead, who is a professor of politics--maybe this is all about 
politics, anyway--from New York University.


    Dr. MEAD. Thank you very much, Mr. Chairman. It's an honor 
to be here. If on nothing else, I certainly agree about the 
need to address this question. It really is a critical issue 
for America's future.
    I am speaking based on a paper for a project on antipoverty 
ideas at Brookings, which Isabel was an editor of. Gordon 
Berlin, should he appear, is also involved, and so is Mark 
Greenberg. So, we are speaking from that.
    I think we should take our departure from what works, and 
we know that welfare reform was successful. It was successful 
in driving down the welfare rolls, and more importantly in my 
view, increasing work levels among single mothers.
    This is achieved through a combination of what I call help 
and hassle--provided new benefits for mothers that they didn't 
have before, particularly the Earned Income Tax Credit, but we 
also levied a much more definite work requirement, that they 
should do something to help themselves in return for being on 
aid. The main impact of the reform came from that synergy, from 
the requirement to work, backed up by these support benefits.
    My main message today is that we should keep going down 
that road. This had a more dramatic effect on family poverty 
than anything we have done for 40 years, and we should not 
abandon that formula. You should be skeptical of proposals, 
some of which we have heard already, where there is new 
spending on benefits, but where we don't very clearly require 
that the adults also do things to help themselves, especially 
by working.
    There are two major things we need to do to pursue this 
approach. The first is to complete welfare reform. Successful 
though it was, the Personal Responsibility Act had some clear 
limitations. One was that there were certain weaknesses in the 
work requirements which had the effect of exempting much of the 
caseload from an actual need to work. The law had some 
loopholes that meant that States really didn't have to build 
work into their systems.
    Equally important, the law and other policies did not do 
enough to keep mothers working after they left welfare, or 
indeed to make sure that they earned enough when they worked. 
So, we need to make sure that people really have to work, and 
we also have to make sure they keep working after they leave 
    Reauthorization of the TANF program last year closed only 
some of the loopholes, and it left much left to do. I would 
recommend, first of all, clsoing some further loopholes on the 
work test. That particularly means requiring a full family 
sanction if families do not comply with the work test. Right 
now, it can be a partial sanction, and the effect of that is to 
make it virtually impossible to fully implement the work test 
in the two big States, New York and California, which have 
partial sanctions.
    I would also enforce the work tests in the food stamp 
program more effectively than they have been. We need to make 
that program into one that also promotes work.
    I would also add an hours requirement to EITC. Although 
EITC is very successful, it doesn't require any minimum 
threshold of hours to get the benefits. We ought to say, ``In 
order to get the current EITC, or perhaps an enhanced EITC, you 
have to put in 20 or 30 hours a week.'' That was a requirement 
in certain welfare reform programs in order to raise work 
levels, and we need to do that in EITC.
    I would also increase the EITC benefit, and attach it to 
individuals rather than families, in the way that Gordon is 
going to describe. I think that's a good idea. It's also a good 
idea to raise the minimum wage, but in order to make sure that 
those steps do not actually produce a reduction in work effort, 
we again need to have hour thresholds.
    The other thing I would do--and Linda Gibbs has already 
referred to this--is make a major effort in dealing with low-
income men. They also had serious work problems. Indeed, 
because they're working less, the actual work levels among poor 
adults has actually declined in the last 15 years, despite 
welfare reform. In 2005, only 37 percent of poor adults last 
year claimed any employment at all.
    So, we should not be persuaded by ideas that the poor are 
working, and all we have to do is raise their wages. We have a 
long way to go in raising work levels, particularly in getting 
men to work.
    The way to do that, I think, is to try to develop a work 
requirement for men, by means of the child support system and 
also the criminal justice system. We can, I think, develop a 
mandatory work policy using those structures that will require 
men more definitely to work, I'm thinking particularly of 
people on parole, who are supposed to be working, and often 
don't, and also child support defaulters who owe judgments but 
aren't paying them regularly.
    We have to make sure that the men pay up, and that means 
that they have to be working. We have to monitor them in the 
way we have done in welfare reform. At the same time, pay 
enhanced benefits of the sort we're talking about through the 
    So, again, the same idea, help and hassle. We will 
subsidize your wages, but you absolutely have to work, and we 
are going to make sure you do that. When we do that, you will 
have, I think, a major impact on poverty.
    How to do that is set out more fully in my paper. I think a 
men's program along these lines would cost about $2.5 billion 
to $4.5 billion. That's a rough estimate. That would be offset 
by improved child support collections. The main thing, however, 
is to establish a clear cut norm in the culture that men, like 
women, on welfare have to be working. That's something we 
expect. At the same time, we will reward you if you do it.
    [The prepared statement of Dr. Mead follows:]
             Prepared Statement of Lawrence M. Mead, Ph.D.,
               Professor of Politics, New York University
    I am a Professor of Politics at New York University and a longtime 
scholar of antipoverty policy and welfare reform. I've written several 
books on these subjects, including a study of welfare reform in 
Wisconsin. \1\ I appreciate this chance to testify on an important 
question: What should government do next to reduce poverty in America?
    \1\ Lawrence M. Mead, Beyond Entitlement: The Social Obligations of 
Citizenship (New York: Free Press, 1986); idem, The New Politics of 
Poverty: The Nonworking Poor in America (New York: Basic Books, 1992); 
idem, ed., The New Paternalism: Supervisory Approaches to Poverty 
(Washington, DC: Brookings, 1997); idem, Government Matters: Welfare 
Reform in Wisconsin (Princeton: Princeton University Press, 2004); 
Lawrence M. Mead and Christopher Beem, eds., Welfare Reform and 
Political Theory (New York: Russell Sage, 2005).
    The main conclusions of my research might be summarized as follows:

      Nonwork by parents is the main reason for poverty among 
the working-aged and their children. Family breakup is also important 
but secondary.
      Nonwork cannot generally be explained by barriers to 
employment such as lack of jobs or child care. Barriers--particularly 
inferior education--have much more influence on the quality of jobs 
people get if they work.
      Nonwork cannot be overcome by voluntary measures alone, 
such as greater investments in child care, education, or training. 
These are of value mostly after nonworkers have entered jobs.
      Rather, work levels can be raised by a combination of 
``help and hassle''--new benefits coupled with requirements that poor 
adults work as a condition of aid.
      Work enforcement is ultimately a political process where 
stronger work expectations coupled with new benefits cause more poor 
adults to go to work without necessarily going on welfare at all.
The Success of Reform
    In reforming welfare, government has largely followed this approach 
since enactment of the Family Support Act (FSA) in 1988, and especially 
since the enactment of the Personal Responsibility and Work Opportunity 
Reconciliation Act (PRWORA) in 1996. Under PRWORA, Temporary Assistance 
for Needy Families (TANF) replaced Aid to Families with Dependent 
Children (AFDC). Tougher work requirements were combined with new 
spending on child and health care for families leaving welfare and on 
wage subsidies for low-paid workers (the Earned Income Tax Credit, or 
    These were the main effects:

      A dramatic fall in dependency: Since their height in 
1994, the rolls in AFDC/TANF have plummeted by over 60 percent. Nor did 
dependency rebound during the recession of 2001-3.
      A substantial rise in work levels among single mothers: 
The share of AFDC cases meeting work participation norms rose from 22 
percent in 1994 to 38 percent in 1999, before falling to 32 percent by 
2004. \2\ Work among poor single mothers also rose: The share working 
at all rose from 44 percent in 1993 to 64 percent in 1999, before 
falling to 54 percent in 2005. For work full-time and year-round, the 
comparable figures were 9, 17, and 16 percent. \3\
    \2\ Data from the U.S. Administration for Children and Families. 
Work standards also were raised between FSA and PRWORA, so these 
figures understate the real work increase.
    \3\ Data from the March Current Population Survey for 1994 (table 
19), 2000 (table 17), and 2006 (table POV15)
      A substantial fall in poverty: The overall poverty rate 
fell from 14.5 percent in 1994 to 11.3 percent in 2000, before rising 
to 12.6 percent in 2005. For children, the equivalent figures are 21.8, 
16.2, and 17.6 percent. \4\
    \4\ U.S. Department of Commerce, Bureau of the Census, Income, 
Poverty, and Health Insurance Coverage in the United States: 2005, 
Series P-60, No. 231 (Washington, DC: U.S. Government Printing Office, 
August 2006), tables B1, B2.
      An absence of hardship due to reform. Welfare reform did 
not generally make life tougher for poor families, although--as I note 
below--it did not solve all their problems. The noneconomic effects of 
reform on families and children were small and largely positive. \5\
    \5\ Rebecca M. Blank and Ron Haskins, eds., The New World of 
Welfare: An Agenda for Reauthorization and Beyond (Washington, DC: 
Brookings, 2001); Pamela A. Morris et al., How Welfare and Work 
Policies Affect Children: A Synthesis of Research (New York: Manpower 
Demonstration Research Corporation, March 2001); P. Lindsay Chase-
Lansdale et al., ``Mothers' Transitions from Welfare to Work and the 
Well-Being of Preschoolers and Adolescents,'' Science 299 (March 7, 
2003): 1548-52.

    Most analysts think that the main forces behind these gains were 
(1) the new work tests in welfare, (2) expanded support benefits--
especially EITC--and (3) the superb economic conditions of the 1990s. 
There is some debate about the relative importance of these factors, 
but everyone thinks that work requirements were essential to forcing 
change. \6\
    \6\ Douglas J. Besharov, ``The Past and Future of Welfare Reform,'' 
The Public Interest, no. 150 (Winter 2003): 4-21; Council of Economic 
Advisors, ``The Effects of Welfare Policy and the Economic Expansion on 
Welfare Caseloads, An Update'' (Washington, DC: Executive Office of the 
President, August 3, 1999); David T. Ellwood, ``The Impact of the 
Earned Income Tax Credit and Social Policy Reforms On Work, Marriage, 
and Living Arrangements'' (Cambridge, MA: Harvard University, Kennedy 
School of Government, November 1999); Jeffrey Grogger, ``Welfare 
Transitions in the 1990s: The Economy, Welfare Policy, and the EITC,'' 
Journal of Policy Analysis and Management 23, no. 4 (Fall 2004):671-95.
    Government should follow the same general approach as it seeks to 
reduce poverty further. Neither ``help'' nor ``hassle'' will achieve 
much without the other. Government should not extend new benefits or 
opportunities to the employable poor without expecting work. Neither 
should it cut back spending, in an indirect attempt to force them to 
work. Rather, it should expect work directly while also providing the 
benefits people need to reorganize their lives around employment.
    It should do this in two main ways: First, complete welfare reform. 
Second, extend the same approach to nonworking men.
The Limitations of Reform
    Although successful, welfare reform did not enforce work 
consistently. It also did too little to ensure that families could 
``make it'' after they left welfare.
    PRWORA's bark was worse than its bite. The act demanded that states 
move 50 percent of their welfare cases into work activities by 2002--a 
huge jump over FSA or earlier law. But several provisions spared most 
states from having truly to build work into their welfare programs:

      The caseload fall credit: PRWORA allowed states to count 
against their work targets any percent by which their caseloads fell 
after 1995. Because the fall was unexpectedly great, the credit cut the 
participation levels states had to achieve to trivial levels, in many 
cases to zero.
      Sanctions: PRWORA allowed states to reduce grants only 
partially if adults fail to cooperate with the work test. Among the 
states choosing partial sanctions are California and New York, the 
states with the biggest caseloads. This has made it impossible fully to 
enforce the work test.
      Child-only cases: Welfare cases where only children are 
paid aid are exempt from the work test, even though in practice adults 
in the families also get support. These cases are growing as a share of 
the caseload, comprising 37 percent of all cases by 2001. \7\
    \7\ U.S. Congress, House, Committee on Ways and Means, 2004 Green 
Book: Background Material, and Data on the Programs Within the 
Jurisdiction of the Committee on Ways and Means (Washington, DC: U.S. 
Government Printing Office, March 2004), p. 7.88.
      Separate state programs: Some states created separate 
programs for cases they wished to shield from the work test (often 
those with two parents where the TANF activity standard was a difficult 
90 percent) or those on the rolls for more than five years and thus 
ineligible for federal aid. These programs could not draw federal 
funding, yet their costs counted toward a state's maintenance of effort 
(MOE) requirement.
      Waiver programs: PRWORA allowed states to continue 
``waiver'' programs--experimental reform programs--which predated 1996. 
These usually had more lenient work rules than TANF.

    When TANF was reauthorized last year under the Deficit Reduction 
Act of (DFA) of 2005, only two of these loopholes were closed: The 
caseload fall credit was re-bench-marked on caseloads as of 2005, and 
separate state programs were subjected to the same activity standards 
as TANF. States are now supposed to achieve the 50 percent 
participation norm in 2007.
    At the same time, reform did not do enough to maintain the 
employment and incomes of families after they had left aid:

      Work levels fell over time: As noted above, poor single 
mothers worked more, on and off the rolls, until 1999, but their work 
levels have drifted downwards since, losing about half the gain 
realized through 1999. This is probably the main reason why poverty has 
risen somewhat since then.
      Most leavers remained poor at least initially: While most 
families leaving aid realized higher incomes through work, they did not 
usually escape poverty unless they worked steadily for several years 
and claimed benefits for which they remained eligible, chiefly Food 
Stamps and EITC. \8\
    \8\ Sheldon Danziger, Colleen M. Heflin, Mary E. Corcoran, 
Elizabeth Oltmans, and Hui-Chen Wang, ``Does It Pay to Move from 
Welfare to Work?'' Journal of Policy Analysis and Management 21, no. 4 
(Fall 2002): 671-92; Gregory Acs and Pamela Loprest, with Tracy 
Roberts, ``Final Synthesis Report of Findings from ASPOE `Leavers' 
Grants'' (Washington, DC: Urban Institute, November 27, 2001).
      Few leavers worked consistently: While even low-paid 
workers do progress to higher incomes over time, they have to work 
steadily to do so, most leavers did not. \9\
    \9\ Susanna Loeb and Mary Corcoran, ``Welfare, Work Experience, and 
Economic Self-Sufficiency,'' Journal of Policy Analysis and Management 
20, no. 1 (Winter 2001): 1-20
      Some families lost ground, typically because they became 
detached from both welfare and work. \10\ Whether this created active 
hardship is unclear.
    \10\ Wendell Primus, Lynette Rawlings, Kathy Larin, and Kathryn 
Porter, ``The Initial Impacts of Welfare Reform on the Incomes of 
Single-Mother Families'' (Washington, DC: Center on Budget and Policy 
Priorities, August 22, 1999); Sharon Parrott and Arloc Sherman, 
``TANF's Results Are More Mixed Than Is Often Understood,'' Journal of 
Policy Analysis and Management 26, no. 2 (Spring 2007): 374-81.

    And perhaps most seriously, welfare reform did little to address 
the serious work problems among low-income men, many of them the 
fathers of welfare families. I address that problem below.
Completing Welfare Reform
    To reduce poverty further, the first thing government should do is 
enforce work in TANF more fully, motivate families to keep working once 
they leave TANF, and raise earnings.

      Close further loopholes in work requirements: The most 
important of the remaining ``outs'' from the work test is partial 
sanctions. Congress should mandate that all states close cases entirely 
when parents decline to cooperate with the work test without good 
cause, as welfare already does for other rule infractions. I would also 
recommend that child-only cases be brought under the work test, 
although how to this involves legal questions.
      Strengthen Food Stamps work requirements: Currently, Food 
Stamps requires only that employable parents with children over 6 
register with a work agency and participate in work activities if 
asked. Those are the sort of work requirements that AFDC found to be 
ineffective prior to FSA and PRWORA. Congress should mandate that 
states involve specified percentages of Food Stamp cases in work 
activities, as FSA and PRWORA mandated for AFCC/TANF.
      Add an hours threshold to EITC: The main reason leavers 
remain poor is that they do not work steadily. Government lacks 
leverage to require them to work after they have left aid. Some way 
must be found to continue to motivate work after TANF. Currently, EITC 
subsidizes wages without any minimum number of working hours. Some 
welfare reform experiments required 30 hours of work per week before 
they paid benefits, in an attempt to raise work levels. \11\ Twenty or 
30 hours might well be required to get an enhanced benefit in EITC, 
although this would require some new administrative structure to 
monitor hours. That might help to keep families working.
    \11\ Examples included New Hope and the Minnesota Family Investment 
Program. See Virginia Knox et al., Reforming Welfare and Rewarding 
Work: A Summary of the Final Report on the Minnesota Family Investment 
Program (New York: Manpower Demonstration Research Corporation, 2000); 
and Johannes M. Bos et al., New Hope for People With Low Incomes: Two-
Year Results of a Program to Reduce Poverty and Reform Welfare (New 
York: Manpower Demonstration Research Corporation, August 1999).
      Raise EITC and the minimum wage: Leavers' earnings are 
low mainly due to low working hours, yet additional steps should also 
be taken to raise wages among the low-skilled. One idea is to raise 
EITC benefits and/or pay the EITC benefit to individual workers rather 
than just to parents with children. \12\ Doing this could cause some 
reductions in work effort among those already working. To avoid that is 
one more reason to institute the EITC hours threshold suggested above. 
Congress could also raise the minimum wage, and proposals to do this 
are currently before Congress.
    \12\ Gordon Berlin, ``Increasing Earnings among Low Wage Workers,'' 
The Future of Children 17, no. 2, forthcoming.

    Two things Congress should not do:

      Ease up on work requirements: Some will argue that, now 
that the welfare rolls have fallen by so much, most of the remaining 
cases are unemployable. So these families should be allowed to receive 
aid indefinitely without having to work. This would blunt the impact of 
reform. The states with the toughest work requirements were those that 
reduced poverty the most in the 1990s, not the least. \13\ Wisconsin, 
with a caseload fall of 80 or 90 percent, shows that one can move even 
most of the ``bottom of the barrel'' into jobs if the work test is well 
enforced and support benefits are generous \14\ The best solution to 
``detached'' families is individualized outreach to these families, not 
weakening requirements that have succeeded for the vast majority of 
    \13\ Rebecca M. Blank and Robert F. Schoeni, ``Changes in the 
Distribution of Children's Family Income over the 1990s,'' American 
Economic Review 93, no.2 (May 2003): 304-8.
    \14\ Mead, Government Matters, chs. 9-10.
      Ease up on ``work first'': Some also will argue that, now 
that work is required, welfare recipients must be allowed to enter 
education and training and have this count as work so they can move up 
to better jobs. But this was the policy that failed under FSA. 
Evaluations of the 1990s demonstrated that welfare work programs that 
expected work in available jobs outperformed those that stressed 
education and training. Thus, PRWORA mandated actual work in preference 
to training for most clients. Nothing in the experience of welfare 
reform to date has questioned that judgment.

