Poverty Is a Problem We Can Address

August 6, 2014

California’s poverty rate is higher than that of all other states, based on the US Census Bureau’s Supplemental Poverty Measure. So it’s not surprising that Californians are increasingly concerned about poverty, and many see it as an intractable problem. More than two-thirds of state residents (68 percent) think that poverty is a big problem facing our society, up from 57 percent eight years ago — a rise that paralleled the increase in poverty during the Great Recession. In addition, fewer than half of Californians (46 percent) believe that policymakers can do much to address the problem.

But poverty is a problem we can address. That’s the key message of the newly released CBP report, Five Facts Everyone Should Know About Poverty. This report shows that we’ve made significant gains reducing poverty in the past, and it provides evidence that anti-poverty efforts continue to be effective today. Tax credits for working families, food assistance, and unemployment insurance, among other policies, lifted an average of nearly 4 million Californians a year — including 1 million children — out of poverty in the wake of the recent recession. This is a significant accomplishment, and it suggests that California can reduce poverty further by making greater investments in what’s already working.

What will it take to cut poverty further?

Reducing poverty will require a broad-based effort to address the various factors that contribute to families’ economic hardship. One of the most significant of these is low-wage jobs. The majority of families living in poverty are working families, which means that poverty is largely a problem of low pay. That’s not surprising given that California’s minimum wage remains a poverty-level wage, in spite of its recent increase to $9 per hour. A mother who works full-time, year-round at the minimum wage brings home just over $18,000 per year. That’s an income well below the federal poverty level for a family of three and just a quarter of what we estimate that a family needs to support a modest standard of living in California.

In our report, we recommend two ways policymakers can boost workers’ earnings in order to lift more families out of poverty. First, they can continue to gradually raise the state’s minimum wage — even beyond the increase to $10 per hour that is scheduled for 2016 — and then tie it to inflation so it keeps pace with increases in the cost of living. Second, they can create a refundable state Earned Income Tax Credit (EITC), which would help low-income working families keep more of their earnings and better meet their basic needs.

The federal EITC is one of the most effective tools for cutting poverty. In fact, it pulls more children out of poverty than any other federal policy. Half the states have created their own EITCs to further leverage the benefits of the federal credit, and establishing a refundable state EITC in California would be as easy as adding one line on state tax forms. This simple measure could bring nearly 170,000 Californians out of poverty each year, according to estimates from the Center on Budget and Policy Priorities.

As with any new policy, lawmakers are certain to ask whether California can afford to create a refundable state EITC. But a better question is whether California can afford not to invest in a policy that is proven to cut child poverty more than any other measure. Allowing poverty to persist is extremely costly, both in human and economic terms. Children who grow up in poverty don’t have a fair chance to reach their full potential. They face numerous obstacles that make it harder to do well in school and get good jobs as adults. That means poverty doesn’t just set children on a path toward future hardship, it also puts California’s future workforce at stake.

The good news, however, is that when low-income families’ incomes are boosted through public supports like tax credits, their children tend to attain higher levels of education and perform better academically. They may even earn more in the future. In other words, investing in proven anti-poverty strategies has a long-term payoff that makes the investment well worth its upfront cost.

Cutting poverty lays the groundwork for a stronger economy and a more prosperous future for all of us. That’s why policymakers should make reducing poverty a key state priority. And that’s also why we at the CBP have launched an initiative to greatly expand our work on poverty over the next couple of years. Watch for our additional reports on key poverty-related issues, including analysis and commentary that will help policymakers determine and prioritize policy options to expand economic opportunity and generate more broadly shared prosperity in our state.

— Alissa Anderson


Prioritize People Over Hollywood: Alternatives to Expanding the Film Tax Credit

July 2, 2014

Last week, lawmakers moved forward legislation that could expand California’s film tax credit. The bill — AB 1839 — may end up like much of Hollywood’s output these days: a reboot of an old idea, but with a much bigger budget. The current film tax credit allocates a total of $100 million annually to companies that make movies or television shows in California instead of outside of the state. Some proponents now argue that the state’s tax credit should offer up to $400 million annually, which would make the credit four times as large.

