Last week, MetroTrends bloggers offered new insights on three dimensions of family economic success:

•     Elaine Maag features a nifty new tool for understanding how taxes and public benefits (federal and state) interact to affect our paychecks.
•     Margery Turner argues that cuts in state support for higher education may perpetuate long-standing inequalities and undermine future prosperity.
•     Greg Mills recaps the evidence on the pros and cons of helping poor families by encouraging them to save more.

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State taxes and transfers can be an important form of assistance for low-income families. But the amount of government help varies widely among the states. And, importantly, so does what happens to those benefits when such a family increases its wages.

To help understand how those tax and spending programs work, the Urban Institute has created a new interactive Net Income Change Calculator (NICC). The calculator allows users to enter information about family and work characteristics, child care expenses, rent, and program participation. The calculator then provides estimates for taxes and transfers at five income levels so users can see how taxes and transfers change as income rises.

It includes state and federal income taxes, the employee share of payroll taxes, and a wide range of subsidy programs, including Temporary Assistance for Needy Families (TANF), the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps), the Supplemental Nutrition Program for Women, Infants, and Children (WIC) as well as subsidies for Housing and Child Care. All rules represent 2008 law.

The calculator shows how different these benefits are, depending on where a low-income family lives. For example, in 2008, a single parent with two children aged 0 and 3 with poverty level wages could have received transfer benefits ranging anywhere between $4,000 in several states and $9,200 (Connecticut) if she participated in TANF, SNAP, and WIC.

In addition, she could have received about $6,700 in federal tax credits and either owed state income taxes or received additional tax credits.  For example, in Alabama her state tax bill would be over $300 while in Connecticut she would owe no states taxes. She would also have owed almost $1,300 in the employee side of payroll taxes. We assume her childcare costs, before subsidies, would increase to about $250 per month – some of which could be offset by childcare subsidies. Together, taxes and transfers could have changed this mom’s income from $17,000 in wages to between $27,500 and $32,000 in income and benefits, depending on where she lived.

What happens if that mom gets a job?

A single parent in Connecticut with two young children could have received over $18,000 in transfer benefits if she had no earnings and no income, assuming her pre-subsidy rent was $600 per month. But suppose her earnings increased to $17,000 (poverty level) – spread evenly throughout the year – increases in childcare costs (assumed to be $250 per month before subsidies) and payroll taxes would have reduced her earnings by almost $2,000. Income tax credits and transfer benefits would have then added $16,500 – for a total net income of almost $33,000. If her income increased to twice poverty, she’d have to pay almost $5,600 in subsidized child care costs, state income taxes and payroll taxes. She’d receive about $6,400 in tax and transfer benefits – for a net income of $35,000. Thus, doubling her wages from $17,000 to $34,000 resulted in a net change in income of only about $2,000.

In contrast, the same family in Alabama could have received almost $17,000 in transfer benefits if the parent had no earnings. If her earnings increased to poverty-level, she would have spent over $2,500 on childcare, state income taxes, and payroll taxes, while  transfer benefits and tax credits would have decreased to under $15,000. In total, the family’s  net income would rise  from almost $17,000 to $29,000. If her wages doubled, the combination of declining transfers, increased taxes, and higher childcare costs would have resulted in a total net income of $33,000 – an increase of about $4,000.

The NICC provides a powerful tool to understand both how states differ with respect to taxes and transfers, and to understand how a family’s income changes as a parent increases her earnings. Try it out.

Composition of Income for Single Parent with Two Children, Connecticut and Alabama, 2008

Source: Urban Institute Net Income Change Calculator May 2012

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By nature, I usually see the silver lining in the darkest rain clouds, but the Treasury Department’s chief economist gave a speech on Monday that left me deeply discouraged. The current frenzy to rein in public-sector spending, balance budgets, and shrink the national debt may be cutting off our collective nose to spite our face—neglecting investments essential to future prosperity.

