Bringing the War Back Home:  Stealth Assault on the Poor

by David Hilfiker [davidhilfiker@pol.net]
Sunday, April 13, 2003 9:53 PM

The preparation for the United States' attack on Iraq must have been the most public in history.  In contrast, the Bush Administration's stealth attack on the poor has gone almost unnoticed.  There has been no "shock and awe," no massing of the troops, no nightly commentaries.  Indeed, the attack on the poor is camouflaged in "minor" regulatory changes, routine reauthorizations, "voluntary" block grants, budgetary complexities and other arcana, almost as if our eyes were supposed to glaze over before we really understood.  Place the many pieces on the table together, however, and the breadth and the depth of the attack become startling.

The number of well-functioning programs with bipartisan support that the Administration proposes tinkering with is breathtaking:  a little sand in the gears here, some water in the gas tank there.  Head Start, the Earned Income Tax Credit (EITC), the school lunch and school breakfast programs, Medicaid, Temporary Assistance to Needy Families (TANF), successful housing programs, child care, and other programs are all lined up for changes.  In most cases, however, understanding how the proposed changes will actually affect the poor requires more than a cursory look at each program and each proposed change. 

Bear with me.  The devil is in the details.

The school lunch and school breakfast programs, for instance, have broad public support. Providing free or low-cost meals for school children from poor and near‑poor families, these programs are widely credited with reducing hunger and malnutrition among the nation's children.  Aside from the Reagan Administration's notorious attempt to reclassify ketchup as a vegetable, has anyone objected to this program?  Apparently so.  Responding to one study reported in the media to show that 27 percent of children enrolled in the program were actually ineligible, the Bush Administration proposes to require documentation of income levels from all applicant families to "reduce fraud and error." 

On the surface, it's a reasonable goal.  The nonpartisan Center on Budget and Policy Priorities (CBPP), however, has taken a closer look at the cited study, revealing numerous problems that make the estimates suspect.  For starters, almost 75 percent of families declared "ineligible" were actually families that simply didn't respond to requests for documentation.  Other studies demonstrate that in similar situations over 80 percent of non-responders are, in fact, eligible; they just don't respond.  Well, what's wrong with requiring more documentation?  Studies have clearly shown that in populations with erratic work histories and complicated family lives, especially immigrants who don't speak English well, requiring documentation drives away more eligible than ineligible people.  Based on these and other studies, and using conservative assumptions, the CBPP estimates that requiring documentation of income level would keep over two million eligible children from receiving free or reduced-cost meals.

The Bush Administration apparently also hopes to drive people out of the Earned Income Tax Credit program (EITC) by the same gambit - requiring more documentation.  The EITC is a provision of the tax code that provides a refundable tax credit to working families.  It is the most successful anti-poverty program the federal government administers, bringing more children out of poverty than any other program.  Instituted by Richard Nixon in the early 1970s, EITC has a long history of bipartisan support.  Studies show that it encourages work.  What could be wrong with it?

The problem is that a 1999 Internal Revenue Service (IRS) study showed an error rate of 20 to 25 percent, so the Administration proposes requiring income stubs, child care receipts and other documentation for eligibility determination.  Never mind that most errors are honest mistakes stemming from a notoriously complicated form for claiming the EITC; never mind that since the 1999 study the IRS has instituted changes in the program (such as simplification of the forms and cross-checking welfare and Social Security databases) that it believes will reduce the error rate by more than half; never mind that a Government Accounting Office study finds that the President's proposal to require further documentation will drive away the eligible; never mind that further simplification and cross-checking could reduce the error rate even more; and never mind that the most common tax-fudgers are small businesses or that the fudging that costs the government the most revenue comes from corporate tax shelters.  President Bush chooses to go after the working poor - those with the least political power and the most to lose.  But one would hardly notice the assault without paying close attention. 

In dollar amounts, the most significant threat to the poor is the current Administration plan to change Medicaid and the Children's Health Insurance Program (CHIP) from entitlement programs into what are essentially block grants.  The Administration proposes increased funding over the next seven years and increased state flexibility in running the program in return for a cap on federal expenditures.  Since the proposal would reduce the block grants in years seven to ten in order to recoup the front-loaded increases, the "increased funding" is in fact a loan that will come due when neither current state officials nor the Bush Administration are any longer in office. 

