- HOW WELFARE AND TAX BENEFITS CAN DISCOURAGE WORK

[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]

HOW WELFARE AND TAX BENEFITS
CAN DISCOURAGE WORK

=======================================================================

JOINT HEARING

before the

SUBCOMMITTEE ON HUMAN RESOURCES
AND
SUBCOMMITTEE ON SELECT REVENUE MEASURES

of the

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

ONE HUNDRED TWELFTH CONGRESS

SECOND SESSION

__________

JUNE 27, 2012

__________

Serial No. 112-HR14/SRM08

__________

Printed for the use of the Committee on Ways and Means

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COMMITTEE ON WAYS AND MEANS

DAVE CAMP, Michigan, Chairman

WALLY HERGER, California SANDER M. LEVIN, Michigan
SAM JOHNSON, Texas CHARLES B. RANGEL, New York
KEVIN BRADY, Texas FORTNEY PETE STARK, California
PAUL RYAN, Wisconsin JIM McDERMOTT, Washington
DEVIN NUNES, California JOHN LEWIS, Georgia
PATRICK J. TIBERI, Ohio RICHARD E. NEAL, Massachusetts
GEOFF DAVIS, Kentucky XAVIER BECERRA, California
DAVID G. REICHERT, Washington LLOYD DOGGETT, Texas
CHARLES W. BOUSTANY, Jr., Louisiana MIKE THOMPSON, California
PETER J. ROSKAM, Illinois JOHN B. LARSON, Connecticut
JIM GERLACH, Pennsylvania EARL BLUMENAUER, Oregon
TOM PRICE, Georgia RON KIND, Wisconsin
VERN BUCHANAN, Florida BILL PASCRELL, Jr., New Jersey
ADRIAN SMITH, Nebraska SHELLEY BERKLEY, Nevada
AARON SCHOCK, Illinois JOSEPH CROWLEY, New York
LYNN JENKINS, Kansas
ERIK PAULSEN, Minnesota
KENNY MARCHANT, Texas
RICK BERG, North Dakota
DIANE BLACK, Tennessee
TOM REED, New York

Jennifer Safavian, Staff Director

Janice Mays, Minority Chief Cousel

______

SUBCOMMITTEE ON HUMAN RESOURCES

GEOFF DAVIS, Kentucky, Chairman

ERIK PAULSEN, Minnesota LLOYD DOGGETT, Texas
RICK BERG, North Dakota JIM McDERMOTT, Washington
TOM REED, New York JOHN LEWIS, Georgia
TOM PRICE, Georgia JOSEPH CROWLEY, New York
DIANE BLACK, Tennessee
CHARLES W. BOUSTANY, Jr., Louisiana

______

SUBCOMMITTEE ON SELECT REVENUE MEASURES

PATRICK J. TIBERI, Ohio, Chairman

PETER J. ROSKAM, Illinois RICHARD E. NEAL, Massachusetts
ERIK PAULSEN, Minnesota MIKE THOMPSON, California
RICK BERG, North Dakota JOHN B. LARSON, Connecticut
CHARLES W. BOUSTANY, Jr., Louisiana SHELLEY BERKLEY, Nevada
KENNY MARCHANT, Texas
JIM GERLACH, Pennsylvania

C O N T E N T S

__________

Page

Advisory of June 27, 2012, announcing the hearing................ 2

WITNESSES

Panel 1:

The Right Hon. Iain Duncan Smith, Secretary of State for Work and
Pensions, United Kingdom, testimony............................ 4

Panel 2:

Representative Gwen Moore (D-WI), testimony...................... 28

Panel 3:

Dr. Clifford Thies, Ph.D., Professor of Economics and Finance,
Shenandoah University, testimony............................... 38
Dr. Eugene Steuerle, Ph.D., Senior Fellow, The Urban Institute,
testimony...................................................... 49
Dr. Jared Bernstein, Ph.D., Senior Fellow, Center on Budget and
Policy Priorities, testimony................................... 64
Dr. Ike Brannon, Ph.D., Director of Economic Policy and
Congressional Relations, American Action Forum, testimony...... 78

SUBMISSIONS FOR THE RECORD

Anne Stevenson................................................... 95
Center for Fiscal Equity......................................... 112
Cherie Boeneman.................................................. 115
CLASP............................................................ 118
Recapturing the Vision........................................... 128

HOW WELFARE AND TAX BENEFITS
CAN DISCOURAGE WORK

----------

WEDNESDAY, JUNE 27, 2012

U.S. House of Representatives,
Committee on Ways and Means,
Subcommittee on Human Resources,
Subcommittee on Select Revenue Measures,
Washington, DC.
The subcommittees met, pursuant to call, at 12:15 p.m., in
Room 1100, Longworth House Office Building, the Honorable Geoff
Davis [Chairman of the Subcommittee on Human Resources]
presiding.
[The advisory of the hearing follows:]

HEARING ADVISORY

Davis and Tiberi Announce Hearing on How Welfare and Tax Benefits Can
Discourage Work

*UPDATE: NEW TIME*
Wednesday, June 27, 2012

*UPDATE: NEW TIME*

Congressman Geoff Davis (R-KY), Chairman of the Subcommittee on
Human Resources of the Committee on Ways and Means, and Congressman Pat
Tiberi (R-OH), Chairman of the Subcommittee on Select Revenue Measures
of the Committee on Ways and Means, today announced that the
Subcommittees will hold a joint hearing on how certain welfare and tax
programs can discourage work as a result of the high effective marginal
tax rates they impose on certain populations. The hearing will take
place on Wednesday, June 27, 2012, in 1100 Longworth House Office
Building immediately following the full committee markup that begins at
10:00 AM.

In view of the limited time available to hear witnesses, oral
testimony at this hearing will be from invited witnesses only.
Witnesses will include experts who have studied how increased earnings
may not yield additional income for families due to the complex
interaction between earnings and federal tax and transfer programs.
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.

BACKGROUND:

Low-income families often receive benefits from multiple welfare
and tax programs, such as assistance with food, housing, and day care
costs, help with medical costs, or cash payments to supplement earnings
from work. While these programs often support and encourage employment,
program ``phase-out rules''--especially when combined across multiple
programs--mean certain households may not be significantly better off
if they earn more from work.

Economists have studied the interaction between earnings and
benefits under various programs by focusing on what are called
``implicit marginal tax rates,'' which refers to the portion of an
additional dollar of earnings effectively lost due to rising taxes and
benefit reductions. Due to implicit marginal tax rates that can
approach or even exceed 100 percent when individuals receive benefits
from multiple programs, it is possible that some individuals will be
little better off financially--and in some cases even worse off--if
their earnings increase.

This problem has been exacerbated by the addition of new programs
and the expansion of existing programs over time. For example, the
expansion of the Earned Income Tax Credit over time has allowed more
households to claim this credit and has increased the benefit received
by many households. However, these expansions also mean that more
families face a higher implicit marginal tax rate as their earnings
increase and the credit phases out. In addition, the Patient Protection
and Affordable Care Act created a new subsidy to purchase health
insurance that phases out as household income increases. As the phase-
out of these healthcare subsidies interacts with other welfare and tax
programs for families, the return from working will be even lower than
before and individuals who increase their earnings may keep even less
of their hard-earned money in the future.

In announcing the hearing, Chairman Davis said, ``Americans should
believe with confidence that hard work pays off. However, because of
today's many welfare and tax programs for low-income families, it is
not clear that work pays--and in fact additional work may not actually
result in additional income. Federal programs must send a clear message
that work is always better than welfare. This hearing will allow us to
explore problems with the current system and determine how we can
ensure these programs can be improved to encourage families to increase
their work and self-reliance.''

Chairman Tiberi said, ``In recent years, Congress has increasingly
used the Tax Code to provide means-tested benefits to low- and
moderate-income Americans. These programs, however, are often flawed,
imposing high marginal tax rates on those in the phase-out ranges as
well as steep marriage penalties--thus discouraging both work and
marriage. As part of comprehensive tax reform, this hearing will help
the Ways and Means Committee reform these tax programs to make sure
they reward work and honor marriage.''

FOCUS OF THE HEARING:

This hearing will focus on the interaction of various welfare and
tax credit programs and how concurrent receipt of benefits from those
programs can create perverse incentives that discourage work and higher
earnings.

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Chairman DAVIS. Good morning, everybody. Welcome to today's
joint review of how welfare and tax benefits can discourage
work. Before we begin our regular session today with opening
statements, I would like to recognize a very special guest who
is in Washington, D.C., the Right Honourable Iain Duncan Smith,
Member of Parliament, the Secretary of State for Work and
Pensions for the United Kingdom. We are truly appreciative that
he has been able to adjust his schedule to join us today for a
few minutes. The United Kingdom is currently undertaking
significant reforms to its welfare and tax benefit programs to
streamline their administration and reduce marginal tax rates
so that work always pays.
This is an issue that I have cared about for many years. We
have been watching many of the developments in Great Britain
closely, as these reforms have been undertaken in what appears
to be a very bipartisan manner, and he has graciously agreed to
share with us information about these recent reforms in the
U.K., which will be useful as we consider the effectiveness of
our own programs.
Mr. Secretary, we did a little digging through our
archives, and even with the help of the experts at the
Congressional Research Service we are not able to find another
example of a sitting Foreign Secretary appearing before the
Ways and Means Committee on nontrade matters, so this is
actually a historic occasion. We are honored to have you join
us today. And please proceed with your statement.