Here are the facts. In today’s economy, college graduates are more likely to find jobs and earn higher wages than those without college degrees. That’s not going to change in the years ahead, as decent-paying jobs require higher skill levels and adaptability. But the cost of college is rising, especially at state universities, which educate the vast majority of students. And states are contributing smaller and smaller shares of the total costs required to run their public universities, requiring students to pay larger and larger shares.

Advocates for shrinking state contributions to higher education argue that students (or their families) should pay most of the cost because they will benefit financially from their college degrees. But that argument suffers from two fundamental flaws. First, a highly educated workforce ultimately pays off for everyone in our society, not just for those who get the college degrees. If our system relies too heavily on individuals to self-finance their college educations, we won’t get as much investment—or as many college graduates—as we really need and our future prosperity will be reduced.

Second, requiring individual students to pay, rather than sharing the costs more broadly, perpetuates existing income and wealth inequalities because lower-income families will have the toughest time paying tuition. And even if you don’t care much about inequality per se, there’s mounting evidence that too much of it further inhibits economic growth and future prosperity.

What worries me even more is that those most likely to be priced out of a college education—young people of color—account for a growing share of our total population. The Census just reported that a majority of babies born in the United States last year were non-white and, as I’ve noted before, our country’s younger cohorts are already dramatically more diverse than the baby-boom generation (of which I’m a part).

On average, minority families have lower incomes and substantially lower wealth than white families. These disparities stem in part from past patterns of discrimination and exclusion—some originally enforced through public policy. If today’s policies require families to self-finance their kids’ college educations, we run the risk of crystallizing long-standing disparities at the very moment when our country’s future depends on the skills, intelligence, and inventiveness of its African American, Latino, Native American, and Asian children.

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A recent two-day conference in Washington, DC, celebrated the 21st anniversary of Michael Sherraden’s Assets and the Poor, which first proposed individual development accounts (IDAs, savings accounts offering match funds for specified uses) and other asset-based antipoverty strategies. The Assets@21 convening brought together policy researchers and advocates to assess progress and look ahead.

A mixed story emerged. Yes, there have been legislative victories (the Assets for Independence Act, providing federal grant funding for state and local IDA projects) and behaviorally informed innovations (such as the IRS’s Form 8888, enabling low-income tax filers to precommit a portion of their federal tax refund to the purchase of US savings bonds). But research to date has yielded limited supportive evidence—enough to sustain asset­-building as a field of policy development, but not enough to convince skeptics. And efforts to further advance asset-building are now more difficult in an increasingly partisan, deficit-constrained environment.

The question posed by Sherraden and others two decades ago was, “Can the poor save?” The answer depends on how poor a target population one has in mind. Those with annual incomes chronically below the poverty level have little capacity to save, as their incomes never rise enough to provide the necessary budget slack. Fortunately, among those who become income-poor, only a small fraction remains so chronically. An analysis of 1968-89 data from the Panel Study of Income Dynamics concluded that only 5 percent of those who enter a poverty spell then remain chronically poor throughout the ensuring ten years.  The typical experience is episodic poverty, with 30 percent never having another below-poverty year within the ten-year horizon and another 26 percent experiencing poverty again in only one or two of the following years. For the episodically poor, the opportunity to save comes when they have above-poverty income. If they manage to avoid major emergencies, the savings accumulated in their less-poor years can offset their dissaving (asset drawdown) in other years.

So the poor can save, as long as they are not always poor. Asset-building programs use this dynamic by extending their income eligibility thresholds (measured at program intake) to 150 or 200 percent of the poverty level. The favorable evidence on homeownership among IDA participants (including a randomized control trial under an early Tulsa program) suggests that program effects are concentrated among those in the higher ranges of income eligibility. Only a subset (30 to 40 percent) of IDA participants makes any matched withdrawals. This tends to be the near-poor, in keeping with the notion that a consistent savings habit is possible only during times when a household’s annual income exceeds the poverty level.

Asset-building programs should thus be viewed not as approaches to lift people out of chronic poverty, but as ways to promote upward mobility for the episodically poor and to prevent the near-poor from falling back into poverty. The latter role for asset-building—to provide emergency savings as protection against unplanned spending needs or income drops, and to avoid the high cost of credit from predatory lenders—was prominently mentioned at the Assets@21 meeting. Assets are thus important for both self-investment and self-insurance: for both offense and defense.