While acceptance of this change would be voluntary for states, the federal government is dangling a short-term increase in funding at the very moment when the financial health of state governments is devastated and projected deficits may reach a combined total $70 billion.  Because most states are constitutionally forbidden to engage in deficit spending, any financial shortfall means drastically reduced programs.  Medicaid is often the single highest cost in a state budget, so state officials can easily be tempted to accept the federal "loan" now and let someone else worry about the consequences later. 

Once the states have agreed to accept the block grants, however, they have tied themselves to a non-negotiable federal cap on expenditures.  Although the block grants would rise with inflation, states would not receive additional funds if the number of people requiring care rose - as is to be expected as the baby boomers age, or during a recession, or if the trend of ever fewer employers covering the health insurance costs of their employees does not abate, or if the costs of health care continue their steady rise above the levels of inflation (due, for instance, to technological advances in care).  Then, the states are very likely to find their Medicaid programs costing considerably more with no additional federal funding available.

It is the "added flexibility" which would make block grants especially dangerous to the poor during times of financial distress when states have to find some way of reducing expenditures.  States would be allowed to scale back coverage of necessary health care, impose unaffordable premiums and co-payments, mandate managed care, or provide differing levels of care for different populations.  

Included in the Administration's Medicaid proposal are other changes that would also hurt the poor.  The Children's Health Insurance Program, for instance, would be merged into the general Medicaid fund, meaning that children would have to compete with the elderly and disabled for limited funds.  Most people think of Medicaid as covering the poor, especially young families, and, in fact, two-thirds of Medicaid recipients are young families.  But two-thirds of Medicaid expenses are for the elderly, primarily to cover nursing home costs.  While this coverage is only available for the elderly poor, staying in a nursing home for very long makes almost everyone poor, so much of the nursing home benefit goes to elderly who were for most of their lives working class, middle-class, or even upper-class.  Nursing home costs have been rising even faster than other health care costs.

In another sure-to-be-unnoticed "administrative" change, the Disproportionate Share Hospital (DSH) program would also be folded into Medicaid.  Currently hospitals that serve a disproportionate share of Medicaid and uninsured patients are eligible to receive supplemental Medicaid payments through DSH.  These hospitals would now have to compete with all other providers to obtain compensation from the state's (now limited) Medicaid block grant.

In states that accept the bait of increased short-term funding, officials will discover that Medicaid is no longer an entitlement program (meaning that all who meet the qualifications must receive benefits) but one more underfunded mandate that the federal government has passed on to it.  Since Medicaid is probably the most important (and certainly the most expensive) program for the poor, the future suffering being slotted in today is likely to be enormous.

On the Medicaid regulatory front, the Bush Administration tried issuing new rules limiting emergency medical services for the poor by allowing states to set a maximum number of visits to the emergency room.  These rules also suspended the current standard by which a "prudent layman" would find it necessary to go to the emergency room, requiring instead that the visit be medically necessary in the judgment of a medical professional.  Fortunately, due to widespread opposition, the rules were rescinded five days after the press reported their appearance.  Nevertheless, they are one more marker of either the Administration's callousness to or outright hostility to the poor.

The President is also proposing to transform the widely praised Head Start program into a block grant and giving control over it to the states.  Instead of federal grants going directly to community organizations, individual states would be allowed to use Head Start dollars to fill in gaps in their own programs and spread dollars more evenly across other programs.  National performance standards and any assurance of comprehensive services for enrolled children would be eliminated.  It is possible, of course, that states would use their increased flexibility to improve the programs, but it is hard to understand why the President wants to tinker with a highly successful program that no one is complaining about.

While the President has named himself the "Education President," his budget priorities belie the title.  The centerpiece of the President's education reform plan was an $18.5 billion program included in the No Child Left Behind Act serving disadvantaged children.  When it came to actual budgetary amounts proposed for this year, however, the program came up $6.15 billion short.  At a time when seven million children are left home alone and unsupervised on a regular basis - often after school hours when youths are at greatest risk of substance abuse and juvenile crime - the President proposes cutting after-school services for children and youth by $400 million, pushing more than a half million children and teenagers out of programs that law enforcement groups praise for steering participants away from crime and drugs. 