STATEMENT OF THE RIGHT HONOURABLE IAIN DUNCAN SMITH, SECRETARY
OF STATE FOR WORK AND PENSIONS, UNITED KINGDOM

Mr. SMITH. Mr. Chairman, thank you very much indeed. I must
say it is a pleasure to be here. It is also rather satisfying
in this surrounding. I am used to doing my answering across the
dispatch box in the House of Commons, being screamed and
shouted at by most of the others at the other side within
almost arm's reach. So I am anticipating that not to happen
here necessarily, but if it does I hope I will be able to
handle it.
Can I just say that what we are trying to do in the U.K. is
much the same as anywhere else, is trying to figure out what
has been going on with a system that was set out to actually
try and help people to become independent but actually traps
them now in a form of dependency.
We saw spending on welfare increasingly rise by 39 or 40
percent under the last government at a time prior to the
recession. So, during a period of growth, the economy was
growing but we were also seeing welfare grow, which does seem
to be rather peculiar. And what we saw here was a growing level
of people who apparently just didn't work, a very large number
who regardless of whether the economy was growing or not were
out of the environment of work. That, to my mind, causes wider
problems we must recognize.
It is not enough just to take people off benefits. Anybody
can do that. The question you have is where do those costs then
go, because they don't disappear. By that I mean, for example,
even if you don't pay people benefits, you end up with a kind
of creative underclass, and that underclass then becomes very
expensive in other ways, in policing. We saw our policing bill
rise by over 50 percent during the course of the last
government.
Your health, this is where most of your serious health
concerns exist amongst the same underclass. They are the
biggest drawer on health care and they are also the biggest,
the most likely group to be almost recording every kind of
sickness you can possibly imagine. So health care bills are
highest. And last of all, education is deeply disrupted by
people from that underclass who themselves have no expectation
or anticipation of proceeding. So their knock on,
notwithstanding the cost in taxation, therefore is huge to all
of us. And so handling and changing this is not just about
reducing the welfare bill, which of course is critical, it is
also about reducing those other costs that come as a result of
having a group like this.
And so what we have chosen to do is to look at, first of
all, one, the entrapment principle. That is to say the welfare
system that you set up: does it free people or does it trap
them? And what we believe is the system that we have inherited
is so complex with so many different benefits, all being
withdrawn from people as they go into work at different rates,
some are 100 percent, some are 60 percent, some are 70 percent,
as they go up the hours towards full time work, and some are
gross, some are net, it is almost impossible for the benefit
recipients to understand or calculate exactly how much they
would have in their pocket after the withdrawal. And in some
cases they are losing, in the case of some lone parents, up to
95-96 pence in every pound. So that basically means they get
about 4 or 5 pence out of every pound they work for every extra
hour, not much of an incentive and often very difficult for
them to understand that they are better off or worse off. And
they assume hugely that they are worse off, it is not worth the
effort, and so they don't make the effort.
So the system itself doesn't incentivize people to do the
right thing, it actually does the opposite. And we will see
most of the money under the last government was transferred not
to people in work, although it was not intended, but mostly to
people out of work, particularly large families living in
larger houses, often not two couple families. So a lot of the
shift of money made it worse because if you receive more money,
you are less likely to go to work. So we created a thing called
the universal credit, which starts next year. That merges all
the back-to-work benefits into one benefit, and it takes them
away at one single rate every hour. So every hour you work, you
will come off, in our case it is 65 percent. Now, that is a
line that can be adjusted according to the government. They
make that decision. It is about investing money or withdrawing
money; it is as simple as that, rather like taxation. So that
simplifies your understanding of benefits.
The universal credit is critical in two regards. One, the
marginal reduction rates are dealt with by that single, flat
taper. The other bit, which is the participation tax rate, is
the moment you enter work, to my mind that is the critical bit.
So people who have been out of work generationally, you need to
get them across that threshold, number one. After that, keeping
them in work, and I will come back to that, is critical as
well, but get them across. Keep that cliff edge very low indeed
so going across is very easy. So that decision economically
makes sense. The universal credit is basically about that,
simplification and making work. Always pays to be in work, not
on benefits. So you are better off in work always than on
benefits.
Secondly, we have a work program, which is de-risking
government, but actually making sure that it does what we need
it to do. So we hand to the private and the voluntary sector
those who are being difficult to get into work. I don't care
what they do, it is not my problem. I simply pay them only
after they have got somebody into work. So it is a payment by
result system. And there we actually pay them 6 months after
somebody has been in work and come off the benefit register.
They don't receive their money for 6 months so they need to
keep them in work, which is really critical. It is easy to get
somebody into work; it is very difficult to hold them in work.
You need to hold them in work because only then do they get
what I call the ``work habit.'' Once they got the work habit
they will then satisfy that thereafter. They will make sure
they understand work. So 6 months, 9 months, a year, even up to
18 months in the case of the most disabled. So in other words,
the rewards lie further down the chain for them, which means
they need to work with people even after they have got them
into work. And the lack of risk is because basically they only
get paid after they do the job, not before. And we calculate
that by how much money we save on benefits and therefore how
much money we can pay them. It is a straight crossover in
money.
The third area of our reforms, which is important, is
looking at sickness benefits and disability. We had a massive
problem that a huge number of people were trapped really on two
benefits, particularly one, a sickness benefit, called
incapacity benefit. If you are on it, you are ineligible for
work. We had some people on these not seen by anybody for up to
10 years. And of course if you are on a benefit like that you
are not working. It doesn't take the brains of an incredibly
intelligent individual to understand that if you had a problem
you certainly have a big problem 10 years later, so you get
worse not better. So what we have now done is we are reviewing
all of those and moving them onto a new benefit or moving them
back to work. And the assessment is around about 10,000 or
11,000 cases a week. We are doing the stock right now, and we
are finding something on the order of over a third of those who
are assessing that were are not fit for work are now going
straight back to work and they will go to a work program. Just
a bit more than that are going to the middle bit of this new
benefit, which is you will be able to get to work but you have
some transitory problems. You might be in cancer treatment or
something like that. But the expectation is you will be
available for work.
And the third group of roughly about the same, about a
third, is a group that actually there is no expectation of work
because you really are genuinely too sick.
And then of course we will keep assessing people once they
are on that other benefit every year to make sure that if they
are getting better now so we can move them back to work,
whereas before we never had a constant check on them. And the
other one is a disability benefit, which is about your mobility
and your care. We are reforming that because it got too wide,
mostly through judicial review, of course where the judges have
sat on the appeals and widened the case law. So we are now
tightening that back up now to make sure the benefit goes to
those who really need the money. And that is not work related.
So in other words you can receive that in or out of work. So
now we can work with people to make sure that they get back to
work and the most disabled are able to work, which is after all
what they really want. They don't want to be trapped out of
work.
That is it in principle. There are a lot of other things,
but those are the main things that we are doing.
[The prepared statement of Mr. Smith follows:]