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Last week, three MetroTrends bloggers show how affordable housing and social security reforms might be an essential starting point for tackling the needs of vulnerable people:

• Rich Johnson proposes a change to social security contribution that could eliminate much of its looming shortfall while improving overall equality
• Mary Cunningham points to a program that could reduce homelessness and recidivism by providing housing help to people leaving prison, and
• Susan Popkin describes an experimental effort to simultaneously help both adults and kids in some of the nation’s most distressed public housing communities.

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Last month’s report from the Social Security trustees reminds us that we must soon fix the system’s finances to safeguard future benefits. One option that would help balance the system would be to raise the ceiling on earnings subject to Social Security’s payroll tax. Recently released data show that Social Security taxed only 82 percent of all earnings received in 2009. And in some of the nation’s wealthiest communities less than half of earnings were taxed.

Today workers and their employers each pay Social Security payroll taxes on annual earnings up to $110,100. That ceiling increases each year with the growth in average earnings. In 2009, the limit was $106,800. Because the tax base is capped, low-wage workers pay taxes on all of their earnings, whereas high-wage workers typically pay taxes on only part of their earnings.

This pattern is evident across communities. Wealthy New York County (better known as Manhattan) paid taxes on only 47.7 percent of all earnings received in 2009, the lowest proportion in the 100 counties with the most workers. More than half of earnings received that year in Manhattan, then, went to people who earned more than $106,800. Fairfield County in Connecticut, home to many of New York’s affluent bedroom communities, paid taxes on only a slightly larger share. Other counties in the bottom tenth include those that straddle Silicon Valley and those in some of the nation’s largest metropolitan areas, such as Chicago, San Francisco, Atlanta, and Boston.

Large Counties with the Lowest Share of Earnings Taxed by Social Security, 2009

Source: Author's calculations based on Social Security data.

Note: Restricted to the 100 largest counties in terms of 2009 employment.

On the opposite end of the spectrum, more than 9 out of 10 dollars earned in some other large counties were taxed by Social Security. The highest shares were paid by New York’s Bronx and Queens Counties, each separated by only a river from Manhattan, the county paying the lowest share. Counties in the Detroit metropolitan area (Macomb and Wayne), Indianapolis (Marion), Kansas City (Jackson), and Tucson (Pima) also paid disproportionate shares of their earnings to Social Security.

Large Counties with the Highest Share of Earnings Taxed by Social Security, 2009

Source: Author's calculations based on Social Security data.

Note: Restricted to the 100 largest counties in terms of 2009 employment.

These numbers highlight how unequally earnings are distributed across the nation. Inequality was even higher a few years earlier, before the financial crisis depressed pay received by the highest earners in 2009. Despite that slight improvement, inequality is much worse today than 30 years ago. Back in 1983, nearly 90 percent of all earnings were subject to Social Security taxes. But that share has plunged over time—even though the earnings cap rises with average wages—because earnings at the very top have surged.

Growing inequality matters for Social Security. The Social Security Administration estimates that setting the earnings cap to cover 90 percent of all earnings would eliminate between about a third and a half of the system’s long-term actuarial imbalance, depending on whether benefits were credited for the additional taxes paid. But the effects on individual taxpayers would vary widely across the nation.

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Recently the Los Angeles Times editorial board supported the Los Angeles Housing Authority’s decision to allow people leaving prison to qualify for a small pool of vouchers set aside for homeless people. Let me second that idea. I study homelessness and it’s well known in my field that prison and other correctional facilities are so-called “feeder intuitions” into shelters. Approximately 5 percent of single adults who enter shelters spent the previous night in a correctional facility, according to HUD data.  Even more become homeless eventually.  Spending your first night out in a homeless shelter—what kind of start is that? One that could result in recidivism and a quick return to prison. And too many do return. The evidence says as many as two-thirds of those who exit prison are rearrested within three years. That’s not good for returning prisoners, their families, the communities they leave, or, for that matter, taxpayers. Prison stays are expensive. Really expensive.

