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Poverty in America: Deep and getting deeper, despite Earned Income Tax Credit

Referring to an “average American family” is a common rhetorical tool in State of the Union addresses. This year President Barack Obama talked about Rebekah and Ben Erler of Minneapolis, a waitress and a construction worker.

“They represent the millions who have worked hard and scrimped and sacrificed and retooled,” the president said, also noting how basic child care for the Erler children costs more than their mortgage.

“It’s Not Like I’m Poor” is a new book that reads like a follow-up to years’ worth of State of the Union letters. It explores the finances of the Erler families among us — Mitt Romney’s famously castigated 47 percent.

The book’s mission is to assess the costs, benefits and shortcomings of the Earned Income Tax Credit, doled out by the Internal Revenue Service, and largely a replacement for the welfare system. It accomplishes this mission and also humanizes the working poor in an unforgettable way.

More than 100 Boston area families participated in the study that comprises the book.

The subjects are the relatively fortunate working poor, not the millions living in extreme poverty (a person existing on $2 per day, normally thought of as a Third World standard) or those living in deep poverty, roughly $12,000 per year for a family of four — that is, about half the U.S. poverty threshold.

Between 1996 and 2011, the authors write, the number of people living in deep poverty has risen dramatically — and most of these people are out of work and therefore ineligible for the Earned Income Tax Credit. The families surveyed mostly earned under $30,000 per year, sometimes for a family of more than four.

The book’s authors report, “These are the ordinary working people who feed the rest of us, ring up our orders and hand over our change, sort our paperwork, watch our kids, care for our older relatives or us when we’re sick, and provide many of the other services that are a daily backdrop to our lives.”

And they can’t make ends meet. Again and again throughout this book — the repetition grows tedious — the authors tell us that their subjects are working very hard, not “gaming the system” and doing their best to spend responsibly.

But since their regular earnings don’t cover their monthly bills, they’re deeply anxious, often default on debts, take loans from family and friends, and live in situations and locations that are dangerous.

The text’s authors are Sarah Halpern-Meekin of the University of Wisconsin, Kathryn Edin of Johns Hopkins University, Laura Tach of Cornell University, and Jennifer Sykes of Michigan State University.

In 1993 Harvard economist David Ellwood and Columbia University’s Robert Y. Shapiro worked to make good on President Bill Clinton’s campaign promise, “We will reward the work of millions of working poor Americans by realizing the principle that if you work 40 hours a week and you’ve got a child in the house, you will no longer be in poverty.”

The Earned Income Tax Credit was the answer. Recipients within the study received an average of $4,686 each year. In some cases this amounted to a third of the family’s yearly income, and in all cases it technically raised their gross earnings above the poverty line, nearly to the dollar.

But in 2007, when the research was conducted, Washington was still basing poverty levels on 1950s surveys “of the cost of a minimally nutritious diet on an ‘emergency’ or short-term basis (which assumed that a family consumed powdered milk and no fresh vegetables),” the authors say. That number was then multiplied by three, based on the average 1950s family spending a third of its income on food.

The resulting dollar amount has been adjusted for inflation: In 2011 a family of four was impoverished at about $24,000 per year.

Using the 1950s basis does not take into account that the perception of what constitutes necessity has changed. Most “poor” people have heating and air conditioning, computers, televisions and cellphones. Should they not?

Columbia University has estimated that a more realistic poverty line should be drawn at $45,000 per year.

The tax credit has its pros and cons, which the authors rigorously detail.

One benefit is that no stigma is attached as with welfare, which the subjects tell us that even the most desperate are ashamed of receiving. Because the tax credit is calculated and distributed by the IRS, it’s viewed as earned and can be picked up at any tax preparation center where the beneficiary is simply another customer.

Recall that in the recent State of the Union address, Obama said that Rebekah Erler was not “looking for a handout, but she is asking that we look for more ways to help families get ahead.”

However, when the tax credit comprises a large percentage of yearly income, recipients in the study tended to fall into a “boom and bust” cycle — what the authors liken to a calorie counter whose constant restrictions make him more likely to succumb to binging, or in this case spending, irresponsibly.

Maybe the worst feature of the tax credit, and the reason that further welfare reform is needed, is that “the new safety net rewards work, but it does not provide a job or ensure a stable income.”

Only someone who has taxes to file is able to receive the benefit — not people living in extreme or deep poverty.

To reach Anne Kniggendorf, send email to akknigg@gmail.com.

It’s Not Like I’m Poor: How Working Families Make Ends Meet in a Post-Welfare World, by Sarah Halpern-Meekin, Kathryn Edin, Laura Tach and Jennifer Sykes (304 pages; University of California Press; $29.95)

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