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Chairman DAVIS. Thank you very much. I appreciate you
sharing some of the challenges you are dealing with and we
certainly are going to be dealing with in the very near future
with addressing processes, and quite a bit of it is unknown.
I mean, for me it is ironic having you here. I went to the
British parachute school at RAF Brize Norton 30 years ago as a
U.S. army paratrooper on an exchange. And one of the more
interesting aspects was having to jump out of an old barrage
balloon to find out if the parachute worked. It was the longest
opening time I ever had. We are glad to watch you take the
first jump so that we can learn from some of these reforms.
But as we face these challenges, unemployment rates in both
our countries are elevated, fewer people are working or looking
for work, there is increasing family breakdown that leads to
some of the social problems and financial costs that you
alluded to that you are dealing with in your own jurisdiction.
And given these factors it is critical that we develop
approaches to integrate our processes to more effectively serve
people, an issue I have cared about having grown up in a single
parent home and I was on a form of assistance as a child as
well, not meeting my father until I had been in the Army for 7
years. I am very interested in how you bring people over or
avoid this cliff of falling off when they want to go back to
work and they find disincentives.
I was wondering if you could elaborate for us on how your
reforms are meant to address each of several issues;
unemployment and work, family breakdown, and the need for
budgetary discipline from a governmental perspective in terms
of handling this, and I also understand that wage data is
playing a key role in these reforms and I was wondering if you
could comment briefly on how the wage and other data are being
used to design and operate this new system.
Mr. SMITH. Again, the reason was family breakdown. Family
breakdown was the main reason why people found themselves in
what we describe as poverty. I have this big debate about how
it is not relative income so much that looks at that income, it
is not relative income about poverty that is the key. It is
what leads you to the position of being unable to earn money
for yourself as a household. And those are the things like
family breakdown, failed education, debt, drug and alcohol
abuse and then your dependency on the state.
So those areas need to be wound into any kind of
assessment, because your lifestyle usually has a bearing on
what is likely to happen to you. And here is the point about
family breakdown. We therefore need to do a lot more in advance
about the dysfunctional family life which exists in many of
these areas. So early intervention has got to be the key to
this to put particularly young dysfunctional mums and their
families right so the kids are right early on. And secondly,
really to look at families on the edge of breakdown, so we are
now investing money into help and support from most the
voluntary sector, etc. to help stabilize families before they
break down rather than spend the huge sums we do picking up the
pieces afterwards. It is estimated over 20 plus billion pounds
a year we spend on the after effects of breakdown, whereas it
is known if you put a bit of money into this you can
restabilize families who are often on the edge but don't then
break down and the children will benefit.
So that is a huge shift to where you put your money to
focus on solving breakdown rather than dealing with the after
effects of it.
On the issue about how the system works in terms of
employment, the reality that we have here is that right now we
know what the static levels are for benefits. So what we are
simply saying is that as people go in from benefits into work,
the levels they achieve in work for each hour should mean that
their income is higher throughout that work process and
demonstrably higher than it is when they are on benefits. So
the universal credit is interesting because by and large it
shifts some of the money down to the bottom end, that is to
say, the early hours, because we think that going into work is
the biggest issue. And then moving up the hours is the
secondary issue of importance, you know, your marginal
deduction rates. So the participation tax rate, that bit going
in, you need to get that cliff edge right down so that they are
always on an upward curve in income. And that starts literally
at hour number one.
Now, that will hugely benefit, for example, lone parents
who we want to go to work because we think it is good for them
and their children after a certain point, quite rightly, that
their children realize work is a part of life and a part of
your future and they see somebody from that household working.
So a lone parent household it has to be them, if it is a two
couple household somebody else. So the early hours are really
important because they may match that with some of their
caring, but that needs to pay. And to keep them in work is
important.
So that is really how the economics of this works, which is
as they get paid, the withdrawals are lower, particularly in
the early sector. And you do that by what I call disregards. So
as they enter work, each category of persons, a lone parent,
will have an amount of their income disregarded before the
taper, so they can earn so much. A very disabled person will
have a bigger disregard than the taper. Someone who is able
bodied and young will have a very small disregard for the
taper. And the lone parent will have a disregard slightly
bigger than that and then the taper. The taper is the same for
everybody, but the disregard evaluates what your particular
level of need is for you to actually make that income work for
you. And that is where most of the money is therefore
concentrated on the investment but then takes them up the
chain. And this will allow us later on to look at in work
conditionality.
Chairman DAVIS. Thank you very much, Mr. Secretary. I would
like to recognize my friend and the ranking member of the Human
Resources Subcommittee, Mr. Doggett of Texas.
Mr. DOGGETT. Thank you for your insightful testimony. As I
understand it, this universal credit is a new approach that you
are just beginning to pilot or implement?
Mr. SMITH. That is true, that is correct. It goes live in
October next year. We are building a new software system and
everything else. And we are doing some early advance work on it
starting at around about April next year in some key areas. Not
trialing it, but running it out early in some key areas to see
what the glitches are.
Mr. DOGGETT. Is the goal that once you resolve any of those
glitches to have uniformity across the country, so you wouldn't
have a different policy in Wales from Greater London or in
Greater London from Northern Ireland?
Mr. SMITH. Not in terms of the basic structure of this, no,
but how it is delivered later on it could be a very localized
delivery. Right now, we will be doing it as a national delivery
until it is bedded in and then we are open for discussion about
whether that could actually be localized.
The key to this benefit, by the way, is that we also have
to change the way we report on taxation. So alongside this is a
big change to create what is called a real-time information
system on our tax base. Because as someone goes to work under
the present system, the tax authorities predict that they earn
a certain amount of money. We know in part-time work that hours
change, so it is not the same as the prediction. So you are
expected as an individual to report your hours changes back to
the authority so they can readjust your support through the tax
credit as it exists at the moment.
The problem is you are coming from a group that really
doesn't like authority very much, doesn't really understand it
and gets confused. You forget to do this. Some might
deliberately not do it, others forget. So they go on to pay you
too much money over the year. The end of the year they turn
around and say, oh, we have overpaid you, now we need to
reclaim that money and take it back. But of course you are
dealing with a group that spends every penny that you give them
immediately. What the real-time information system will do with
universal credit means every month we reconcile. So if your
hours change, we don't even need you to tell us because the
business reports that in their immediate report and then it
just adjusts automatically. So now we say, hold on, his hours
were down last month, we will adjust the payments this month.
Mr. DOGGETT. Are your projections that overall this will
cost more to your national treasury to have this universal
credit or less?
Mr. SMITH. We are investing money to get it in, but once it
is in, you will more than save that money back because of two
key features. The first is the point I was making, huge levels
of fraud and huge levels of error that are costing billions in
the system; they will be eradicated.
Mr. DOGGETT. How much more are you investing over the short
term?
Mr. SMITH. Over the 3- or 4-year period we are averaging
about $2 billion a year of investment. And then, as I say, once
that is bedded in, after that that is where you start. Or you
will be making your returns immediately, because we think we
will more than offset that even as we are bringing it in
through the savings we make through the error and fraud alone
that exists in the present system.
Mr. DOGGETT. One of the obstacles that we found in this
country to people moving freely from one job to another or
moving from a job to setting up a small business is the lack of
access to health insurance. Is it your feeling that access to
health insurance in the U.K. is helpful to promoting
employment?
Mr. SMITH. Well, our system of course is fundamentally
different from what you have over here.
Mr. DOGGETT. Yes, it is.
Mr. SMITH. We have the National Health Service and
therefore everybody gets access free at the point of delivery.
Mr. DOGGETT. You don't have any barrier to employment from
people being locked into an insurance policy at one job and
fear of losing it if they move to another setting up a small
business.
Mr. SMITH. People do have private insurance, but I don't
think it plays anything like the part it would play here
because of that level of basic health care that they get. I am
not, by the way, entering the argument about whether you should
have anything similar here.
Mr. DOGGETT. What we have and what has been adopted here is
very dissimilar, but it does reduce that job lock. And of
course when we were considering it, one of your European
parliamentarians was on Fox News telling us what a horrible
system there was over there. He was repudiated by Prime
Minister Cameron who referred to your health service as a great
national institution. Is it still a great national institution
in the U.K.?
Mr. SMITH. Yes. That is being reformed at the moment. There
is a big, big change taking place. We have just put some
reforms through to make it much more responsive to what people
actually need and to make sure the money that you spend is
focused, although overall we spend less money on health care
than you do over here.
Mr. DOGGETT. Well, I agree with the concept of reform but
not with repeal so that we have access to health insurance for
our workers here. And thank you for your testimony.
Chairman DAVIS. I thank the gentleman. And the chair now
recognizes Mr. Boustany from Louisiana, the chairman of the
Oversight Subcommittee.
Mr. BOUSTANY. Thank you, Chairman Davis. Welcome. It is
great to see you here today, and we appreciate the tremendous
work you all are doing to reform this complex system in the
U.K. to really align the incentives, to make sure that work
actually pays and that those who are receiving the benefits
will understand that moving, crossing that threshold to get to
work is where they need to go, and of course how do you keep
them in employment.
I want to focus on a slightly different part of what you
were doing with reforms. I think it is called the work program.
And it is a system of delivering employment services to these
individuals. And as you restructured the benefits, the
structure of the welfare benefits and tax benefits, you are
also looking at your delivery system for these benefits. And my
understanding is you have ways to leverage nonprofit
organizations, certain private organizations, not only to help
these individuals get into the workforce but stay in the
workforce. Could you elaborate on this program?
Mr. SMITH. We describe the work program, which I think is
unusual for two reasons. The first is that it is a payment by
result system. So the risk is not taken by the taxpayer, the
risk is taken by the private and the voluntary sector who
actually run the program. So we don't pay them until they have
got somebody in work and kept them there for a minimum of 6
months. And then after that they get further payments the
longer they are in work.
The second point about this is that we also call it a black
box system. By that I mean simply it is not my job to tell them
what they should do, it is their job to figure that out and do
it. This is where the voluntary sector comes in. The prime
contractor, there are 18 of them in different areas, and they
will have underneath them different subcontractors, some
private, some voluntary. There is a lot of voluntary sector.
And they tend to be the organizer, they will use to deal with
systemic problems that an individual has. For example, somebody
who, and we know this by knowing what prisoners are. They have
no ability to read or write, a reading age of 10, even age of
11. If you get somebody in front of you like that, no good
trying to put them straight into work because they simply won't
stay in work because they will fall out at some point because
they are incapable of doing half of the jobs. They can't read
the signs. So what they will have to do is back load them very
quickly to some organization, probably a voluntary sector
organization that does remedial education work, enough to get
them to the point where they can actually hold a job down, and
then they take them through to work. So they have to invest a
bit before they start to get them into work and get them paid.
And that is how the process works. For the easy ones that just
need to be attached and sorted, well, they will go through
quickly. But it is these more difficult, and by the way, they
get rewarded at a high level for those more difficult ones, and
that is how it works. So the risk is taken by the private
company who is the prime. They don't flow the risk on down to
the voluntary sector, so the voluntary sector gets paid at a
slightly lower level, but nonetheless it all works for them in
terms of their total reward.
Mr. BOUSTANY. This was a big departure from past practice.
Mr. SMITH. Huge. It is a complete departure. In fact, I
think it is the biggest anywhere in the world that I can be
aware of where we are doing a payment by results program. It is
now national, and we are not quite into the first year. And it
is a 2-year program, and we have targets for them. And if one
of the primes fails and doesn't achieve the results then simply
we will get rid of them and somebody else will come in. So we
keep the risk away from the taxpayer, very much on the
provider, and in turn it is in their interest not just to get
them to work, and I think I also mentioned this, holding them
in work. And that is the bit that is being missed by endless
government agencies, which is you churn massively after about 7
or 8 weeks, because if they are not right for work then they
will not stay in work. And therefore what happens is they churn
out. It is very expensive then because you are chasing them
after that. Then they are less likely to go back to work later
again because they got scarred. So when you get them once, you
got to make it tell once. And so that means that the provider
has to check on the individual who is at work constantly to see
if they have any problems and deal with them and then hold them
and talk to the employer if necessary to hold them in that job.
Mr. BOUSTANY. Well, I thank you very much. That is
excellent work. And hopefully we will continue to learn from
the experience that you have there in the U.K.
I yield back, Mr. Chairman.
Chairman DAVIS. Thank you. The chair now recognizes Mr.
Neal from Massachusetts.
Mr. NEAL. Thank you, Mr. Chairman. Mr. Secretary, just to
follow up a bit on what Mr. Doggett had to say. One of the
reasons that data suggests that the Welfare Reform Act of 1996
here worked was in some measure because we added a number of
mitigating issues to the overall package, including job
training, childcare, and not to miss the point people were able
to keep their health insurance. That had a profound impact on
that flexibility that Mr. Doggett noted.
Now, I am not going to trespass into domestic politics in
the U.K., but I think that just having observed from 3,000
miles away the Prime Minister during his election cycle, he
actually suggested a much more radical transformation of the
health care system in the U.K. than he was actually able to
deliver on. And I understand that because that is just the
reality of what happens. But I think as a follow up to what Mr.
Doggett pointed out, I think the Prime Minister probably
discovered that the health care system in the U.K. was pretty
popular.
Is that a fair statement?
Mr. SMITH. Yes. You've got to understand, seeing it from
the standpoint of the U.K., which it is quite different from
where you are here. There is no question the health service
because of its basic principle, which is that no matter what
your means you will always be able to get treatment at the
point you need it without any request or requirement for money.
So that is and was a big change. It is now ingrained in
people's psyche. And it is a very emotional point to lots of
people. So they are very wary if you play with that because
they don't want to see that shifted so they would have to start
having to fork out for treatment. So that is the big balance.
But on your point . . . you know, we are a coalition. I am
in a coalition that is not wholly conservative, so we sometimes
have to cut our cloth according to what we can do in
parliamentary terms. But the reforms that we have gotten
through will make a big difference to recentering where that
decision making should lie much more with those who are
responsible for the treatment, and also knowing how much that
treatment costs and bearing down and understanding how that
money is spent better.
Mr. NEAL. Good point. And let me flip that argument. One of
the problems that we ran into in 1996 was the suggestion I
think that was fairly accurate that for many people who were
receiving public benefits, they stayed with health care through
the Medicaid system. The problem in some measure was that two
people conceivably living next door to each other, one, who
went to work every day and did not have health care benefits,
came to resent the person who was receiving a public benefit
and keeping the health care benefit. So those mitigating
circumstances that I referenced earlier about a level of
maintenance for health care in your instance seems to give you
a little bit more room or flexibility in terms of
experimenting.
Mr. SMITH. It possibly does. The only comment I would make
on that is we all as politicians make this argument that I
don't know where I am going but I know I wouldn't start from
here is always our biggest point. So dealing with our position
as to where we are, we obviously don't have that issue about
health treatment in the two houses living next door to us. But
we do have issues around welfare. And that resentment in
welfare is a big issue right now in the U.K. where someone
going to work on low and marginal income looks at the house
next door with the curtains closed and realizes they are
earning pretty much what they are already earning but they are
not working because they have got a larger family or because
they are living in a larger house. So that resentment does
exist. It tends to exist for us in the welfare system. And a
lot of people in work are now deeply resentful of those who are
not in work. And so this is where our cultural shift is rather
than on health care.
Mr. NEAL. And lastly this morning in Belfast Martin
McGuinnis, who is an old friend of mine, and the Queen shook
hands. And it is a lot of people like me to participate over 35
years in all these it will never happen moments to witness
these huge changes. But as you noted in an earlier conversation
that we had, there are still very stubborn elements, smaller in
number year after year, who still are rejectionists. But as one
who is very knowledgeable about the Shankill and the Falls Road
in Belfast, the link between poverty and high rates of
unemployment and violence. It was the best, I shouldn't say the
best, but one of the best recruiting tools for the hardest men
and women in those neighborhoods to organizations who sought
destiny as never finding a common moment.
Mr. SMITH. Yes. My comment would be this really. First of
all, I was a soldier. I was in the Scots Guards many years ago.
I served in Northern Ireland so I have firsthand memories of
some of the violence. I lost friends who have been killed in
subsequent service in Northern Ireland. No one is happier than
I am to see the possibility of peace in Northern Ireland. It
has been a dreadful running sore in the United Kingdom for far
too long.
But you are right about the cocktail. There is a very
peculiar cocktail in parts of Northern Ireland where you
overlay deep deprivation also alongside peculiar religious
division and a lot of residual violence. And some of those are
still in place today when I visit some of those communities,
and breaking those down is a very big job, but we are making
strides towards that. But, yes, hugely obviously deprivation
has a part to play in it.
Mr. NEAL. Thank you.
Chairman DAVIS. I thank the gentleman. Mr. Secretary, again
we thank you for taking time out of your busy schedule to come
and share some of your experiences in the United Kingdom. We
are going to continue to monitor your progress closely and we
look forward to learning from what you are doing and to
continuing this dialogue. Thank you again.
Mr. SMITH. Thank you, Mr. Chairman, for the opportunity.
Chairman DAVIS. As the Secretary departs, I would like to
thank all of my colleagues for their unanimous consent in
altering our normal agenda with opening statements until
afterwards to accommodate the Secretary's time. I would like to
proceed with opening statements. And now I will begin.
Today's joint hearing is on disincentives to work built
into current welfare and tax credit programs in the United
States. As we have already heard from Iain Duncan Smith, the
Secretary of State for Work and Pensions in the United Kingdom,
other countries are wrestling with these same issues. Secretary
Duncan Smith's presentation, as well as the testimony of our
witnesses today, will help us as we consider making changes on
this side of the Atlantic as well.
Two weeks ago, when President Obama spoke in Cleveland,
Ohio on the state of the economy, he talked about his vision
for how we need to provide ladders of opportunities for folks
who aren't yet in the middle class. Today we will consider
whether the multitude of current welfare programs and tax
credit programs create effective ladders of opportunity or are
missing important rungs by effectively discouraging work and
higher earnings for millions of families.
To explain this complicated topic one of our witnesses, Mr.
Clifford Thies, describes an income dead zone in which a family
earning $40,000 per year is barely better off financially than
a family not working at all once all welfare benefits and tax
credits are taken into account. Other experts like Harvard
economist Greg Mankiw call this phenomenon a poverty trap. He
says the bottom line is if you are poor, the government is
inadvertently ensuring that you have little incentive to try to
improve your condition.
What it really boils down to is this. When government
benefits for low-income families and as their work and earnings
increase, that discourages more work and earnings. The more
benefits the government provides, the stronger the disincentive
to work harder and earn more. Ironically many of the programs
in question like TANF and childcare, in our human resources
jurisdiction, are designed to alleviate poverty while promoting
work. However, especially when combined with refundable tax
credits that have grown rapidly in recent years, the collective
weight of these programs can have an unintended side effect of
discouraging harder work and higher earnings. This is not a new
problem, but it is about to get a lot worse. The massive new
health insurance subsidies under the Democrat's health care
reform will expand this problem and extend its reach well into
the middle class affecting families earning up to $90,000 for a
family of four. According to the National Center for Policy
Analysis, the exchange subsidies under ObamaCare will yield
marginal tax rates over a broad range of low or middle incomes
that are always above 55 percent, usually above 60 percent, and
sometimes above 70 percent. Those are some staggering numbers.
But as we will learn, for some people, the implicit marginal
tax rate can actually exceed 100 percent. That means the family
is actually worse off when their work and their earnings
increase.
Here is how another Harvard economist, Jeff Liebman,
advisor to President Obama, describes the story of one woman
who went from earning $25,000 a year to $35,000 and could not
make ends meet anymore as a result. ``She lost free health
insurance and instead had to pay $230 a month for her employer
provided health insurance. Her rent associated with her Section
8 voucher went up by 30 percent because of the income gain,
which is the rule. She lost the $280 a month in a subsidized
childcare voucher she had for after school care for her child.
She lost around $1,600 a year of the EITC. She paid payroll tax
on the additional income. Finally, the new job was in Boston
and she lived in a suburb so now she has $300 a month of
additional gas and parking charges. She asked me if she could
go back to earning $25,000.'' He estimated that the government
imposed a 130 percent implicit marginal tax rate on her.
We look forward to all of the witnesses' testimonies today,
including possible solutions, so Americans have more, not less
incentive to work and support their families. This is an issue
I have personally wrestled with for many years, first as a
volunteer before coming to Congress and trying to find a way to
build a bridge that would smooth this transition to work
without creating a cliff, particularly for single parent
families that are trying to make a go of it and improve the
quality of their lives.
With that, I would like to now turn it over to the ranking
member of the Human Resources Subcommittee, Representative
Lloyd Doggett. Would you care to make an opening statement?
Mr. DOGGETT. Yes, Mr. Chairman. Thank you very much for
your courtesy. Certainly if we can perfect our tax system so
that it does more to reward work we should do it. And if we can
ferret out any abuse of existing preferences or tax credits
that are not being properly used in accordance with the law, we
should do that and should take corrective steps. But I must say
respectfully that it is my belief that the focus of this
hearing and the focus of the overall work this year and last
year of the Ways and Means Committee in this area is
misdirected.
Let's look at the facts. The richest one-fifth of Americans
are reported to own 84 percent of the wealth of this country,
while the bottom 40 percent are estimated to own about 3 or 4
percent of the wealth of this country. The Congressional Budget
Office reports that over the last 3 decades after tax income
for the top 1 percent soared by 277 percent, while two-thirds
of the income gains from 2002 to 2007 flowed to the top 1
percent of households.
The focus of this hearing is not on the 1,500 millionaires
who paid zero income tax in a recent year, it is not on those
corporations who not only paid zero, such as in some years
General Electric, Boeing, Wells Fargo, but in some cases
actually received money back in credits from the government. It
is not on the area where revenues are not flowing to our
government, it is not on those at the top, it is all focused on
whether those who have an ownership interest in 3 percent or
less of our Nation's wealth, whether they are getting too much.
The overall concept of this hearing seems to follow closely
the report last year of the House Republican Study Committee
concerning the disincentivizes of our current system. This is
the same group and same set of reports that condemned as
welfare and seemed to call for reductions in Pell grants, Title
I grants to disadvantaged schools, Head Start, the school lunch
program and the school breakfast program. I believe that is a
mischaracterization of those important initiatives that help
those who are struggling to become part of the middle class and
to share in the American dream to help them advance, and that
it is wrong to continue to deny those opportunities.
When a mother with a couple of children who lives in Austin
or San Marcos or San Antonio leaves the welfare program for a
full time minimum wage job, the earned income tax credit and
the child tax credit are available to help her and other
working families. That increases the value of her work in a
significant way and is an incentive to advance.
At the same period of time through the recent recession
there were reports by the Pew Research Center that Hispanics
particularly represented the hardest hit by the recession, a 66
percent drop in wealth from 2005 to 2009, a widening of the gap
in our country that has not been seen in the last quarter of a
century during the time that data was collected.
These are serious problems that need to be addressed to
encourage and help people move into the middle class and to see
that our Nation has the revenues that it needs in order to
sustain those programs. We need more focus on those real
problems rather than on the small issue that is raised by
today's hearing. And I yield back.
Chairman DAVIS. I thank the gentleman. I now turn to the
Chairman of the Ways and Means Subcommittee on Select Revenue
Measures, Mr. Pat Tiberi.
Chairman TIBERI. Thank you, Chairman Davis. Thank you for
your leadership on this issue, and it is a real pleasure to
have an opportunity to have a joint hearing with our
subcommittees today.
Providing an adequate safety net for Americans who have
fallen on hard times I believe is a nonpartisan issue in this
Congress. It is something that all of us believe in. As is
making sure government does not stand in the way of Americans
who want to work to achieve their life and fulfill their
American dream, I know firsthand for the need for a safety net.
When I was in high school my father who immigrated to America
with my mother with nothing lost his job of 25 years, lost his
pension and our family lost our health care. At that time I was
thrown into the free and reduced lunch program in high school.
The good news is my dad found a job, he was rewarded and we
went on being a family again.
Today what is dangerous with our Tax Code is that it
appears that people or the Tax Code is saying to people, to
Americans who are down on their luck, who had a job loss, that
they will be penalized if they turn their luck around and are
fortunate to find an opportunity of work.
Comprehensive tax reform is a chance to solve this problem.
In tax reform we should ensure that low-income Americans are
not punished through extraordinarily high implicit marginal
rates. We should reduce complexity as well. There is no reason
that my father should have to see a tax accountant for his tax
returns. Our current code is a nuisance where taxpayers, for
instance, claiming the earned income tax credit in many times
and many places have to use a paid tax preparer, costing them
money from their own pockets.
I look forward, Mr. Chairman, to discussing how we can fix
this issue to empower Americans to live the American dream. I
yield back.
Chairman DAVIS. Thank you very much. The chair now
recognizes Mr. Neal, ranking member of the Select Revenue
Subcommittee.
Mr. NEAL. Thank you, Mr. Chairman. Thanks to you and Mr.
Tiberi for holding the hearing. I want to quote Ronald Reagan:
The earned income tax credit is the best anti-poverty program,
the best pro-family, the best job creation measure to come out
of Congress. The earned income tax credit is a bipartisan idea
and it was signed into law by President Ford with a Democratic
Congress and expanded by every President since Ford, both
Democrat and Republican.
Here is an opportunity where we might change the rhetoric
in Congress when we frequently hear that 47 percent of the
American people don't pay taxes. Of course they do. They pay
the most onerous taxes, payroll taxes. There would be an easy
way to soften some of the harsh rhetoric here by that simple
acknowledgement.
President Reagan was absolutely right, the earned income
tax credit is extremely successful at increasing work and
lowering welfare receipt, making our tax rules more fair for
low and moderate income tax families and, most importantly,
reducing poverty. In 2010 the earned income tax credit lifted
about 6.3 million Americans out of poverty, almost 3.3 million
children. Without the earned income tax credit the number of
children living in poverty would have been one-quarter higher.
Is it perfect? Of course it is not. There is no provision in
our Tax Code that is perfect. And I am open to working with my
Republican friends and colleagues to strengthen the credit.
I do get a bit antsy, however, with recent comments that I
have heard from some who would suggest or imply that we should
increase taxes on low and moderate income families. Majority
Leader Cantor recently stated, quote, we also know that over 45
percent of the people in this country don't pay income taxes at
all and we have to question whether that is fair.
Mr. NEAL. Again, an opportunity to reshape language.
Majority leader Cantor and I clearly have different definitions
of the word ``fair.'' Some are calling for increasing taxes on
the poor and moderate-income Americans at the same time they
are calling for lowering taxes on the wealthy. That is hardly
fair.
Republicans tell us that we can't increase taxes on the
wealthy because of the negative impact on jobs. But ironically,
they link increasing taxes on poor people, because they say it
will encourage them to work. We have come a long way since
those days when President Reagan proudly proclaimed at the
signing of the Tax Reform Act of 1986, quote, ``Millions of the
working poor will be dropped from the tax rolls altogether and
the wealthy will pay their fair share.'' That is Ronald
Reagan's quote.
But as I conclude, let me highlight that I am open to
working on this legislation. I hope that the 1-year
enhancements that we are attempting to offer EITC and the child
tax credit would make their way to the end of the year and I
hope that members of this subcommittee and the full committee
can find a common path forward on these issues.
Yield back.
Chairman DAVIS. I thank the gentleman.
I will now turn to our member panel on which Representative
Gwen Moore will be testifying. Representative Moore and I have
worked on legislation in the Financial Services Committee
affecting affordable housing, dealing with child homelessness
and domestic abuse.
I would like to remind Representative Moore to limit her
oral statement to 5 minutes, however. Without objection, all of
your written statement testimony will be made part of the
permanent record. Please proceed with your testimony.