This proposed expansion of the film tax credit comes at a time when policymakers are prioritizing fiscal austerity over investments in workers and their families. Despite the good intentions of promoting job growth, film tax credits fail to generate the economic or budgetary benefits needed to justify their upfront costs.  Moreover, the suggested $400 million price tag could instead provide essential funding for the kinds of programs that California families need today. For example, policymakers could use these dollars to:

  • Significantly expand access to affordable child care. California could increase the number of childcare and preschool “slots” by 40,000 at the cost of approximately $300 million, according to the California Legislative Women’s Caucus. This would mean additional and much-needed support for working parents through affordable and safe child care and preschool options.
  • Provide additional support for California’s renters.  Each year, over 1 million taxpayers claim California’s renter’s credit, which offers a small nonrefundable tax credit to eligible renters. In 2012, the total cost of this credit was $106 million. At a time when housing costs are a significant burden for families, this program could be significantly expanded to reach more renters than it currently does.
  • Ensure access to Medi-Cal services.  California recently implemented a 10 percent cut in Medi-Cal payments to doctors, dentists, and other providers. This rate cut could discourage health care providers from participating in Medi-Cal and potentially hinder access to critical care.  The Assembly Budget Committee estimates that repealing this cut would cost $312 million in 2015-16.

These are just a few examples. If AB 1839 passes and is signed into law, it will be a discouraging display of misplaced priorities. The latest budget agreement made only modest progress in reinvesting in the public systems and services that were battered by cuts in prior years, and now is not the time to implement costly and ineffective policies.

—  Luke Reidenbach


Your Guide to the Requirements for Approving Key Legislative Actions in California

June 4, 2014

Each year, state lawmakers grapple with an array of major public policy issues that are subject to varying requirements for approval. This year, for example, lawmakers are considering whether to extend a tax break for companies that make movies or television series in California, a proposal that needs only a simple majority vote of the Legislature and the Governor’s signature to take effect. In contrast, current proposals to sell general obligation (GO) bonds to finance new dams require a two-thirds vote of the Legislature, the Governor’s signature, and voter approval.

For the most part, the rules for approving legislative actions are set forth in California’s lengthy and complex state Constitution. In an effort to help Californians navigate these rules, we’ve put together a simple, easy-to-read table that illustrates the key steps for approving 18 legislative actions, from passing the budget to amending the Constitution itself. This guide shows that more than half of these actions require a two-thirds vote of the Legislature, most require the Governor’s signature, and a few need the consent of the voters.

— Scott Graves



New CBP Brief: Who Pays Taxes in California?

April 11, 2014

A new brief from the California Budget Project — released in advance of Tax Day — reports that California’s lowest-income households on average pay a greater share of their income in state and local taxes than other households. This is even after accounting for the temporary tax increases of Proposition 30 — approved in 2012 — which largely targeted very-high-income Californians.

Using data provided by the Institute on Taxation and Economic Policy (ITEP)Who Pays Taxes in California? shows that nonelderly households in the state’s bottom fifth in terms of income, who earn $13,000 a year on average, pay 10.6 percent of their incomes in state and local taxes. This is a larger share than all other segments of households — including the very wealthy. The top 1 percent of Californians, with an average annual income of $1.6 million, pay just 8.8 percent of their incomes in state and local taxes — or nearly two full percentage points less than the state’s poorest families.

140410_TaxDay

Who Pays Taxes in California? examines how different components of California’s tax system — such as property taxes, sales taxes, and the personal income tax — affect lower- and higher-income Californians. The brief also suggests options for making California’s tax system fairer and promoting economic security for low-income families.

And also: if you’re looking for a comprehensive overview of California’s tax system, be sure to check out the CBP’s Principles and Policy: A
Guide to California’s Tax System.

— Steven Bliss