just a paper success, it will be necessary to look at the minimal budgets
neces.ary to sustain Wealthy family life, as N.H. has: done, everywhere in the
country, and to base policy goals on the findings.
mothers raising very young children on welfare cannot benefit from the EIC
unless they move into the workforce, ihe current earned income disregard
structure discourages the part-time work that is compatable with the raising
of very young children by making it unprofitable, while the enormous
dificulty of becoming self supportifo through full time work makes that
option an extreemly poor choice, as well.
A im.h. single parent of ordinary skills
with two pre-school children would nave to work twenty hours a week simply
to pay for their child care, and then another bO hours to support the
children and herself in a minimmally decent fashion, ^bhort of that, there
IS not enough rood in the house, .essential bills go unpaid, and the car
stops running. Even if her child care, is fully subsidized, very young children
do not do well when they have already lost the presence of one parent and
the other is occupied ruost of the tii.ie elsewhere, moreover, the mother
loses access to the education and job traing available under the AFuC
program which can prepare ner to coinri.anu a wage sufricient to support her
ramily on the proceeds of a forty hour week later on, when chixd care is less.
One hundrea yi arter payroll Deductions is a very high tax against earnings.
Please, while you consider altering the structure or the tax system to
provide more support for working single parents and low-wage intact families,
consider changing tne AFuC earned income disregard rules as well, so that
the single parents of very young cnilaren can benefit from the EliC as well.
LSslMurr/S^irrgsT °' '"' '"""^'"^^ '" '^"''^ '''' "^" °^ '^^ ~.H. state
MINIMALLY ADEQUATE MONTHLY BUDGET
FOR A FOUR-PERSON FAMILY IN NEW HAMPSHIRE BY COMPONENT
NOT EMPLOYED EMPLOYED PARTTIHE EMPLOYED FULLTIME
Clothing " ;'•.
Subtotal S 1,495 3 1,697 S 1,723 S 2,126 $ 1,830 S 2,332
Taxes 3 314 S 387 S 333 S 425
Total Monthly S 1,495 S 1,697 S 2,037 S 2,513 $ 2,163 $ 2,757
Annual Amount $17,940 $20,364 324,444 $30,156 $25,956 $33,084
Equivalent $ 8.97 S 10.18 S 12.22 $ 15.08 $ 12.98 $ 16. 5^:
Need Sinnd-ird Ucpon I Lxcrtiinc
OVERVIEW OF THE
MINIHALLY ADEQUATE MONTHLY BUDGETS
FOR DIFFERENT SIZE NEW HAMPSHIRE FAMILIES
PER CAPITA BUDGET
•Differences between high ana loiu budgets are primarily due to the increased child
care costs associated uith pre-school children, although other factors, such as the
sex of children also contribute (same sex children can share bedrooms = louier rent.)
Necii Siandart llcpon I
Slimniarv lulv I'HI l',i-c r
STATEMENT OF PAUL E. SUPLIZIO, PRESIDENT, TARGETED JOBS TAX
Mr. Chainnan and Members of the Subcommittee:
I am Paul E. Suplizio, president of the Targeted Jobs Tax Credit Coalition. 1
appreciate the opportunity to submit this statement on behalf of our Coalition,
which consists of more than 800 employers, workers orMnizations, trade
associations, and public interest groups who support h!k. 325 f the Rangel-Johnson
bill) and advocate permanent extension of TJTC. A complete list of Coalition
members has been provided to your office and is available to the public.
We appreciate the opportunity to submit testimony on the extent to which
current tax laws provide work incentives for low-income families and help create
alternatives to welfare. We will discuss the important role played by the targeted
jobs tax credit in reducing poverty and welfare, and the opportunities for more
widespread use of tax-based employment and training strategies to draw more of the
poverty population into the work force, and to raise tne earmngs and skill levels
of economically disadvantaged workers.
President Clinton has taken a major step forward by including in his economic
program a permanent extension of the targeted jobs tax credit, retroactive to last
Jime 30th, and expansion of the credit to youth apprenticeships and enterprise zone
residents. We support these initiatives, and also call upon Congress to restore
eligibility for 23 and 24-year old economically disadvantaged youth, and to modify
the Act so that any economically disadvantaged veteran who served on active duty
and was discharged under other than dishonorable conditions may be eligible.
Tax-Based Employment and Training Strategies: A New Course for Manpower Policy
President Clinton and Secretary Reich appeaer to be open to new solutions to
our labor force problems. We believe that tax-based employment and training
strategies provide an important new departure for manpower poUcy and the task of
reinventing government. To illustrate the President is requestmg $1 billion more
for summer youth jobs this year. This money will be spent to subsidize jobs in
non-profit organizations and government agencies. In our view, both the government
and the worker would be better served if as many summer jobs as possible were
provided by the private sector.