    TANF already allows states to exempt 20 percent of cases from the 
time limit, and it allows some time for education and training for 
cases that are already working. That is sufficient to meet these 
concerns. There is no need to change the system. There clearly is a 
case of ``If it ain't broke don't fix it.''
Low-Income Men
    Besides completing welfare reform, government should promote higher 
work levels among low-income men. \15\ They were largely left out of 
welfare reform because they seldom draw benefits themselves. Yet their 
work problems are as much a cause of family poverty as those of single 
mothers. One of the main reason low-skilled men leave their families--
or are kicked out by their spouses--is that they cannot provide for 
them. If low-skilled fathers worked more regularly, fewer families 
would be female-headed, and far fewer children would be poor.
    \15\ The following is based on Lawrence M. Mead, ``Toward a 
Mandatory Work Policy for Men,'' The Future of Children 17, no. 2, 
forthcoming. A brief summary appeared in Lawrence M. Mead, ``And Now, 
`Welfare Reform' for Men,'' Washington Post, March 20, 2007, p. A19.
    Under pressure from welfare reform, poor single mothers have been 
working more. But in the same period, low-skilled men have been working 
less. Their labor force participation rates drifted downward during the 
1980s and 1990s despite tight labor markets most of the time. As a 
result the overall proportion of poor adults who worked at all in a 
year has actually declined--from 41 percent in 1990 to 37 percent in 
2005--despite welfare reform. \16\
    \16\ Date from the U.S. Bureau of the Census, March Current 
Population Survey, 1991-2006.
    Experts traditionally blame nonwork among men, like women, on a set 
of external barriers, including lack of jobs and low wages. The 
evidence for this view is even weaker for poor men than it is for 
single mothers. Jobs for low-skilled men appear to be plentiful, as 
immigration proves. And while unskilled wages are low, they are 
sufficient to avoid poverty if men work regularly and claim EITC and 
Food Stamps. If men seldom work consistently, the main reason is not 
that idleness is forced on them but work discipline has declined. 
Unskilled men appear to be working less, in part, because their wages 
are garnished to pay child support and because they are incarcerated 
for crime. \17\ While we might call those structures barriers, their 
presence makes clear that nonwork is seldom a rational response by 
these men. Rather, it is part of a syndrome of self-defeating 
    \17\ Harry J. Holzer, Paul Offner, and Elaine Sorensen, ``Declining 
Employment Among Young Black Less-Educated Men: The Role of 
Incarceration and Child Support,'' Journal of Policy Analysis and 
Management 24, no. 2 (Spring 2005): 329-50.
    Society's response to poor men has largely been to incarcerate 
those who break the law and to press absent fathers to pay child 
support. PRWORA took several steps to strengthen child support 
enforcement. Government has improved its ability to establish paternity 
and levy child support judgments. But it has much more difficulty in 
getting the men to pay. \18\ In 2003, among the 3 million poor single 
mothers, only 60 percent had a child support order and only 36 percent 
received any payment. \19\ About 1 million absent fathers owed child 
support to poor families yet paid either nothing or less than they 
owed. \20\
    \18\ U.S. Congress, 2004 Green Book, pp. 8.69--8.77.
    \19\ U.S. Department of Commerce, Bureau of the Census, Current 
Population Survey, April 2004, child support microdata file, table 4.
    \20\ This figure is the difference between the 1,582 million poor 
single mothers who were owed child support in 2003 and the 562,000 who 
received full payment. See Bureau of the Census, Current Population 
Survey, April 2004, child support microdata file, table 4.
    Putting pressure on the men is insufficient. Their own work 
problems must also be addressed. In welfare reform, society moved from 
an entitlement system, which paid benefits regardless of lifestyle, to 
one that also required work. With men we have to move the other way, 
adding benefits and opportunities to the criminal justice and child 
support systems, which are already quite punitive.
    A first step is to raise the earnings of the men if they work. One 
way to do that, as for single mothers, is to increase wage subsidies, 
another to raise the minimum wage. Low-paid men who work regularly 
ought to get a sizable wage subsidy in their own right, not only if 
they have children to support as the EITC allows now. \21\ At the same 
time, we should not imagine that doing this is enough to raise work 
levels. As with women, a higher subsidy might cause some nonworkers to 
take jobs, but it might also cause some men already working to work 
less, because they could now cover their needs with fewer working 
hours. So some minimum hours of work must be expected.
    \21\ Berlin, ``Increasing Earnings among Low Wage Workers.''
    How might work levels be raised? Some will recommend voluntary 
education and training problems, but these have not shown much impact 
on employment and earnings. The most successful of them, such as Job 
Corps, have been directive in character. They tell their clients 
clearly that good behavior is expected, and work is not left as a 
choice. Low-skilled men, like welfare mothers, must be obligated to 
work, not just offered the chance to do so. The military may be the 
most successful shaper of youth into productive men, exactly because it 
can demand functioning. Unfortunately, today's military is voluntary 
and most disadvantaged men do not qualify for it.
    Yet government can adapt other institutions that already deal with 
low-income men. The criminal justice and child support systems 
currently seem to be driving work levels down. But they could also be 
used to raise them. Both systems have experimented with programs aimed 
at improving employment among their clients. But most recent programs 
of this kind have been voluntary. That is, they offered services to 
help the men work, but they did not strictly require them to do so. 
This includes the Ready4Work prison reentry programs funded by the Bush 
    A better idea would be to institute mandatory work program for men 
who have work obligations but have failed to meet them. This would 
include the 1 million poor men not paying all their child support plus 
another half million ex-offenders on parole who do not work regularly. 
Both groups could be served by the same program, as they overlap 
substantially. These men would be required to work steadily in either a 
private job, if available, or a government position if necessary. The 
sanction for noncooperation would be returning to prison or going to 
jail. Out of their earnings the men would pay any child support owed, 
but staff would also help them arrange any applicable pubic benefits, 
such as the proposed higher work subsidies. Supervision would be much 
closer than normally provided by the parole or child support system. 
Depending on how much government employment was needed, this program 
would probably cost from $2.4 to $4.8 billion a year. Those costs would 
be somewhat offset by higher child support payments and perhaps lower 
    It is too soon to mandate a detailed program now. We do not yet 
have evaluation results showing that mandatory work can raise work 
levels for men, as it has for welfare mothers. The one evaluation of 
such a program--Parents' Fair Share in the 1990s--succeeded in raising 
child support payments by absent father, but not their work levels. 
\22\ Several evaluations of new prison reentry programs are underway 
    \22\ Fred Doolittle, Virginia Knox, Cynthia Miller, and Sharon 
Rowser, Building Opportunities, Enforcing Obligations: Implementation 
and Interim Impacts of Parents' Fair Share (New York: Manpower 
Demonstration Research Corporation, December 1998).
    Assuming that they show promise, Washington should finance a multi-
site demonstration designed to settle the best design of mandatory work 
programs for men. This would be comparable to the National Evaluation 
of Welfare to Work Strategies (NEWWS), conducted in the 1990s, as part 
of welfare reform. With those results in hand, a preferred work program 
for men could be implemented nationwide.
    As with welfare reform, such a program would have its impact 
largely through diversion. Once it was clear that society was willing 
to enforce as well as facilitate low-wage work, many men who are not 
working regularly now would begin to do so without direct prompting. 
The commitment of government and administrators to take work seriously 
would persuade the men to do the same. The goal, as in welfare reform, 
is positive. It is not to stigmatize these men but to reintegrate them 
into the community. Through steadier work, they can come in from the 
cold. And if they do, society will also take a big step toward 
overcoming family poverty.
    One further thought: immigration must be reduced. The massive entry 
into the United States of low-immigrants, chiefly from Mexico, has 
undercut work opportunity for low-skilled men born in this country. 
Anecdotes say that employers often hire immigrants in preference to 
native-born men, viewing them as more tractable, and there is some 
evidence that immigrants depress the wages of the unskilled. \23\ One 
thing Washington must do to solve the male work problem is bring this 
inflow under control.
    \23\ George J. Borjas, Richard B. Freeman, and Lawrence F. Katz, 
``On the Labor Market Effects of Immigration and Trade,'' in 
Immigration and the Workforce: Economic Consequences for the United 
States and Source Areas, ed. George J. Borjas and Richard B. Freeman 
(Chicago: University of Chicago Press, 1992), ch. 7; George J. Borjas, 
``The Labor Demand Curve Is Downward Sloping: Reexamining the Impact of 
Immigration on the Labor Market,'' Quarterly Journal of Economics 118, 
no. 4 (November 2003): 1335-74.


    Chairman MCDERMOTT. Thank you. Your timing is impeccable. 
Mr. Berlin is from the Manpower Demonstration Research 
Corporation. He is the president. You are on for 5 minutes. 
Your entire remarks will be put into the record, your written 
remarks will be put into the record, so just summarize to us 
what you think are the major points.


    Mr. BERLIN. Thank you, Mr. Chairman. On page three in my 
formal remarks I have a chart that lays out the nature of the 
problem, and helps us identify solutions.
    Between 1959 and 1972, the official poverty rate fell by 
half--from 22 percent of the population to 11 percent, a 50-
percent decline. For the next 30 years, poverty rates remained 
virtually unchanged. Why? The graph in figure one of my 
testimony provides one part of the answer.
    Between the end of World War II and the mid-seventies, mean 
average earnings grew by 60 percent. It was as if the whole 
Nation was on an up escalator. Then the escalator came to an 
abrupt halt, and over the next 30 years average earnings 
actually fell by 15 percent or so, and of course, poverty 
stopped falling, too.
    The loss of good paying manufacturing jobs, technological 
changes that placed a premium on higher education, 
globalization, decline of unions, all of these forces meant 
that economic growth no longer led to rising earnings at the 
low end. These changes hit men with a high school diploma or 
less the hardest.
    How did families cope? They had fewer children, they sent 
both family members into the labor force, they postponed 
marriage, all of which contributed to the rise in single parent 
households, the other principal cause of poverty.
    If we are to make further progress against poverty, we have 
to do something about low earnings, both for today's workers 
and for tomorrow's. Turning to the evidence, we have a reliable 
body of evidence on which to base future policies.
    Three formal, large-scale randomized controlled trials, 
collectively known as the ``Make Work Pay Experiments,'' 
deliver a consistent message: earnings supplements that reward 
work by providing cash to supplement the earnings of low-wage 
workers increase employment and employment stability, increase 
earnings and income, reduce poverty and the poverty gap, and 
improve young children's school performance.
    Some of the largest and most lasting gains for parents and 
children accrued to African Americans and to some of the most 
economically disadvantaged families. Thus, one reliable way to 
tackle the problem of low earnings, and to reduce poverty in 
the short run, is to make work pay via the earned income tax 
credit and the minimum wage, or other related venues.
    A second, longer term way to reduce earnings-related 
poverty is to invest in the education, attainment, and 
achievement of the next generation, via investments in early 
childhood education, K through 12 reform, and tackling the 
graduation and persistence problems in community colleges. The 
challenges here are well known. We have to figure out in those 
areas what works, and then we still face the very real 
difficulty of taking high-quality programs to scale.
    Returning to the short-run strategies under the 
jurisdiction of this Committee, an increase in the EITC and a 
hike in the minimum wage offer complementary ways to boost 
income, and they share the burden of making work pay between 
the public and private sectors.
    I think we face two fundamental choices: first, whether to 
expand the current EITC program with its emphasis on families 
with children, or whether to focus more on singles who have 
been underserved by the previous EITC increases. Second, 
whether to raise the minimum wage without also indexing it for 
inflation. I know that's controversial, but I want to explain 
the interaction between the two.
    On the EITC, the choices are an across-the-board raise, a 
raise for married families only, or a more generous increase in 
the singles EITC. While any and all of these strategies would 
certainly reduce poverty, improvements in the EITC policy over 
the last two decades have, for the most part, bypassed singles, 
particularly men, the very group who have been hit the hardest 
by these economic changes.
    One way to increase the EITC for singles would be to simply 
double the current maximum benefit for individuals, but this 
strategy would provide only a limited boost to individual 
earnings, and thus, might not have a big effect on work 
behavior. It might also exacerbate some of the marriage penalty 
    A bolder expansion would provide all adult low-wage workers 
who work full-time a payment approaching two-thirds to three-
quarters of the current one-child family EITC, but with a 
crucial twist. Payment would be based on an individual's 
personal income, not joint or family income. Singles would be 
eligible for the supplement, whether they have children or not, 
whether they marry or not, as would second earners in a married 
family receiving the existing family EITC. It's essentially 
trying to create an incentive structure for the poor that is 
very similar to the incentive structure that the rest of us 
    Now, would this earnings supplement increase employment 
rates, particularly among single men with low skills and those 
who owe child support? Would it increase marriage rates, and 
reduce single parenthood? There is certainly good correlational 
evidence to suggest that it could, but the simple truth is we 
don't really know whether the full benefits would exceed the 
    So, the Committee might want to proceed in two stages, 
modestly boosting the EITC for singles, by doubling or tripling 
it, while supporting a formal test in five cities or so of the 
bolder plan, to determine if the benefits exceed the cost.
    Just a few words about the minimum wage. Boosting the 
minimum wage and enhancing the EITC are complementary, not 
substitute strategies. Allowing the minimum wage to erode while 
the EITC is indexed to inflation has the perverse effect of 
substituting public dollars for private wage increases. So, an 
expansion of the EITC would exacerbate this problem, unless the 
minimum wage was also indexed for inflation.
    In conclusion, making further progress on poverty requires 
that we tackle the secular decline in earnings, and there are 
two strategies for doing so. In the short run, we have to 
expand our efforts to make work pay. In the longer run, we have 
to make investments in education from early childhood education 
to community colleges. Thank you.
    [The prepared statement of Mr. Berlin follows:]
Prepared Statement of Gordon Berlin, President/Chief Executive Officer, 
           Manpower Demonstration Research Corporation (MDRC)
    Good afternoon. My name is Gordon Berlin, and I am President of 
MDRC, a nonprofit, nonpartisan education and social policy research 
organization that is dedicated to learning what works to improve 
policies and programs that affect the poor. Founded in 1974, MDRC 
evaluates existing programs and tries out new solutions to some of the 
Nation's most pressing social problems, using rigorous random 
assignment research designs or near equivalents to assess their impact. 
I appreciate the opportunity to appear before this Committee today to 
describe what research tells us about the best ways to alleviate 
    I will make four points:

      After declining by half between 1959 and 1972, the 
poverty rate in the United States has remained stuck between 11 and 15 
percent ever since. Why? The prime explanations are rising rates of 
single parenthood and falling real wages, particularly among men with 
low levels of education. Of the two, the decline in wages is the more 
instrumental--that is, falling earnings is a problem we can redress and 
we have good evidence about what works.
      A compelling body of evidence points to effective 
solutions--both short-term and long-term--for alleviating poverty 
related to low earnings today and the intergenerational transfer of 
poverty tomorrow. In the short term, enhancing the Earned Income Tax 
Credit (EITC), especially for single individuals, and indexing the 
minimum wage to inflation could be an effective strategy for boosting 
employment and earnings and reducing poverty. In the long-term, 
investments in educational reform--from pre-kindergarten classes to 
community colleges--should equip the next generation with the skills 
they need to obtain high-paying jobs.
      These short- and long-term two-generation strategies are 
interdependent: Providing enhanced work supports to adults and moving 
families out of poverty today has positive effects on young children's 
school performance--and provides a strong foundation for long-term 
efforts to prevent poverty tomorrow through improved educational 
opportunities for poor children.
      An aggressive strategy to address falling wages would 
redesign and expand the EITC benefit for individuals, regardless of 
their parenting or marital status, conditioned on working 30 hours a 
week and determined on the basis of individual income rather than joint 
income. Retaining the current EITC for families with children while 
creating a new EITC for single individuals (including noncustodial 
parents and second earners in two-parent households) could have wide-
ranging positive effects on employment, earnings, income, and poverty--
as well as on family well-being. But because the costs of such an 
initiative would be high, a prudent first step would be a demonstration 
project with a rigorous research design in three or four cities to 
determine if the plan's benefits outweigh its costs.
Falling Wages and Poverty
    For more than 40 years, the conventional wisdom has been that the 
best antipoverty strategy is to help the unemployed get jobs. And while 
work is a necessary precondition to escaping poverty, getting jobs is 
not the problem it once was for most segments of the population--as 
unemployment has remained at the historically low rate of between 4 and 
6 percent for the past 10 years. The key problem facing most poor 
people is that many jobs simply don't pay enough.
    In 1959, when we first began to measure poverty, 22 percent of all 
Americans lived in households with income below the poverty line. By 
1972, the poverty rate had been cut in half, falling to 11 percent 
nationally. But then the poverty rate stopped declining and ranged 
between 11 percent and 15 percent, depending on the state of the 
economy, for the next 30 years (see Figure 1). Why didn't poverty 
continue falling?
    Falling wages and increasing rates of single-parenting are the two 
principal explanations, and, as I'll explain, these phenomena are 
closely related. Economic changes led to stagnant and declining wages 
at the bottom of the wage distribution, especially among men with a 
high school diploma or less, and demographic changes saw a near 
doubling of the fraction of all families with children headed by a 
single parent.
    Let's focus on wages and earnings. Between 1947 and 1972, average 
earnings grew in real terms by 60 percent for nonsupervisory workers. 
As Frank Levy has described, it was as if the whole Nation were on an 
economic up-escalator. It was this rise in earnings that explains much 
of the postwar decline in poverty until 1972. But then earnings began 
to tumble. In fact, by 2004, the average production worker's weekly 
earnings had fallen to $528 (in inflation-adjusted dollars), a 15 
percent decline (see Figure 1).


    Wages and earnings declined initially as a result of the recessions 
of the 1970s. But this era was also the start of a major restructuring 
of the economy, in which the premium placed on education began to grow. 
A new skills bias started to dominate the labor market, creating high-
paying jobs that required a college degree or better and lots of low-
paying jobs that required no more than a high school diploma and often 
less. As a result, economic inequality--the gap between the richest and 
poorest Americans--widened during the 1970s and 1980s as earnings for 
those with college accelerated, while wages for those at the bottom 
fell in step with the massive loss of high-paying blue-collar jobs as a 
result of industrial restructuring. The decline of unions, rising 
competition from low-skilled newcomers, and the erosion of the minimum 
wage all exacerbated these trends.
    How did Americans cope with this decline in earnings? Two-parent 
families maintained their standard of living by having fewer children 
and sending both parents into the workforce. Single-parent families, of 
course, did not have the option of putting another parent to work. In 
fact, employment rates among single mothers grew rapidly during the 
1980s and 1990s--but, because single parents were more likely to be 
poorly educated and because they only had one earner, inequality 
    As earnings fell, other manifestations of poverty worsened: 
employment declined (particularly among less-educated men), marriage 
rates fell, and crime rates rose. Of course, these problems are 
intertwined and reinforcing. For instance, as the wages of men with a 
high school education or less tumbled, the employment rates of these 
men also fell, and, in turn, the share who could support a family above 
the poverty line began to decline--and with it the professed 
willingness of low-income mothers and fathers to marry. Indeed, among 
men aged 25-54 with a high school diploma or less in 2003, the earnings 
of a quarter of whites, a third of blacks, and two-fifths of Hispanics 
were inadequate to support a family of four above the poverty line. 
Certainly, the choices that individuals make--whether to have children 
within marriage or not, whether to take a low-paying job or to become 
involved in criminal activity--play an important role in determining 
one's poverty status. Yet, it is hard to argue that technological 
change, globalization, and other large macroeconomic forces that have 
transformed the American and world labor markets haven't played an 
independent, causal role in poverty's persistence.
    Men with a high school diploma or less, especially men of color, 
have been particularly hard hit. Over the same period that wages were 
falling, employment rates among men were also tumbling, down a 
startling 20-plus percentage points between 1970 and 2000 for men with 
a high school education or less and roughly 7 percentage points for 
those with some college. By contrast, as a result of economic 
necessity, changing norms, and the rise of service sector jobs, women's 
employment rates rose dramatically as more and more women entered the 
labor market, especially in the 1990s.
    Why have men's employment rates been declining? For some men, as 
blue-collar jobs evaporated and wages fell, employment became less 
attractive. The strong economy of the 1990s offers a reverse proof: As 
wages at the bottom rose, the employment rates of white, black, and 
Hispanic young men stabilized and began to grow. For example, the 
employment rates of black men aged 16 to 34 rose between 1992 and 2000, 
as did the rates for young black men (16 to 24) with a high school 
diploma or less (see Table 1). But once the boom years were over, the 
employment rates of black men resumed their downward trend, plunging 
following the 2001 recession much as they did during the 1991 
recession. While the reasons for the dismal position of young black men 
in the labor market are complex (and include racial discrimination and 
inadequate basic skills and education, as well as the behavioral 
changes noted by Larry Mead and others), a key part of the explanation 
is the interaction among low wages, the rewards of illegal activity, 
and strict drug laws, which have resulted in as many as 30 percent of 
all young black men becoming entangled with the criminal justice system 
at some point. Incarceration appears to have its own independent 
effect--the label of ex-offender further worsens and taints the future 
employment prospects for all former prisoners reentering society.
    In sum, poverty stopped falling in large part because earnings 
stopped rising. And while poverty is a complex problem with many 
causes, it seems clear that the Nation must address the problem of low-
wage work in order to further reduce poverty--because low-wage work is 
here to stay. The Bureau of Labor Statistics projects that 46 percent 
of all jobs in 2014 will be filled by workers with a high school 
diploma or less. The bulk of these jobs--janitor, food service, retail 
sales, laborer, child care provider, home health aid--are expected to 
offer either low or very low pay.