The Los Angeles Housing Authority is onto something with its housing voucher plan. Housing can be a platform for those exiting prison. That is, housing can provide more than just shelter; it can be a base from which people improve their lives. The link between recidivism and stable housing makes sense intuitively: persons with stable housing may be less likely to engage in criminal activities. They may also be more likely to find and keep jobs, reunify with their families, and become productive members of society.

As my colleagues Jocelyn Fontaine and Jennifer Biess note in a recent paper, we need more evidence to empirically document these links. That’s why we should be watching the Los Angeles experiment closely and encouraging other housing authorities to loosen “one-strike” provisions that keep people with criminal histories out of subsidized housing. Keeping people in housing could mean keeping them out of prison. Now that’s a novel idea.

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In March, I wrote about launching the Housing Opportunities and Services Together (HOST) Demonstration, an innovative project that is testing strategies that deliberately use housing as a platform to improve the life chances of both youth and adults as part of the same initiative. The four HOST sites are developing, implementing, and testing dual-generation service models that aim to address parents’ key barriers to self-sufficiency, while simultaneously integrating services and supports for children and youth.

One of the purposes of the HOST demonstration is to create a learning community that can inform other organizations trying to develop comprehensive community initiatives, such as Choice and Promise Neighborhoods, about the most effective service strategies. This month, we brought together the front-line staff from the four HOST sites—two of which are up and running and two of which are in the planning stages—for a cross-site meeting to talk about the real day-to-day challenges of trying to implement a true dual-generation approach to case management and supportive services.

The two-day meeting was as much a learning opportunity for the research team as it was for the staff from the four HOST sites. The dedication and passion of these front-line workers, who daily face difficult and frustrating challenges, was clearly evident. The meeting helped them see the value of their work and how the extra effort they are putting in enables others learn from their experiences. But for me, the biggest takeaway was that the hardest part of HOST is attempting to implement high-quality dual-generation service approaches. Most service approaches in public or assisted housing have focused primarily on adults—trying to help them move toward self-sufficiency with the hope that those improvements will benefit the whole family. However, it is increasingly clear that in distressed communities like the four HOST sites, it is critical to directly reach children and youth with the kinds of services that will help them fare better than their parents.

We learned from listening to the HOST service team that, in practice, implementing this kind of dual-generation approach requires a high level of creativity and initiative. Engaging children and youth means working with a range of ages and needs. It also means earning parents’ trust so that they will permit their children to participate—a challenge that can be even harder in sites with diverse immigrant populations with different norms and expectations. The sites are providing services like parenting support and girls and boys groups that offer clinical services and build leadership while offering fun and engaging activities. One site is using an innovative approach that rewards children (and parents) for setting and achieving goals. An issue facing all sites is how to address the critical needs of very young children and encourage parents to take advantage of opportunities for early childhood education. And, finally, implementing a true dual-generation approach requires constant coordination and cooperation among providers, both within the same agency and among different providers serving adults and children.

HOST is providing a true laboratory for learning about the most effective strategies for improving the life chances of vulnerable families. The project has already yielded lessons about the real challenges behind the current push for “housing as a platform” and “dual-generation service models”—lessons that will help inform larger efforts, such as Choice and Promise Neighborhoods, and help ensure that we know what it takes to help children succeed.

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Last week, MetroTrends bloggers offered solid facts on issues in the news:

• Because May is Asian/Pacific American Heritage month, Margaret Simms takes on the “model minority” stereotype and explores the diversity within this group.

• And Rob Pitingolo digs into the most recent trends in mortgage delinquencies, comparing metros based on the foreclosure laws governing their states.
• Rob Santos explains why the House vote to eliminate the American Communities Survey would be a tragedy for metropolitan America.

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Amendment to H.R. 5326: “None of the funds made available in this Act may be used to conduct the survey, conducted by the Secretary of Commerce, commonly referred to as ‘the American Community Survey’.” Voting results: 232 in favor; 190 opposed. And so the House voted yesterday to eliminate funding for the one of the most important resources available to the nation’s public and to the corporate world. Life without the American Community Survey (ACS) would represent nothing short of a tragedy. Why, you ask? Read on.