Workers would receive more relevant work experience, employers would be
encouraged by the tax credit to create more jobs, and expenditure of taxpayer
dollars would be more cost-effective. These results could be achieved by the
Department of Labor taking steps to better promote and enlarge the TJTC summer
youth program. Legislative changes may be in order to rework the program's design
to significantly expand participation by employers and workers.
Tax-based employment and training strategies depend upon proper design of the
tax credit to achieve the desired end. In the case of TJTC, the aim is to give
employers an incentive to reach out to and hire individuals in the target groups.
On the other hand, the newly proposed credit for youth apprenticeships has unique
goals. The credit applies to participants in an approved work-study program
carried out in the 11th and 12th grades. The object is to curb school dropouts,
raise skills, and ease the transition from school to work. We question why the
credit is limited to first-year wages only, when the objective is to keep a young
person in the work-study program for two years. Congress should give serious
consideration to desigmng a second-year credit for this new program.
We know from the TJTC experience that a properly-designed tax credit can elicit
the desired kind of employer response, that a tax credit is a powerful incentive
capable of shaping employer behavior.
The question is how limited Federal dollars can be spent most efficiently,
directly or through the tax code. Consider the possibilities:
9 TJTC could be expanded to include economically disadvantaged older
workers, single-parent families, and displaced homemakers; in fact, it
should be expanded to all economically disadvantaged workers;
# a companion tax credit could be devised to help the working poor escape
from poverty by targeting the credit on higher-wage jobs;
9 a companion tax credit could be devised to ensure that displaced workers
are re-trained for real jobs and not nonexistent jobs;
a companion tax credit could be devised to cover all or part of the
training costs of on-the-job or apprenticeship training, and on-site or
9 a companion tax credit could be devised to stimulate literacy training as
an adjunct to employment
When it comes to hiring policies and training, companies may not be willing to
hazard their economic survival on various sorts of direct subsidies that are
perceived to bring unwanted government interference. In the largest pilot youth
demonstration project of the Carter years, only 18 percent of private employers
were willing to participate even when offered 100 percent wage subsidies. Jobs for
the school dropouts in this program had to be found in the public sector.
Providing indirect incentives tluough the tax code may turn out to be the most
As an example of how the concept of a targeted credit might be applied, a
targeted training credit could be usea not only to stimulate more trainmg, but to
direct training activity where it is needed most.
In a study for the National Bureau of Economic Research, Lisa M. Lynch found
that company-provided on-the-job training is concentrated among white, married,
unionized males with greater work experience. Those participating in
a pprenticeship tr ainin g are primarily white, unionized, and male," although
minorities and females are entering apprenticeships in greater numbers than in
earlier years. The targeted training credit could be designed to focus private
sector efforts on target populations most in need of additional skills, rather than
on traditionally favorea groups.
■The Conference Board study, Literacy in the Work Force, predicts that up to
one-third of today's workers will be unable to perform tomorrow's work tasks. One
(juarter of our youth are dropping out of school, and nearly one-fifth of the firms
in the Board's survey reportea problems finding workers who read well enough to
qualify for entry-level jobs. Nearly half said that 15-35 percent of their work
force weren't capable of handling more complex tasks than they were performing.
The vast majority of firms said they did not know how many of their workers were
illiterate. "It seems to employers that each succeeding high school class is less
employable than its predecessor."^
Low employability of the unskilled is compounded by declining real earnings.
Many labor market economists are convinced that one of the most significant trends
of the past two decades is the ever-widening earnings gap between skilled and
imskilled workers. Real earnings per worker fdl substantially for both black and
white school dropouts in the 1970 s and IQSO's.'^ The poverty rate for two-parent
families where the husband was under 25 doubled from 10.5 percent in 1979 to 21.5
percent in 1986.-* Real earnings of 20-24 year old male dropouts declined 42
percent between 1973 and 1984. The decline for Hispanics was 39 percent, for
blacks 61 percent.'*
These problems are concentrated among youth and minorities. The fact is, young
workers are a declining portion of the labor force, and the nation can ill-afford
to lose any of them if we want a competidve workforce in the year 2000.