Strategies That Work to Reduce Poverty
    So, what to do? There are essentially two types of antipoverty 
strategies the Nation could pursue. The first are short-term 
interventions, most focused on ``making work pay'' by supporting low-
wage workers with earnings supplements and other kinds of supports, 
including upgraded training. The second type are long-term, 
intergenerational strategies--principally investments in preschool 
through postsecondary education--so that the next generations of young 
people have the knowledge and skills to fill higher-paying jobs. 
Importantly, the two strategies reinforce each other; for example, 
lifting a family above the poverty line with an earnings supplement can 
increase young children's school performance--in effect, enhancing the 
payoff of a high-quality early childhood education program. My focus 
today is on some of the short-run strategies that fall under the 
jurisdiction of the Ways and Means Committee.
    If low wages are the principal problem we face in reversing 
poverty, one might reasonably ask: Can government successfully 
intervene to raise earnings and incomes and reduce poverty? 
Encouragingly, a reliable body of evidence demonstrates that work-based 
earnings supplements--including the Earned Income Tax Credit (EITC)--
can boost employment and earnings and reduce poverty. For very low-wage 
workers, hiking the minimum wage would likely have similar effects, so 
long as the increase was not high enough to result in reduced hiring by 
    The ``Make Work Pay'' Experiments. Concerned that low-wage work 
simply did not pay relative to welfare, the state of Minnesota, the New 
Hope community group in Milwaukee, and two provinces in Canada began to 
experiment during the 1980s with new approaches designed to increase 
the payoff from low-wage work--that is, to make work pay. All three 
provided work incentives in the form of monthly cash payments to 
supplement the earnings of low-wage workers. The payments were made 
only when people worked, and the amount of each month's cash payment 
depended on the amount of each month's earnings.
    The results were encouraging. The mostly single mothers who were 
offered earnings supplements in these three large-scale, rigorous 
studies were more likely to work, earned more, had more income, and 
were less likely to be in poverty than control group members who were 
not offered supplements. At their peak, these employment, earnings, and 
income gains were large--reaching 12- to 14-percentage-point increases 
in employment rates, about $200-$300 more per quarter in earnings, and 
$300-$500 more in quarterly income. The earnings supplements also had a 
secondary benefit for children. Preschool-age children of participating 
parents did better academically than like children in the control 
group, in part because their parents had higher incomes and they were 
more likely to attend high-quality, center-based child care programs. 
The largest and most persistent effects on adults were found for 
African-Americans and for the most disadvantaged participants, 
particularly high school dropouts without recent work history and with 
long welfare spells. For these groups, the employment and earnings 
effects continued through the end of the follow-up period--six years in 
the Minnesota project--implying that early work experience could 
provide a lasting leg up in the labor market for more disadvantaged 
populations. The pattern of results for all participants also suggests 
that income gains--and thus the poverty reduction effects--could be 
sustained by an ongoing program of supplements. (The earnings 
supplements in these demonstration projects ended after three years.)
    Rent Incentives for Public Housing Residents. A more recent program 
that used earnings supplements--in this case, in the form of rent 
breaks for public housing residents conditioned on work--had large 
positive earnings effects for many different types of residents, 
including striking earnings effects for immigrant men, and positive but 
smaller impacts on residents' employment rates. Called Jobs-Plus, this 
ambitious place-based effort changed traditional public housing rules 
so that tenants' rents did not rise as quickly or at all when their 
earnings grew (that is, rents were held flat). In addition to this 
financial work incentive, Jobs-Plus offered employment-related 
assistance, on-site case management, and job-related information 
sharing through resident networks.
    The Earned Income Tax Credit. Members of this Committee have used 
employee subsidies as an integral part of the Nation's strategy for 
reducing poverty since the EITC was first passed in 1975. Today the 
EITC, which the Committee substantially expanded in 1986, 1990, and 
1993, is available to all low-income workers who file tax returns. It 
is refundable, which means that its benefits are paid out even when the 
tax filer does not owe any income taxes. More than 20 million taxpayers 
take advantage of the EITC each year, at a cost approaching $40 
billion, making it by far the largest cash benefit program for the 
    The EITC's distinguishing feature is its status as a safety net 
built around work--only people with earnings can claim the credit. The 
amount varies by both family type and earnings. Families with two or 
more children can receive a maximum credit of $4,716; those with one 
child, $2,853; and single adults with no children, $428. However, 
because the EITC overwhelmingly benefits single parents supporting 
children, it largely excludes single adults without children who are 
poor (and disproportionately male) and it creates disincentives to work 
and marry for some families. Although recent changes have reduced 
marriage penalties in the EITC, some do remain, particularly when both 
spouses in a married-couple family have similar earnings.
    Based on a comprehensive review of studies, Steve Holt reports that 
the EITC reduces family poverty by a tenth, reduces poverty among 
children by a fourth, and closes the poverty gap by a fifth. Note that 
the Census Bureau's official poverty estimate doesn't count the EITC as 
income. If it did--and if one also subtracted the cost of work expenses 
and child care--the poverty rate would likely fall by a couple of 
percentage points, but the trends described in Figure 1 would remain 
pretty much the same. On the other hand, if certain recommendations of 
a National Academy of Sciences Panel on Poverty were adopted, the 
poverty rate would likely be somewhat higher.
    Raising the Minimum Wage. Both experience and empirical evidence 
suggest that the minimum wage can play a valuable role in raising wages 
and reducing poverty without severely distorting labor markets. 
However, as of early 2007, the value of the federal minimum wage had 
fallen to its lowest level in 50 years. Both President Bush and 
Congressional leaders have vowed to increase the minimum wage to $7.25, 
although if it is not indexed to inflation, its value will once again 
gradually erode over time. Thirty states and the District of Columbia 
have established minimum wages above the federal level.
    However, only one in five minimum-wage workers live in families 
with below-poverty income. Many are between 16 and 24 years old and do 
not support families, making the minimum wage a relatively inefficient 
way to reduce family poverty, although its efficiency improves somewhat 
if the goal is to help workers up to 200 percent of the poverty line. 
In addition, the political unpredictability of the minimum wage makes 
it an unreliable policy lever for supporting low-wage workers. A 
minimum wage increase to $7.25 an hour could substantially boost wages 
at the bottom, lifting some families above the poverty line, helping 
other families both below and just above the poverty line, while 
reducing the overall public cost of the EITC. While available evidence 
summarized by David Card and Alan Krueger suggests that a boost to 
$7.00 an hour or so would not have a noticeable effect on employment 
rates, economic theory and practical experience suggest that, above 
some wage level, employers would cut back on hiring. For all of these 
reasons, a higher minimum wage, in and of itself, would not permanently 
address the problems of persistent poverty.
Considering the Policy Choices: Expanding the EITC and Boosting the 
        Minimum Wage
    Over the next 10 to 20 years, it is hard to imagine reducing 
poverty without finding a way to make low-wage work pay better. The 
compelling body of evidence that I've just described suggests that 
expanding the EITC, preferably in combination with a boost in the 
minimum wage, would be an effective way to supplement low earnings. 
While there are a number of ways that one could envision such an 
expansion, I believe that it boils down to essentially two broad policy 

    1.  Is it best to expand the current EITC program, with its 
emphasis on families with children, or to address the imbalance that 
has emerged between singles and those with children by expanding the 
EITC program for individuals?
    2.  Is it enough to raise the minimum wage without indexing it for 

    On the first question, there are essentially three options for 
expanding the EITC: (a) increase the EITC for families with children 
and especially for large families, (b) increase it for married couples 
only (in order to further reduce marriage penalties and incentivize 
marriage), or (c) increase the EITC for individual low-wage workers.
    An across-the-board increase in the existing EITC moves more 
families above the poverty line and increases the incomes of those just 
above and below the poverty line, but perpetuates current inequities by 
doing little to address the companion problems of single parenthood, 
single men's and women's low earnings, or remaining marriage penalties 
in two-earner families. The second approach has the advantage of 
reducing marriage penalties, but it shares several of the shortcomings 
of the first, it may create stronger work disincentives for second 
earners, and it encourages people to marry for the money, running the 
risk of promoting any marriage over a healthy marriage. Moreover, it 
fails to tackle the problem of the low wages of single adults, 
particularly men.
    Expanding the EITC for Singles. The third strategy for expanding 
the federal EITC--further supplementing the earnings of individual 
workers without children--may seem counterintuitive at first. But 
single men and women (as well as second earners in two-parent 
households) have been mostly ignored by the expansion of the EITC in 
the last 20 years. Single men (many of whom are noncustodial parents 
with child support obligations) have been the hardest hit by the losses 
in the manufacturing sector and the decline in earnings since the early 
1970s. This imbalance in the EITC has had the unintended effect of 
distorting incentives to work, marry, and have children. An increase in 
the EITC for singles would help counter three decades of wage 
stagnation and persistent poverty, with likely positive corollary 
effects on employment and parental child support. In addition, if the 
expansion were accompanied by two admittedly radical changes--(1) 
creating a full-time work requirement and (2) basing eligibility on 
individual rather than joint income--it would help both singles and 
parents with children.
    One way to increase the EITC for singles would be to simply double 
the current maximum benefit for individuals, which currently stands at 
$428. But this strategy would provide only a limited boost to 
individual earnings and thus might not have a big effect on work 
behavior; it would surely exacerbate marriage penalties if done alone; 
and, if passed in conjunction with a rise in the minimum wage, would 
primarily affect part-time workers rather than full-time workers.
    A bolder expansion would provide all adult low-wage workers (aged 
21-54) who work full time (30 hours a week) a payment approaching that 
of the current family EITC (for example, a 25 percent subsidy rate to a 
maximum payment amount of $1,950) but with a crucial twist: payment 
would be based on an individual's personal income, not joint or family 
income, and singles would be eligible for the supplement whether they 
have children or not and whether they marry or not, as would second 
earners in a married family receiving the existing family EITC. By 
conditioning this new benefit on full-time work, by targeting 
individuals regardless of their family status, by keeping the existing 
EITC for families with children in place, and by calculating EITC 
eligibility on the basis of individual income (as Canadians and 
Europeans do) rather than joint income for tax filing purposes, this 
earnings-based supplement would restore equity to the American social 
compact while minimizing the distortion of incentives to work, marry, 
and bear children. (A fuller explanation of this idea will be published 
in the September issue of The Future of Children; a working paper can 
be found on the MDRC website, www.mdrc.org)
    Adults working less than 30 hours a week, including second earners 
in two-parent households, would have an incentive to increase their 
work hours, further boosting income, promoting self-sufficiency, and 
reducing poverty. And those adults not in the labor force would have 
added incentive to find a full-time job, which would substantially 
boost total income. To administer the 30-hour requirement, employers 
would be required to report monthly or quarterly hours worked on the 
end-of-year W-2 statements that employees rely upon when filing taxes. 
Next, by supplementing the earnings of single men in low-wage jobs and 
increasing their income, this plan would encourage more ``on the 
books'' work, while helping men meet their child support obligations. 
As in current law, single people who are parents and owe child support 
would have their EITC payment attached to pay their child support 
obligations. Importantly, some of the largest benefits would accrue to 
two-parent households when both adults can work full time. Roughly, 21 
million low-wage married individuals and another 16 million single 
individuals would receive an EITC payment under this plan. Such an 
expansion would not be cheap; depending on how one structured the 
benefits, the annual cost for a national expansion would range from $4 
billion to $33 billion.
    Would an earnings supplement like this really increase employment 
rates, particularly among single men? Honestly, we don't know. But 
there is good evidence to suggest that it might. Economists estimate 
that increasing the hourly wage of a low-income worker by 10 percent 
would boost employment between 2 and 10 percent. Adding credence to 
these estimates, the three make-work-pay experiments that I described 
earlier had similar employment, earnings, and income effects, albeit 
for a population of mostly single mothers. And, the New Hope program, 
which also served single men, did achieve modest, statistically 
significant gains in the number of quarters employed for men overall, 
as well as for single men, when cumulated over the full eight-year 
follow-up period--although the small number of men in the study sample 
(by design) makes these findings suggestive at best. And as noted 
above, the higher wages that came with the economic boom of the 1990s 
also led to increases in men's employment rates.
    Indexing the Minimum Wage to Inflation. History makes it clear that 
the value of a boost in the minimum wage declines over time, as 
political will must be continually rebuilt to adjust it for inflation. 
To address this problem, policymakers should consider going beyond just 
raising the minimum wage to $7.25 an hour and also index it to 
inflation. While this won't bring the minimum wage back up to its 
original value of about half the median hourly wage, it would forestall 
a quick return to the erosion in value it has seen in the last decade.
    Boosting the minimum wage and enhancing the EITC are complementary, 
not substitute, strategies. Allowing the minimum wage to erode while 
the EITC is indexed to inflation has the perverse effect of 
substituting public dollars for private wage increases. An expansion of 
the EITC would exacerbate this problem unless the minimum wage was also 
indexed. In short, increasing the minimum wage and indexing it for 
inflation would provide a floor below which wages could not fall, would 
make the expansion of the EITC more effective and more affordable, and 
would prevent an inflation-indexed EITC from substituting for wage 
increases employers would otherwise have provided.
What Do We Know About Other Strategies for Reducing Poverty?
    While an expanded EITC, like the one I have described, would do 
much to help low-wage workers and their families, we have to 
acknowledge that it would not be enough to address all the causes of 
poverty. Given the prominent role of single parenthood in persistent 
poverty, why not propose an expansion in marital education programs? 
Given the changes in the labor market, why not propose additional 
investments in job retention and advancement? Given the problems of the 
``hard to employ,'' why not propose additional programs to tackle the 
problems of youth and adults with low skills, no work history, or 
mental health and substance abuse problems? The short answer is that we 
don't have good evidence about what would make a difference. 
Fortunately, research is now underway that, I believe, will provide 
more reliable information about what does and does not work to address 
these problems.
    For instance, marriage and childbearing behaviors and high rates of 
single-parenting, while related to economic changes, are also largely 
the product of social norms. Low-income couples face greater challenges 
to building and maintaining healthy relationships (for instance, 
because of the stress of financial difficulties), and their families 
are consequently less likely to experience stable marriages. While an 
extensive body of evidence on how to strengthen marriages exists, this 
research consists primarily of small-scale studies of typically short-
term programs for middle-class couples. MDRC is involved in two large-
scale, random assignment evaluations of new programs to promote healthy 
marriages and co-parenting relationships among low-income families, 
which should provide important answers about the value of these 
    Similarly, even if we were to boost the earnings and income of low-
wage workers through an expanded EITC, real prosperity for most 
Americans comes from moving up the career ladder. In the U.S., no 
government agency is tasked with supporting low-wage workers by 
connecting them to benefits (like public health care, child care and 
housing subsidies, and food stamps) or helping them find better jobs. 
Through three large-scale projects in the U.S. and the United Kingdom, 
MDRC is learning how challenging it is to develop programs that 
actually promote career advancement. However, early results suggest 
that one-stop centers (created by the Workforce Investment Act) might 
be a good venue for these programs and that particular strategies, like 
using financial incentives, contracting with community-based groups 
with strong business connections, and combining work supports with 
advancement services (including community college-based education), 
could be promising.
    Finally, earnings supplements are not much help to people who have 
a difficult time finding or keeping a job. Few strategies have been 
developed that have proven effectiveness in helping the hard-to-employ 
find stable employment, but rigorous studies of new initiatives are 
currently underway, including transitional jobs programs for reentering 
prisoners and long-term welfare recipients, intensive case management 
of single parents suffering from depression, accelerated health 
benefits for disability recipients, residential youth development 
programs for dropouts, and employment programs for substance-abusers.
    The most direct way to alleviate poverty is to tackle the legacy of 
falling wages, particularly for men with less education. Solid and 
reliable evidence demonstrates that earnings supplements have 
encouraged work and reduced poverty among unemployed and underemployed 
single parents. Expanding the use of earnings supplement for single 
adults would go a long way toward reducing poverty among low-wage 
workers and their families. A first step would be to modestly expand 
the current EITC in conjunction with an inflation-indexed boost in the 
minimum wage, paying special attention to singles by doubling or 
tripling the current annual maximum EITC benefit for single adults with 
no children.
    In addition, the Committee should also consider a limited test of a 
more enhanced EITC for singles along the lines that I have described: 
for all adult workers, aged 21 to 54, regardless of parenting or 
marital status, and conditioned on working 30 hours a week. One could 
imagine a multiyear demonstration in three or four cities that would 
determine the new benefit's effects on poverty, earnings, work, 
marriage/cohabitation, and childbearing and that would provide guidance 
about the feasibility of expanding the policy when the EITC is next 
reauthorized. While the cost of scaling up an EITC for singles, in 
which eligibility is based on individual rather than joint income, 
seems daunting, it may well be that the long-term benefits of such a 
plan could more than pay for itself in increased work effort, increased 
child support payments, increases in the number of two-parent 
households, and decreases in crime and nonmarital childbearing. But we 
won't know unless we conduct a comparatively inexpensive test of the 
idea in a few places that relies on random assignment research designs 
whenever feasible.
    As I noted at the beginning, just addressing the effects of low 
wages will not be enough. To make a significant and long-lasting 
difference, we will need to invest both in short-term strategies that 
boost the well-being of poor families today--as well as in long-term 
educational strategies that ensure that succeeding generations will 
have the skills to succeed in the labor market. Children growing up in 
poverty do worse in school, have earnings that are substantially lower 
as adults, and are more likely to become teen parents, among other 
problems. By reducing poverty through work supports for parents, their 
children will be in the position to take advantage of better 
educational opportunities, as we learn more about what works in early 
childhood education, K-12, and postsecondary reform. The best incubator 
for developing human capital tomorrow is a family that is not living in 
poverty today.


    Chairman MCDERMOTT. Thank you very much for your testimony, 
and we appreciate all of you coming and taking the time to do 
    It sounds like, from listening to some of you, that this is 
a matter of definitional problems here, that we don't have as 
much poverty as we say we do, it's all definitional. We had 
some testimony before this Committee from Mr. Bernstein, from 
the Economic Policy Institute, in which he says, talking about 
the NAS study, the National Academy of Sciences was asked about 
this, and we have heard the talk about how we've got to put 
more things on the income side. However, we're not talking 
about what this money is being spent on, what are the standards 
by which you are judging poverty.
    He says that, on average, the NAS rates are about 1 percent 
above the official average if you take all the things that are 
added in and added out--child care and health care, and all 
these things that hit people.
    I would like to hear this panel talk about the poverty--
have we got the handle on how many people are there? Are we 
saying there are too many? Do you all think there are too many 
on the poverty roll, or do you think there are too few?
    Ms. GIBBS. Maybe if I could start, just by providing a 
comparison in New York City. There are self-sufficiency 
calculators that are done across the Nation. In New York City, 
what that calculator estimates is what a family of four to meet 
basic needs. It doesn't provide any additional cash for 
anything, a family vacation, anything. It's just meeting 
housing, food, basic necessities. The cost would be $58,000 a 
year, compared to the Federal poverty measure nationally of 
just under $20,000.
    So, we believe that not only do we need to calculate the 
value of tax credits and other transfer benefits into how much 
income is in the household, but you also need to really reflect 
how much it costs to meet those basic needs, to have a true 
sense of how many people are living in poverty.
    Chairman MCDERMOTT. Mr. Podesta?
    Mr. PODESTA. Well, Mr. McDermott, this reminds me a little 
bit of the discussion about science and global warming. I think 
we've got a problem. The fact that there could be some dispute 
about the variation of the problem doesn't undermine the 
    I think that the National Academy recommendations are smart 
ones, and I think that the Committee could move on the question 
of what the right rate is. There is no question that there are 
millions of people living in poverty in this country, way too 
many, and there are millions more--we estimate about 90 million 
people--who are living on low incomes. They are struggling from 
paycheck to paycheck. They are one health crisis away, one job 
loss away, from falling into deep poverty. That's something 
that this country ought to do something about.
    Chairman MCDERMOTT. You worked in the White House. So, if 
we set a policy of cutting poverty by 50 percent by 2020, how 
will that change decisionmaking?
    Mr. PODESTA. Well, let me give that perspective also from 
the perspective of the United Kingdom, which set a goal of 
trying to eliminate child poverty, and trying to cut in 
increments of 25 percent, 50 percent, are on track to do that, 
because they oriented government policy toward that goal.
    We had a goal of trying to reform welfare, reduce 
caseloads, but also support people going into work. I think 
that that informs decisionmaking, it informs priorities. A lot 
of ideas were put on the table here, just in the course of this 
panel. Much of--I think the panel agreed on the notion of 
trying to expand work support through the EITC and raising the 
minimum wage.
    I think it gives strategic direction to--and it gives the 
ability for the public to have accountability, if you set firm 
goals to say you can measure against them whether you're making 
    Chairman MCDERMOTT. Mr. Berlin, I was interested in reading 
your remarks. Some people say full-time work is the solution to 
poverty, but you know and I know that there are a lot of people 
working full time who are still below the poverty line.
    How do you guarantee--if you don't work, of course you're 
not going to get there. We can understand that, but if you do 
work, how do we guarantee that you get out? Or, is this the 
free enterprise system, and we just say, ``Well, it's tough. 
You didn't get out.'' Is that what your bottom line is in your 
    Mr. BERLIN. Well, I think that if you work full time you 
ought to be out of poverty, and you ought to be able to support 
a family above the poverty line. I think that comports best 
with American values. One of the terrific things that this 
Committee has done over time is to rethink the safety net, so 
that it's built more around work than non-work.
    One statistic really bears out what the problem has been. 
In 1973, the average high school drop-out could support a 
family of 3 above the poverty line. Today that's not likely 
given their average earnings.
    Chairman MCDERMOTT. Do you think we can get people above 
the poverty line without providing universal health care?
    Mr. BERLIN. I think we could get them above the poverty 
line if the minimum wage was higher, and if we had an earned 
income tax credit that was a bit more generous than the 
    Chairman MCDERMOTT. You think individuals could buy their 
own insurance?
    Mr. BERLIN. Well----
    Chairman MCDERMOTT. Is that the scheme by which you're 
    Mr. BERLIN. It's a related, but somewhat separate issue. 
You could think about the cost of health insurance----
    Chairman MCDERMOTT. But it's the number one cause of 
bankruptcies in the country.
    Mr. BERLIN. Right. You could think about health insurance 
as being another way to help make work pay. One of the 
experiments that we evaluated, the New Hope Project, both 
supplemented earnings and provided health insurance benefits, 
and provided child care benefits. So, a more comprehensive 
package would be one way to go.
    Chairman MCDERMOTT. Mr. Weller will inquire. Thank you.
    Mr. WELLER. Thank you, Mr. Chairman, and I want to thank 
each of the panelists for your testimony and for your time here 
today on an important subject. I think we all agree that we 
need to reduce poverty. I think we all agree that when one 
child is in poverty, that's too many.
    You know, Dr. Mead, time is limited, so my first question 
I'm going to direct to you. As you noted, welfare was reformed 
in 1996 and although Clay Shaw is not with us today with his 
leadership--and I look back at the 13 years I have been on the 
Committee on Ways and Means, clearly, welfare reform was one of 
the great accomplishments of this Congress and of this 
Committee. It reduced welfare, and also lifted children out of 
poverty, as you noted.
    As Chairman McDermott pointed out, defining poverty is 
pretty important, as we begin the process of looking to 
determine what further we should be doing to reduce poverty. 
Can you, from the standpoint of explaining for the 
Subcommittee, explain in exact terms today how we define 
poverty, including sources of income, factoring in costs.
    Dr. MEAD. I may get this exactly right, I hope so. The 
poverty rate is calculated by setting a minimum threshold of 
income, which we take to be the minimum that you need to live a 
minimally decent life. It varies by family size. Then we count 
against that standard cash income on a pre-tax basis.
    So, we take earnings, benefits like Social Security or 
welfare, pre-tax, and then we see if your income is up to that 
poverty threshold. We exclude in-kind benefits like food 
stamps. We also exclude post-tax benefits, including EITCs, 
because that is given through the tax system. So, we 
substantially under-estimate the income that people really get 
from various sources. Therefore, we over-estimate how many 
people are poor.
    On the other hand, income is also measured pre-tax, so to 
the extent you're paying taxes, that is also not included. We 
also don't include work expenses. I more or less support the 
National Academy of Science's approach to revising the measure, 
because it would deal with both of these limitations, to a 
certain extent.
    At the same time, I want to counsel against too great an 
absorption in the question of the poverty measure. Although we 
can debate that, and it does make some difference in how many 
poor people we have, poverty actually involves a combination of 
low income plus various lifestyles that tend to keep people at 
the bottom. All of that is part of what we mean by poverty. The 
lifestyle dimension, particularly, doesn't go away if you 
redefine the poverty line.
    So, we should worry about integrating people at the bottom, 
and that includes raising their income, to be sure, but it also 
involves, as Isabel has suggested, focusing on problems of 
work, family, getting through school. Those are the things that 
really comprise the complex that we call poverty, and we should 
address all of that.
    Mr. WELLER. The National Academy of Sciences, my colleague, 
Pete Stark, as the ranking Democrat on the Joint Economic 
Committee, the Urban Institute, and others have advocated 
including the EITC, food stamps, housing, that support that 
income as part of determining poverty.
    What would happen, typically, if that were to be included 
as part of the formula?
    Dr. MEAD. Well, you shared earlier Doug Besharov's 
calculation, which shows that it cuts the poverty rate very 
substantially, but, as I mentioned, to do that doesn't really 
do away with the manner of life that we associate with poverty, 
which is really a life of defeat. That is the most notable 
feature of the poverty population. These are people who have 
given up hope in important respects.
    We really want to change that. We want to have people feel 
more in command of things. That's what happens, if we address 
these lifestyle dimensions that we have talked about, 
particularly employment. Employment has special importance is 
that we know how to change it. We have learned how to do that, 
unlike the family problems, where we don't have as much 
    We have reason to think that raising work levels has 
positive effects on the family problems. So, although it isn't 
a whole total solution, it's the thing that we can do that most 
directly raises income and addresses the lifestyle issues that 
are a part of the nature of poverty.
    We have had a big success in this area in the last 15 
years. We need to build on that, both for men and for women.
    Mr. WELLER. Well, we have seen, in welfare reform, the 
emphasis on a two-parent household.
    Dr. MEAD. Yes.
    Mr. WELLER. Work has really changed lives for many 
children, lifting them out of poverty.
    Dr. MEAD. That's right.
    Mr. WELLER. Dr. Sawhill, the Joint Economic Committee, in 
2004--Dr. Mead, maybe you can reflect on this, and others may 
want to comment--did a model utilizing, as some have discussed 
today, incorporating other taxpayer-funded benefits as part of 
the income, and also factoring cost of living, child care, and 
    That particular model, which--the Joint Economic Committee, 
which as you know, is a non-partisan, or I should say a 
bipartisan Committee and bicameral, too--incorporated in the 
income, as well as those costs as we discussed as recommended 
by the National Academy of Sciences. Based off the official 
census, they found there was a 30-percent reduction in poverty, 
based upon that formula which the National Academy of Sciences 
recommended, just based on 2004, the poverty rate at that time.
    You know, Dr. Sawhill, would you agree that we should 
include additional benefits, as well as those additional costs 
as part of determining poverty, as the National Academy of 
Sciences has recommended, as Congressman Stark has recommended, 
as the Joint Economic Committee analyzed?
    Dr. SAWHILL. You know, I think we could debate for many 
years what's the right way to define poverty, and it wouldn't 
probably make a huge difference, in terms of what we would 
decide to do or not to do.
    You are certainly right, that because non-cash benefits 
tend to be left out of the measure, and because non-cash 
benefits have grown more rapidly than cash benefits, we are 
missing some improvements that we might otherwise pick up.
    On the other hand, people who have looked at the poverty 
trends with and without the inclusion of some of these 
additional items you have mentioned, haven't seen any big 
    I would also point out that we haven't adjusted the poverty 
standard, the amount that we think people need, compared to 
what they actually get. So, the standard, the poverty line, is 
much lower, relative to the average person's income than it was 
in the past, when we first developed the official measure of 
    So, my basic conclusion would be any definition and measure 
that you come up with is, in the end, going to be arbitrary, 
it's just a convenient benchmark. We don't--as Larry has 
emphasized, we don't think that differently about someone who 
has $1,000 more a year, or $1,000 less a year than the actual 
line, as making that much a big difference in their lives.
    Mr. WELLER. You know----
    Dr. SAWHILL. So, I do not think that that is going to make 
that big a difference.
    Mr. WELLER. Dr. Mead, if we're going to reduce poverty by 
half, as Chairman Rangel has indicated, obviously we have to 
start a bench line somewhere. So, a definition does matter.
    By the way, Mr. Chairman, may I ask unanimous consent to 
include in the record the Joint Economic Committee analysis? I 
think it is very useful in looking at options, but, Dr. Mead, 
if we're establishing a benchmark, a starting point to reduce 
poverty further than we did with welfare reform----
    [The requested analysis by the Joint Economic Committee 


