Fiscal cliff and poverty

Friday December 28, 2012

If Congress and the President don’t reach an agreement soon the economic effects of going over the so-called "fiscal cliff" will be widespread, but advocates for the poor say the cliff will have an even greater impact on low-income Americans.

For starters, those who are receiving federal extended unemployment insurance will immediately lose these benefits in January. Other effects are more of a "fiscal slope" than a cliff, according to CLASP, an advocacy group for low-income people. Sequestration would cut spending by 8.2 percent for many programs that serve low-income individuals and families, including job training and education programs, Head Start, the Low-Income Home Energy Assistance Program (LIHEAP), and many more. However, the effects of these cuts would only show up gradually over time, if a deal is not reached.

The items of greatest and most direct concern to low-income people in the fiscal cliff showdown are the fate of Medicaid and the 2009 improvements to the low-income tax credits, according to the Shriver Brief.

Cutting Medicaid would not only harm those who are already participating but would jeopardize the Affordable Care Act’s Medicaid expansion. These cuts may cause states to worry that future changes would make the federal government’s matching formula less favorable, discouraging them from proceeding with the Medicaid expansion.

The second major objective for low-income people in the deficit-reduction debate is to extend the 2009 improvements to the Earned Income Tax Credit and the Child Tax Credit. Failure to extend these provisions will drive nearly one million children into poverty, the Shriver Brief reports.

Furthermore, CLASP states, "There is broad agreement that pulling this much money out of the economy in a short period of time would cut growth and raise unemployment."

However, the group points out that these changes would not occur immediately. By contrast, low-income Americans will be even more affected by some of the Congressional proposals to avoid the cliff.

For example, CLASP says the "plan B" proposal put forth by House Speaker John Boehner would permanently extend all the tax cuts for households with incomes under a million dollars, except only these improvements for low-income working families, while also permanently locking in estate tax cuts and preferential treatment of capital gains.

Deep cuts to mandatory programs that provide essential benefits to low-income people, such as SNAP (Food Stamps) and Medicaid could happen.

"Now is the time to make sure the President and Congress know that such cuts are unacceptable ways to balance the budget," CLASP states.

Instead, the group suggests that any framework for deficit reduction should not name the specific cuts, but simply lay out targets for future negotiations, including explicit protections for low-income populations. We like CLASP’s ideas of targeted job creation for low-income workers and disconnected youth, proposals to replace the payroll tax cut with the more targeted Making Work Pay Credit, as well as additional investments that would both support disadvantaged populations and boost the economy such as early childhood education.

"As various proposals are put forward, there will be much discussion of how much revenue they raise, and how much spending they cut. But the bottom line number should not be either of these, but whether they increase poverty and inequality," CLASP says.

The Shriver Brief echoes those sentiments: "Our message to the politicians is simple and clear -- reach a deficit reduction agreement that does not increase poverty or income inequality."

We agree. It would be neither fair nor fiscally prudent to reduce the deficit and balance the budget on the backs of those least able to bear that burden.


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