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The Ladder

A Blog from New America's Asset Building Program

Walking Up a Slide, Policy Style

Published:  January 20, 2011
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Poverty is growing and being populated by people who once occupied the middle-class, a phenomenon the Washington Post is calling "the Great Slide," a legacy of the Great Recession induced by "job losses, declining home values and decimated retirement savings." For many of the nouveau-poor, the impact at the bottom of the slide is cushioned by a set of safety net programs that are intended to provide families with the resources to prevent extreme hardship. As Melissa Boteach, the manager of the Half in Ten campaign, points out to The Nation:

"The fact is we all have the potential to lose a job and experience economic insecurity, and we want that safety net there for us as well," says Boteach. "People who never thought they would rely on food stamps are now needing them—we hear that all the time. People who used to be the ones volunteering at soup kitchens or working at service-providing nonprofits are now often forced to turn to those same services themselves."

The impact of Great Slide is evident in the increase in participation in federal safety net programs. For example, participation in the Supplemental Nutrition Assistance Program, or SNAP (formerly known as the Food Stamp Program), increased from just over 27 million in December 2007 at the beginning of the recession, to over 43 million in October 2010, a program record. The number of people claiming Unemployment Insurance climbed from almost 3 million to 7.2 million between the beginning and official end of the recession.

While these programs are providing critical assistance to millions of families, many for the first time, getting a toehold to move up the economic ladder and regaining the markers of middle-class life that were lost in the Slide require building savings, an objective that is not supported and even penalized by current safety net programs. Eligibility rules governing public assistance programs follow a "having a smoke detector AND fire extinguisher is redundant" approach that can require that low-income families spend down their savings to specified asset limits in order to qualify for critical services and support. In TANF, asset limits can be as low as $1,000 in states.

The Obama Administration has proposed establishing an asset limits floor of $10,000 for all federally-funded programs except SSI, Medicaid, and Medicare and exempting refundable tax credits, such as the Earned Income Tax Credit, from counting toward the calculation of asset limits for 12 months. Some progress was made in that direction last year when the latter part of that proposal covering tax refunds was included in a package of legislation that included extending the 2001/2003 tax cuts for 2 years, at which time this provisions will also expire. Currently, refunds can count as assets in as little as one month. This means that if you receive you tax refund in April, if you haven't spent it all by the end of May, you could lose assistance from some programs.

This policy has a couple things going for it:

First up, common sense. One anti-poverty program shouldn't disqualify you from another. The tax refunds for low-income working families got a lot bigger when Congress passed the American Recovery and Reinvestment Act in 2009. This was a strategy both to infuse money into the economy by increasing the resources of families who struggle to meet their basic needs and will, therefore, spend it out quickly and to help mitigate the impact of the recession on low-income households. The increase in the Child Tax Credit, for instance, could represent $1,500 for a mother of two kids working full time at the minimum wage. It undermines the value of this investment if it prevents households from qualifying for other programs for which they would otherwise be eligible, particularly programs that function in a countercylical fashion and produce an "automatic stabilizing" effect during economic downturns by increasing the money to low-income households as participation rises, which sustains a demand for goods and services and supports economic recovery.

Second, policy coherence. The Administration has launched a couple of very promising efforts to increase savings among low-income households at tax time. As part of Treasury's pilot program to provide participating filers prepaid debit cards rather than refunds, some participants will have an option of depositing part of their refund into a linked savings account. Another is the SaveUSA initiative, which builds off of the success of the $aveNYC experience to couple the windfall moment that many low-income households experience with the receipt of their refund with a matched savings incentive. Encouraging low-income households to save their tax refund with one policy and penalizing them for it with another makes little sense.

Third, timing. This step builds momentum for broader asset limit reform. In addition to creating a disincentive to save, asset limits are costly to states to administer and create needless complexity for families trying to access critical supports. At a time when millions of households are turning to safety net programs for assistance, removing this burden from cash-strapped states and families in need could not be more consequential.

Regardless of whether you slid into poverty from the middle class or have occupied that space for some time, accessing supports to meet your immediate needs should not put your further behind or making harder to climb back up. This step, albeit temporarily, moves in the direction of that principle.



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