    Dr. MEAD. Yes.
    Mr. WELLER. We have made some progress, we have more work 
to do in reducing poverty, particularly child poverty. Do you 
believe that we should count these other sources of income and 
take the approach recommended?
    Dr. MEAD. Yes, I agree with Isabel that this wouldn't 
actually change our policies very much. In fact, I would go 
further. One could argue that there really are almost no really 
destitute people in America. This is not like Africa, parts of 
which are totally destitute.
    It's not only that the measure doesn't include all income, 
but a lot of income is often not reported. We know from 
consumption studies that the poor consume a great deal more 
than they claim to have in income. So, they are probably better 
off than we think. It could be that there is no economic 
poverty in America, or virtually none.
    Even if we decided that, would that reassure us about 
poverty in America? I would say no. Poverty really has to do 
with separation from the mainstream society. Overcoming poverty 
is really overcoming these problems of separation. It's really 
about integration.
    That's what we're trying to do here. We're trying to get 
people to feel that they are part of mainstream America, and to 
command the respect and attention of their fellow citizens. 
That's what is missing now. It isn't really due to money. It's 
due to the way people live, and their sense of hope about 
things. That is why we have to worry about these lifestyle 
dimensions that are not directly captured by the poverty 
    Mr. WELLER. Dr. Sawhill, that's why you emphasize work and 
two-parent households?
    Dr. SAWHILL. Absolutely.
    Mr. WELLER. Thank you, Mr. Chairman. You have been very 
generous with my time.
    Chairman MCDERMOTT. Mr. Porter will inquire.
    Mr. PORTER. Thank you, Mr. Chairman, and I thank all of you 
for being here today. I am sorry I missed part of the 
testimony, so I have been trying to catch up real quick in 
reading some of the testimony that's before me. I appreciate 
that you are all experts.
    I certainly applaud Catholic Charities, a big part of our 
community in Nevada. They play such a major role, and I'm not 
sure what we would do without you and Catholic Charities. So, 
thank you very much.
    In looking at some of your testimony, is it Father, or 
Reverend? Or what would you prefer?
    Rev. SNYDER. ``Father'' is usually--whatever you're 
comfortable with.
    Mr. PORTER. Going to Catholic school, I want to make sure I 
say it right. The nuns used to pull my ears when I would mess 
up, so thank you.
    You had mentioned improving the child tax credit. I have 
some bad news. Just about 2 weeks ago, the House and the Senate 
both completely eliminated the child tax credit in the budget 
that was passed. I concur with you. It's such an important 
thing, and I appreciate what you have pointed out, which is 
some key substantive changes we can do to help make a 
difference. I would like to follow up with some of you at some 
later date.
    I would like to ask you all--and it's not really a test 
question--it's a very serious question. If the Federal 
Government gave you $600 billion, could you help fix this 
poverty problem? Let me start here, with Mr. Podesta, maybe.
    Mr. PODESTA. I think that--Congressman, that we put forward 
a series of proposals, some of which cost money, some of which 
don't. For example, the proposal to raise the minimum wage to 
50 percent of the average hourly wage, which it's been in the 
past. Throughout the fifties and sixties, it sat at that level. 
It would cost the Federal Government no money, in essence, and 
it would actually probably raise a little bit of money, because 
it increases payroll taxes.
    There are other things in our proposal that don't cost 
money, as well. We think that there are some targeted efforts, 
and that they should, again, support work and responsibility: 
the expansion of the child tax credit; the expansion of the 
EITC. Some, I think, require--one other that I would mention, 
because I think we have been talking about lifestyle, and 
that's getting people a stake by accumulating assets.
    So, expanding and simplifying the saver's credit, which is 
already in existence, would, I think, help people accumulate, 
even if it's in a small way, some assets to give them, again, a 
stake in their own well-being, and also give them a little bit 
of a safety net.
    Other proposals we have made require, I think, some greater 
direct intervention, particularly connecting youth--and, again, 
there has been some--amongst the other panelists, some focus on 
young men, particularly, getting them into the workforce, 
keeping them into the workforce, what we do about people who 
have been incarcerated, who are going back home, we don't want 
them to sink back into a life of crime and drugs and addiction, 
but that takes, I think, a little bit more direct intervention.
    I think you can do a lot of this without building any kind 
of bureaucracy, but just simply supporting good, sound public 
policy that supports work, family building, and good social 
    Mr. PORTER. Again, I would reiterate, you are all experts, 
and I applaud you for what you are doing.
    I serve on the Budget Committee, and I am not sure how many 
zeroes are behind the $600 billion, but it is a lot. What we 
try not to do is lose sight that every person in America has a 
face, has a family, has serious individual challenges.
    Right now, we are spending $600 billion out of the Federal 
budget, just for welfare. I e-mailed my staff 1 day, and I 
said, ``Can you divide that into 20-some million kids,'' which 
varies, based upon the time. Let's say it's 20 million kids. 
We're spending, right now, about $30,000 per poor child. It 
troubles me that it's not getting to the child.
    This may not help today, but in the future, we may be 
better off to give them a check for $30,000. Of course, I'm 
being facetious, but we are spending money, and there is a lot 
of duplication. I want to make sure it goes to the kid, and to 
the family. I would like to give--again, it's impossible--to 
Father Snyder, that $600 billion, and see what Catholic 
Charities could do for our kids and our families.
    I'm not disagreeing with anything you're saying today. I 
think there is a serious problem. I would say it could be 
closer to $60,000 a year, just to break even. These figures are 
wrong, there is no question. We can debate what the poverty 
level is.
    What we really need your help with is how we can make sure 
you get the funds to go where they belong. $20,000 or $30,000 
per child--and if there are 37 million families, which is 
probably underestimating--there has got to be a way for these 
State, local, and Federal programs to be more efficient, and 
not hurt the child, but help the family. That's where we really 
need your help.
    So, if you have any thoughts in my, I guess, 10 seconds 
left, I would appreciate----
    Dr. MEAD. Let me offer this reaction. Welfare reforms 
succeeded for, basically, two reasons. One was that we set up 
these basic policies that I talked about. Another was, however, 
that we focused on the adults. It's true, the ultimate concern 
is children, but the focus was really on the mothers, getting 
them to work. We assumed there would be pay-offs to the 
children, and there were.
    Getting the mothers to work required a rather elaborate 
administrative set-up. The unsung heroes of welfare reform are 
not the Federal policy-makers, but State politicians and the 
administrators, who put this thing together at the local level. 
Although there is a lot of variation on how well they did it, 
overall it's an amazing success story.
    Now, if we want to continue with success in this area, we 
have to keep doing those things. We have to focus on the 
adults. They are the ones who create the problems for children, 
or the opportunities for the children. They have such influence 
on the children that there is really no way to get to the 
children, except through the parents. We have to get them 
working and functioning in the various ways we're talking 
about. That is going to require an administrative structure.
    So, I wish I could tell you that we're about to save money 
on bureaucracy. I don't believe that's true. I think we're 
going to have to spend more money in bureaucracy in order to 
solve the poverty question. We have to create the structure in 
which lives can be supported, and also, to a certain extent, 
overseen, to make sure that people do, in fact, work and go to 
school, and do the other things needed. That's what, in fact, 
gets results.
    Mr. PODESTA. Mr. Porter, I guess I would just question your 
number, though, too. Unless you guys are spending a lot more 
money than when I left the government, I think $600 billion on 
those kinds of figures, I don't know what you're including in 
that, but it sounds like maybe the entire----
    Mr. PORTER. Well, there is medical care of----
    Mr. PODESTA. But you're including Medicare, and----
    Mr. PORTER. Cash aid, $112 billion, food benefits, $50 
billion, housing aids, $40 billion, job training, energy aid, 
all up to $583 billion a year.
    Mr. PODESTA. Medicare money is not flowing to children, and 
that's 50 percent of what you're talking about, with respect to 
    Mr. PORTER. Medical care going to children is $322 billion. 
Again, I am not here to argue, I'm just saying we have got to 
find a way to deliver it better, and we need to find a model--
and you're the experts. I know we can talk about tax credits 
and all that, and we need to do that, or however else we need 
to help the bottom line, because we may need to spend twice 
this. I don't know.
    Right now, what I need your help with is to find a way to 
make it better and easier for families to receive the benefits. 
You're the experts. You see, firsthand, the struggle of a 
family that's in poverty if they can't get assistance. So, 
that's where I would need your help. So, thank you.
    Mr. Podesta, your point is well taken, but we need to find 
a way to get it to the kids.
    Chairman MCDERMOTT. I would just say that the reason I 
asked the question about health care was the fact that the 
biggest growth since 1978 has been in health care. It was $71 
billion in 1978, and it's $322 billion, and that's the largest 
increase, by far and away.
    It seems to me that if you're going to use work as the way, 
you're going to get out of poverty by going to work, you have 
to get health insurance. Lots of places, they cut you off 
Medicaid when you get your job. Once you have done that, you 
have thrown a cost on to people that I think really has to be 
factored in here in a very direct way. Mr. Herger will inquire.
    Mr. HERGER. Thank you very much, Mr. Chairman. Dr. Mead, 
you have mentioned several times in your testimony the 
importance of work. I just would like to refer to that, just 
looking at the Census Bureau data, how absolutely correct that 
is, and the difference it makes.
    The Census Bureau's data indicates for 1995, and then 
comparing it to 2005, the share of those who did not work at 
all during the year in poverty in 1995 was 22.3 percent. That's 
dropped down to 21.8 percent in 2005. The share of people 
working part-time in poverty in 1995 was 13.7 percent, and 
dropped down to 12.8 percent in 2005. Then, the share of full-
time, year-round workers in poverty in 1995 was 2.7 percent, 
compared to 2.8 percent, basically the same.
    What is most striking about this data is that it confirms 
what would appear to be the obvious, that 97 percent of all 
those over age 16 who worked full time are not in poverty in 
2005, or any other year. Clearly, full-time work is the path 
out of poverty, and our policies should promote work, and 
especially full-time work. Would you like to comment?
    Dr. MEAD. I totally agree with that. Some of the statistics 
you hear about the working poor are inflated by including as 
workers anyone with any earnings at all in the year. It is, 
obviously, somewhat significant, if a person works a little.
    The thing that really gets a family out of poverty is 
steady work. If you work full-time full year, the poverty rate 
is about 3 percent for individuals, family heads 4 percent, 
female heads 10 percent. Even female heads with children under 
18, 13 percent. These are very low figures. Obviously, that's 
not sufficient, we would like to totally abolish poverty, but 
it is difficult, indeed, to be poor, by the current definition, 
if you work full-time, full year.
    Again, I wouldn't really focus so much on the income/
outcome, but rather, on the fact that people are working 
serious hours. That's the thing that really takes you out of 
the poverty class.
    Now, it may be necessary to subsidize work. Certainly the 
EITC is a good idea. The other benefits that we're giving are a 
good idea.
    I don't think the implication of this argument is that 
government does less. government may actually do more, but it's 
more constructive because you are supporting people who are 
employed, and therefore doing something to help themselves. The 
negative effects that subsidies can have are mitigated very 
considerably by this.
    So, we should see this as a joint operation. This is what 
Isabel has said, and I strongly support this. We need 
government action. We also need individual action. We have to 
take steps in our policies to make sure that people actually do 
work. We can't just promote it and incentivize it, and so on. 
We actually have to require it. It's necessary to go beyond 
mere encouragement, and we have to do that for men as well as 
for women.
    Mr. HERGER. Dr. Sawhill, would you like to comment?
    Dr. SAWHILL. Well, I certainly agree with what Larry has 
just said. I would point out that there is an interesting 
supply side effect here, if you will. We have done some work at 
Brookings that has shown that, and I think that it's relevant 
to many of the other testimonies this morning.
    By that, I mean that if you do reward work by encouraging 
people, and increasing the EITC, or child care assistance, or 
making sure that people in low-wage jobs without health 
insurance have it, you will get--you will draw people into 
employment who were either working fewer hours or not working 
at all before.
    We shouldn't forget about that labor supply effect, because 
with that labor supply effect comes a reduction in what the 
government has to spend, and an increase in the revenues that 
that group that's now working, or working more, can provide.
    So, the net costs of any program that you might initiate in 
this arena will be less than the book cost, or the gross cost. 
That's worth keeping in mind, and looking at some of the 
analysis, to see how that works.
    I talked earlier about early childhood education. We have, 
in the last year, created a very sophisticated economic growth 
model at Brookings that shows that because investments in high-
quality early education eventually increase both high school 
graduation rates and college-going rates, you get a better 
educated workforce.
    Granted, you have to wait a while for it, and I realize 
that people in Congress may not want to wait that long, but if 
you did wait that long, you would have a big increase in 
economic growth, and you would have a revenue reflow as a 
result of that, that would more than pay for the program, even 
on a discounted basis.
    So, it is just unfortunate that we don't look at these 
long-term benefits at the same time that we look at the up-
front costs.
    When Congressman Porter was talking about the $600 billion, 
I was thinking to myself I agree that that money is rather 
diffusely spent right now, and also that we have too many 
funding streams and not enough responsibility at the local 
level, to deliver those programs in a way that makes sense to 
    I am in favor of a little more flexibility for States to 
spend that money better. I am also in favor of doing the kind 
of prioritizing that I think he was alluding to. I made my 
priorities clear this morning, but that's not an argument for 
not doing anything.
    Mr. HERGER. Good point. Thank you very much. Thank you, Mr. 
    Chairman MCDERMOTT. Thank you very much. I have a question 
that really comes off of what you just talked about, and that's 
investment in the future.
    It seems to me that the American economy operates on the 
Wall Street model. That is, the bottom line, quarter by quarter 
by quarter. We go year by year by year. Long-term investments 
are very hard to make in the congress. It seems to me, child 
care is one of them, and early childhood education are the two 
most difficult ones to make, although there are some others 
that we are talking about here that come out of the study from 
the Center for American Progress, where you're talking about 
Pell grants, allowing Pell grants to be used more flexibly. If 
you don't work, if you don't go to school full-time, you can't 
use a Pell grant. We have a lot of ways in which we limit 
workers who get laid off from returning to the work place.
    I would like to hear you talk about long-term investment, 
because I look at India. Everybody wonders how India got where 
they are in the telecommunication industry. They got it from 
investing, 30 years ago, in technical schools that they filled 
and pumped kids through at very direct government expense. It 
was done by the government, it wasn't done by the individuals.
    Tell me about this country. How do we change the attitude 
about this long-term development? I will just add one more 
thing. One of the things that happened in the last congress was 
in the Deficit Reduction Act, where they cut the money for 
child enforcement, child support enforcement, knowing, from the 
CBO, that it was going to lose them $11 billion in child 
support enforcement payments for families with children.
    It's those kinds of short-term things that are very 
troubling, and I would like to hear you talk about how you deal 
with long-term investments at the city level, or in any of your 
situations. The table is open.
    Ms. GIBBS. The poverty rate for a high school drop-out is 
twice that of a high school graduate. The poverty rate of a 
high school graduate is twice that of a college graduate. So, 
every year you can invest in a person's education is a 
downpayment in reducing their chances of living in poverty.
    So, strategies that help to graduate young people from high 
school, keep them in school, create environments that will help 
to retain them, create special environments for those that are 
very high-risk. We know a lot now about when those behaviors 
begin, and we have a growing body of evidence around what is 
successful in keeping them in high school----
    Chairman MCDERMOTT. What do you do in New York? What do you 
actually do to deal with these issues?
    Ms. GIBBS. Well, the papers today in New York reported the 
increase in the high school graduation rate, the four-year high 
school graduation rate of this past year, of an increase. 
Another 3 percent on top of the 6 percent growth that's 
happened thus far during this Mayor's term.
    The investments have been at the same time that--they are 
across the board within the educational system, improving 
accountability, improving the principal and teacher discretion, 
and how they manage their school, at the same time.
    It also is in building specialized environments for those 
young people who are at highest risk of dropping out, and 
creating educational settings that keep them engaged, and help 
them to graduate. So, and now it's still abysmally low, at 50 
percent, but it's above the 42 percent that was the 4-year 
graduation rate that occurred. It was investment.
    Chairman MCDERMOTT. Do you do anything to deal with the 
young men, the disproportionate number of black men who are in 
the correctional system who come back out?
    Ms. GIBBS. Absolutely.
    Chairman MCDERMOTT. How do you try and get them back into 
the system?
    Ms. GIBBS. There are a number of strategies. I mentioned 
earlier that when looking at those with histories of 
incarceration, many of the strategies now in place are about 
how do we get them into work. The assumption is that education 
isn't really the option.
    We have increasingly been looking at alternative 
educational settings for over-age, under-credited young adults, 
including those with histories of incarceration, having systems 
in place while they're incarcerated, bringing the re-engagement 
into education, into the jails and prisons themselves, and 
creating assisted support to re-enroll them in the schools.
    There is a history of schools not--making it, quite 
frankly, very difficult for these young people to re-enroll, 
creating environments where their history, their experience, is 
explicitly understood, and they are given assistance to re-
    At the same time, working with the community college level 
and the college level, absolutely, there are many supports, 
financial assistance, that is critically necessary for young 
people who have to work in order to pay for their cost of 
living. So, they can't afford to pay for a college education.
    Also, it is a tremendous challenge, even if you have the 
resources, because the way the class system is structured, the 
classes are really all over the place. One of the things we're 
experimenting with in New York, through our community college 
system, is creating special tracks so that a student can be 
guaranteed that every class that they need for their degree is 
offered in a clearly defined timeframe, so that they can commit 
to their full-time employment, that they can go to the job, 
they can say to an employer, ``Yes, I can take that job, I can 
show up during those hours,'' because they know, then, that 
they can get all of the classes that they need during a 
supported track of learning.
    So, there really needs to be an understanding that for the 
young adults that are from low-income backgrounds, that they 
don't have the discretion of being a full-time student. They 
really need that income to support themselves, and often, to 
support their own family.
    Dr. SAWHILL. May I, Mr. Chairman, say something more about 
your question? We have had a lot of debate about the value of 
dynamic scoring with respect to tax cuts. We now have an 
office, as you know, in the Treasury Department that does 
analysis that looks at that.
    There is no reason why we couldn't have a similar office 
that looks at that, looks at the dynamics of investments in 
kids, let's say in the Department of Education. I would not be 
in favor of saying to CBO, ``You need to do dynamic scoring,'' 
because I think there are too many uncertainties there, but it 
might at least change the discussion, and help all of you up 
here, if there was a little more focus on the effects of--the 
long-term effects of investments in children that was being 
done in a systematic way somewhere in the government.
    Chairman MCDERMOTT. Yes?
    Mr. BERLIN. I just wanted to add to that that I think it's 
really important to think in a two generation way about this 
set of issues. It matters that kids are growing up in poverty. 
If we do something about household poverty, primarily by 
supplementing earnings so that we make up for this long-term 
decline that has really hurt our ability to lift families out 
of poverty at the same time that we make these investments for 
children, I think it's possible that we can get the kind of 
quantum leaps that are necessary to really make advancements in 
this area.
    Dr. MEAD. I just want to express a little skepticism about 
this on two scores. One is that the investments will pay off 
only if you make assumptions about the quality of the programs 
that the money will go into. The experimental programs that 
show these long-term, impressive pay-offs involve much higher 
institutional quality, staff, teachers, than you're likely to 
get in the typical Head Start program, or pre-school program.
    So, there is a serious danger to just throw money at 
institutions that are really not able to generate the results 
that we are assuming when we make the projections.
    The second concern I have is that all these programs, in 
effect, are replacing the family. When we say we're going to 
invest in children, we're treating them as some kind of 
impersonal economic object that we're going to inflate by a 
certain percent over time.
    Well, the reality is, these kids are living in families. 
It's because the families are unable to support them 
effectively that we talk about creating what are really 
alternative families, through Head Start programs and 
    I am disturbed by that, because, first of all, most 
Americans don't think of themselves as taking over the job of 
the family. Second, I doubt that we can really do it. Even the 
best Head Start program, in my opinion, is probably worth less 
than having your father in the household. So, we should worry 
about getting the father in the household.
    We should worry about the more fundamental problems that 
these families face. Again, I think we have some potential to 
go forward, based on welfare reform and other experiments. So, 
let's see if we can address the lifestyle questions directly, 
rather than trying to work around them, which is what is really 
involved when you talk about these long-term approaches.
    Chairman MCDERMOTT. Well----
    Mr. PODESTA. Can I add just one word on that? Both in--kind 
of a little bit in response to the last comment.
    I think that there is no question that a more effective K 
through 12 strategy and a pre-school strategy are critical to 
the economic future of this country. New York City has kind of 
paved the way. We see important educational reforms going on 
across the country that do pay results in the short term, and 
in the long term, and aligning Federal policy to make sure that 
we both test--I agree with the last comment, that we need to 
test and see what works, but also then to try to model and 
implement that is important.
    Just one statistic. Of 2,000 high schools in this country 
with 15 percent of the students account for 50 percent of the 
drop-outs. You know, there are 2,000 drop-out factors in the 
country. New York tackled that problem, they broke up their big 
drop-out factories and those smaller academies are starting to 
graduate two and three times the number of kids that were 
coming out of the old schools. That is why you see the overall 
high school improvement rate.
    I think you could apply the same methodology in the health 
care work that you do, Mr. Chairman. We have very little data, 
because of the complexity of our system, of what the most cost 
effective use of our health care dollars are. We are spending 
16 percent of GDP on health care. We are producing a return 
that--in which we are 24th in the world, in terms of health 
    Now, clearly, something is wrong in that system. In order 
to have the data and the strategy, that has to end up being 
moved and pushed, I think, by smart congressional policy, and 
some independent research that looks back at those kinds of 
things. I think with this question as well, we know now that 
the EITC has worked. We know that raising the minimum wage will 
help people.
    We have seen it, both--there are a lot of complaints about 
raising the minimum wage, but if you look at the States that 
have a minimum wage that is higher than the National average, 
what you see is more small business development, not only 
higher wages, but higher employment growth in those States, as 
compared to the ones with the Federal wage.
    So, I think looking at the hard data, assessing it, and 
then building for the long term is exactly the right strategy.
    Chairman MCDERMOTT. Mr. Weller?
    Mr. WELLER. Thank you, Mr. Chairman. I have a question for 
Mr. Berlin. Before I do, from the standpoint of Catholic 
Charities, Father Snyder I just want to recognize the role that 
Catholic Charities plays in my home State, and my community.
    I was one of those who has taken an interest in foster 
care, unfortunately, as a result of lawsuit abuse, and what I 
believe certainly is that it's unfortunate that Catholic 
Charities has withdrawn from providing foster care in Illinois, 
as a consequence of a lawsuit. There are 700 children now that 
need to be taken care of and attended to by another 
    We are going to miss Catholic Charities, and the role that 
you played in Illinois, and I want to acknowledge you, and 
thank you for the role that Catholic Charities has performed.
    Now, Mr. Berlin, Dr. Sawhill and others have talked about 
the importance of work requirements. Your organization 
conducted a study on work requirements for housing benefits. 
Can you share with us some of your findings?
    Mr. BERLIN. I think you're referring to the Jobs-Plus 
project. The idea here was to change the norm in public 
housing, so that a majority of the residents worked, rather 
than having most of the people not work.
    In a very rigorous study in five public housing communities 
around the country, we offered a range of employment 
opportunities for people, and we also said that if they went to 
work, we would hold their rents flat, so that they would not 
have the typical disincentives to work that are built into the 
way public housing financing operates.
    We got very large increases in employment and earnings, as 
a result of that experiment. These results raised the question 
of how to transform public housing from places that are 
predominantly about housing, to places that are also about 
promoting self-sufficiency and stability, both in work and in 
    Mr. WELLER. Dr. Sawhill, you have repeatedly come back to 
work requirements as a key component, as we look at how to 
reduce poverty. Are you familiar with these studies? Do you 
have some comments that you want to share?
    Dr. SAWHILL. I am familiar with the Jobs-Plus program that 
Gordon Berlin just described. I think it has had some of the 
most astounding effects that we have seen. I think it does 
underscore just what he said, which is that if you can add 
incentives, or remove disincentives, and change expectations, 
and provide the kind of counseling that is needed for people 
who have not had a lot of experience navigating the labor 
market, you can accomplish a lot.
    We should, therefore, always think about what the 
expectations are in a program, as well as what the benefits are 
that we are going to provide to people. Any time that you are 
talking to people in low-income communities who have been in 
assisted housing, they will tell you that one of the biggest 
disincentives for going to work is losing this housing 
assistance, if they have it. They also worry about losing 
health care.
    So, those are two huge barriers to get over. Anything we 
could do to ensure people that if they went to work and played 
by the rules they wouldn't lose those key benefits, could be 
enormously useful. However, it's challenging, because not 
everybody gets housing assistance. Housing assistance has 
always been a kind of lottery in this country.
    I think the proportion of the poor who get it is something 
like 20 percent. Anyway, it's a small proportion. Those people 
who are fortunate enough to have it have a lot of those non-
cash benefits that we were talking about earlier. Those who 
don't have much less. I would prefer to move a lot more of that 
money into providing rent assistance through section 8, or some 
kind of a voucher program, giving people more choice, and 
spreading the program perhaps across more people.
    Dr. MEAD. I just want to add two points that complement 
what Gordon had said. Jobs-Plus was a substantial achievement, 
but I want to emphasize that it was an administrative 
    What made the program tick was this organization in the 
housing projects, which beat the drum for these new benefits, 
made everybody aware of them, created a sort of wave of 
enthusiasm for them. That was part of the treatment. It wasn't 
just the incentives, it was this pressure and encouragement 
coming from these other activities.
    That was also true in welfare reform. Much of the effect 
comes from diversion, where people get a message about work 
from the overall process, and they went to work, often without 
going on welfare at all.
    So, ultimately, the solutions lie in building up that 
organization. Policy-makers generate changes in policy, but 
then those generate administrative changes, in terms of 
organization at the local level. That, in turn, generates the 
change in the culture. The culture finally does the work.
    We see a microcosm of that in Jobs-Plus. We have to think 
this way about poverty reduction, in general. It's really an 
institutional problem. It's creating a structure where people 
will get a message about what's expected, and then act on it.
    The other thing I want to add is that, encouraging though 
this project was, it didn't address, predominantly, the 
problems of men that we're talking about. Most of the men who 
we are worried about here--ex-offenders, people not paying 
child support--are not living in housing projects. They are 
elsewhere, they are detached, they are not part of the kind of 
family that lives in a housing project.
    So, we have to create an institution. We need to create a 
work program that will be a home for them, where there will be 
structure, where they have to work, but also they get help in 
working, and they get these benefits. We need a structure that 
will somehow produce for them the work level increases that we 
saw in these Jobs-Plus evaluations.
    Mr. WELLER. Thank you, Dr. Mead. I just want to request of 
our witnesses here, Mr. Podesta and Father Snyder, you list 
poverty rates from many different groups in your testimonies. I 
wanted to ask you if you could provide for the record what 
those current poverty rates would be if we applied the 
methodology used in the Center for American Progress report, 
and counted current spending on the EITC, food stamps, and 
housing benefits as income, before we consider some of the 
ideas that have been suggested for increasing benefits.
    I think it would be useful to know what is the current 
benefit, when it comes to the benefits that are currently 
provided for reducing poverty. So, if you could submit that for 
the record, I would appreciate it.
    Mr. PODESTA. I would at least be happy to try to do that, 
Mr. Weller.
    Mr. WELLER. Thank you, Mr. Podesta. Thank you very much.
    Chairman MCDERMOTT. We want to thank you all for taking 
your time to come here, and give us the benefit of your 
    We hope that you have made an investment in the common good 
by giving us your best thinking, and we will try and implement 
it for the people. Thank you all.
    [Whereupon, at 2:44 p.m., the hearing was adjourned.]
    [Questions submitted by the Ranking Member to Mr. Podesta 
           Question from Ranking Member Weller to Mr. Podesta
    Question: I wanted to ask you if you could provide for the record 
what those current poverty rates would be if we applied the methodology 
used in the Center for American Progress report, and counted current 
spending on the EITC, food stamps, and housing benefits as income, 
before we consider some of the ideas that have been suggested for 
increasing benefits.