STATEMENT OF THE HONORABLE GWEN MOORE, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF WISCONSIN

Ms. MOORE. Thank you so much, Chairman Davis and Chairman
Tiberi and Ranking Members Neal and Doggett. It is certainly a
privilege to be here as an expert witness on being poor.
I am indeed an expert. As many of you may know, I had my
first child at age 18. She is now 42 years old and talks back
very regularly. But let me say that times were not always so
easy. The very first welfare benefit that I received, sir, was
Medicaid, because I gave birth to my daughter on Medicaid.
The subject of this, and I can tell you that if in fact
welfare reform would live up to its promises and its rhetoric
of making work pay, of helping to lift people out of poverty,
to give people a hand up instead of a hand out, I can guarantee
you that the 4 million people who are now receiving TANF would
storm the Capitol and demand welfare reform. But of course that
is more rhetoric than it is reality.
I was able to listen to some of the testimony of our
distinguished guests, the Honorable Duncan Smith, catch a bit
of his testimony before I walked over here today. And I must
say that as a Britainer, he must appreciate the fact that
Britain is the country with probably the least social mobility
among the OECD states, which means that you can predict
people's social mobility more by what their father's station,
whether they were a duke or an earl or what their income was,
than you can with anything that welfare would have done.
And I say that with all due respect, Mr. Chairman, and I
mean it with all due respect, that the title of this hearing,
``How Welfare and Tax Benefits Can Discourage Work,'' is at
best a misnomer, and at worst is just fallacious non-sequitur
because it assumes--I heard the testimony--it assumes a lot
about the lack of character on the part of welfare recipients,
and it doesn't talk at all about the structural intent of these
welfare programs.
I just want to--I want to quote, since I see my time is
expiring against my will here, I would like to just quote from
Charles Dickens--I think that is appropriate, given our first
panel--SparkNotes quote on Dickens. The theme of David
Copperfield focuses on orphans, women, and the mentally
disabled to show that exploitation, not pity or compassion, is
the rule of an industrial society. So that when we look at the
tax benefits, the marginal tax rates that people experience, it
is because our benefits are not high enough to make work pay.
I would submit and I look forward to the question-and-
answer period, I would submit that people don't work just for
their self-esteem or for their dignity. They need to make
enough money to be able to pay the rent and put a Barbie doll
under the Christmas tree at Christmas.
In my case--and I am happy to share details of that with
you--my daughter had her first asthma attack at age 4 days old.
I could not afford to have a job that would have separated me
from the Medicaid benefit that we had. And I once had a job and
begged my supervisor not to give me a 50 cents an hour raise
lest I lose Title 20 day care. I worked 80 miles away from my
children. And as a person who survived childhood rape, I know
how important it was to have reliable daycare.
And so I would say that if we really want to encourage
work, things like the Earned Income Tax Credit, things like
providing child care, things like providing food supplements,
encourage work, not to simply take the position that we are
going to take the Keynesian approach and just say, Well, the
thing to do is to snatch food stamps, snatch housing benefits,
snatch Medicare so that we can literally deliver this poor
group of people, primarily women, to the workforce so they will
be forced to work because, in fact, they will not have any
other choice.
And with that I would be happy to answer questions Mr.
Chairman.
[The prepared statement of Ms. Moore follows:]

