Tax Reform for Low-Wage Workers

As a result of the recent implementation of work-oriented antipoverty programs, more welfare recipients can be expected to be working in low-wage jobs. With these jobs there is little hope that these workers' incomes will rise above the poverty level. One way to help support these low-wage workers is through tax reform. Although low-wage workers pay little or no federal tax, they still pay high payroll and local taxes. To help such workers keep more of their earnings, refundable taxes like earned income tax credit and child refund taxes should be expanded, and sales taxes on food should be eliminated. Key words: equity; poverty; tax reform; welfare reform; working poor people Welfare entitlement programs have lifted many people out of poverty and have opened the doors of economic opportunity for many, but these programs also have become increasingly unpopular. Consequently, welfare programs have come under serious attack, and the thrust of welfare programs subsequently has changed from entitlement transfer programs to work participation programs. On October 13, 1988, President Reagan signed into law the Family Support Act (P.L. 100-485). In essence, this law called for support of economic self-sufficiency activities among welfare recipients. To facilitate economic self-sufficiency, the act authorized the creation of the Job Opportunities and Basic Skills Training (JOBS) program. Under the JOBS program, Aid to Families with Dependent Children (AFDC) recipients were required to either work, look for work, or participate in the jobs training programs (Hagan & Lurie, 1995). Unlike the Work Incentive Programs of the 1970s, the JOBS program achieved a measure of success (Blank & Blum, 1997; Hagan & Lurie). States with innovative programs and administrative commitment to the JOBS program saw success, whereas others with significant constraints did not. On the whole, people who had limited child care services, health care provisions, and educational opportunities did not achieve the overall goals of the JOBS program ( Blank & Blum, 1997; Corbett, 1994-95; Hagan & Lurie). The effort to fight poverty through work was further strengthened by President Clinton's welfare reform measure. On August 22, 1996, President Clinton signed into law the Personal Responsibility and Work Opportunity Reconciliation Act (P.L. 104-193), which replaced AFDC with Temporary Assistance to Needy Families. The act focused on moving poor families from welfare to work. It required work in exchange for time-limited assistance and ultimately required people to be employed and become economically self-sufficient. The measure included the following features to achieve the central goal of the policy (Administration for Children and Families, 1996; Scholz, 1994-95): 1. Make work pay--To encourage people to work and continue working, this policy provides several economic incentives. Mainly, the administration proposed the expansion of earned income tax credit (EITC) and an increase of the minimum wage. 2. Job training and education--To facilitate the transition from welfare to work and to increase earning capability, the administration promised to provide training and education while recipients received welfare assistance. 3. Time-limited assistance--To prevent welfare recipients from staying on welfare indefinitely and to help them move toward employment, the new welfare mechanism provides only time-limited benefits. Once the time limit is reached, welfare recipients are expected to be employed. To facilitate this effort, recipients are assisted with child care, health care, and other support services during the time they seek employment. President Reagan's JOBS program, along with President Clinton's welfare reform and a number of state work initiatives, is a clear indication that traditional welfare entitlement programs are being replaced by work-oriented antipoverty programs. …