In his State of the Union speech this past February, the President proudly announced a $450 million program for mentoring the children of prisoners.  His budget, however, provides only $150 million.  What he didn't say was that he also proposes eliminating a number of programs now reaching those very same children - for example, the Elementary and Secondary Counseling Program, the Dropout Prevention Program, and the Juvenile Accountability Incentive Block Grant - and cutting other programs, so overall his proposal actually cuts $39 million from current expenditures for such programs.

The 1996 Welfare Reform law is also currently up for re-authorization.  Most observers predicted that the political battle would be over whether funds for the program would be continued at the present level or cut.  Instead, in early 2002 the Bush Administration surprised nearly everyone by proposing changes that would increase participant work requirements and reduce state flexibility in administering the program.

This Clinton-era law may not have been generous to the poor, but it contained one very positive innovation.  It gave the states great flexibility in designing work support programs - like childcare, transportation assistance, substance abuse treatment, continuation of some welfare benefits while at work, and on-going Medicaid coverage while working - and in providing for the education and training single mothers might need.  By far the most successful programs have been in states like California and Minnesota that have taken advantage of this flexibility to tailor programs to the needs of the recipients. 

One would think, then, that reauthorization would, at least, offer an opportunity to tweak Temporary Assistance to Needy Families (TANF) by strengthening work supports and encouraging the remaining states to develop their own flexibly designed programs.  Given that the President espouses states rights and the principle of devolving power to the states, one might reasonably expect him to use reauthorization as an opportunity to strengthen the states' abilities to design their own programs in response to local needs.  Instead, the White House has proposed defining "work-related activities" very narrowly, functionally curtailing the majority of the most successful current state programs.  A parent's participation in educational or vocational training, substance abuse treatment, or other programs designed to address individual barriers to employment would be limited to three months in any two-year period.  After the three months, mothers would have to go to work, ready or not.  Furthermore, if they couldn't find jobs after that three-month period, states would essentially be forced to develop unpaid "workfare" programs to employ them, an approach shown to be ineffective in promoting actual employment.  Finally, all welfare recipients would have to work a full 40 hours a week.  The common practice of allowing mothers with children under six months to work part-time would not be allowed.

Over the past six years, the most successful states have tailored their programs to the individual needs of the recipients, providing GED education, specific job training, or even counseling for domestic abuse.  The earnings of California TANF recipients who attended community college programs, for instance, increased markedly thereafter, but the largest gains were for those who completed vocational certificates or received associates degrees, which take much longer than twelve months to complete.  The President's proposals will not give credit for such programs.  Of the twenty-six presently acceptable work-related activities in Minnesota's successful Family Investment Program, for instance, the President's proposal would disqualify twenty-one. 

Most observers are hard pressed even to understand the rationale behind the President's approach.  It does fit, however, into the broad assault on the poor that seems to shape his social policies.  In that, at least, he and his administration seem consistent.

Almost every amendment to a social program the President has proposed contains similar problems.  Childcare support, for instance, has been demonstrated to be crucial in helping low-income families stay off welfare.  Mothers transitioning from welfare to work have done far better if childcare has been provided.  Already, under the original Welfare Reform and other childcare bills, only one out of seven eligible and needy families receive such help, and it is widely agreed that more support is needed.  The Administration's recommended changes to Welfare Reform, however, will create still more families requiring childcare assistance but provide no additional funds to support them.  The President's new budget acknowledges that over 200,000 children will be dropped from childcare over the next five years.

The administration's housing budget proposes to turn the Section 8 housing program into a block grant administered by the states without even adding in any additional money for administrative costs.  The White House proposal also requires states to charge a minimum of $50 a month for rent, no matter how low a family's income.  Again, in contrast to the Administration's announced desire for state flexibility, states could not even exempt individual families from the new minimum charge without approval from Washington.  And the budget simply eliminates another program that has demolished 115,000 dilapidated public housing units over the past ten years and built 60,000 new ones.  The official rationale is that there is no longer any need for this program, which surely comes as a surprise to the nation's mayors who are struggling with record levels of homelessness.