    Answer: At the Subcommittee's hearing on solutions to poverty, you 
asked if we could provide for the record what poverty rates would be 
if, per the Center for American Progress Task Force report, From 
Poverty to Prosperity, the Federal Government counted spending on the 
Earned Income Tax Credit, food stamps, and housing benefits as income 
in calculating poverty rates.
    I am attaching, for the record, the Urban Institute's report, 
Estimating the Anti-Poverty Effects of Changes in Taxes and Benefits 
with TRIM3, which provides a detailed explanation of the methodology 
used by Urban Institute in estimating the antipoverty effects of a set 
of proposals to reduce poverty. In the following paragraphs, I will 
briefly summarize their approach, but you may wish to refer to their 
full report for a more extensive discussion.
    When seeking to estimate the antipoverty effects of our 
recommendations, we contracted with the Urban Institute. To conduct its 
modeling, the Urban Institute used the Transfer Income Model. TRIM is a 
microsimulation model that uses survey data from the Census Bureau and 
detailed information about program rules to simulate tax, benefit, and 
health programs. It is often used to estimate impacts of proposed 
policy changes and is widely respected.
    In our view, the current definition of poverty is deficient. Two 
principal concerns are that it does not effectively measure the 
resources actually available to households since it does not fully 
consider income and expenses; and it uses a threshold for measuring 
poverty that is essentially arbitrary, obsolete, and set too low. In 
our task force report, we highlighted a number of deficiencies of the 
current measure, and recognized that there were significant virtues in 
the approach proposed by the National Academy of Sciences (NAS) in 
Citro and Michael, ed., Measuring Poverty: A New Approach (National 
Research Council 1995).
    In modeling the effects of proposed approaches, we concluded that 
because the problems with the current measure are so significant, it 
was important to use a better yardstick to evaluate the impact of our 
proposals. Accordingly, we opted to follow a set of recommendations 
from the NAS report. Specifically, the Urban Institute began by 
calculating income and poverty rates under the official poverty 
measures, and then, consistent with NAS recommendations:

      subtracted tax liabilities and added tax credits, such as 
the EITC, to income;
      included Food Stamp benefits and housing subsidies as 
      subtracted out-of-pocket child care costs from income.

    In addition to these adjustments to resources, the NAS also 
recommended adjustments that would increase the poverty thresholds. Had 
we used these thresholds, along with the above adjustments to income, 
the result would have been an increase in the number of individuals 
counted as poor. We thought it was important to begin with the same 
number of poor individuals as occurs under the official measures. So, 
the Urban Institute adjusted the NAS thresholds to the extent needed so 
that the number of individuals in poverty under our measure was the 
same as the number in poverty under the official measure. For example, 
the adjusted threshold for two adults and two children was $21,361, as 
compared with $18,660 under the official measure in 2003. See Table 1 
of Urban Institute report for thresholds by household composition.
    In its calculations, the Urban Institute used 2003 data, adjusted 
to reflect subsequent changes in state minimum wage laws and relevant 
Federal tax law changes. Using its adjusted thresholds, the number who 
were poor under this modeling, before making any adjustments for near-
cash benefits, tax, or child care expenses was 42,753,000 (14.8 
percent). After adjusting for food and housing benefits, the total 
would fall to 37,263,000 (12.9 percent). After making adjustments for 
Federal taxes and the Earned Income tax credit, the total poor would be 
34,114,000 (11.8 percent). After adjusting for child care expenses, the 
total poor would be 35,338,000 (12.3 percent), a number approximating 
the number poor under the ``official'' measures using 2003 data with 
adjustments for subsequent minimum wage and tax changes. The details 
are available in Table E1 of the Urban Institute Report.
    These are, of course, the baseline numbers before estimating the 
effects of proposed policy changes. As we discuss in our full report, a 
set of recommended policy proposals--raising the minimum wage, 
expanding the earned income tax credit, expanding the child tax credit, 
and increasing child care assistance-- would reduce the numbers in 
poverty by 26 percent, and reduce the number of children in poverty by 
41 percent.
    In a separate analysis, the Urban Institute calculated the effects 
of applying the changes in counting of income and expenses to a 
``baseline'' number of 35,394,000 poor, intended to reflect the number 
poor in 2003 under official measures, with adjustments for subsequent 
minimum wage increases and tax law changes. In doing so, the results 
were 35,372,000 poor at baseline (for a poverty rate of 12.3 percent); 
28,716,000 after adjusting for food and housing benefits (10.0 
percent); 25,846,000 after adjusting for taxes and the earned income 
tax credit (9.0 percent); and 26,748,000 after adjusting for child care 
expenses (9.3 percent).
    We fully appreciate that if there is no change to the poverty 
threshold, but one simply counts additional items as income, it 
necessarily reduces the number of people in poverty. At the same time, 
we want to emphasize that had we used the full set of NAS 
recommendations, as to thresholds, income adjustments, and expense 
adjustments, the effect would have been to increase the number of 
people in poverty. For our purposes, the goal was to neither increase 
or decrease the number of people in poverty at the beginning of the 
analysis, and so we followed the approach above. For a more 
comprehensive approach to poverty measurement, we think it is essential 
to address both the counting of income and expenses and the setting of 
thresholds in a way that is internally consistent and that measures 
what it purports to measure. We hope that the Subcommittee will 
consider such a comprehensive approach in the future as it explores 
more effective ways to measure poverty.
    Thank you for your continued attention to these issues, and please 
let us know if you need additional information.


    [The report from the Urban Institute follows:]


    [Submissions for the Record follow:]
                   Statement of Jonathan Barry Forman
    I am pleased to submit this statement for the record that you are 
compiling on Proposals for Reducing Poverty. I am submitting this 
statement in my individual capacity as the Alfred P. Murrah Professor 
of Law at the University of Oklahoma. This statement suggests that we 
replace most of the current welfare system with a system of refundable 
tax credits and work supports. \1\
    \1\ See generally Jonathan Barry Forman, Making America Work (Urban 
Institute Press 2006).
The Government's Role in Reducing Poverty and Inequality
    Poverty is a major problem in the United States. In 2005, for 
example, 12.6 percent (37 million people) lived in poverty, up from 
11.1 percent (23 million people) in 1973. \2\ In 2007, the poverty 
level for a single individual is $10,210, the poverty level for a 
single parent with two children is $17,170, and the poverty level for a 
married couple with two children is $20,650. \3\
    \2\ U.S. Census Bureau, Income, Poverty, and Health Insurance 
Coverage in the United States: 2005 (Census Population Report No. P60-
231, August 2006), table B-1.
    \3\ Annual Update of the HHS Poverty Guidelines, 72 Federal 
Register 8,373 (January 24, 2007).
    Needless to say, policymakers cannot do much about market forces. 
Adam Smith's laws of supply and demand are every bit as immutable as 
Newton's laws of thermodynamics. But policymakers can change how 
governments influence market operations and outcomes.
    In that regard, governments influence market outcomes through a 
combination of regulation, spending, and taxation. Government 
regulation defines and limits the range of markets and so influences 
the shape of the initial distribution of economic resources. Taxes and 
spending also have a significant impact on the distribution of economic 
resources. Table 1 shows the Federal Government's outlays for the major 
federal transfer programs.

Table 1. Outlays for the Principal Federal Benefit Programs (billions of
                                         2006 actual      2012 estimate
Social Security                                  $544              $790
Medicare                                          325               482
Medicaid                                          181               270
Unemployment compensation                          31                41
Supplemental Security Income                       34                42
Earned income tax credit                           36                43
Food assistance                                    48                58
Family support                                     24                24
Housing assistance                                 17                13
Retirement and disability programs                140               185
 for civilians, military and
Source: Executive Office of the President and Office of Management and
  Budget, Historical Tables, Budget of the United States Government,
  Fiscal Year 2008 (2007) table 8.5.

