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Working Poor Deserve a Better Break

April 05, 1987|ROBERT D. REISCHAUER | Robert D. Reischauer is a senior fellow at the Brookings Institution, Washington

In the rush to devise policies that will encourage welfare recipients to work and become more self-sufficient, policy-makers are overlooking the working poor--those who are trying to make it on their own but are falling short.

The number of working poor has increased by more than one-third during the past decade. In 1985, 3.6 million families and 2.5 million single adults were poor even though the head of the household worked some time during the year.

The principal cause of poverty for many of these families is the low wage that ispaid to the breadwinner. The poverty of 1.2 million families in which an adult works full time throughout the year can be attributed to low wages. The poverty of others can be traced to family responsibilities that preclude full-time work by the principal wage earner. This is es-pecially true for many of the 1.4 million working-poor, single-parent families. Still others find themselves poor when they temporarily lose their jobs or have their work hours reduced.

In some respects the circumstances facing the working poor are more trying than those confronting welfare recipients. While the latter have Medicaid to pay for their health-care needs, three out of four of the working poor hold jobs that do not offer health insurance. While new programs are being established to enhance the skills of welfare recipients and to help them find employment, many of the working poor are too busy with their jobs to participate. Some states provide day-care assistance and transportation subsidies to welfare recipients who are entering the labor force. But the working poor are left to grapple with these problems on their own.

But sensible policies could be adopted to assist the working poor. Their wages could be supplemented through a simple reform of the earned-income tax credit. By 1988 this provision of the tax code will provide a maximum credit of $868 to low-income working families with one or more dependent children. The credit will be refunded to families having no tax liability--a group that will, thanks to the 1986 tax-reform legislation, include the working poor. If the maximum size of this credit were increased by $250 for each additional child, the earnings of those with the greatest needs would be supplemented in a way that would reward work. Varying the tax credit by family size would be doing no more for working-poor families than is now done for everyone paying taxes through the tax code's personal-exemption provision.

Health insurance could be extended to more of the working poor if all employers were required to provide some basic level of coverage. Many firms--particularly small companies, those with high worker turnover and those relying on many part-time employees--would find such a requirement difficult to administer and extremely costly. Such companies could choose to pay a modest tax on the payroll of their uninsured workers instead of offering a group health-insurance plan. The tax revenues could be used either to provide a scaled-down version of Medicaid or to support a new state-based in surance program.

Extending basic health insurance to the working poor would inevitably involve a public subsidy, because even a minimally adequate health-insurance plan is expensive. Companies that are financially weak or face international competition or primarily employ low-wage workers would not be able to pay this cost even if some modest cost-sharing were required of the workers. But a public subsidy of health care for the poor would be nothing new. Much of it is now hidden in the bad debts of hospitals and the operating budgets of community health facilities.

The working poor could be helped with their child-care expenses if the existing child-care tax credit were increased for those in the lowest income brackets andif it were made refundable for those who had no tax liability. Under the currenttax law, the nation will provide more than $500 million worth of tax-credit subsidies to help families with incomes of more than $40,000 pay their child-care expenses. However, the working poor will have to bear their child-care expenses without help, because they have no tax liability. Making the child-care credit refundable, like the earned-income tax credit, would only extend to the working poor a benefit that is already provided to the middle and upper classes.

Policies to help the working poor are long overdue. Not only would such policies improve the lives of the needy who have shown a commitment to the American work ethic, but they also would show welfare recipients that working pays, that even those who work in low-wage jobs can attain a life style that is significantly better than a total reliance on public assistance.

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