U.S. society lives in the information age. Government and private industry function most effectively and efficiently when managing by fact. Even the congressmen who voted down the American Community Survey have staff who rely heavily on analyses of ACS data. ACS data is essentially the sample-based “long-form” information that used to be captured by the decennial census but is now captured annually. We’ve collected long-form information for over 200 years, since the late 1700s!

The nation deserves to know itself beyond simple counts of population, households, and a few demographics (sex, age, race/ethnicity). ACS fills that void, allowing government and business alike to create economic development plans, health policy, transportation plans, and housing and community development strategies, as well as to assess the impact of legislation (e.g., health, tax, corporate regulation) on business and the public, and so on. In short, a government needs to know its population to serve it, and businesses need to know their customers to be profitable. The absence of such knowledge is like driving with a blindfold—you have no information to guide you.

A world without ACS represents a huge societal step backwards. We, the people, deserve better.

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May is Asian/Pacific American Heritage Month, so it is a good time to get rid of the “model minority” stereotype and explore the diversity within this group. The median education level of Asian Americans is higher than that of non-Asian Americans and their unemployment rates are lower, on average, as well, contributing to the “model minority” label. But these general statistics mask large differences in the economic situation of Asians in the United States.

Labor market positions vary greatly among different Asian subgroups, as detailed in a recent Monthly Labor Review article, which uses data from 2008 through 2010. For example, three-quarters of Asian Indians have at least a bachelor’s degree and over two-thirds are in management or professional jobs. But Vietnamese are less well positioned. One-fifth of them have less than a high school diploma and similar numbers are in low-paying personal care and service jobs.  And while unemployment rates for all Asian groups are lower than rates for non-Asians, once they lose their jobs, Chinese and Filipino Americans are about 25 percent more likely to be unemployed for at least six months than other Asian and non-Asian groups.

Employed People by Occupation, Asian Indians and Vietnamese, averages for the combined years 2008-2010

Source: Monthly Labor Review, November 2011

Even the most successful Asian Americans face barriers to upward mobility in corporate America.  A Leadership Education for Asian Pacifics (LEAP) study finds that Asians are far less likely to work their way up to CEO and board positions in private corporations. Although they are 6 percent of the population and 6.5 percent of the labor force, Asians hold only 2.4 percent of the total number of board seats in Fortune 500 companies and only 18 Asian Pacific Americans hold the title of Chairman, President, CEO or Vice Chair.

The economic position of Asian children also varies substantially across the country. The Asian child poverty rate varies among states with a sizeable Asian population—rising above the national Asian child poverty rate of 10.5 percent in Minnesota and New York, for example, while falling below the national rate in Illinois and Virginia, according to the Urban Institute’s Children of Immigrants Data Tool.  Some of these differences are related to the different concentrations of Asian subgroups, primarily more recent immigrants. In other cases, the differences are related to economic opportunity.

So while Asian Americans on average fare well on measures of education and employment, a closer look reveals great diversity by ethnicity, immigration status, and state—as well as barriers to economic success. The “model minority” stereotype papers over these differences and often hides the challenges many Asians still face.

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Rates of serious mortgage delinquency are rebounding in the 100 largest U.S. metro areas, after a downward trend between December 2009 and June 2011. Ultimately, two key factors drive this indicator: the number of homes entering the foreclosure process and the speed at which the delinquencies can be resolved or properties can be returned to the market for sale.

Roughly half (46) of the 100 largest metros are in judicial foreclosure states, where a court makes the final decision about a property before it can exit foreclosure. Metros in judicial states—such as Florida, New York, Illinois, and Ohio—tend to have higher serious delinquency rates than states that do not require court action.

 States enact judicial foreclosure laws to ensure due process and provide the opportunity for the borrowers to negotiate with the lender—but this process also means delinquencies take longer to resolve.