    Most government operations have only a slight or indirect impact on 
the distribution of economic resources. Spending on the military and 
other government operations, for example, probably has relatively 
little impact on economic inequality. Even among entitlement programs, 
relatively few programs are means-tested, and only about 10 to 15 
percent of the federal budget is spent for such explicit 
redistribution. All in all, current tax and transfer policies reduce 
household income inequality by about 20 percent.
    There is some dispute over how much the United States tax and 
transfer system affects poverty levels. As already mention, some 37 
million Americans (12.6 percent) were poor in 2005 using the 
``official'' estimate of poverty (based on ``money income''). Based on 
``market income'' however, the Census Bureau estimated that 18.9 
percent of Americans were poor before taxes and transfers. \4\ After 
taxes and transfers, the Census Bureau estimated that just 10.3 percent 
of Americans had ``disposable income'' that left them in poverty.
    \4\ U.S. Census Bureau, The Effect of Taxes and Transfers on Income 
and Poverty in the United States: 2005, (Current Population Report No. 
P60-232, March 2007), table A-2.
    On the other hand, a recent comparative study found much more 
modest effects for the U.S. tax and transfer system. \5\ That study 
estimated that our current tax and transfer system reduced the poverty 
rate of two-parent families by just 0.5 percentage points in 2000, from 
13.7 to 13.2 percent. That was a mere 3.6 percent reduction in two-
parent poverty rates, compared with an average reduction of 44 percent 
across all 11 high-income countries studied (including the United 
    \5\ Timothy M. Smeeding, Poor People in Rich Nations: The United 
States in Comparative Perspective, 20(1) Journal of Economic 
Perspectives 69 (2006).
Making Welfare Work
    The current system of transfer and tax programs for low-income 
workers is unnecessarily complicated, inequitable, and expensive to 
administer; and it needs to be reformed. In that regard, the Ways and 
Means Committee recently identified 85 different anti-poverty programs 
providing everything from cash aid to energy assistance. \6\ Each 
program has its own eligibility criteria and administrative system. Not 
surprisingly, many low-income Americans never receive the benefits to 
which they are entitled. For example, less than 60 percent of those 
eligible for food stamps actually receive them. \7\
    \6\ U.S. House of Representatives, Committee on Ways and Means, 
2004 Green Book: Background Material and Data on Programs within the 
Jurisdiction of the Committee on Ways and Means (2004), K-10--K-12.
    \7\ U.S. Department of Agriculture, Making America Stronger: A 
Profile of the Food Stamp Program (2005).
    Faced with this much complexity and overlap, we are unlikely to 
achieve any meaningful reform of the welfare system by simply, in Edgar 
K. Browning's words, ``trying to patch up each one of the innumerable 
and uncountable programs.'' \8\
    \8\ Edgar K. Browning, Commentaries (on papers in a section 
entitled ``Where Do We Go from Here?''), in Colin D. Campbell, ed., 
Income Redistribution 207, 209 (1977).
    Instead, we should replace most of the current system with a system 
of refundable tax credits and work supports. The general idea is to 
``cash out'' as many welfare programs as possible and use that money to 
help pay for refundable tax credits.
    These refundable tax credits could replace personal exemptions, 
standard deductions, and the many other child and family benefits in 
the current income tax system. And these tax credits could also replace 
all or a portion of most welfare benefits. Moreover, the money 
generated as a result of administrative savings from combining these 
tax breaks and welfare programs into refundable tax credits could also 
be used for financing.
    For example, imagine a simple integrated tax and transfer system 
with $2,000 per person refundable tax credits, $2,000 per worker 
refundable earned income credits (computed as 20 percent of the first 
$10,000 of earned income), and two tax rates: 20 percent of the first 
$50,000 of income and 35 percent on income above $50,000.
    These refundable tax credits should be paid out on a monthly basis. 
Each individual would present something like the current IRS Form W-4, 
Employee's Withholding Allowance Certificate, to her employer--or to a 
bank. Employees would then receive advance payment of their credits 
from their employers in the form of reduced withholding, while other 
beneficiaries would have their payments directly deposited into their 
bank accounts.
    This new comprehensive tax and transfer system would be simpler 
than the current system. It would encourage low-skilled workers to 
enter and remain in the workforce. It would minimize marriage 
penalties. And it would help ensure that low-income families actually 
get their benefits. Temporary Assistance for Needy Families currently 
reaches just 52 percent of eligible families. \9\ On the other hand, 
the earned income tax credit reaches 86 percent of eligible households, 
and it does so without any welfare stigma or loss of privacy.
    \9\ Leonard E. Burman & Deborah I. Kobes, EITC Reaches More 
Families than TANF, Food Stamps, Tax Notes, March 17, 2003, at 1769.
    As an initial step, we should cash out food stamps. Like most 
welfare programs, the Food Stamp Program has arcane eligibility 
criteria and baffling administrative procedures, and the program has 
high administrative costs. We should repeal the Food Stamp Program and 
use its $32 billion-a-year appropriation to help pay for refundable tax 
credits. \10\
    \10\ U.S. Department of Agriculture, Food Stamp Program 
Participation and Costs web page at http://www.fns.usda.gov/pd/
    Next, we should cash out low-income housing programs. Instead of 
providing a small fraction of low-income families with rental subsidies 
or mortgage-interest subsidies, we should give all low-income families 
$2,000 per person tax credits and let them choose their own housing.
    We should also expand the child and dependent tax credit and make 
it refundable. Under current law, a taxpayer can claim a credit of up 
to 35 percent of employment-related child care expenses--up to $1,050 a 
year for one child under the age of 13 or up to $2,100 a year for two 
or more qualifying children. Because the credit is not refundable, 
however, it is of little or no value to low-income families with 
children. To help low-income families with their child care expenses, 
the credit should reimburse low-income families for 50 percent, or even 
80 percent, of their child care expenses, up to, say, $4,000 per child.
    Finally, we should use refundable tax credits to help provide 
universal health care coverage. \11\ According to the Census Bureau, 
44.8 million people, 15.3 percent of the population, were without 
health insurance in 2005, including 27.3 million Americans between 18 
and 64 years old who worked during the year. \12\ We should require 
everyone to have an adequate but basic level of health care coverage. 
That coverage could be paid for with a combination of employer and 
employee contributions and refundable tax credits calculated on a 
sliding scale based on need.
    \11\ See, e.g., Jonathan Barry Forman, Making Universal Health Care 
Work, 19(1) St. Thomas Law Review 137-149 (Fall 2006); Michael 
Calabrese & Lauri Rubiner, Universal Coverage, Universal 
Responsibility: A Roadmap to Make Coverage Affordable for All Americans 
6 (Washington, DC: New America Foundation, Working Paper No. 1, 2004).
    \12\ U.S. Census Bureau, Census Bureau Revises 2004 and 2005 Health 
Insurance Coverage Estimates (Press Release No. CB07-45, 2007).
    In a complex society like ours, economic rewards are determined by 
a combination of market forces and government policies. Markets arise 
automatically from the economic interactions among people and 
institutions. Here and there, government policies intervene to 
influence the operations of those markets and to shape the outcomes 
that result from market transactions.
    To be sure, it will take more than just a system of refundable tax 
credits to solve the problem of poverty in America. We would also need 
to provide additional benefits to individuals who are not able to work. 
For example, many elderly and disabled individuals would need 
additional cash benefits. Those additional benefits could continue to 
come in the form of Supplemental Security Income (SSI) payments, or 
they could be distributed through additional refundable tax credits.
    Finally, an effective welfare system would need to provide services 
to at least some beneficiaries. Education, training, job-search and 
placement, and counseling services are but a few that come to mind.
    All in all, a comprehensive system of $2,000 per person refundable 
tax credits, $2,000 per worker tax credits, child care tax credits, 
health care tax credits, and other work supports would lead to dramatic 
reductions in poverty and inequality in the United States.

        Statement of Matthew Melmed, Zero To Three Policy Center
    I am pleased to submit the following written testimony on behalf of 
ZERO TO THREE. My name is Matthew Melmed. For the last 12 years I have 
been the Executive Director of ZERO TO THREE, a national non-profit 
organization that has worked to advance the healthy development of 
America's babies and toddlers for close to 30 years. I would like to 
start by thanking the Subcommittee for its interest in examining 
proposals to reduce poverty and for providing me the opportunity to 
discuss the interaction between poverty and the healthy development of 
our Nation's infants and toddlers and how federal policy can help break 
the intergenerational cycle of poverty.
    Some may wonder why babies matter in public policy. Surely they are 
the province of their parents or caregivers. Yet, public policies often 
affect very young children, policies that are sometimes created with 
little thought as to their consequences for this age group. In 
addition, many policies focus on the effects of ignoring the needs of 
infants and toddlers, for example, by having to address the cognitive 
gaps between low-income preschoolers and their more affluent peers or 
providing intensive special education services for problems that may 
have begun as much milder developmental delays left untreated in a 
young baby. Mr. Chairman, my message to you is that providing supports 
to families of young children now can increase self-sufficiency and 
promote long-term benefits for both adults and our youngest children. 
Simply put, babies and their families can't wait--we know that early 
intervention and prevention work best and we know that living in 
poverty can increase parental stress and compromise the healthy 
development of young children. We need policies that support parents 
and other caregivers in providing young children with the strong 
foundation they need for healthy development.
    The early years create an important foundation for later school and 
life success. We know from the science of early childhood development 
that infancy and toddlerhood are times of intense intellectual 
engagement. \1\ During this time--a remarkable 36 months--the brain 
undergoes its most dramatic development, and children acquire the 
ability to think, speak, learn, and reason. All babies and toddlers 
need positive early learning experiences to foster their intellectual, 
social, and emotional development and to lay the foundation for later 
school success. Research shows that it is these early experiences and 
warm, loving relationships that form ``both the foundation and scaffold 
on which cognitive, linguistic, emotional, social, and moral 
development unfold.'' \2\ These years may be even more critical for 
young children living in poverty.
    \1\ Shonkoff, Jack and Phillips, Deborah. 2000. From neurons to 
neighborhoods: The science of early childhood development.  Washington, 
DC: National Academy Press.
    \2\ Ibid.
    One of the most consistent associations in developmental science is 
between economic hardship and compromised child development. \3\ The 
malleability of young children's development and the overwhelming 
importance of the family (rather than school or peer) context suggest 
that economic conditions in early childhood may be far more important 
for shaping children's ability, behavior, and achievement than 
conditions later in childhood. \4\ Lower-income infants and toddlers 
are at greater risk than middle to high-income infants and toddlers for 
a variety of poorer outcomes and vulnerabilities such as later school 
failure, learning disabilities, behavior problems, mental retardation, 
developmental delay, and health impairments. \5\ Babies and toddlers 
living in high-risk environments need additional supports to promote 
their healthy growth and development.
    \3\ Ibid.
    \4\ Ibid.
    \5\ Ibid.
    Congress must consider the unique needs of very young children and 
their families who are living in poverty. Policies should help attack 
the intergenerational cycle of poverty by laying the foundations for 
early learning and improving prospects of later school success on the 
part of the children. We know that intervening early in the life of a 
child at-risk for poor development can help minimize the impacts of 
these risks and have the potential to improve outcomes for current and 
future generations. We must ensure that infants and toddlers living in 
poverty have access to quality, developmentally appropriate early 
learning programs such as Early Head Start or quality child care to 
help ensure that they are ready for school. We must also ensure that 
infants, especially those living in poverty, have time at home with 
their parents in the first months of life.
Portrait of Infants and Toddlers Living in Poverty
    There are more than 12 million infants and toddlers living in the 
United States. Twenty-one percent--2.6 million--live in poor families. 
\6\ After a decade of decline, the percentage of children under the age 
of 3 living in low-income families is on the rise again. \7\ Between 
2000 and 2005, the number of children of all ages who were poor 
increased by 11 percent. \8\ During the same period, the number of 
infants and toddlers who were poor increased by 15 percent. \9\ It is 
important to note that young children are disproportionately impacted 
by economic stress. Forty-three percent of children under the age of 
3--5.2 million--live in low-income families (defined as below 200 
percent of poverty). \10\
    \6\ Douglas-Hall, Ayona., Chau, Michelle., and Koball, Heather. 
2006. Basic facts about low-income children: Birth to age 3. September 
2006. http://www.nccp.org/media/ecp06b-text.pdf ( accessed February 5, 
    \7\ Ibid.
    \8\ Ibid.
    \9\ Ibid.
    \10\ Ibid.
    The environmental stresses to which these children are more likely 
to be exposed, such as inadequate nutrition, substance abuse, maternal 
depression, exposure to environmental toxins, and trauma/abuse can all 
negatively influence their development. \11\ For example, the existence 
of maternal depression and other adult mental health disorders can 
negatively affect children if parents are not capable of providing 
consistent sensitive care, emotional nurturance, protection and the 
stimulation that young children need. \12\ Maternal depression, anxiety 
disorders, and other forms of chronic depression affect approximately 
10 percent of mothers with young children \13\--this number is even 
higher for families in poverty. In fact, findings at enrollment from 
the Early Head Start Research and Evaluation Project indicate that 52 
percent of mothers reported enough depressive symptoms to be considered 
clinically depressed. \14\ Early and sustained exposure to the 
aforementioned risks can influence the physical architecture of the 
developing brain, preventing babies and toddlers from fully developing 
the neural pathways and connections that facilitate later learning.
    \11\ National Center for Children in Poverty. 1999. Poverty and 
Brain Development in Early Childhood. http://www.nccp.org/media/pbd99-
text.pdf (accessed February 6, 2007).
    \12\ Cohen, Julie, Onunaku, Ngozi, Clothier, Steffanie, and Poppe, 
Julie. 2005. Helping young children succeed: Strategies to promote 
early childhood social and emotional development. Washington, DC: 
National Conference of State Legislatures and ZERO TO THREE.
    \13\ O'Hara, Michael W. 1994. Postpartum depression: Causes and 
consequences. New York, NY: Springer-Verlag Inc.
    \14\ U.S. Department of Health and Human Services, Administration 
for Children and Families. 2003. Early Head Start Evaluation and 
Research Project, Research to practice: Depression in the lives of 
Early Head Start families. Washington, DC. http://www.acf.hhs.gov/
research_brief_depression.pdf (accessed May 10, 2007).
Early Head Start: A Beacon of Hope for Babies Living in Poverty
    Comprehensive high quality early learning programs for infants and 
toddlers, such as Early Head Start, can help to protect against the 
multiple adverse influences that may hinder their development across 
all domains. Very young children living in poverty are more at-risk for 
a variety of poor outcomes than low-income families. Programs like 
Early Head Start not only set the stage for later school readiness and 
success, but also for the parent's road to self-sufficiency.
    Research from the Early Head Start Research and Evaluation Project, 
and its companion follow-up results, concluded that the program is 
making a positive difference in areas associated with children's 
success in school, family self-sufficiency, and parental support of 
child development. For example, Early Head Start produced statistically 
significant, positive impacts on standardized measures of children's 
cognitive and language development. A smaller percentage of Early Head 
Start children scored in the ``at-risk'' range of developmental 
functioning. Early Head Start children also demonstrated more positive 
approaches to learning than control group children and were more likely 
to attend formal preschool programs than control group children. \15\
    \15\ U.S. Department of Health and Human Services, Administration 
for Children and Families. 2002. Making a difference in the lives of 
infants and toddlers and their families: The impacts of Early Head 
Start. http://www.acf.hhs.gov/programs/opre/ehs/ehs-resrch/reports/
impacts-exesum/impacts-execsum.pdf (accessed October 23, 2006). U.S. 
Department of Health and Human Services, Administration for Children 
and Families. 2006. Research to practice: Preliminary findings from the 
Early Head Start prekindergarten followup. http://www.acf.hhs.gov/
prekindergarten-followup.pdf (accessed October 23, 2006).
    Early Head Start also had significant impacts for parents, 
promoting family self-sufficiency and parental support of child 
development. Early Head Start children had more positive interactions 
with their parents than control group children. They engaged their 
parents more and parents rated their children as lower in aggressive 
behavior than control parents did. Early Head Start parents were also 
more emotionally supportive and less detached than control group 
parents and provided significantly more support for language and 
learning than control group parents. In addition, Early Head Start 
significantly facilitated parents' progress toward self-sufficiency. 
Although there were not meaningful increases in income, there was 
increased parental participation in education and job-training 
activities. Overall, impacts were particularly large for families that 
enrolled during pregnancy, African American families, and those with a 
moderate number of demographic risk factors (lacked a high school 
education, single parent, teen parent, received public assistance, not 
employed or in school). \16\
    \16\ Ibid.
    In the Early Head Start Research and Evaluation Project follow-up 
results, which measured progress as the children entered kindergarten, 
a new benefit emerged for parents--a reduction in their risk of 
depression. At enrollment, and at age 3, there had been a high level of 
maternal depression in both the Early Head Start and control group 
parents. Early Head Start did not have an immediate impact on 
depressive symptoms, but did have positive impacts on the parent-child 
interactions of depressed parents. And two years after the end of the 
program, former Early Head Start parents reported fewer symptoms of 
depression, allowing parents to have more positive responses to their 
children. \17\ This new finding is significant given the link between 
poverty and depression, the association of depression with poorer child 
outcomes, and the fact that more than half of mothers reported enough 
depressive symptoms to be considered clinically depressed when they 
enrolled in Early Head Start. \18\
    \17\ U.S. Department of Health and Human Services, Administration 
for Children and Families. 2006. Research to practice: Preliminary 
findings from the Early Head Start prekindergarten followup.
    \18\ U.S. Department of Health and Human Services, Administration 
for Children and Families. 2003. Early Head Start Evaluation and 
Research Project, Research to practice: Depression in the lives of 
Early Head Start families. U.S. Department of Health and Human 
Services, Administration for Children and Families. 2006. Research to 
practice: Preliminary findings from the Early Head Start 
prekindergarten followup.
    The experience of Early Head Start suggests that parents of young 
children can be engaged in activities that are good for their own 
development as well as that of their children--if resources are 
available. Although the benefits of Early Head Start are clear, the 
program is only reaching a small proportion of at-risk children and 
families. Currently, only 10 percent of the overall Head Start budget 
is used to serve 61,243 low-income families with infants and toddlers 
in the Early Head Start program--less than three percent of those 
eligible. \19\ In order to ensure that the program can serve more 
eligible babies, Congress must increase the Early Head Start set-aside 
to at least 20 percent over five years and expand funding for Head 
Start to make those increases a reality. We can't wait until these at-
risk children are already behind at age four to intervene. Investing 
early in the future of at-risk families and their children can have 
positive long-term benefits in our efforts to break the 
intergenerational cycle of poverty.
    \19\ Note: 61,243 is the exact number of children under three 
served by Early Head Start in Fiscal Year 2005. Head Start Program 
Information Report for the 2004-2005 Program Year, Early Head Start 
Programs Only. Retrieved October 23, 2006. Note: 2,552,000 children 
under three in the U.S. live below the federal poverty level. U.S. 
Census Bureau. 2005. Current population survey, 2006 annual social and 
economic supplement. POV34: Single year of age--Poverty status: 2005. 
http://pubdb3.census.gov/macro/032006/pov/new34-100-01.htm. (accessed 
October 23, 2006).
Quality Child Care for At-Risk Infants and Toddlers
    Most proposals aimed at reducing poverty look to promoting family 
self-sufficiency through meaningful employment. Yet, it is particularly 
difficult for mothers with young children living in poverty to afford 
child care because of the kinds of jobs they tend to have (i.e. service 
jobs), the nontraditional hours they are often required to work, and 
the poor quality child care that is available. Young children living in 
poverty are much more likely to have a mother who works nontraditional 
hours compared with young children living above the poverty line. \20\ 
Service jobs, which often entail very low wages, few benefits and 
nontraditional work hours, are disproportionately filled by less-
educated women who now comprise a large group of mothers who are 
entering the labor force as a result of welfare reform and federal work 
requirements. \21\
    \20\ Shonkoff, Jack and Phillips, Deborah. 2000. From neurons to 
neighborhoods: The science of early childhood development.
    \21\ Ibid.
    Second only to the immediate family, child care is the context in 
which early childhood development most frequently unfolds, starting in 
infancy. \22\ According to 2005 data, 42 percent of one-year-olds and 
53 percent of one-to-two-year-olds have at least one regular non-
parental care arrangement. \23\ The increase in the number of working 
parents with babies and toddlers comes at a time when science has 
demonstrated the critical importance of supporting the development and 
learning of children ages birth to three, and makes the need for 
quality child care even more significant.
    \22\ Ibid.
    \23\ Schumacher, Rachel, Hamm, Katie, Goldstein, Anne, and 
Lombardi, Joan. 2006. Starting off right: Promoting child development 
from birth in state early care and education initiatives.  Washington, 
DC: Center for Law and Social Policy and ZERO TO THREE.
    The evidence associating the quality of infant and toddler care 
with early cognitive and language outcomes ``is striking in 
consistency.'' \24\ High quality child care is associated with outcomes 
that all parents want to see in their children, ranging from 
cooperation with adults to the ability to initiate and sustain positive 
exchanges with peers, to early competence in math and reading--all of 
which are key ingredients to later school success. However, more than 
40 percent of infants and toddlers are in child care rooms of poor 
quality. \25\
    \24\ Shonkoff, Jack and Phillips, Deborah. 2000. From neurons to 
neighborhoods: The science of early childhood development.
    \25\ Cost, Quality and Child Outcomes Study Team. 1995. Cost, 
quality and child outcomes in child care centers, Public Report, 2nd 
edition. Denver, CO: Denver Economics Department, University of 
Colorado at Denver.
    Research indicates that the strongest effects of quality child care 
are found with at-risk children--children from families with the fewest 
resources and under the greatest stress. \26\ Yet, at-risk infants and 
toddlers who may benefit the most from high-quality child care are 
unlikely to receive it--they receive some of the poorest quality care 
that exists in communities across the United States. \27\ Poor quality 
child care for at-risk children may diminish inborn potential and lead 
to poorer developmental outcomes. \28\
    \26\ Shonkoff, Jack and Phillips, Deborah. 2000. From neurons to 
neighborhoods: The science of early childhood development.
    \27\ Ibid.
    \28\ Ibid.
    Congress should ensure that all babies and toddlers, particularly 
those living in poverty, have access to quality child care. An increase 
in federal funding for child care would lead to increased investments 
in quality and would help to ensure that more low-income infants and 
toddlers have access to quality child care settings to allow parents to 
reach and maintain self-sufficiency while being assured that their 
children are in safe nurturing environments. More funding needs to be 
directed specifically to improving the quality of care for infants and 
toddlers, and providing professional development opportunities with 
infant-toddler content for early childhood staff who work with this age 
The Importance of Unhurried Time
    The need for infants, especially, to spend time with their parents 
should be balanced against society's goal of moving adults quickly into 
the workforce. In addition to examining the costs of providing quality 
child care for at-risk infants and toddlers, we must also examine the 
importance of unhurried time during the early years.
    According to a groundbreaking report released by the National 
Academies of Science, From Neurons to Neighborhoods: The Science of 
Early Childhood Development, parents structure the experience and shape 
the environment within which a young child's early development unfolds. 
\29\ Infants and toddlers need unhurried time with their parents to 
form the critical relationships with them that will serve as the 
foundation for social, emotional, and cognitive development. The better 
parents know their children, the more readily they will recognize even 
the most subtle cues that indicate what their children need to promote 
their healthy growth and development. For example, early on infants are 
learning to regulate their eating and sleeping patterns and their 
emotions. If parents can recognize and respond to their baby's cues, 
they will be able to soothe the baby, respond to his or her cues, and 
make the baby feel safe and secure in the world. Trust and emotional 
security enable a baby to explore with confidence and communicate with 
others--critical characteristics that impact early learning and later 
school readiness.
    \29\ Ibid
    At-risk infants and toddlers in particular need time with their 
parents because their early attachments can help serve as a buffer 
against the impact of the multiple risk factors they may face. Early 
attachments are critical for infants and toddlers because a positive 
early relationship, especially with a parent, reduces a young child's 
fear in novel or challenging situations, thereby enabling her to 
explore with confidence and to manage stress and also strengthen a 
young child's sense of competence and efficacy. \30\ In addition, early 
attachments set the stage for other relationships, foster the 
exploratory behavior that is so critical to early learning, and play an 
important role in shaping a young child's ability to react to stressful 
situations. \31\
    \30\ Ibid.
    \31\ Ibid.
    The need for time with infants has direct relevance to welfare to 
work policies, and Congress should consider the developmental needs of 
infants and toddlers in shaping these policies as proposals to reduce 
poverty are examined. Excessive mandatory work requirements for low-
income parents who are receiving Temporary Assistance to Needy Families 
(TANF) make unhurried time difficult. While states have the option of 
exempting parents with infants from work requirements, many do not take 
advantage of this option or exempt these parents for only a few months.
    There is evidence to suggest that long hours of maternal employment 
in the child's first year, can be a negative factor for infant 
development. \32\ Finally, we know almost nothing about how the TANF 
program with its work requirements has affected infants and toddlers, 
for good or ill. Some studies have looked at the impact of TANF on 
older children, but ignore the impacts on the youngest. I urge Congress 
to require research into the impacts this program has on the well-being 
of infants and toddlers.
    \32\ Ibid.
    During the first three years of life, children rapidly develop 
foundational capabilities--cognitive, social and emotional--on which 
subsequent development builds. These years are even more important for 
infants and toddlers living in poverty. All young children should be 
given the opportunity to succeed in school and in life. We know that 
access to comprehensive, high-quality, developmentally appropriate 
programs and services--whether Early Head Start or child care--can 
serve as a protective factor for at-risk infants and toddlers. We also 
know that all babies, especially those at-risk, need unhurried time in 
the first months of life with their parents.
    Too often, the effect of our overall policy emphasis is to wait 
until at-risk children are already behind developmentally before 
significant investments are made to address their needs. I urge the 
Subcommittee to change this pattern and invest in at-risk infants and 
toddlers early on, when that investment can have the biggest payoff--
preventing problems or delays that become more costly to address as the 
children grow older. We know that the early years represent an 
unparalleled window of opportunity to support very young children. We 
do not need to accept that vulnerable children will inevitably have 
already fallen behind at age four and then provide special education 
and intensive pre-kindergarten services to help them play catch up. We 
know what at-risk babies need to help them grow up healthy and ready to 
    Providing supports to low-income at-risk families will have a 
trickle down effect on our youngest children and thereby have even more 
positive long-term benefits in our efforts to break the 
intergenerational cycle of poverty. I urge the Subcommittee to consider 
the very unique needs of babies living in poverty as you address 
proposals to reduce poverty.
    Thank you for your time and for your commitment to our Nation's at-
risk infants, toddlers and families.