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Chairman DAVIS. Do any members have a question?
Mr. DOGGETT. Thank you very much for your expert testimony
Ms. Moore.
Do you think that Americans that are out there looking for
work are more focused on the issues of child care, job
training, job availability than they are on calculating their
potential marginal tax rate if they work a certain number of
hours?
Ms. MOORE. No, sir, I can tell you that they are not. But I
want to stipulate, Mr. Doggett, that welfare recipients are not
stupid. They have common sense, even though they may not have
the ability to calculate implicit tax marginal rates. I can
tell you that it is just common sense. Like what I learned as a
parent of a 4-day-old child is that I had to have health care
so that I think I would have been very successful as a
waitress, you know, because I love people, I love engaging
them, but I would not have been able to afford to, as a 4-day-
old parent, go work in a restaurant that didn't provide health
care, and risk at that time losing Medicaid. I couldn't afford
to lose Medicaid. My daughter is 42 now and still has asthma.
And I couldn't afford to lose Medicaid. It is a benefit, and if
the government wants to help people, they should. I would want
to work if in fact I didn't risk losing Medicaid.
Same thing with daycare. Just like I begged my employer, it
is not something that I calculated. My daycare provider told me
if that I was--that earning $17,000 a year with three kids--I
was still poor--that I had, in fact, hit that marginal tax
rate; and that if I earned any more--I was still poor--so that
when January came around and the automatic increases in Title
20 occurred, the inflationary increases, then I could take, I
could take the 50 cents an hour raise.
So I want to stipulate to the fact that there are implicit
marginal tax rates that people hit. But the conclusion that
poor people are then gaming the system or you should just take
the benefit away is fallacious. What it means is that the cost
of daycare in 2012 terms, $1,000 a month, $1,500 a month,
depending on the age of your child, is so great that work does
not pay. Women cannot afford to work without governmental
assistance.
Mr. DOGGETT. Thank you.
Chairman DAVIS. And one thing I would like to point out to
the gentlewoman, the purpose of the hearing in fact is in fact
to address these questions. You said yourself that you begged
not to get a raise, and I called this hearing----
Ms. MOORE. Yes, sir. And I want to stipulate that----
Chairman DAVIS. Reclaiming my time. I would just like to
make the point that what we are trying to address are broken
processes that we have worked on, a bipartisan process over the
course of this Congress, to address this very cliff.
And I think what I am hearing from your commentary is
actually agreeing with the premise of our hearing, to look at
best practices, ways to better integrate information, and avoid
people getting into the very situation that you yourself were
in as a young mother.
With that I would like to recognize Mr. Neal.
Ms. MOORE. Mr. Chairman, can I respond to that because that
was not your time. I think that was someone else's time, and so
you reclaimed someone else's time. There is still 2 minutes
remaining on the clock.
Chairman DAVIS. Actually that was my time, Ms. Moore. We
will go ahead to Mr. Neal and then we can come back.
Mr. NEAL. Thank you. I think you hit some very important
points, job training----
Ms. MOORE. Yes.
Mr. NEAL. Health care.
Ms. MOORE. Yes.
Mr. NEAL. Transportation.
Ms. MOORE. Yes.
Mr. NEAL. Daycare.
Ms. MOORE. Yes.
Mr. NEAL. The other agreement that we had in 1996 that was
really far reaching and all encompassing--and maybe you could
speak to it because you invited a question when you said you
wanted to be as candid as possible--what about the role of
child support? We do a pretty good job with trying to enforce
child support here. Maybe you could give us a practical
assessment of that?
Ms. MOORE. Well, thank you for asking that, because I am a
huge fan of child support. And as a matter of fact, for several
years the only bipartisan amendment that has passed out of the
Budget Committee has been me and Mr. Ryan's amendment to try to
do 100 percent passthrough of child support to a custodial
parents. I am a huge fan of child support, particularly since
all of the other source of supports are wanting. TANF is not a
very reliable source of income, it is no longer a mandatory
expenditure. So I think child support is very important.
I want to respond to something that Chairman Davis said
with my tacit agreement about hitting these marginal tax rates.
I come to a different conclusion about it. You know, instead of
saying, Let's take away the work supports, I am saying that
perhaps you ought to expand it. Because right now for an
infant, for example, if you want a woman who is on welfare to
go work to get decent daycare--and I mean very modest daycare
for an infant--this would cost $1,000 a month in the Midwest. I
am not talking about New York City or Washington, D.C. How can
a woman earn $1,000 a month and still pay the rent, buy food?
She can't. And so if she hits that cliff in terms of
eligibility for daycare at $7.52 an hour, your premise is, or
Honorable Duncan Smith's premise is that she is some sort of
lazy person who is lacking in character and so therefore she
would quit work. And I am saying that she is someone like me
who very much wants to continue work but needs--honestly needs
more support in order to be able to continue to work. And so
that is a clarification I would make with regard to our
agreement on that.
Chairman DAVIS. Mr. Larson is recognized for 5 minutes.
Mr. LARSON. Thank you, Mr. Chairman, and thank you, Mr.
Tiberi, as well. I appreciate the spirit of which this hearing
is being conducted and especially appreciated the value added
that my colleague from Wisconsin brings.
And you underscore a point. I wasn't going to speak, but to
look at the magnitude of this situation, it goes beyond
anecdotes. And I am speaking, I think, with a great deal of
knowledge just in my own staff here at the Capitol. When we
talk about daycare, I think Ed Ziegler, the sterling professor
of psychology, the father of the Head Start program for the
Nation under the Nixon program, said it best: Daycare is
nothing short of a cosmic crapshoot for people who are seeking
to have their children be developed in a manner that, if they
could stay at home themselves, which of course they would all
prefer, but for the fact that they have to be out and employed.
So it underscores I think what you are saying,
Representative Moore, the need for us to continue to augment;
and as the chairman has said, when we get to these cliffs what
is it at that cliff that we have to decide? Ziegler used to
say, Why is it that we don't utilize public schools that are
already on bus routes that are safe, where we can put people
there and provide the kind of affordable daycare that is safe,
that is fundamentally sound and would be helpful?
Take a look around, and especially if you are a young and
expectant mother and you are in the workforce currently, you
are pursuing a professional career. Take a look around at what
kind of daycare there is for you, and then consider where you
may have the means, the situation of so many fellow Americans
that don't. I hope that underscores some of what you have to
say, Representative.
Ms. MOORE. Well thank you for that commentary,
Representative Larson, because it is. I can tell you what the
alternatives are to having $1,000 a month to pay for decent
daycare. You can have a loving mother or mother-in-law who will
take care of your kids the 2 days of the week that she is not
on dialysis. You can have a next-door neighbor take care of
your kids, and maybe this will be a good family and that
Chester the molester will not be a resident of that household.
It is a crapshoot, as you said.
You can do as I did for so many years before I found this
daycare that finally told me that I was going to hit the cliff,
and I sent my kids down to the corner to a babysitter who sat
my kids in front of a television with a stick, and if they
moved she would hit them and beat them, so much and so often
that my daughter who is now 42 refused to take her brothers
down there again.
Or you can just hang a key around your kid's neck and your
8-year-old and 6-year-old kid and tell them to stay in the
house, don't open the door, fix a peanut butter and jelly
sandwich, and hope that you are lucky enough that nothing will
happen to them while you are gone.
Those are the options that I know plenty of people who have
resorted to those options. That is what happens. It is not that
you are sitting there calculating the implicit marginal tax
rate. You are just trying to figure out if you have to work and
it is not--and if you don't work it is not because you have
poor character, it is because you cannot figure that out. You
are not lucky enough to be able to figure that out.
Mr. LARSON. I yield back.
Chairman DAVIS. I thank the gentleman. And as one of those
kids with the key around his neck from when he was 7 years old,
I care very deeply about this issue. And in no way has there
been any attempt to prejudice any individuals who are caught in
these situations. Again, though, it is absolutely critical as a
nation, like Great Britain is doing, that we address all of the
process issues to integrate agencies effectively and be willing
to ask the hard questions. And with that, I thank the
gentlewoman for her testimony and would ask for the next panel
to come up.
Thank you very much.
Ms. MOORE. And just thank you, Mr. Chairman, and thank all
of you for listening to my testimony.
Chairman DAVIS. Moving on to our third panel joining us
today, several distinguished gentlemen who are going to share
their thoughts on the issues of reforms and addressing the
issues of taxation and benefits. Dr. Clifford Thies, Ph.D.,
professor of economics and finance at Shenandoah University;
Dr. Eugene Steuerle, Ph.D. and senior fellow, the Urban
Institute; Dr. Jared Bernstein, Ph.D. and senior fellow, Center
on Budget and Policy Priorities; and Dr. Ike Brannon, Ph.D.,
director of economic policy and congressional relations,
American Action Forum.
I would like to remind all of our witnesses the testimony
is limited to 5 minutes. However, without objection, all of
your written testimony will be made part of your permanent
record.
Mr. Thies, please proceed with your opening statement.

STATEMENT OF CLIFFORD THIES, PH.D., PROFESSOR OF ECONOMICS AND
FINANCE, SHENANDOAH UNIVERSITY

Mr. THIES. Good morning. I appreciate very much the emotion
with which certain people have addressed the loss of health
insurance upon passing over certain thresholds. In the Article
I wrote on the Dead Zone 3 years ago, I myself got a little
emotional at those points. It seemed so unfair as well as
socially inefficient to have these cliffs over which people
would fall, and there is an opportunity with health reform to
address this.
We have grown a series of supports to provide an economic
safety net. One of these supports, the EITC, has a positive
incentive for working. It stands out in that regard. The impact
it had in terms of increasing labor force participation was
noticeable upon its enactment and upon its expansions. It does
testify to the importance of these programs. Also, although
they are anecdotal, there are lots and lots of anecdotes.
Almost everybody knows anecdotes of people who were making the
calculations about whether working more is worthwhile. And
these people maybe sometimes are called gamers of the system;
in truth, they are heroic.
Often my own mother, she would complain about not having
health insurance and working. She said, Prisoners get health
care when they need it. I said, Mom, if you need, you can go
rob a bank.
Now, in Europe they have health insurance and it is paid
for primarily by payroll taxes and sales taxes, and it has a
much bigger apparent cost than our system does. Our system has
a larger real cost in terms of the disincentive effect in terms
of keeping people in a certain status in society. Instead of
moving from addressing security, to moving to self-
actualization in their work, instead of being engaged as a
fully human person in terms of working with diligence and with
judgment and with a degree of creativity in their work, they
are trapped in a different strata, and not participating fully
with the rest of us in a free society. We should want a
seamless transition from the place where we have the economic
safety net to the place where we--most of us at least in our
lifetime, certainly our children will be in their lifetime, in
terms of acting as a free person, self-actualizing, associating
with other people on the basis of free association.
Now, I was interested in the other calculations of the
numbers; the actual implicit tax rate is somewhat problematic
because of the cliffs that are involved. The EITC phases in and
phases out, that is pretty easy to calculate the implicit tax
rate.
Well, how do you handle something where you have a cliff
where you lose eligibility entirely, or the adults lose health
insurance and then the children are still covered for a while
and then they lose eligibility? So there is some art to making
those calculations.
I wondered whether I should update the calculations I had
in my 2009 article for this presentation but I, like everybody
else, am waiting for the Supreme Court to speak on the issue of
health-care reform. And then also we have the problem of the
payroll tax going up, of the Federal income tax rate for the
first bracket going up, and of the child tax credit going down.
So I thought let me just have the same calculations I had
several years ago.
The point is pretty clear, when you consider income after
taxes, and plus benefits that you receive, that there isn't
much incentive for a lot of our fellow Americans to work.
Taking into account the net effect, the tax rate may be 50
percent for some, may be as much as 100 percent for others. We
should have a big, robust, positive tangible effect for
everybody in our system. This speaks to tax simplification and
tax reform, so that all pay their fair share, the focus today
being that the poor not pay more than that fair share on the
marginal dollar of productivity.
And the payroll tax is a very big tax and it is paid twice,
by the worker and by their employer. It is a very large tax.
Why do we have that tax when we are trying to help people?
If you look at an alternative measure of income for the
purpose of calculating poverty, based not on the official
income that we currently base our poverty rate on, but based on
income after taxes, plus benefits, at least for the State of
Minnesota, the Urban Institute shows that you have about the
same poverty rate. We push about as many people into poverty as
we pull out, we pull the same people in and out yo-yoing them
in the process.
Chairman DAVIS. Mr. Thies, could you sum up quickly so we
could move on?
Mr. THIES. We want to have an integrated approach with a
robust incentive to work at every phase of the income
distribution.
Chairman DAVIS. Thank you very much.
[The prepared statement of Mr. Thies follows:]

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Chairman DAVIS. Mr. Steuerle, you are recognized for 5
minutes.

STATEMENT OF EUGENE STEUERLE, PH.D., SENIOR FELLOW, THE URBAN
INSTITUTE

Mr. STEUERLE. Chairman Davis and members of the two
subcommittees, thank you again for the opportunity to appear
before you once again. As already noted, the Nation's real tax
system is very different than the tax system we know just by
looking at direct statutory rates such as the income tax and
the Social Security tax. The implicit taxes that derive from
phasing out various benefits in both expenditure and tax
programs--I tend to call expenditure taxes because, like tax
expenditures, they remain largely hidden from government and
the public--and yet they actually are a major influence on
behavior.
These expenditures, I want to be clear, are a classic
liberal conservative compromise. Mr. Chairman, you commented
earlier about needing to work together to solve this problem.
One reason that one has to work together is because, in fact,
it is a liberal-conservative compromise that got us there in
the sense that liberals have favored these types of implicit
taxes as a way of increasing progressivity, while conservatives
have embarked upon them as ways of saving on budget revenues.
Both of them are legitimate goals but have resulted in very,
very high tax rates. And although low- and moderate-income
households are especially affected and seem to be the subject
mainly of this hearing, I remind you that you have these
implicit taxes in the AMT and Pell grants and in dozens, if not
hundreds, of programs, including most of the subsidies that are
in the tax system.
At the Urban Institute we have done a lot of work on trying
to calculate these taxes. The first graph that you see here on
the screen is the same as in figure 1b of my testimony. It
shows close to the maximum benefits for which a single head of
household and two children may be eligible, and then how they
phase out as income increases.
Rates are low or even negative up to about 10,000 to
$15,000 of income. It is thereafter that they rise quickly.
In the next figure, which is the same as figure 3 of my
testimony, I show the effect of tax rate for a household whose
income rises from 10,000 to $40,000. Essentially income and
Social Security taxes take away about 30 percent of earnings,
and then universally available programs--by ``universally'' I
mean they are available to all of us if we have children, there
are no queues, and include items like EITC or SNAP--raise the
rate to about 55 percent. And for those households who happen
to be into welfare programs such as TANF or get housing
benefits, the rate can rise well above 80 percent.
What used to be called a poverty trap has now moved to what
Linda Giannarelli and I have called the twice poverty trap;
that is, the high rates especially hit households who earn more
than poverty-level incomes.
Many studies have attempted to show the effect of these
rates on work and the results are actually mixed. Work
subsidies such as the EITC generally encourage labor-force
participation and may tend to discourage work at higher income
levels, particularly for second jobs in a family, moving to
full time work, or, as I note in my testimony, also for
marrying someone who has a job.
Design matters greatly. For instance, Medicaid will
discourage work among the disabled more than a subsidy system
such as the health exchange subsidy that is in the health
reform; on the other hand, that health exchange subsidy will
discourage work for older people who are encouraged to retire
earlier.
For the same amount of cash, a major conclusion is that a
program that requires work will indeed lead to more work than
one that does not. In that regard, the earned income credit and
welfare reform have done better on the work front than did
AFDC.
Other consequences need examining. Means testing and joint
filing have resulted in hundreds of billions of dollars of
marriage penalties for low- and middle-income households, and
indeed not marrying is the tax shelter for the poor. Many
programs do help those with special needs, although they vary
widely in their efficiency and effectiveness. So, for instance,
there is some evidence that a well-developed program can
improve behavior such as school attendance and maternal health.
At the same time, as an economist I have to question our
ability to judge the long-term consequences of these programs
merely from the empirical studies that we perform.
So just as a classic liberal-conservative compromise got us
into this situation, so might it require a liberal-conservative
compromise to get us out of it. And among the many approaches
to reform that I think are worthy of consideration are:
One, seeking broad-based social welfare reform, far beyond
even what we are discussing today, rather than adopting
programs one-by-one with multiple phaseouts.
Two, starting to emphasize opportunity and education over
adequacy and consumption. We can start moving the budget in the
former direction rather than the latter. It doesn't necessarily
require cutting back on programs. It means that the growth on
government which continues would get redirected in a different
way.
Three, we can put tax rates directly in the Tax Code so
they are not so hidden.
Four, we can make work an even stronger requirement for
receipt of various benefits.
Five, we could think about trying to adopt a maximum
marginal tax rate for at least some programs combined.
And, six, I believe we can let child benefits go with the
child, and wage subsidies go with low-income workers rather
than combining the two. And the goal there is not just to favor
work but also to try to start including in the social welfare
structure many of these low-income, working, single people who
basically are excluded altogether and have access to this
system mainly by going to prison. Thank you.
Chairman DAVIS. Thank you very much Mr. Steuerle.
[The prepared statement of Mr. Steuerle follows:]

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Chairman DAVIS. Mr. Bernstein.