■ Some 4 million young school dropouts, 4 million young people with disabilities,
4 million single-parent families, 5.6 rmllion urban underclass, and 23 million
functionally illiterate workers are included in an economically disadvantaged
population of about 25 million (after allowing for overlaps among these
categories). According to the Hudson Institute, two miUion persons a year from
these groups should have their skills upgraded to overcome a serious human capital
deficit that will retard productivity growth and could lead to declining living
standards by the year 2000. According to the American Society for 'Training and
Development, "In a comparison among countries, the more educated and trained half
of the American workforce competes well with the white-collar and technical elites
of its economic rivals. But the other half of the workforce is not as well
prepared, and this is where the U.S. is losing the competitive race."-*
The TJTC Program Has Proven Effective
The TJTC experience can shed important light on how a tax-based employment and
training strategy would work. We have learned tnat a tax credit can be powernilly
effective in directing an employer's labor market behavior. According to the Macro
Systems study performed for the Department of Labor, The case studies of large
corporations and industries that were heavy users of TJTC found that 55 percent of
these companies had implemented fmancial incentives for their own staff^to
encourage the certification of TJTC eUgibles....Tbe primary response to TJTC seems
to have been to add TJTC eligibles to the pool of applicants considered for the
job. In 1982, about half of the eligibles hired were referrals from agencies,
probably in response to specific requests for TJTC eligibles."" Outreach to fill
nirin^ intake channels with target group members clearly illustrates how the tax
credit harnesses employer energies.
Macro Systems also found TJTC to be administratively cost-effective. It
stated, TJTC was cost-effective in assisting target group members in obtaining
jobs. This conclusion held both for funds Slocatedto provide TJTC program
services, and for the amount of actual staff services expended on target group
members....Persons receiving TJTC vouchers needed equal or fewer employment
services per job obtained than other ES applicants."
We have learned from TJTC that targeting ensures cost-effectiveness, because it
focuses resources on priority needs. CBO has estimated that TJTC costs $700-$ 1,000
per participant, but that estimate was made before the 1986 tax act reduced the
creoit from 50 to 40 percent. Today, this cost roughly would be $560-$800 per
participant, and a Price Waterhouse study has estimated that welfare savings would
further reduce this figure by 20 percent, bringing the net average cost to
$448-$640. The Macro Systems study found that for every 100 TJTC jobs, 15-30 net
new jobs were created in the economy. If the taxes paid by the workers in these
new jobs were considered, TJTC would essentially be revenue-neutral.
In its study of TJTC, G AO examined two principal issues, first, the extent to
which employers are making special efforts to reach out to and hire members of
target groups; and second, whether TJTC workers benefitted from their work
experience, as measured by future increases in real earnings.
The first issue deals with the longstanding concern of some members of Congress
that TJTC may be a windfall, that is, paying employers for doing what they would do
anyway. We have long held that TJTC induces employers to reach out to target group
members and seek referrals from community agencies, thereby "stocking the pool" of
job applicants with a greater number of TJTC eligibles than could be expected with
normal hiring intake. Employers would increase their credits and more
disadvantaged workers would obtain jobs, which was the congressional intent
underlying the program. We believe that in such circumstances TJTC is not a
windfall, because employers are actively seeking target group members for job
GAO found that about half the employers in its sample were engaged in outreach
to target populations. Moreover, employers with large numbers of entry-level jobs
account for the largest proportion of TJTCplacements, and these employers are most
likely to have speaal outreach programs. Tnus, the 50 percent of employers who
are making special efforts probably account for 70-80 percent of the TJTC
jobs-something GAO does not address.
GAO compared the earnings experience of a group of workers after leaving their
TJTC job with a control group of eligibles who did not obtain TJTC employment but
did obtain other jobs. GAO found the TJTC group significantly increased their
future earnings, and the control group did Likewise. GAO concluded that future
earnings were a positive function of work experience. This is consistent with our
view that TJTC draws economically disadvantaged workers into the work force where
they gain valuable work experience which increases their future earnings. This
confirms the findings of previous studies by the National Commission for Employment
Policy and the Department of Labor.
Now that the Administration supports an extension of TJTC, the Department of
Labor has an opportunity to actively promote the advantages of greater voluntary
efforts by employers to list TJTC job orders with state Job Services, and to mount
a coordinatea referral program for disadvantaged workers utilizingJTPA, welfare,
vocational rehabilitation, and community-based organizations. TJTC will not
achieve its full potential until the program is more broadly promoted to businesses
and referral sources.
Restore Eligibility for 23 and 24 Year-Old Economically Dis advantaged Youth
The 23 and 24 year-old youth who have not secured a permanent job are twically
persons with low test scores from poor families who dropped out of school and nave
worked oiily sporadically. Many are discouraged workers, or work part-time, and a
large number nave started families, which threate"^ to repeat the cycle of poverty
(the typical dropout has a parent who dropped out). Today, one in every tnree poor
children under the age of six Uves in a family headed by a person under age 25.