                  Statement of New America Foundation
    Thank you for the opportunity to submit written testimony in 
reference to the subcommittee's hearing on proposals to reduce poverty 
in the United States. Below we outline an anti-poverty policy agenda 
that seeks to move beyond traditional income supports in helping 
families achieve true economic self-sufficiency through personal asset 
ownership. A comprehensive listing of policy options to promote savings 
and asset ownership by low- and moderate-income Americans is available 
in The Assets Agenda 2007, available upon request and accessible at 
www.newamerica.net and www.assetbuilding.org.
    American families who subsist at or below the federal poverty line 
face lives characterized by tremendous volatility. A steady stream of 
earned income can be instantly disrupted by illness or personal injury, 
leaving many families at the brink of complete destitution. Savings and 
asset ownership can provide low-income families with the financial 
cushion they need to weather unexpected income shocks, especially as 
they work to move from public assistance to self-sufficiency. Assets 
and savings can also be leveraged to provide access to quality forms of 
credit that is otherwise unavailable. While an asset-based approach to 
poverty alleviation is meant to compliment-and not replace--traditional 
forms of income support, it is personal asset ownership that has the 
potential to provide low-income families with a new path out of poverty 
in 21st century economy.
Ownership of Assets

                  Mean Wealth Holdings by Wealth Class*
                   Wealth Class                             2004
Top Fifth                                                     $1,822.60
Bottom Four-Fifths                                            $   82.50
Fourth                                                            243.6
Middle                                                             81.9
Second                                                             14.4
Lowest                                                            -11.4
Median                                                        $   77.90
Average                                                       $  430.50
*in thousands of dollars
Source: Analysis by Ed Wolff in Mishel, Bernstein, and Allegretto
  (2006), pp. 253.

    To understand the inherent challenge in creating an inclusive 
ownership society, it is useful to consider what ownership in America 
looks like today. Recent data from the Federal Reserve's Survey of 
Consumer Finances estimates that the median family net worth in 2004 
was $93,100, and the mean value was $448,200. \1\ Between 2001 and 
2004, the median family net worth rose 1.5 percent, while the mean 
value grew 6.3 percent, indicating larger increases in net worth for 
higher-wealth households. \2\ Over an extended period of time, there 
has been a faster increase in average wealth relative to median wealth, 
indicating that those at the top of the wealth distribution have 
increased their share. This is reflected in the ratio of median-to-
average wealth, which sunk to 0.18 in 2004, down from 0.27 in 1962. \3\
    \1\ Bucks, Kennickell, and Moore (2006).
    \2\ Bucks, Kennickell, and Moore (2006).
    \3\ Analysis by Ed Wolff in Mishel, Bernstein, and Allegretto 
(2006), page 251.
    The average wealth of the top 1 percent of wealth holders grew from 
$13.5 million in 2001 to $14.8 million in 2004, a 3 percent annual 
increase. \4\ During this same period, the average wealth for 
households between the 40 percent and 60 percent of wealth holders 
increased by 0.8 percent annually, from $80,000 to $81,900. \5\ 
Meanwhile, the bottom fifth of U.S. households sunk further into debt; 
the average debt of this cohort increased to $11,400 in 2004. \6\
    \4\ Analysis by Ed Wolff in Mishel, Bernstein, and Allegretto 
(2006), page 253.
    \5\ Analysis by Ed Wolff in Mishel, Bernstein, and Allegretto 
(2006), page 253.
    \6\ Analysis by Ed Wolff in Mishel, Bernstein, and Allegretto 
(2006), page 253.
    Aided by policy incentives, Americans build wealth in both 
financial and non-financial assets. Between 2001 and 2004, financial 
assets as a share of total assets fell 6.3 percentage points, to 35.7 
percent. This is the lowest share recorded by the survey since 1995.
    Of the non-financial assets, the primary residence continues to 
account for the largest share. The median value of the home was 
estimated to be $246,800 in 2004 for those families that were 
homeowners; a figure that had increased from 2001 by well over 20 
percent. \7\ This demonstrates that home equity continues to play a 
central role in asset holdings, and for lower-income and minority 
families that are homeowners, homeownership makes up a large share of 
their asset holdings. While their homeownership rates are lower, home 
equity makes up 77 percent of total assets for lower-income families 
and 55 percent of total assets for minority families. \8\
    \7\ Bucks, Kennickell, and Moore (2006).
    \8\ Di (2003).
    However, this past year the state of the U.S. housing market began 
turning away from its recent record setting pace. The homeownership 
rate ended 2006 at 68.8 percent, down from its historic high of 69.0 
percent, set in 2004. The minority homeownership rate, which 
historically has lagged the overall population, remains just under 50 
percent, although the Hispanic homeownership has increased steadily 
over the past few years--2005 marked the first time that Hispanics were 
more likely to own their own homes than Blacks. \9\ Increased 
volatility in housing markets in the past year is expected to lower 
these rates in the year to come and may undermine the asset holding of 
many families.
    \9\ U.S. Department of Housing and Urban Development (2007).
    Unfortunately, many families have spent down the home equity they 
have accumulated in recent years by taking out heavily marketed low-
interest home equity loans. The sharp increase in household debt held 
in home equity loans since 2000 presents a potentially troubling 
scenario if the housing market slowdown of late 2006 continues to cool, 
and home prices begin to stagnate or fall in 2007. Data from HUD's U.S. 
Housing Market Conditions report reveal that over the last year 
mortgage interest rates have increased, along with mortgage 
delinquencies and foreclosures; home sales are down; and the recent 
increases in home prices have slowed dramatically. \10\
    \10\ U.S. Housing Market Conditions, 4th Quarter 2006 (2007).
    While home equity represents the single largest component of 
household wealth, families store resources in a variety of other 
assets, such as bank accounts, stock investments, and retirement 
accounts. The percentage of families holding assets varies 
considerably. It is estimated that in 2004 over 91 percent of families 
had money stored in checking or savings accounts, while only 20.7 
percent owned stock directly in a company. Furthermore, 15 percent 
owned shares of a mutual fund, 17.6 percent owned savings bonds, and 
24.2 percent had assets held in a life insurance policy. Meanwhile, 
slightly less than half of all families (49.7 percent) had a personal 
retirement account, such as an IRA or a 401(k). \11\ This figure 
represents a decline from three years earlier when the percentage of 
families owning a retirement account exceeded 52 percent.
    \11\ Bucks, Kennickell, and Moore (2006). Includes only all 
employment-based defined contribution plans plus IRAs and Keogh plans, 
but not defined benefit plans.

                            Percentage of Families Holding Assets by Asset Type, 2004
                                                    Mutual      Savings     Retirement      Bank         Life
         Income Percentile             Stocks       Funds        Bonds       Accounts     Accounts    Insurance
Less than 20 percent                      5.1%         3.6%         6.2%        10.1%        75.5%        14.0%
20 percent-39.9 percent                   8.2%         7.6%         8.8%        30.0%        87.3%        19.2%
40 percent-59.9 percent                  16.3%        12.7%        15.4%        53.4%        95.9%        24.2%
60 percent-79.9 percent                  28.2%        18.6%        26.6%        69.7%        98.4%        29.8%
80 percent-89.9 percent                  35.8%        26.2%        32.3%        81.9%        99.1%        29.5%
90 percent-100 percent                   55.0%        39.1%        29.9%        88.5%       100.0%        38.1%
All Families                             20.7%        15.0%        17.6%        49.7%        91.3%        24.2%
Source: Bucks, Kennickell, and Moore (2006).

    The percentage of families holding assets is strongly correlated 
with their incomes. Compared to those households in the top 10 percent 
of income, households in the bottom forty percent of income were far 
less likely to own stock, retirement accounts, and transaction 
accounts. The differences in retirement asset holdings are especially 
revealing. The percentage of families owning a retirement plan drops to 
10.1 percent for families making $18,900 or less, while well over 70 
percent of those making more than $53,600 have a retirement savings 
account. In 2004, 27.2 percent of households headed by someone aged 47 
to 64 did not have enough retirement savings, including social security 
benefits, to replace half their current income. \12\ For Black and 
Hispanic households, this figure jumps to 39 percent.
    \12\ Mishel, Bernstein, and Allegretto (2006), page 268.
    Beyond differences in the type of assets households own, there are 
also differences in how much they own. The mean net worth is over 
$448,000 but the top 20 percent of families by income own over 80 
percent of the Nation's wealth. \13\ Families in the bottom 40 percent 
by income own approximately 5 percent of the Nation's wealth. Another 
dimension with which to examine wealth holdings is race. In general, 
minority households own less than ten cents for every dollar of wealth 
owned by a typical non-Hispanic White family. \14\ Even though their 
income is roughly two-thirds of that of White families, their wealth is 
only 10 percent as much.
    \13\ Bucks, Kennickell, and Moore (2006).
    \14\ Wolff (2004); Kochar (2004).

                              Shares of Wealth Ownership by Wealth Class, 1962-2004
                 Wealth Class                      1962       1983       1989       1998       2001       2004
Top Fifth                                            81%      81.3%      83.5%      83.4%      84.4%      84.7%
Bottom Four-Fifths                                  19.1       18.7       16.5       16.6       15.6       15.3
Fourth                                              13.4       12.6       12.3       11.9       11.3       11.3
Middle                                               5.4        5.2        4.8        4.5        3.9        3.8
Second                                                 1        1.2        0.8        0.8        0.7        0.7
Lowest                                              -0.7       -0.3       -1.5       -0.6       -0.4       -0.5
Total                                                100        100        100        100        100        100
Source: Analysis by Ed Wolff in Mishel, Bernstein, and Allegretto (2006), pp. 252.

    The promise of an ownership society will dissipate if it is used 
only to further concentrate the wealth of those already financially 
secure. The challenge remains to significantly broaden access to asset 
ownership by those who own little or nothing. The current proposals in 
the administration's 2008 budget that focus on Social Security, health 
savings, and retirement accounts fail to get us all the way there. \15\ 
The following ideas represent a set of proposals that would.
    \15\ For an analysis of the President's 2008 budget proposals, see 
The Assets Report 2007: A Review, Assessment, and Forecast of Federal 
Assets Policy, available at AssetBuilding.org.

                1. Establish Children's Savings Accounts

    One of the most novel and promising ways to achieve a universal, 
progressive asset building system over time would be to provide each 
generation of children a restricted, start-in-life asset account at 
birth, an idea first proposed by Michael Sherraden and, separately, by 
former IRS Commissioner Fred Goldberg. \16\ These accounts would 
establish a universal platform and infrastructure to facilitate future 
savings and lifelong asset accumulation. While every child would have 
an account, it would especially benefit the 26 percent of White 
children, 52 percent of Black children, and 54 percent of Hispanic 
children who start life in households without any significant asset 
holdings. \17\
    \16\ Sherraden (1991).
    \17\ Shapiro (2004).
    Different versions of children's savings accounts have been 
proposed over the last several years by members of Congress; most, 
however, are not progressive and are focused on building only 
retirement assets (most notably former Sen. Bob Kerrey's ``KidSave'' 
proposal). However, in the last couple of years, proposals have emerged 
from both Democrats and Republicans for progressively funded children's 
savings accounts that could be used for buying a home and going to 
college, in addition to retirement. Outside the U.S., the U.K.'s Child 
Trust Fund is providing every newborn with a children's savings account 
and has already established well over 2 million accounts, and there are 
comparable programs emerging in Korea, Singapore, and Canada. 
Additionally, the privately-funded SEED Initiative is operating in 12 
sites across the U.S., and is providing highly valuable insights into 
policy design.
    Below are existing congressional proposals to establish Children's 
Savings Accounts, including three that were introduced in the 109th 
Congress (2005-2006); similar bills have been or are expected to be 
introduced in 2007.
    America Saving for Personal Investment, Retirement, and Education 
(ASPIRE) Act Every child born after December 31, 2006 issued a Social 
Security number would have a KIDS Account opened for them 
automatically. Each account would be endowed with a one-time $500 
contribution, and children in households earning below national median 
income would be eligible for a supplemental contribution of up to $500. 
Additional savings incentives include tax-free earnings, matched 
savings for eligible families, and financial education. Senate bill 868 
is authored by Senators Santorum (R-PA), Corzine (D-NJ), Schumer (D-
NY), and DeMint (R-SC); House bill 1767 is authored by Reps. Ford (D-
TN), Kennedy (D-RI), and English (R-PA). ASPIRE Act will be 
reintroduced both in the House and the Senate.
    Young Saver's Accounts Roth IRAs for kids--called ``Young Saver's 
Accounts''--would allow parents, for the first time, to direct 
contributions to Roth IRA accounts for their children, not just for 
themselves. YSAs were introduced by Senator Max Baucus (D-MT) in March 
as part of the Savings Competitiveness Act of 2006, and a similar 
provision was introduced in July 2005 in the House by Rep. Connie Mack 
(R-FL) as part of the Lifetime Prosperity Act. YSAs are anticipated to 
be included in savings bills in this Congress.
    401Kids Introduced as HR 5314 by Rep. Clay Shaw Jr. (R-FL) and 
other House Republicans, this proposal would convert Coverdell 
Education Savings Accounts into ``401Kids Savings Accounts'' which 
would have expanded uses and the ability to be rolled over into a Roth 
IRA. This proposal would make it possible for a restricted, tax-
advantaged savings account to be opened in a child's name as early as 
birth, with up to $2,000 of after tax contributions permitted a year. 
The funds could be used for the K-12 and post-secondary education 
expenses currently allowed under Coverdell Education Savings Account 
rules. Additionally, the accounts could also be used for a first home 
purchase, or rolled over into a Roth IRA for retirement. The bill has 
been reintroduced in the 110th Congress as H.R. 87 by Rep. Biggert (R-
    PLUS Accounts As proposed by Senator Jeff Sessions (R-AL), every 
U.S. citizen born after December 31, 2007 would have a PLUS Account 
opened for them automatically by the Federal Government endowed with a 
one-time $1,000 contribution. Beginning January 1, 2009 individual PLUS 
accounts would be established for all working U.S. citizens under the 
age of 65 with a mandatory 1 percent of each worker's paycheck withheld 
pre-tax and automatically deposited into their account (workers could 
voluntarily contribute up to 10 percent). Employers would also be 
required to contribute at least 1 percent (and up to 10 percent) of 
earnings. No withdrawals from PLUS accounts could be made until 
accountholder reaches the age of 65, although there would be a loan 
program for pre-retirement uses. Sen. Sessions plans to introduce 
legislation to establish ``PLUS Accounts'' by the end of March.

  2. Create Savings and Asset Accumulation Incentives for the Working 

Enact an ``EITC Savers Bonus'' Linked to Existing Tax Credits
    Anyone eligible for the EITC would be eligible for a larger refund 
if they deposited a portion of their refund into an existing savings 
product, such as an IRA or 529 College Savings Plan. The savings would 
be matched on a 1-1 basis, up to $500, for the amount contributed. The 
match would be delivered as a higher EITC refund--an ``EITC Savers 
Bonus''--and would be deposited directly into the savings product. This 
may be more politically acceptable than creating a new refundable tax 
credit, and would ensure that the government match is saved directly 
into the account. Alternatively, taxpayers could report contributions 
they have made to their savings accounts during the year--including 
contributions to company-sponsored defined contribution plans, IRAs, 
529 plans, or U.S. Savings Bonds--on their tax returns and this could 
trigger a higher EITC amount. The larger refund could then be received 
by the taxpayer or, ideally, it would be re-directed to the specified 
savings product. The cost of this proposal would depend on the size of 
the bonus and the number of people eligible. Eligibility could be 
linked to the EITC or the Child Tax Credit.
Improve the Saver's Credit
    The 2001 tax bill created a new voluntary individual tax credit--
the Saver's Credit--to encourage low-income workers to contribute to 
existing retirement products (IRAs, 401(k)s, etc). The 2006 Pension 
Protection Act followed through on the administration's proposal to 
make the Saver's Credit permanent and also indexed the contribution 
limits to inflation. However, the credit remains flawed in several 
important ways. It is not refundable, and it offers only a modest 
matching contribution. Consequently, it benefits only a small 
proportion of those technically eligible. For example, only about 20 
percent of filers get any benefit, while only one in one-thousand 
persons receive the full benefit. Mark Iwry of the Brookings 
Institution, who helped design the Saver's Credit, suggests three ways 
to improve the credit: (1) make it refundable; (2) expand eligibility--
instead of a 50 percent credit that phases down to 20 percent for joint 
filers with AGI over $30,000, the 50 percent Saver's Credit should be 
expanded to cover joint filers with significantly higher incomes within 
the middle-income range, for example, up to $60,000, phasing out at 
about $70,000 to $75,000; (3) smooth the phase-down of the credit to 
resemble IRA income eligibility, instead of the ``cliffs'' now in 
effect. These would offer a meaningful retirement incentive for 
families currently left out.
Expand the List of Products Eligible for the Saver's Credit
    If the goal is to promote savings for low-income workers in 
general, and not just retirement savings, a range of existing savings 
products--529s, Coverdells, Health Savings Accounts, U.S. Savings Bonds 
and Individual Development Accounts--could be added to the list of 
products that would trigger the Saver's Credit. One could certainly 
argue that one's health and pre-retirement assets--especially a first 
home and post-secondary education--are critical elements of retirement 
security. It also should be noted that IRAs already permit penalty-free 
withdrawals for buying a first home and post-secondary education. And 
among low-income savers, data presented in this paper (page 4) shows 
U.S. Savings Bonds--which are long-term in nature and must be held for 
at least five years to avoid a penalty at redemption--are a more likely 
choice for saving than stocks or mutual funds. This change, however, 
would represent a significant philosophical shift in the purpose of the 
credit. The president proposed to make contributions to section 529 
college savings plans eligible for the Saver's Credit in the FY 2008 

   3. Establish Savings Products with Default Features that Promote 

Create an Automatic, Accessible, and Flexible National Savings Plan
    Congress could create a national savings plan structure that would 
be accessible to all current workers. Proposed by Reid Cramer of the 
New America Foundation, this saving plan, called AutoSave, could be 
available to facilitate flexible, pre-retirement savings. \18\ Under 
this plan, employers that make payroll deductions will make deposits to 
the AutoSave system on behalf of their employees; the self-employed 
would be able to make deposits at their discretion. Employers will 
facilitate automatic deposits. AutoSave will offer a limited set of 
low-cost investment options, such as money market funds or index funds, 
administered by professional money managers. Money deposited in this 
system belongs to the individuals, and since deposits will be from 
after-tax dollars, normal tax rules apply. Individuals will have the 
flexibility to opt-out of the system or withdraw funds at any time. But 
workers will not have to elect to participate. The AutoSave system will 
assume you are in unless you state a preference to get out. A default 
contribution rate can be set at 2 percent of pay. At this rate, someone 
earning $50,000 a year would have $1,000 diverted directly into 
savings, which could grow with responsible stewardship. Additional 
targeted incentives could be applied to encourage longer-term savings, 
but AutoSave would be designed to take advantage of one of the most 
tried and true savings techniques--inertia.
    \18\ Cramer (2006).
Enact, and Possibly Match, ``Automatic IRAs''
    ``Automatic IRAs,'' developed by the Brookings Institution and 
Heritage Foundation and supported by AARP, is aimed at the 71 million 
workers employed by small businesses that do not offer a pension plan 
to their workers. Firms not offering 401(k)s, 403(b)s, and the like 
could instead offer automatic payroll deductions into IRAs. Employers 
would inform employees of this savings option and would have the choice 
to either obtain from each employee a decision to participate or not, 
or automatically enroll employees (and then allow the employee to opt-
out). While low-income workers would likely be reached through this 
proposal, there are no matching funds involved. Under the Auto IRA 
proposal, introduced in the 109th Congress as HR 6210, firms 
that do set-up Auto-IRAs would qualify for a one-time, small tax credit 
to offset their administrative costs; one could propose that this tax 
credit could be expanded to cover matching funds provided to lower-
income employees.
Make Retirement Savings Plans Universal and Accessible
    Universal 401(k)s, proposed separately by Michael Calabrese of the 
New America Foundation and Gene Sperling of the Center for American 
Progress, would offer all Americans, regardless of their employment 
status, generous savings incentives and automatic savings opportunities 
that employer-provided 401(k)s now offer their employees. The 
components of a citizen-based, Universal 401(k) include: (1) $2-to-$1 
government matching contributions for initial savings of low-income 
families and $1-to-$1 matches for middle-income families; (2) a new 
flat refundable tax credit of 30 percent for savings done by all 
workers; and (3) a single, portable account that benefits families by 
continuing to provide strong savings incentives for parents who take 
time off to raise children or who are between jobs. To facilitate 
deposits into Universal 401(k)s, automatic payroll deductions would be 
offered by employers. For very low-income workers who might initially 
have very small account balances, or who are otherwise unable to 
navigate the process of setting up and managing a private account, a 
``clearinghouse'' (modeled after the federal TSP) could be set up and 
empowered to create ``default'' accounts for such workers.