STATEMENT OF JARED BERNSEIN, PH.D., SENIOR FELLOW, CENTER ON
BUDGET AND POLICY PRIORITIES

Mr. BERNSTEIN. Chairman Davis, Ranking Member,
Representative Doggett, I thank you for inviting me to testify
today. My first point, however, is that I believe that it is
essential to broaden the question at the heart of this hearing.
For policymakers to best understand the impacts of the policies
under review, we must investigate not just any work
disincentives they may engender, but also work incentives. For
example, as has been heard numerous times today, the Earned
Income Tax Credit, an important wage subsidy for low-income
workers, has been found to have large work-incentive effects.
It lifts millions of families out of poverty, working families.
Surely this is why it was one of Ronald Reagan's favorite anti-
poverty programs.
And that raises another necessary dimension along which
these programs must be evaluated: To what extent do they
achieve their poverty-reduction targets; in other words, to
examine only the marginal tax rates and work disincentives
associated with our anti-poverty programs, risks and incomplete
understanding of the impact of the programs on work, on poverty
and on well-being?
So research on these questions finds the following. While
benefits of means-tested programs are, by definition, reduced
as incomes rise beyond a certain point, their work
disincentives differ. And a number of significant programs,
including the EITC and SNAP, formerly food stamps, are found to
have either positive or neutral effects on labor supply.
The EITC extensively studied in this regard has yielded the
following finding from a recent comprehensive review. The
overwhelming finding, the empirical literature, is that the
EITC has been especially successful at encouraging the
employment of single parents, especially mothers. A recent
exhaustive review of the poverty reduction effectiveness of the
full scope of our safety net and social insurance programs
found ``the combination of the means tested and social
insurance transfers in the system have a major impact on
poverty, reducing deep poverty, poverty and near-poverty rates
by about 14 percentage points in the U.S. population as a
whole.
The next finding from that study is particularly germane to
today's hearing. Quote, ``This poverty reduction impact is only
negligibly affected by work incentives, which, in the
aggregate, have almost no effect on the pretransfer rates of
poverty in the population as a whole.''
In other words, what is notable about this research is that
it finds these significant and quantitatively large poverty-
reduction effects after accounting for any work disincentives
implicit in the programs.
Other recent research has found positive generational
effects of safety net programs on later education and earnings
outcomes of children from families that receive such benefits.
For example, one study finds that raising a poor family's
income by 3,000 a year--and that is a fairly typical amount for
a poor family to receive from the child tax credit or the EITC
before age 5--is associated with a 17 percent increase in
earnings and an average of 135 hours of additional work per
year compared to similarly low-income children whose families
do not receive the benefits of these safety net programs.
One poverty expert summarized the findings as, quote, a
remarkably strong body of research, much of it based on large-
scale, well-implemented, experimental research designs showing
that supplementing the earnings of parents helps raise families
out of poverty and improves the school performance of young
children.
This research clearly suggests that reducing those benefits
would, net of any work disincentive effects, lower income,
raise poverty, and harm future generations in terms of their
educational and earnings outcome.
Finally, to the extent that work disincentives exist,
policymakers should consider ways to reduce or eliminate them.
In the final section of my testimony I offer three ways to do
so. First, lower marginal tax rates by extending phaseout
ranges, though of course this increases costs. Provide work
supports such as child care and transportation assistance. And
third, increase number of jobs available to low-income workers
through demand-side policies.
Given the persistent weakness in the low-wage labor market
in recent years, I want to be sure to stress the importance of
this last point. Research over the last few decades has shown
that the most effective work incentives for working-age members
of low-income families are tight labor markets with rising
pretax wages. In this regard, policies such as the job creation
measures in President Obama's American Jobs Act will prove far
more effective in incentivizing work than lowering marginal tax
rates on safety net benefits.
Conversely, it would be a significant policy mistake to
require recipients of benefits to work without first ensuring
adequate job availability. Even in a climate of strong work
incentives, without adequate job availability, this is a policy
recipe for rising poverty and the accompanying strain on
families and children. Thank you.
Chairman DAVIS. Thank you Mr. Bernstein.
[The prepared statement of Mr. Bernstein follows:]

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Chairman DAVIS. Mr. Brannon.

STATEMENT OF IKE BRANNON, PH.D, DIRECTOR OF ECONOMIC POLICY AND
CONGRESSIONAL RELATIONS, AMERICAN ACTION FORUM

Mr. BRANNON. Thank you very much, and I want to thank the
committee for the invitation to speak here.
As a tax economist, the one thing I have realized through
the years looking at the research is that tax rates matter. And
very high tax rates, no matter where you are at in the income
ladder, tend to deter employment and how much people want or
are willing to work. And one of the things we have seen from a
plethora of research in the welfare rolls is that because of
all these various programs Mr. Steuerle has pointed out, you
have marginal tax rates that regularly reach 40 percent for
low-income people and can in certain situations go up as high
as 80 percent or even 100 percent if you take into account the
various State and local programs. No one really designed the
programs to be this way.
To quote a former Treasury Secretary, just like the tax
system, we should have a welfare system that ``looks like it
was designed on purpose.'' Every program was designed well and
was put in by well-meaning people, but when you have 12 or 13
different programs at the Federal level, the State level, and
sometimes at the local and regional level, these things act to
create tremendous disincentives.
I think this is something that appeals to a number of
people on the committee, and I suspect that is why you had the
Honorable Duncan Smith here to talk about what they are doing
in the United Kingdom. To me that makes a lot of sense. Instead
of having several different programs that might be at odds and,
combined, create tremendous disincentives to work, it makes a
lot more sense to have one overarching program.
It is very difficult to implement, I understand that,
especially when you consider my hometown of Mossville,
Illinois. People who are low income there get benefits at the
Federal level, they get certain benefits at the State level,
and they also get benefits from the township itself. Having a
Federal Government design one overarching welfare reform
program can be very, very difficult, and it might be impossible
to tell the States and the townships to butt out.
But nevertheless, we need to do something so that people
aren't facing 70 or 80 percent tax rates. Both this Congress
and previous Congresses have looked at this program and there
have been bipartisan efforts to do this.
One thing I would just like to recommend that this
committee look at again, in 2002 and 2003 there was discussion
about reforming the unemployment insurance system. One of the
things we see with the unemployment insurance system is that if
the unemployment benefits go on for 26 weeks, what happens is
that when 100 people get laid off, about 30 or 40 percent find
new jobs the first month, another 5 or 10 find jobs the second
month, and then hardly anyone finds jobs until month 7, and
then the majority of people who are still unemployed find
employment that seventh month. If you extend it to 9 months,
the magic month is 10 months. If you extend it to 12 months,
the magic number is 13 months.
One of the suggestions--a bipartisan effort was put forth
in the Senate Finance Committee in 2002 and 2003--was to change
that to something they called personal reemployment accounts,
where, when people were laid off, instead of being given a
monthly benefit as long as they didn't have a job, they were
simply given an account, money that they could use to support
their family or to get additional training or education or
something like that. It totally eliminates the marginal
disincentive that unemployment insurance provides to recipients
against work.
Doing such a thing might be difficult and impossible for
other welfare programs, but it is a model that people need to
recognize.
People respond to incentives, and as Congresswoman Moore
pointed out, they might not have college degrees but the
typical welfare recipient is able to figure out whether or not
it is worth their while to work. What we don't want to do is
make sure people get just enough to get by and then provide
disincentives for them to work.
Chairman DAVIS. Thank you very much.
[The prepared statement of Mr. Brannon follows:]