Families headed by persons under 25 suffered the greatest decline in real earnings
since 1973-60 percent. In 1986, 32.6 percent of families headed by a person under
age 25 was poor. One in eight young married couple families with children was poor
that year, while two-thirds of young female-headed families lived in poverty in
Table 2 updates and extends this data. It shows that if a married-couple
family under 25 with children included a high school drop out, the poverty rate is
35 percent. For a female-headed family under 25 where the parent is a dropout, the
poverty rate rises to an astronomical 89 percent. Restoring 23-24 year olds to
TJTC will help break the cycle of poverty and illiteracy and is well worth the
cost-roughly $70 million for each year of TJTC extension.
Many young men in this age group remain single because they do not earn enough
to support a fanuly. From 1973 to 1984, the percentage of males in their early
20's earning enough to lift a family of three out of poverty fell from 60 to 42
percent. Tne percentage of such men who were married plummeied from 40 to 20
percent, contributing to a large increase in births out of wedlock." TJTC is not
a solution to low wages, but it should certainly be available to ensure some wages.
When Congress was considering termination of eligibility for 23 and 24 year old
economically disadvantaged youth, it based its decision on the fact that
unemployment rates for those groups was lower than for youth age 18-22. That the
economically disadvantaged and the unemployed are two entirely different groups may
be readily seen from the following:
9 Of the economically disadvantaged population 16 and over in 1980, only 6.1
fiercent were unemployed. The vast majority, 62.7 percent, were out or the
abor force. This means that 68.8 percent of the population in this age
group did not have a job.
Of the unemployed population in 1980, less than 20 percent were classified
as economically disadvantaged.
# The economically disadvantaged population, 16-21, is heavily female (61
percent) and poor (over 60 percent had family incomes lower than 75
percent of the poverty level). In contrast, the unemployed population is
predominantly male and nearly three-quarters had family incomes in excess
of 125 percent of the poverty level.'^
Thus, elimination of eligibility for 23 and 24 year olds was detrimental to
some of the weakest members of society, poor male and female workers, many with
children, most of whom had such bleak employment opportunities that they were not
even in the workforce. The unemployment figures simply did not tell this story.
TJTC's Role in Reducing Poverty and Welfare
According to poverty researchers Sheldon Danziger and Peter Gottschalk, one in
seven Americans was poor in 1991, as was one in five children. The real income of
the poorest fifth of families was lower than in 1973. Danziger and Gottschalk
found that only about half the poverty population can be expected to work, and it
is only this group that can be directly affected by increases in the demand for
labor or inducements to supply more labor, as occurs with TJTC. Those they
classify as "not expected to work" include persons over age 65, the disabled,
students, and women with a child under age six.
Danziger and Gottschalk found that the poor who are able to work have
substantial labor market attachments, refuting the common notion that people are
poor because they are unwilling to work. They found that about half of poor
able-bodied mothers whose youngest child is over age six work at least some time
during the^ear, as do 80 percent of men who head poor households with
TJTC relies on jobs as the route of escape from poverty. The earnings from the
job may not be adequate to lift a person or family above the poverty line because
of low wages, too few work hours, or both. Bot a job provides SQins wages and is
the avenue to greater skill development, higher wages, and eventual independence.
It can be seen from Tables 4 and 5 that TJTC workers are mostly young people
earning less than $5 an hour. TTiey are essentially minimum wage workers m
entry-level iobs, due to their low sicills or handicaps. Those in this group who
are married or single heads of famihes naturally have greater earnings
expectations and needs. About a, quarter of a high-school class is married within
four years of completing school. ''^ The decline in manufacturing has eliminated
many job opportunities for young people, and the proportion of employed young
persons who work part-time involuntarily has increased.'-^ What should public
p)olicy be when a person works, but has inadequate earnings?
In the Coalition's view, the answer is not to interfere with the labor market
and legislate higher wages, because this only increases an employer's costs and
reduces demand for labor. We believe the appropriate answer is the earned income
tax credit and similar proposals, such as converting the personal exemption to a
refundable credit, and the child care tax credit. Philosophically, the earned
income tax credit is a version of the negative income tax proposed by conservative
economist Milton Friedman. At one time, it drew support from botn conservatives
and liberals. We consider it a more effective policy for reducing poverty than
labor market intervention to set wages.
TJTC can help workers in poverty find a job, but it cannot shoulder the entire
burden of moving them out of poverty. For this, it needs to interact with the
earned income tax credit to augment family income, and with education and training
to acquire greater skills that wul lead to increased wages.
It should be noted that low earnings by themselves cannot be considered a sign
of economic distress. For example, many teenagers with low earnings continue to be
supported by their families. Danziger and Gotttschalk found that 60 percent of low