The No Child Left Behind Act, which the "Education President" showcased, imposed sweeping testing requirements on school children.  The consequences will be traumatic for many schools that such children attend.  While few object to measuring a school's academic performance and holding it accountable, the standardized, multiple-choice tests used threaten to seriously distort education, especially in schools that are of borderline quality.  (In school districts with significant numbers of private, parochial, and charter schools, which have siphoned off many of the best students, the regular public schools are at a marked disadvantage on tests of this sort.)  Worried teachers focus their students on cramming specifically for such standardized tests, emphasizing test-taking skills and the limited kinds of information multiple-choice tests can best assess.  Broader educational goals - appreciation of literature, encouragement of critical thinking, support of creative expression or writing skills, and so on - can too easily be bypassed, leading to even further gaps between good schools (that don't need to worry so much about the tests) and marginal ones.  But the real problem for public schools is that once a school fails in such testing it is subject to "sanctions" that divert funding and control from the public to the private sector.  Such sanctions include school-choice programs, subcontracting for services, replacing staff and administrators, mandating new curricula, state takeover, private management, and conversion to a charter school.

The No Child Left Behind Act was passed with bipartisan support and cannot, therefore, be blamed entirely on this administration.  The President's 2003 and 2004 budgets, however, failed to include the increased spending promised to school districts to help them meet the new requirements, and the responsibility for that failure does lie with the President alone.  The actual spending in his 2003 budget and the amount proposed for 2004 are, respectively, $5 billion and $6 billion short of the amounts promised in the original act.  In this way, the centerpiece of the President's education proposal has become just another underfunded mandate to the states.

What will ultimately prove the most devastating for the poor, however, are not the specifics of any policy or group of policies, but the Bush Administration's direct assault on the federal budget and the very concept of progressive taxation.  The multi-trillion dollar tax cuts passed and proposed, which go primarily to the wealthy, and the vast increases in the military budget and defense spending, combined with an economic recession that shows no sign of going away soon, have devastated the federal budget.  A healthy surplus has been converted to deficits as far as the eye can see.  While the words "trickle down economics" are assiduously avoided (when asked by Senate Democrats, Treasury Secretary John Snow said he preferred the term "circular economics"), we are, in fact, seeing an extreme version of the Reaganomics that bankrupted the United States in the 1980s. 

What the Urban Institute's Leonard Burman calls the "killer toxin" are the tax‑free "savings accounts" that will poison what remains of the progressive tax system.  The 2004 budget features new "lifetime savings accounts," which will allow anyone to save up to $7,500 per year for any purpose and all interest, dividend or capital gains income from these accounts would be forever tax free.  It will also more than double the contribution limit for "retirement savings accounts" (from $3,000 to $7,500) and remove the income limits that had previously confined these accounts to middle-income families. Altogether, a couple could set aside up to $30,000 a year in these tax-free accounts - $3 million to $4 million including interest over a working life.  To these two blockbuster proposals must be added the proposed or already enacted $5,000 medical savings accounts, $2,000 education savings accounts, college savings plans (which allow hundreds of thousands of dollars of tax-free savings for education), and traditional pensions and 401(k) retirement accounts (which were vastly expanded in 2001).  Why would anyone pay tax on any savings?

But, you may well ask, how could this be an attack on the tax system itself, much less the poor?  As it happens, people with incomes over $1 million a year get more than 40 percent of that income from savings accounts.  Many earn all of their income from savings.  Further exempting these high-income people from income tax makes the entire tax system far less progressive.  Tax revenue has to come from someplace, however, so either social programs are cut or middle-class, working-class, and poor people are forced to pay more taxes.

In a clever twist that keeps such proposals flying under the usual media radar screens, these savings accounts will be "revenue neutral" in the short term à at least until this President is no longer in office.  For the next several years, under the President's proposal, the losses in tax revenue on money socked away in these saving accounts would be "balanced" by an expensive budget gimmick that would work like this:  People who now have traditional Individual Retirement Accounts (IRAs)  -  in which amounts invested in any year are tax deductible but interest earned over the succeeding years is not  -  will be allowed to roll their IRAs over into these new savings accounts.  They would pay increased income taxes now (because the rolled-over funds would be taxed), thus "balancing" the revenue lost from the savings plans, but at the cost of a much greater tax revenue loss in the future because all interest will not be taxed.  In other words, the true cost of these proposals would be pushed onto our children and grandchildren.