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Chairman DAVIS. We will move on to questions now. I would
like to recognize Mr. Tiberi, the chairman of the Select
Revenue Subcommittee, for 5 minutes.
Chairman TIBERI. Thank you. Mr. Bernstein, I have a chart
that you will see on the TV monitor. In your testimony you note
that, ``for each percentage point lower unemployment, the
increase in real hourly wages for low-wage workers is at least
twice that of high-wage workers.'' That is in your testimony.
In January of 2009 you were the coauthor of an
administration report titled, ``The Job Impact of the American
Recovery and Reinvestment Plan.'' In that report, you may
remember, you forecast the unemployment rate today would be 5.7
percent with the administration's stimulus plan passing. As we
know, today's unemployment rate is at 8.2 percent and has been
above 8 percent for a post-Depression record of 40 straight
months.
Is it your testimony that low-wage workers have
disproportionately lost out on higher wages due to the elevated
unemployment rates we have seen, especially compared with the
unemployment rates you forecast in the administration's
trillion dollar stimulus plan as it became law?
Mr. BERNSTEIN. Yes, I think the research is very clear on
this, as I cited in my testimony. The wages of low-wage workers
are, in economics terms, more elastic to the unemployment rate
than wages of higher-income workers. And in fact, their
unemployment rates are higher as well.
Chairman TIBERI. So what happened?
Mr. BERNSTEIN. Well, you are asking about the forecast?
Chairman TIBERI. Yeah.
Mr. BERNSTEIN. Clearly a different topic than marginal tax
rates on safety net programs. When we--that was the
administration forecast for unemployment. That is the same one
that shows up in the administration's first budget. It is the
forecast by what is called the troika: OMB, Council of Economic
Advisers, and the Treasury.
That forecast was made by an incoming administration that
was just forming in the fourth quarter of 2008. At that time,
unbeknownst to us, the economy was cratering, GDP was falling
at a rate of almost 9 percent. Now, if you look at the
statistics from that time, as we did, it looked like the
economy--that the recession was far, far more mild than that.
And that is why the forecast for unemployment that you saw was
actually the median forecast of all the professional
forecasters at the time. You are absolutely right in that we
missed the depth and severity, but so did almost everyone else.
I will say that once the Recovery Act was implemented, it
was a matter of two quarters later, by the third quarter of
2009, GDP was rising again. And I think that is a real mark of
how successful it was in breaking the back of the ``great
recession,'' albeit the unemployment rate continues to rise.
Chairman TIBERI. Thank you. Mr. Brannon, you testified on
the additional work penalty that the new exchange subsidies--
work penalty that the new exchange subsidies provided by
ObamaCare would create.
I would like to highlight the fact that these subsidies
also impose a marriage penalty through the Tax Code, and that
is because they key off the Federal poverty guidelines; and
under the Federal poverty guidelines, the poverty level, let's
say, for a family of two, is at 135 percent of the poverty
level for a single individual rather than double. That means
that, for example, two single individuals earning $22,000 a
year would lose about $1,400 dollars a year in subsidies if
they became married in one household earning 44,000 rather than
22,000 each.
Can you expand on that?
Mr. BRANNON. Well, the major problem with the Affordable
Care Act in terms of how it is increasing the marginal tax
rates in general is that it provides a subsidy to people who go
to the exchange and buy health insurance if they are below the
poverty rate, and then the phaseout is relatively steep in
order to contain costs.
And so research that my boss, Doug Holtz-Eakin, and Alex
Brill did on the subject basically indicated the marginal tax
rates for certain individuals will go up anywhere from 5
percentage points to 10 percentage points based on the phaseout
of the subsidies to the exchange associated with the Affordable
Care Act.
Chairman TIBERI. Even on the lower end?
Mr. BRANNON. Even on the lower end.
Chairman TIBERI. So this impacts low-income individuals at
the lower marginal rates and not just in this area of the Tax
Code.
Mr. BRANNON. That is right.
Chairman TIBERI. Thank you. I yield back.
Chairman DAVIS. Thank you. The chair now recognizes Mr.
Doggett for 5 minutes.
Mr. DOGGETT. Thank you Mr. Chairman. Do each of our
witnesses agree that it is important to maintain in its current
form the Earned Income Tax Credit?
Mr. THIES. Yes, the positive part yes. I would like, if it
is possible, to eliminate the phaseout or blend that into the
Tax Code.
Mr. STEUERLE. I would actually expand it to try to figure
out ways to include single people. And by the way, I would do
it as a substitute for the type of Social Security tax break
that I believe is both on Keynesian and supply-side grounds, a
weaker incentive for recovery than could be some expansion of
the earned income credit that could be cheaper.
Mr. BERNSTEIN. I would add that the expansions that
Congress supported to the EITC in the Recovery Act have proven
to be extremely helpful in all of the ways you have heard this
morning, and I would try to ensure that those expansions remain
a permanent part of the program.
Mr. DOGGETT. Mr. Bernstein, let's talk about health care
just a little bit.
If I have a high-tech employee in Austin who has a great
idea for a start-up, but a family of children with serious
illnesses, it is an informed decision for that person to stay
with their group health insurance rather than go out and
benefit society perhaps by creating a tech start-up.
Similarly, if I have a poor person who can qualify--and in
Texas it is very difficult because the State under Governor
Perry is mainly about trying to prevent anyone from getting
health care--but if they manage to qualify for benefits in the
State of Texas for health care, with a sick family, and they
choose not to seek a higher-wage job in order to maintain that
eligibility for Medicaid, that also would appear to be not an
indication of a lack of willingness to work but of an informed
decision to try to provide health-care protection.
We attempted to respond to both types of informed decisions
with the Affordable Care Act, and, over time, want the
availability, particularly the expansion of access for poorer
people to health care, remove any cliff or disincentive to
work, to create new jobs and new businesses, and new economic
opportunities.
Mr. BERNSTEIN. Yes, Congressman, I think you are adding
precisely the kind of nuance that I tried to reflect in my
testimony which must be brought to these criticisms by my
colleagues here on the panel of the implicit tax rates in the
Affordable Care Act. There are a lot of moving parts. You just
mentioned a number of them. One of the most important is that
the Affordable Care Act expands Medicaid, therefore pushing out
and lowering any marginal tax rates or work disincentives
associated with that program, quite significantly.
And one of the studies that I brought with me today
simulates this impact and predicts that the Affordable Care
Act, accounting for the disincentives you heard here but the
incentives that I just mentioned, would actually increase the
employment of single mothers. The Affordable Care Act also
reduces job lock which is what you mentioned. It is a highly
inefficient problem for people stuck in the wrong job because
they will lose coverage if they leave. It increases subsidies
for small business. And by the way, if it successfully lowers
health costs as expected, that will of course be very positive
for job creation as well.
I think what I tried to express in my testimony is that you
simply can't do what some of my colleagues have done today,
which is look at the marginal tax rates and assume that they
reduce labor supply. You have to get into the actual
functioning of these programs and look at the empirical
outcomes. Now, we can't do that with the ACA yet, because it is
not in place, with one exception--Massachusetts. Massachusetts
has a health plan much like the Affordable Care Act, and there
is a very nice study that looks at the employment effects of
health reform in Massachusetts compared to neighboring States
which face the same economic conditions but don't have that
health-care difference, and it finds no employment effects at
all.
So I would be very wary of the simple prediction that says
if a tax rate bumps up X it must have Y effect, without
considering the kinds of nuances that I think occur in the real
world.
Mr. DOGGETT. Thank you very much I yield back.
Chairman DAVIS. Thank you. The gentleman's time is expired.
Mr. Marchant from Texas is recognized for 5 minutes.
Mr. MARCHANT. Thank you, Mr. Chairman.
Mr. Steuerle, Mr. Steuerle, economists and researchers have
noted for decades that the interaction between welfare and tax
benefits can create little incentive for low-income families to
work. Is that still pretty much the consensus among economists?
Mr. STEUERLE. Well, I tried to point this out in my
testimony. What has happened over the last 2 or 3 decades is we
have moved out what used to be called a ``poverty trap'' to
what I now call the ``twice poverty trap.''
So Mr. Bernstein is right that if you ask about what those
reforms have done, they have probably increased labor-force
participation. What the research is showing is that although it
has increased labor-force participation and particularly for,
say, welfare mothers who didn't work, the incentive can only be
clearly positive in going from welfare to an earned income
credit, or going from welfare to a welfare where you require
work. The incentive is only positive towards participating in
the labor force.
What has happened, however, is that once you earn a little
bit of money, once you get to about 10,000 or 15,000, that is
when the disincentives largely strike. And so that is also one
reason why we get mixed effects dependent on how you are
measuring work.
There is also something we haven't even discussed. You can
actually decrease productivity but increase number of workers.
So if a second earner doesn't take a job at $40,000 (a full-
time job), but a couple of low-income workers work for 10
hours, you can increase labor-force participation, yet decrease
output.
I realize I am giving you a more complicated message. But
the disincentives have basically moved up the income
distribution.
The same thing occurs with the Affordable Care Act that we
were just discussing. You have moved away from this
disincentive in Medicaid and now you have moved the
disincentive higher in the income distribution. So I pointed
out in my testimony, for instance, that the Affordable Care Act
probably will very much help the disabled to go work who are
afraid of losing their Medicaid, but it will probably encourage
more elderly people near to retirement to retire because now
they can get health care without having to retire. So it is a
complicated story in how tax rates discourage work. But the
question is how much and for whom. And is this particular
design, once you accept a social welfare structure, better than
some other design?
Mr. MARCHANT. Another part of the testimony of Secretary
Smith was that they had seen some disparity in those that are
disabled. And as you know in our system now, we have over the
last few years we have almost 700,000 more people on our
permanent--our disability rolls than we did before the
recession.
So I would like each of you to make a comment about whether
you think this disability, this enrollment in disability has to
do with obtaining the benefits of Medicare or, slash, Medicaid,
and is there a--in his case he said there was very little
incentive for someone that was disabled in the U.K. to go into
the ranks of the employed--and do we have a similar trap in our
system now?
Mr. Thies.
Mr. THIES. I would say if people have a robust incentive to
work, then we could rely on their good judgment about whether
they are permanently disabled or not in applying, and that when
we don't have that robust incentive to work, we might suspect
that the person is not balancing the considerations that person
faces individually, and we face as a Nation in terms of having
a safety net in place, and nevertheless wanting everyone who
can to work to the extent that they can.
Mr. MARCHANT. Mr. Steuerle.
Mr. STEUERLE. Mr. Marchant, you are asking what I think is
the toughest question in all social welfare policy: how do we
design a program for the disabled? As I mentioned, among those
near to retirement, disability insurance, for instance, favors
retiring on disability rather than old-age insurance. If you
retire on disability at 62, you get 30 percent higher benefits
than if you retire on old-age insurance. So it creates an
incentive, if you have moderate disabilities, to try to figure
out if you can qualify for the system.
Among those who really are disabled and have huge medical
needs, the system has huge disincentives, once you get that
Medicaid, to go back to work. You are really scared not just
about losing your health insurance. But even if you take a job
that has health insurance, you are not sure how long you are
going to last on the job. And then you are afraid of having to
get back in the system.
So I don't have an easy answer for you. Disability,
reforming disability I think is absolutely required. I think
there are too many disincentives in the system to go to work,
but it is a tough issue to handle. I think there are some
margins where we clearly can make the system better.
Mr. BERNSTEIN. Two very brief points, Congressman.
First of all, and this is just repeating something that I
think Gene said a minute ago, the Affordable Care Act, by
pushing out, extending, expanding Medicaid eligibility,
including to the disabled, actually reduces a work
disincentive; and it is pro-work inducing for folks with mild
disabilities such that they can go to work. So it kind of
reduces a cliff there, which is helpful.
My second point is I think implicit in your question was
the idea--and numerous folks have looked at this--the extent to
which disability rolls are rising faster than we might expect
them to, faster than they have in prior years. And there is a
question, are some long-term unemployed people simply using
disability as a replacement for unemployment insurance? I am
sure that--research suggests there is some of that going on,
but one of my colleagues has looked at those numbers. Adjusting
for age in the population, as the population ages there is
going to be more disability, and that has created significant
upward pressure on the rolls as well. So at some level, it
pushes back on that idea that folks are illegitimately getting
on the rolls.
Chairman DAVIS. Thank you. The gentleman's time has
expired. The chair recognizes Mr. Neal for 5 minutes.
Mr. NEAL. Thank you, Mr. Chairman.
Just a point that Mr. Bernstein mentioned earlier. One of
the things that is significant about that Massachusetts plan is
the consumer satisfaction rate. It remains pretty popular
across the board. Small business, large business, it was
carefully negotiated, and I think that bears noting in the
discussion that we are currently having. Once it was
implemented and people had a chance to see the fruit of the
investment, it has been fairly well met. And I don't know
anybody in the State, Republican or Democrat, who are talking
about going back to the previous system, including the
Massachusetts Hospital Association. They have all made sure
that it would work, and regardless of what the Court does
tomorrow, the people in Massachusetts, again--left, right, and
center--they are committed to making this plan work and nobody
talks about breaking it out.
Let me just, Mr. Bernstein, before I go back to Mr.
Brannon, because I raised an issue with you, I spoke earlier of
one of the things that we did in 1996 with the welfare reform
bill, which, in the end, was a series of artful compromises. We
did talk about job training, transportation incentives, child
care, daycare; but also one of the things that was very, very
important, and it was done on a bipartisan basis, was the whole
notion of child support. Would you speak about that experience,
because I think it bears noting as we go forward.
Mr. NEAL. You may.
Mr. BERNSTEIN. The Council of Economic Advisors did a study
when I was back at the White House and they looked at the
impact of the Affordable Care Act on businesses small and large
and they wrote as follows, creating a well functioning
insurance market also prevents an inefficient allocation of
labor away from small firms by leveling the playing field among
firms of all sizes in competing for talented workers in the
labor market, which is a complicated way of saying what you
said very plainly, which is that since large firms are much
more likely to offer comprehensive health insurance for their
workers a system like the one we have today outside of
Massachusetts gives them an advantage and a disadvantage from
the worker's perspective in terms of job lock. If you have a
more comprehensive system as the Affordable Care Act would
present, small firms then lose that competitive disadvantage to
large firms in competing for talented workers.
Yes, child support is one of the many work supports that I
would argue go far further in incentivizing work than tweaking
marginal tax rates, whether it is quality childcare,
transportation assistance, job training and education,
subsidized employment, which by the way was a program that
worked very well in the Recovery Act in incentivizing
employment. These kinds of work supports have been shown to be
much more consequential in helping people move from welfare to