               4. Connect Tax Refunds to Savings Products

Promote the Split Refund Option
    For the first time in 2007, individuals have the opportunity to 
split their tax refund across three accounts right when they file, 
using form 8888. Tax time presents a unique opportunity for all 
families, especially low-income households, to grow their personal 
savings account or invest in savings vehicles such as an IRA or 529 
College Savings Plans. Splitting refunds across multiple accounts is a 
new and exciting opportunity to save at tax time. The IRS should work 
to educate both individual filers and tax preparers on the split 
refunds option, encourage tax-payers to take advantage of this simple 
savings mechanism and encourage the financial services industry to make 
certain products--529 plans and IRAs, especially--more easily funded 
through direct deposit.
Allow Tax Filers to Open Accounts Directly from their Tax Forms
    Building on the opportunities presented by split refunds to use tax 
refunds to jump-start both a relationship with a financial institution 
and savings, tax filers should be able to open a transaction, saving, 
or investment (including IRA) account directly on their tax forms. 
Especially for low income families who receive refunds and may not have 
an account--and a savings or investment account in particular--with a 
financial institution, being able to open such an account directly on a 
tax form could make a major difference in the savings take-up rate. The 
IRS could achieve this goal in several ways. For instance, the IRS 
could solicit proposals for private financial institutions to provide 
low-cost quality accounts nationwide. Or, the IRS could create and 
maintain a web-based directory of financial institutions that open low-
or no-cost accounts online for tax filers. The directory's URL address 
would be printed on all tax forms and it would be searchable by zip 
Expand the Earned Income Tax Credit (EITC)
    An expansion of the EITC, in addition to enabling more low-income 
Americans to save, would provide tax relief to lower-income working 
families. Previous expansions of the EITC have proven to be effective 
at providing work incentives and lifting families out of poverty. A 
well-crafted expansion would increase the maximum credit for working 
families with three or more children, expand the credit for married, 
two-earner couples, and expand the credit for families with two or more 
children. An expanded EITC program will create larger tax refunds, 
which in turn can be linked to savings products. An EITC saver's bonus, 
described above, would also serve to expand the reach of the EITC while 
at the same time promoting saving and investment.
Increase Funds to Low-Income Tax Preparation Sites to Support Financial 
        Education and Counseling
    Congress should increase federal funding by $50 million to support 
the expansion of important IRS initiatives aimed at low-income 
families, such as outreach regarding the EITC and the Child Credit. The 
receipt of tax returns presents an opportunity for low-income families 
to connect to financial services and products and learn about 
investments and savings. Linking tax preparation with savings and/or 
investment tools, such as 529 college saving plans, would increase 
asset-building knowledge. To meet these goals, tax preparers need 
resources to (1) hire and train counselors and (2) develop software to 
maintain client information. Policy-makers must more adequately fund 
and support the development of tax preparation sites and education 
efforts to identify families who qualify for such assistance and 
maximize potential income tax return benefits. In line with these 
goals, in March 2007 Sen. Jeff Bingaman (D-NM) requested $10 million in 
appropriations for community-based Volunteer Income Tax Assistance 
Centers for Fiscal Year 2008.

            5. Make 529 College Savings Plans More Inclusive

Create a State Innovation Fund
    A variety of state and private sector actors have enacted 
innovative programs within their 529 plans to primarily help low-income 
children pay for college. For example, a few non-profit organizations 
have offered matches to families saving for college through parallel 
529 scholarship accounts. In SEED for Oklahoma Kids, 1,000 newborns 
will receive a 529 plan with a starter deposit of $1,000. Financial 
information and matching deposits will be provided as incentives for 
families to continue to save for a post-secondary education. Coalitions 
are being formed in states such as Kentucky and Michigan to look into 
the possibilities of universal 529s for every child in the state with 
progressive savings incentives incorporated to help low-income 
families. The Federal Government could encourage these types of 
innovative activities by sponsoring a competitive grant process where 
states could receive awards to help seed these initiatives
Add 529s to the List of Products Eligible for the Saver's Credit
    The Saver's Credit currently provides a 50 percent match--in the 
form of a non-refundable tax credit--to low-and moderate-income people 
who contribute to a retirement account such as a 401(k) or IRA. To 
further promote savings in general, a range of savings products, 
including 529s, could be added to the list of products that trigger 
this credit; the administration proposed such a change as part of the 
FY 2008 Budget. Certainly one could argue that pre-retirement assets--
especially a post-secondary education--is a critical element of 
retirement security, and it should be noted that all IRAs already 
permit tax-and penalty-free withdrawals for post-secondary education.
Support Matching Grants to Low-Income Savers
    Currently 529 plans are largely underutilized by low and middle-
income families. A number of states have dedicated funds to match 
savings in 529 plans as an additional incentive for low-income 
families. These incentives appear to be successful in encouraging 
families to contribute to 529 plans. Seven states--Colorado, Louisiana, 
Maine, Michigan, Minnesota, Rhode Island, and Utah--already provide 
matching funds to low-income savers, and Arkansas will begin providing 
targeted matches in 2008.

         6. Foster Access to Wealth Building Financial Services

Fix the Electronic Transfer Account (ETA) and Expand Its Availability
    Currently, the ETA is available only to those Americans who receive 
a recurring federal payment, like Social Security. Approximately 2 
percent of federal benefits recipients have opened an ETA. Yet it is 
estimated that at least 4.5 million federal benefit recipients still do 
not have bank accounts. The take-up rate is low because the ETA is not 
attractive to either consumers or banks. For consumers, the account 
lacks functionality. For banks, there is an insufficient volume of 
small accounts. The Treasury Department should give banks greater 
flexibility to offer customers a range of options with different fee 
structures, as long as the bank continues to offer at least one low-
cost option that is available to any federal benefit recipient 
regardless of past banking history. The need for a basic bank account 
is high and the ETA continues to represent a potentially useful 
infrastructure for providing access to financial services--particularly 
if account eligibility guidelines are expanded and banks are given 
greater flexibility to better tailor the product to meet consumers' 
needs. Further, the ETA should be made available to a broader segment 
of unbanked consumers, especially those who receive tax refunds.
Strengthen the Community Reinvestment Act and Improve the Service Test
    The Community Reinvestment Act (CRA) has been successful in 
encouraging banks and thrifts to provide credit and make investments in 
communities in which they have branches. It has been less successful in 
ensuring that CRA-regulated institutions are actually serving the 
transactional, savings and investment needs of residents of low-income 
communities, and in encouraging those institutions, and their credit-
providing affiliates, to provide products with appropriately risk-based 
prices and terms in all communities in which they do business. To score 
well on the service tests, banks and thrifts should be required to 
demonstrate that they not only provide, but also effectively market, 
fairly priced products and services that meet the needs of lower-income 
consumers. And it is time to consider how to both encourage banks and 
thrifts to extend their best lending beyond their assessment areas and 
to make certain that non-prime lending within the holding company 
family is well-priced and on fair terms.
Increase Accountability and Responsibility for Financial Institutions
    While the Community Reinvestment Act has been quite successful in 
increasing responsibility and accountability of banks and thrifts to 
low- and moderate-income communities in which they have branches, the 
financial services world has changed dramatically since CRA was enacted 
in 1977, and those subject to CRA have a smaller and smaller portion of 
the consumer's financial ``wallet.'' Credit unions, mortgage bankers 
and brokers, insurance companies, securities firms and providers of all 
sorts of alternative financial services from check cashing through pawn 
broking all compete for the consumer's financial business. While each 
industry is subject to, for example, laws relating to unfair trade 
practices, as well as its own distinct laws and regulations (with 
highly variable levels of supervision and enforcement), there is no 
uniform obligation to serve low- and moderate-income consumers and 
communities and to do it in a manner that is fair to the consumer while 
profitable, and thus sustainable, to the provider. The on-going debacle 
in the sub-prime lending industry suggests the need to revisit this 
situation and open the debate on corporate responsibility in all parts 
of the U.S. financial services sector.
Capitalize an Innovation Fund to Facilitate R&D Focused on Under-Banked 
    The Treasury Department should create an Innovation Fund to spur 
systemic change throughout the financial services industry by providing 
seed funding for financial services companies to develop products and 
services for under-banked consumers. These R&D funds would encourage 
banks--and other financial services firms--to engage in the kind of 
intensive research and planning that they perform to develop products 
and services for higher income consumers. The fund would seek to 
increase the reach of mainstream financial institutions into the under-
banked market by encouraging innovation both in how products are 
structured and in how they are marketed and delivered. Ideally, 
products would bundle multiple functions, include a savings feature 
where feasible, use incentives creatively, and be competitively and 
responsibly priced.
Encourage TANF Recipients to Open Bank Accounts
    Having a bank account is often one of the first steps towards 
building savings and assets. One way to assist TANF recipients--many of 
whom are ``unbanked''--in this regard, while potentially curtailing 
costs of delivering benefits to recipients, is to have benefits 
electronically transferred to an account. Federal law does not require 
or prohibit electronic delivery of TANF cash assistance. Many states 
distribute TANF cash assistance via electronic benefit transfer (EBT) 
to a debit or stored-value card with access to funds via ATMs. Some 
states also offer recipients the option to have cash benefits directly 
deposited into a bank account. States that do not have a direct deposit 
option already in place could be encouraged to do so by offering bonus 
awards for states that reach a particular direct deposit threshold and 
by requiring states to specify in their state plans how they will 
encourage direct deposit of TANF benefits, and partner with financial 
education programs, free tax counseling programs, and mainstream 
financial institutions (banks and credit unions) to encourage unbanked 
recipients to open free or low-cost accounts.

       7. Revise Asset Limit Rules in Public Assistance Programs

Eliminate Asset Limits from Eligibility Considerations
    Eliminating asset limits entirely from certain programs should be 
considered and adopted where appropriate. Because states set the asset 
limits for TANF and Medicaid, the Federal Government has limited 
control over asset limits, with discretion primarily in the SSI and 
Food Stamp programs. However, the Federal Government could support 
states that choose to eliminate asset limits and commission research on 
the effects of this reform.
Reform Existing Asset Limits
    Raise the limit. Asset limits could be raised to a more realistic 
level in public assistance programs, so that families could save more 
without being penalized, and then indexed to inflation to keep pace 
with rising costs. The raising of asset limits will encourage families 
to save in a variety of saving products, including Savings Bonds. 
Unlike income limits, which are adjusted upwards on a regular basis, 
asset limits in some programs have remained the same for several 
decades. In effect, asset limits have caused eligibility to become more 
and more restrictive over time. Program funding levels may benefit from 
the recent change to a more temporary focus on administering 
assistance, but families will benefit more from a long-term plan of 
savings and asset-accumulation
    Index limits to inflation. The asset limits currently used in 
determining eligibility for major income support programs such as Food 
Stamps and SSI have, in some cases, not been updated in more than two 
decades. Over time, these limits become increasingly restrictive as 
they are not updated to reflect the effects of inflation. Indexing 
asset limits to inflation will work to ensure that the limits retain 
their original purchasing power and spare Congress and state 
legislatures from the need to continually legislate an increase.
    Exclude certain asset holdings, such as savings for education and 
retirement; a car; and EITC refunds. Currently, employer sponsored 
401(k) plans as well as IRAs generally are counted towards asset 
limits. Families needing to go on temporary public assistance therefore 
may have to spend down these retirement accounts even if they face a 
penalty in doing so. These families, who likely already lack sufficient 
retirement savings, will have even less--making it more likely that 
they will have to rely even more on public assistance once again when 
they are seniors. In line with excluding retirement accounts, 
contributions to 529s and other restricted education savings plans 
should also be excluded from eligibility consideration.
    Cars are often overlooked as ``assets'' because they quickly 
depreciate in value. However, the value of a car should not be measured 
only by its resale value, but by the utility it provides in giving 
families access to job opportunities across their region. This is 
particularly important for families in areas lacking a convenient 
public transportation system.
    Finally, low-income workers who receive an EITC refund should be 
allowed to save their refund for up to a year after receipt to pay for 
unexpected expenses, debts, and other purposes. This would help 
families pay for both expected and unexpected expenses throughout the 
year and offer greater protection from financial emergencies that could 
cause them to return to public assistance. This one-year time period 
has already been set in the Food Stamp program and the SSI program 
allows the EITC to be disregarded for nine months, so these precedents 
could be expanded to other programs which receive federal funding.
Reform Asset Limits in the Supplemental Social Security (SSI) and 
        Medicare Programs
    Asset limits in the SSI and Medicare programs currently impose an 
implicit tax of 100 percent on all retirement savings--for every dollar 
withdrawn for use in retirement, an individual's benefit is reduced by 
a one-for-one ratio. Under these program rules, individuals who saved 
for retirement during their working years are no better off than if 
they had not saved at all. SSI and Medicare asset limits must be 
reformed to restore the incentive for low-income workers to save for 
retirement by removing, or reducing, the penalty for withdrawals from 
retirement accounts. \19\ Additionally, asset limits in SSI and 
Medicare present a tangible disincentive to save for pre-retirement 
uses, such as skills training, homeownership, or home improvement. SSI 
recipients, who may be capable or working for short periods, are 
prohibited from saving more than $2,000; when their disability results 
in an inability to work, these individuals must spend down their 
savings in order to re-qualify for SSI assistance. Not only do asset 
limits prevent SSI recipients from saving for skills training or 
homeownership these rules also prevent individuals from building a 
personal safety net through precautionary savings for use in a personal 
or medical emergency. The above recommendations to raise and index 
asset limits in addition to excluding all restricted savings vehicles, 
could make a tremendous impact on the financial security of this 
    \19\ Center on Budget and Policy Priorities (2007).

           8. Expand Responsible Homeownership Opportunities

Enact a Refundable First-Time Homebuyers' Tax Credit
    The years immediately following a home purchase can be ones of 
financial hardship. Family income is devoted to mortgage payments and 
many auxiliary expenses accrue related to the maintenance and operating 
of a home. There is often a need to help sustain homeownership after 
the initial purchase. In addition to giving new homeowners access to 
information and services to prevent foreclosure, many homeowners would 
benefit from getting some financial relief in the years immediately 
after home purchase. A Homebuyers Tax Credit should be available to 
qualifying households for the three years after purchasing their first 
home, helping families sustain homeownership after trying so hard to 
achieve it. Qualifying households would apply for the tax credit 
directly on their tax returns. The credit would be refundable so it 
benefits families even with low or no tax liabilities. The benefits 
would appear as a lower tax liability or as a tax refund.
Increase Use of the Family Self-Sufficiency Program
    The FSS program is one of the Nation's largest programs designed to 
help working poor families increase their savings. When earnings 
increase for Section 8 or public housing program participants, their 
rising rent payments are diverted into an escrow account which they can 
access after achieving self-sufficiency goals. While public housing 
authorities have the ability to open escrow accounts, they are required 
to identify designated case managers. In recent years, the funding to 
support case managers has been restricted and plagued by bureaucratic 
    The Department of Housing and Urban Development (HUD) should 
stabilize these funding streams, increase their capacity to hire case 
managers and more effectively seek partnership with agencies already in 
the case management business. FSS has proven to be a successful model, 
and HUD should expand it by encouraging local partnerships between 
organizations with complimentary skill sets. Developing and publicizing 
FSS partnership arrangements will provide support for FSS practitioners 
by sharing best practices and entrepreneurial approaches to program 
growth. Beyond these reforms, the FSS approach should be dramatically 
expanded upon. The number of participants should double within the next 
four years. Furthermore, policymakers should consider making the link 
between increased earnings and savings accounts a central feature of 
the provision of housing assistance.
Expand Viability of Homeownership Uses from Restricted Accounts
    In recent years the number of tax-preferred savings products which 
are defined by rules that govern contributions and withdrawals has 
continued to grow. While many of these accounts are associated with 
retirement, they have many pre-retirement allowable uses, including 
first-time homeownership. Though some have described these uses as 
``leakages,'' accrued savings can be used productively to help build a 
bridge to retirement. Policymakers should consider make these uses more 
robust and valuable, especially by updating the provisions related to 
first-time homeownership. First, policymakers should amend the rules 
for IRAs and Roth IRAs to raise the one time homeownership use 
allowance from IRAs from $10,000 to $20,000, which would bring this 
level up to a more contemporary downpayment standard. Second, rules 
which govern 401(k) and 403(b) plans should be amended to permit savers 
to use their funds for first-time homeownership and make the rules 
consistent with those for IRAs.

  9. Strengthen Laws to Protect Assets Increase the Oversight of the 
 Homebuying and Refinancing Market, Especially in the Sub-Prime Sector

    The existing protections for high-cost and other potentially 
dangerous home loans must be improved. This would include prohibiting 
equity stripping practices, such as excessive prepayment penalties and 
fees for payoff information, modification, or late payment; requiring a 
borrower receive counseling before entering into a high-cost loan; and 
prohibiting mandatory arbitration clauses on high-cost loans. Consumers 
must also be far more effectively informed of all the terms of a loan--
especially likely changes in payments arising from expiration of 
``teaser'' rates--and lenders required to underwrite to ensure 
customers can pay after teaser rates expire and full amortization 
begins. More effective state oversight of mortgage brokers and others 
under their jurisdiction is also required.
Reduce the Cost of Tax Preparation and Restrict the Marketing of Refund 
        Anticipation Loans
    The IRS should continue to expand the provision of free electronic 
filing. Further, it should ensure that 1) the free services are easier 
for eligible tax filers to access and navigate; 2) the marketing of 
Refund Anticipation Loans is limited; and 3) options to open IRAs 
online are included.
Promote Strategies to Avoid Foreclosure
    Overall foreclosure levels, and in particular foreclosure levels 
for sub-prime loans have hit record levels, and are expected to 
continue to increase, damaging not only families but also whole 
communities. Borrowers in trouble need access to both information to 
enable them to understand the potential for trouble while they still 
have the ability to refinance or to otherwise avoid foreclosure; and to 
non-predatory alternative mortgage products. In neighborhoods at risk 
of large numbers of foreclosures, lenders should be encouraged to make 
available homes vacated by borrowers who must move at no or low cost to 
community-based organizations that can resell the homes to borrowers 
who can afford the home, using an affordable mortgage product. 
Modifications to loan contracts (especially those that use pre-payment 
penalties to lock borrowers into loans they cannot pay), securities 
terms or laws (to allow modification of securities to allow loan 
prepayment or payment at less than par), or the Bankruptcy Code (to 
allow the secured part of a mortgage obligation to be reduced to no 
more than the value of the house) may also be required.
Increase Scrutiny of Payday Loans
    Payday loans--which are short-term, low-dollar loans secured by a 
post-dated check--have become a serious asset-depleting type of 
lending, especially in moderate-income, working communities. Auto title 
lenders and pawn shops serve similar functions. While some states have 
been able to enact laws that limit or reduce payday lending, others 
have enacted more permissive statutes. Following revelations about the 
damage this type of lending was having upon the military, in 2006 
Congress enacted the Talent Amendment to the Defense Appropriations 
bill, which establishes strict standards for consumer lending to 
members of the military and their dependents. While the Department of 
Defense must write implementing regulations before the law goes into 
effect in October 2007, the statute has focused attention more broadly 
on why there is a growing demand for such credit, why the demand is not 
being met by traditional financial institutions such as banks and 
credit unions and how consumers can be better served. The Federal 
Deposit Insurance Corporation (FDIC) has issued proposed guidelines to 
encourage banks to provide both payday loan alternatives and savings 
products to reduce the need, and is considering a pilot program to 
explore how banks could get back into this business in a sustainable 
manner while helping customers move toward more constructive forms of 
credit. It is important that the FDIC's efforts are encouraged, that 
other bank and credit union regulators take similar steps, and that 
efforts to restrict payday and similar lending continue in the states.
Prevent Credit Card Abuses
    The terms under which most credit cards are issued are virtually 
impossible to understand and present a substantial trap for the unwary 
and, especially, those who are financially stressed. Congress has 
recently held a series of hearings that have highlighted some of the 
worst abuses, such as double-interest and universal default clauses, 
and some financial institutions have begun to change the most egregious 
terms. But there is need for additional action, both to help card 
issuers who are willing to improve terms not be undercut by 
competitors, and to ensure that credit cards are offered on terms that 
are fully, accurately, and timely disclosed in a manner that is easily 
understood; make sense to consumers (e.g., a credit limit is a limit on 
credit granted, not an opportunity to charge an over-limit fee); and 
fairly enforced.