Tuesday, November 27, 2012

What the Fiscal Cliff Could Mean for Families

As a result of the Recession, millions of people lost jobs and the poverty rate in the United States rose sharply. People who had been living comfortably were laid off and suddenly became impoverished, and those who were already struggling to make ends meet saw resources becoming even more scarce. While the country continues to slowly recover from the recession, the level of families in need continues to exceed the supports available to meet those needs through the safety-net.  Even for those who qualify for housing vouchers, waiting lists can be years long, as is the case in Washington, DC., where the average wait for a two-bedroom apartment is at least 22 years; children in some households become adults by the time they come off the waiting list, and many families never receive housing support at all. Adding to the burden, food stamps are hardly sufficient to cover the actual cost of meals, especially in urban areas where the cost of living is high. The average benefit amount an individual receives with food stamps is $4.46 a day, but in Washington D.C. an individual’s average total food cost for the day is $10.23.

However, as we’ve mentioned in previous posts, programs for low-income individuals are not just money taken from the government, but money put back in to the economy: food stamps provide states with more revenue and create jobs, and the Earned Income Tax Credit encourages work and is largely lauded as the most successful anti-poverty program.

In addition, health programs such as Medicaid and the Children’s Health Insurance Program are valuable because their coverage of screening and other prevention services reduce the likelihood that people will develop more debilitating and costly health problems in the future—chronic diseases and illnesses that cost the United States billions of dollars each year in missed days at work and lost productivity.

In the current negotiations in Congress on how to prevent the “fiscal cliff”, it is vital that one of the principles in developing solutions be: they cannot increase poverty or income inequality. In order to preserve programs for poor and low-income families, a good balance between revenue increases and spending cuts will be necessary. Unfortunately, entitlement and other programs for low-income people are often an easy target for cuts. Although cutting entitlements may save money in the immediate future, the consequences to families and the long-term consequences to the economy will be much more costly.

There is bipartisan agreement that a total of $4 trillion in deficit reduction is needed to stabilize the debt. $1.7 trillion in savings has already been achieved, through cuts to defense and non-defense discretionary spending enacted by the Budget Control Act. Therefore, Congress now needs to decide where to find an additional $2 trillion in savings.

Important decisions to be made during this lame duck session include:
  • The size and ratio of spending cuts to revenue increases
  • How to cancel and replace the sequester
  • What to do about tax cuts
  • What the downpayment on deficit reduction will include.
  • Considerations over lowering caps on non-defense discretionary spending, as established under the Budget Control Act
  • How to control spending in Medicare and Medicaid
  • Determinations of revenue requirements
Preserving programs for low-income individuals is a good investment—for building human capital in terms of health, training and education, for creating pathways to employment, and for reducing poverty and strengthening the middle class.

For more information on the ways that investing in families can be sound fiscal choices for states visit the Policymakers’ Corner or the Policy for Results website.

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