work than changes in marginal tax rates.
Mr. NEAL. And Mr. Brannon, in New England where we saw the
textile industry leave and then we saw the old line
manufacturers begin to depart over the last 50 years, I must
tell you based upon that solid old manufacturing history I
never met anybody, the families that I have known all of those
years, that were inclined to extend unemployment benefits if
they thought they could get another job in a similar industry.
Mr. BRANNON. Well, I also come from a major manufacturing
center. Mossville, Illinois is the home of Caterpillar Tractor
Company. In the early 1980s Caterpillar went through the
recession with the rest of the country, and basically over 50
percent of the blue collar employees from Caterpillar's
factories in Mossville and East Peoria and Morton were laid
off. We had a great example of that just in our hometown. What
happened was that anyone who had any home building done, any
work on the side, basically hired someone who did it for cash,
presumably with no taxes paid. And who were these people? These
were blue collar Caterpillar workers. So people might indeed be
working but they are not necessarily reporting their income. I
think you see a lot of that.
Mr. NEAL. But you weren't suggesting then that people with
that strong history of work and a good solid work ethic didn't
want to go back to work if they could find a good job or
similar to the one that they lost?
Mr. BRANNON. No. I think if you have a blue collar job and
you get laid off for 2 or 3 or 4 months, it becomes a rational
decision. I think if you realize you are getting exactly half
your salary it might make sense for you to take a few months
off. When I was a professor in Wisconsin I knew people who
worked at Oshkosh Truck. And what they would do when they knew
they were going to have to lay off workers is they would ask
for volunteers. And there are all kinds of people who would
volunteer to be laid off for a month or two because they had
various other things they wanted to do. Some of it was they had
jobs that they wanted to do on the side in winter.
Mr. NEAL. Thank you. Thank you, Mr. Chairman.
Chairman DAVIS. Thank you. The chair now recognizes Mr.
Berg from North Dakota for 5 minutes.
Mr. BERG. Thank you, Mr. Chairman. And I thank the panel
for being here. This is obviously a critical debate and issue
and probably won't be totally solved today. But obviously our
goal is to lift people out of poverty and try and create a
system that encourages the end result where people are self-
sufficient. So I guess the thing that obviously is clear today
is the programs and the tax, if these are combined, really
create an unintentional barrier to help lift people out. And so
I guess we talked about the dead zones and the poverty traps.
And I guess my question is real simple, is how do we fix this
to encourage people to work? So if we could just--Mr. Thies, do
you want to start?
Mr. THIES. Well, I think if we could address the payroll
tax it comes in at dollar one of earnings. And so while the
Federal income tax is highly progressive, has a very generous
zero bracket, the working people of low income and moderate
income today are paying much higher taxes than did people
during the 1960s when the payroll tax was 3 to 4 percent and
the employer matched that.
Mr. STEUERLE. Mr. Berg, actually my first comment reflects
the previous discussion on unemployment compensation and on
disability. There is some evidence, and I think all the members
on this panel agree, that if you design a program so that you
have quicker, earlier, intervention it seems to make a lot of
difference. In some cases for the unemployed and the disabled
it is the habits that are developed in these periods of
unemployment and disability that will continue. And so there
are some proposals that are trying to figure out ways to give
more incentives to employers, for instance, to try to intervene
early so as to affect those habits. So that is one area we can
work. I mentioned a lot of other relative shifts I think we can
make. I think once we agree we are going to have a social
welfare structure we are going to have to struggle with this
work disincentive issue. The issue is not going to go away. And
so the question is what are some relative shifts we can make?
One of them is that I think we could make work a greater
requirement for some other benefits.
Another one that I think of, along the lines of a much
broader thesis I have been examining, is that our social
welfare budget keeps expanding every year. It doesn't matter
whether the Republicans are winning or Democrats are winning.
If the economy doubles in 50 years or 30 years, typically we
will devote more to that budget. Maybe we will devote 90
percent more if the Republicans win and 110 percent more if the
Democrats win. It is still growing. We can orient that growth
not so much towards consumption and adequacy, and, quite
honestly, not so much toward paying very high cost health care
and retirement benefits, but shift it more towards incentives
for work.
I have a variety of other proposals at the end of my
testimony. I don't want to take too much time here, but I would
be glad to discuss them more with you.
Mr. BERNSTEIN. Congressman, if we are going to have means
tested programs that phase out as incomes rise, which is very
much a function of our safety net, we are going to have these
marginal tax rates. So my answer to your question is the best
that we can do is to have that phaseout be as long and gradual
as possible, but of course there is a tradeoff there with cost.
I think the evidence is quite clear that that helps in the case
of the EITC or in certain States with food stamps where that
marginal tax rate is kept low.
Second, work supports are critically important, as we have
mentioned earlier, such as transportation and childcare
assistance. I would argue that these are more important than
the marginal tax rates in terms of work. And third, and this is
key, the adequate availability of jobs. And that takes you more
to the demand side. I certainly wouldn't think of adding work
requirements to other programs that don't currently have them
in a climate where there is simply inadequate job availability.
Mr. BRANNON. I just want to pick up on something Mr.
Steuerle said about the importance of people entering the
workaday world and learning how that works right away before
they get trapped. To that I just want to add one other thing,
that the minimum wage can often be a disincentive for young
people, especially teenagers, to enter that workaday world. I
just want to encourage the Congress to think long and hard
before they increase the minimum wage again.
Mr. BERG. Thank you very much. I yield back, Mr. Chairman.
Chairman DAVIS. I thank the gentleman. The chair now
recognizes Mr. Larson from Connecticut for 5 minutes.
Mr. LARSON. Thank you, Chairman Davis. And again I want to
commend you and Mr. Tiberi for the spirit and bipartisanship in
which this is held. I had the recent opportunity, well, about a
year ago, to travel to China, and got in a heated debate, and
one this committee is familiar with, about China currency and
also the trade disparity that exists between our countries. And
former Ambassador Zhen made this point. He said, do you know,
how many people do you think we have lifted out of poverty in
China. And I did not know, to be honest. And it was around 320
million, which is the entire population of the United States.
They were able to do so by investing in their infrastructure.
And to prove that point we drove from Beijing to lower Mongolia
and witnessed all the investment in infrastructure.
I raise this point because, Mr. Bernstein, you pointed out
the adequacy of jobs. And after all the discussion about
marginal tax rates and incentives versus disincentives
fundamentally people aren't going to be able to work if jobs
aren't available to them. And so while there has been much
ballyhoo about how we are going to create jobs here we sit in a
Congress where we have yet to take up after more than 100 days
a transportation bill as the season eclipses, and fundamentally
the President's request of last September to have his bill
taken up in terms of jobs is not.
Mr. Bernstein, I will ask you, and then I have a question
for Mr. Steuerle also. What would the effect of passing the
President's jobs plan be on incentives for millions of
Americans that currently can't find a job. And then, Mr.
Steuerle, the German system where they incentivize people
staying in work by instead of paying unemployment they provide
the company with direct subsidy to retain the person in that
job instead of having them go outside to work.
Mr. Bernstein.
Mr. BERNSTEIN. Right. If I may poach for a second on Gene's
question. We actually now have a work sharing program here, and
I think it is exemplary, and I commend the Congress for passing
it. There is--and some of my colleagues up here may well agree
with what I am about to say, even though I know they are more
focused on the tax rate side of this. There is no better social
welfare program, no stronger social welfare program for
reducing poverty than an adequate availability of good jobs for
low wage people, than a tight labor market, a full employment
labor market, where instead of an excess supply of lower wage
workers there is an excess demand for them. And I think we saw
that most clearly in the second half of the 1990s where there
were a lot of moving parts, welfare reform, the EITC, a higher
minimum wage, lots going on, but even in the midst of all the
disincentives that we have been talking about today we saw the
employment rates of less skilled, disadvantaged workers, of
poor workers, of single moms, go to the highest rates on record
and poverty rates drop to some of their lowest rates on record.
So simply put, no better program.
Mr. LARSON. Mr. Steuerle.
Mr. STEUERLE. Mr. Larson, I think you make a very good
point. I think we can learn a lot from the German system,
although it extends far beyond just the part that you
mentioned. The German system is especially good at sponsoring
apprenticeships and favoring education of people who don't go
to college, not just those who do go to college--something I
don't think we do a very good job of in this country. My
colleague, Mr. Lerman, works a lot on this issue and perhaps
has talked to you about that already. I mentioned earlier that
I think you can change the incentives in unemployment and
disability and engage the employer in the sense that maybe you
can experience rate these programs a little more so there is
some greater consequence for the employer. It is not so much
that the employer has to pay the full burden, but it would be
nice to have somebody who would help with this early
intervention, which sometimes is harder for the government to
do.
So I think there are ways in which we really could learn
from the German system.
Mr. LARSON. George Will used to express frequently that
government works best when it is a collective enterprise. And
by using the term ``collective'' I think what he meant is, know
what he meant was that by embracing our academic private
sectors, labor sector and government pulling together we do
have this engine of growth in opportunity.
What models would you suggest or do you have any that we
should follow to achieve those goals and address some of the
concerns that our chair has raised about coming to the
precipice of this cliff and making sure that we are doing the
right things?
Mr. STEUERLE. Well, this actually fits in a bit with what
Jared Bernstein was just saying. The long term engine for all
of this is economic growth. And I keep mentioning that we think
the economy is going to expand over time. So I really encourage
you to think about how we restructure our social welfare system
in a very broad sense as we move forward 5, 10, 15, 20 years
from now. If you look, for instance, at the government budget
put forward by President Obama. I would say the same thing if
there was a Republican budget. We are planning on spending
about $1 trillion more per year in another 10 years. Yes, about
$1 trillion more. Now, it turns out almost all of it right now
is going for interest on the debt and Social Security and
Medicare and Medicaid, but not the children, in ways that for
the most part don't favor employment at all. If we think about
how government shifts its resources more towards favoring
employment, we can go a long way. Then the other advantage we
get is that if we get it (economic growth) then the relative
wage from working starts growing and growing relative to simply
living off a subsidy from the government. So you can affect
partly through marginal tax rates the relative hurdle or point
at which going to work and engaging in the market makes one
better off.
Mr. LARSON. Would you agree with Mr. Stiglitz that the war
cost of some $3 trillion and having the two wars and the tax
cuts paid for----
Chairman DAVIS. The gentleman's time has expired. Thank
you.
Mr. Bernstein, on page 9 of your testimony you say it would
be a, quote, significant policy mistake to require recipients
of benefits to work without first ensuring adequate job
availability. This is exactly the same argument that some made
against welfare reform in the 1990s, that it was wrong to
require work without guaranteeing, quote, adequate job
availability, closed quote, for everyone, which makes me
wonder, how do you define adequate job availability?
Mr. BERNSTEIN. That is a fair question. And I was there at
the time thinking, writing about welfare reform. I didn't mean
to imply that there should be a guaranteed job for everyone.
What my statement in my testimony was meant to stress, that
absent stronger labor demand, right now if you look at the low
wage labor market, for example, you will find that there are
far more job seekers than there is job availability. Obviously
that is partly a function of the recession. But even in a
stronger economy when the business cycle is expanding the low
wage labor market is often characterized by excess supply and
not enough jobs. If you look at welfare reform, which I would
argue was quite successful in moving people from welfare to
work through this period of full employment in the latter 1990s
that I mentioned, it has actually been quite unsuccessful ever
since, even with relatively low overall unemployment rates into
2000. So while welfare reform is largely regarded as a success
in this regard it really hasn't been over the last decade or so
as the job market has weakened.
So my point is simply kind of, as Gene and I were just
reflecting, that you have to have a very strong demand side
functioning on the low wage labor market if you are going to
require work and expect it to reduce poverty.
Chairman DAVIS. Would any of the other panelists like to
comment? Mr. Thies.
Mr. THIES. Yes. It is understandable during a period of
depressed economic conditions that through statutory means and
administrative discretion the public and the private charity
system also will relax eligibility standards, extend
unemployment benefits and so forth because of the objectively
more difficult circumstances facing people who are vulnerable.
Having said that, it is understandable that when we do have a
robust recovery we are going to revisit some of those things.
Chairman DAVIS. Mr. Steuerle.
Mr. STEUERLE. Just very quickly to repeat something I said
earlier, is if we had taken more of the stimulus money and put
it into job subsidies, particularly for lower income people,
that that could have cost less and it would be a better change
in stimulus because these people are more likely to consume. It
would have been a better supply side incentive because you
would have a better set of work incentives than some of the
just across the board way we spent some of the other money.
Chairman DAVIS. Thank you. Mr. Brannon, would you like to
have the last word?
Mr. BRANNON. Yeah. Casey Mulligan, the University of
Chicago economist who testified in front of the House Budget
Committee a couple of months ago, pointed out that if you look
at what happened to the array of welfare programs in 2008 and
2009 we dramatically increased spending on a wide variety of
them, and again we did each one of those individually. I come
back to Mr. Duncan Smith's point that we really have a
haphazard welfare system that creates terrible disincentives to
work in all kinds of places. And as Mr. Steuerle has pointed
out, not only at relatively low incomes, but it also has
disincentive effects at higher incomes. And it seems to me it
is beyond time for us to redesign a system and think about it
more holistically rather than program by program and come up
with something that removes these disincentives.
Chairman DAVIS. Great. I want to thank all of our witnesses
for coming today, for your patience through the early changes
in the schedule. It has been very helpful, the insights that
you have provided how tax policy and welfare policy can create
disincentives as well as incentives to work. And hopefully we
will continue to work together in the time ahead to address the
broken processes that we have between the various agencies to
harmonize this and to get to the point that Mr. Brannon talked
about at the end in a hopefully bipartisan way.
If members have additional questions they will submit them
to you in writing. We would appreciate it if you would reply to
the committee so we can have those inserted into the record.
Thank you again. And with that I conclude the hearing.
[Whereupon, at 12:20 p.m., the subcommittees were
adjourned.]
[Submissions for the Record follow:]

Anne Stevenson

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Center for Fiscal Equity

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CLASP

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Recapturing the Vision

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