States face a tension between speed and equity because borrowers need time to navigate the complex legal system and loan modification process to save their homes, if possible. On the other hand, properties in foreclosure for too long are more likely to become vacant and hinder a neighborhood’s ability to recover from the crisis quickly. Finding the balance between speed and equity is a difficult, but nonetheless critical, task to restoring the health of housing markets.

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Healthy food and decent housing are both critical to well-being of metropolitan residents.  And both pose challenges for poor families, especially those living in distressed neighborhoods.

Last week, MetroTrends bloggers tackled both these human needs.

• Rolf Pendall took on Mitt Romney’s proposal to eliminate the federal Department of Housing and Urban Development (HUD): first agreeing that the federal government shouldn’t be imposing “one size fits all” approaches to solve local housing and community problems, but going on to argue that federal policy plays an essential role.

• And Michael Martinez-Schiferl reports the shocking fact that over half of all infants and more than a quarter of children up to age 5 participate in the Special Supplemental Nutrition Program for Women, Infants, and Children—better known as WIC.

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Mitt Romney suggested that Americans would be better off without a federal agency responsible for housing and urban development. I disagree, and here’s why. We still need the national housing goal, spelled out in the National Affordable Housing Act, that “every American family should be able to afford a decent home in a suitable environment.” The fact that we don’t meet this goal on any of its measures—affordable, decent, suitable, or universal—doesn’t mean that we should give up.

Having a national goal has meant many long debates about its real meaning, and we need a federal housing agency to be the ultimate authority to settle those debates. For example:

• Being able to afford housing means being able to buy other necessities after paying rent or mortgage. We need a federal housing agency because the meaning of affordability will continue to evolve, for example, as we address the joint costs of housing and transportation.
• Federal standards for a decent home have helped make houses safer and healthier and have yielded industry standards for building materials and house types (especially manufactured homes), helping build more efficient markets. Definitions and standards here are evolving for indoor air quality and energy efficiency—and we need a federal agency to broker those definitions.
• The federal goal of a suitable environment is perhaps best reflected in the Fair Housing Act, which requires that the federal government—led by HUD—actively promote racial residential integration. Here, too, debates continue. Should we define a “suitable” living environment based only on avoiding the most toxic situations, or on attaining excellent situations?
• The words “every American family” mean we need to go deep—to strive to reach everyone. Without that part of the goal, we would likely be worse off than we are now. But we’ve never had enough housing resources to meet all needs. Should we simply give up? Or should we expand our resources by looking beyond the HUD budget to what we spend on such needs as health, transportation, and homeland security?

Beyond words and definitions, we also need a federal agency that motivates and guides action. HUD’s many partners currently have either broad autonomy with little accountability or exacting accountability with too little autonomy. State and local actors need autonomy for many reasons, foremost because conditions vary so much across the country. But the flipside of such autonomy must be accountability—first for planning to meet the national housing goal, and then for moving closer to it.

Together, this means that as long as we have a national housing goal, which I hope we always will, we’ll need a national agency to help us get there. The “U.S. Department of Housing and Urban Development” is as apt a name as I can think of for such an agency.

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Statistics from a recently published Food and Nutrition Service report confirm that nearly half (49.8 percent) of all infants are born into families below 185 percent of the federal poverty guidelines—the cutoff for WIC income eligibility. (From July 2011 to June 2012, 185 percent of the poverty guidelines equaled $41,348 for a family of four.) Another 12.0 percent of infants are eligible because they participate in the Supplemental Nutrition Assistance Program (formerly Food Stamps), Medicaid, or Temporary Assistance for Needy Families. Among children age 1 to 4, a slightly smaller share, 44.3 percent, are eligible for WIC due to income and another 9.8 percent are eligible due to participation in another program.

Infants and Children by WIC Eligibility Type, CY 2009

Source: Betson et al. (2011)

WIC’s reach is extensive and studies suggest that WIC dollars translate into cost savings on government health spending. Those not already familiar with WIC should know that it provides select foods, nutrition education, and referrals for health care and government services. You can learn more about the WIC program in this recently published brief: WIC Participants and Their Growing Need for Coverage.

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