A week ago I provoked some discussion with a post on a 1970s experiment in providing a guaranteed minimum income to a rural community in Manitoba. I put up some back-of-the-envelope numbers that showed South Dakota could redirect half of its $1.4-billion human/health/social services budget to provide over $15K a year to every impoverished household in the state.
The U.S. tax system already hands out something that hints at a guaranteed basic income, but with complications. The Earned Income Tax Credit is not a guaranteed minimum income; it's a hybrid subsidy and incentive. If you don't get out and earn any money, you don't get any credit. But the more money a low-income person earns, the bigger the Earned Income Tax Credit Uncle Sam offers. At a certain income level, we figure a household is getting its head above water and scale back the EITC.
But notice that our Earned Income Tax Credit is as interested in subsidizing kids as in subsidizing low-income work. This table gives the EITC amounts for varying income levels. You can mouse over the charts below to see the credits available to both single (top chart) and married (bottom chart):
Single or married, if you don't have kids, your Earned Income Tax Credit maxes out at $496. We cut singles off at $14,590 and couples off at $20,020. Add kids to the mix, and the EITC jumps into the thousands, while the income thresholds climb.
Consider that the EITC is saying that, if you are married and have two kids, Uncle Same thinks you family deserves $6,143 to help pay the bills, but only if you are working, and only if you're making between $13,650 and $23,250. If health or the economy or bad luck knocks you out of your job and your income drops, the IRS won't help you out as much, although the underlying assumption is that other state and federal welfare programs will.
So what do you like better: our Earned Income Tax Credit, encouraging low-income folks to make more money and trusting other welfare programs to take care of those in deepest need, or the guaranteed minimum income system we talked about last week?
Related Reading: As Todd Epp reported back in November, research from the Center for Rural Affairs finds that 16.2% of South Dakotans claim the Earned Income Tax Credit. That's below the national figure of 19.2%. Rural populations tend to qualify for and claim the EITC more than city dwellers. In South Dakota, 20.1% of rural residents take the EITC, compared with 15.3% in our metro areas. Nationally, the rural/metro split is 21.4% to 18.7%.
Wingnuts have complained for years that the EITC was giving lower income people tax returns when they didn't pay taxes to begin with. Unlike korporate amerika that got away w/o paying taxes,k a was entitled to their entitlements.
The guys who really make the big bucks on the EITC are the banks and the tax preparer's. You see, the poor do not have bank accounts for the most part and are issued credit cards that have the amount deposited less fees for the card and the customary user fees involved for each time they use them as well. So the banks make a bundle and the tax preparer's get in on the feeding frenzy as well. The poor are just so damn glad to have a little money that they allow the haircuts because there is not anyway that they can get that money without all of the greedy hands on it.
Jerry makes an important point that I've seen play out over and over.
Really interesting account, Cory--thanks!
Why wouldn't a person with poor banking history, assuming that's why a bank doesn't want them, open a saving account at a credit union? They could use it to get bank checks and other services besides make deposits. Membership restrictions are loose. Won't name them but my big bank is hungry for fees and aggressive to "upsell" services. An ex-employee just told me they've gotten in trouble for pushing the vulnerable to inappropriate/unnecessary services. Our credit unions are helpful.
You will not find the welcome mat out for the poor at a bank or a credit union. They have their minimums and that is why the only thing they like to issue are these credit cards. No hassle for them as they get all of their accounting fees up front with the charge to issue the card in the first place and then each time it is used, ca ching into their coffers. That is why it will never be eliminated, republicans bitch and moan about it for the cameras, but their pockets get lined with the donations so they are not about to loose this golden goose.
Is $15 restrictive? That's for a saving account. Just picked up the info last week so it's right here in my hand. The checking account "is truly free - no catches and no monthly fees."
I don't like labeling people "the poor" like it's a disease they can't overcome.
Of course you assume that the working poor have the means to have an account anyplace and that 15 bucks is not a big deal. This January, 1 million more people will loose their food stamps Happy Camper, so just how do you expect them to have the luxury of a bank account when their belly's are empty. They are cash strapped and broke beyond your comprehension. They barely make it from pay check to pay check and that is why there are these payday loans, to keep them even poorer. Here is how this scheme works. http://www.creditcards.com/credit-card-news/refund-anticipation-loans-not-really-gone-1273.php
Now you can huff and puff all you like about labeling folks like the working poor, but what else do you wish to call them? Granted, this is not 100% of the working poor that are eligible for the EITC as some may very well have checking or savings accounts, but these are a huge business for all the greedy hands in play. Something else as well to note, the working poor do not necessarily live at the same address for any length of time so they do not want to have the checks mailed to them.
Pew Research has now come forward with this interesting news. It seems like the more financially insecure you tend to be the more likely it is that you will not vote. While Democrats certainly have had the best message, people are so broke they choose to not vote. I have never seen that before but it makes sense to me so it looks like the republicans not only gerrymandered the elections, they have finally figured a way to shut down the voting process by breaking the bank. http://www.people-press.org/2015/01/08/the-politics-of-financial-insecurity-a-democratic-tilt-undercut-by-low-participation/
Actually, it's harder to get an account at credit unions. I use one and love it but they've raised their requirements over the years. You need reasonably good credit. Not sure what your numbers would have to be but know people who have been declined an account.
Mr. Jerry, why are all these people losing food stamps? Is it because the new minimum wage has pushed them into a high enough wage bracket that they don't need them? If so, then i agree with Mr. H that the increase was good in that one sense and it did what it was intended to do.
No Mr. grudznick, it is not because of the minimum wage increase it is because of being unemployed. http://money.cnn.com/2015/01/06/news/economy/snap-food-stamps-unemployed/
I banked at Black Hills Federal Credit Union for a dozen years and had a very good experience. They treated me well. I don't remember what the minimum balance was.
Now I bank at Wings Federal Credit Union in MN, and they are wonderful. The minimum balance in MN seems to be $5. Interest on my credit card is 10% and won't get up to 20% regardless of what I do, or don't do. They will cancel my card if necessary. BHFCU was similar.
In between the two credit unions I had the sad misfortune to bank at Wells Fargo. What a disaster! Fees, interest rates, charges, manipulating my account balances. And in the midst of all that came the Great Recession. Financial disaster for me. I'll never use a bank again. Credit unions only.
Did you bounce some paper, Ms. Geelsdottir?
Oh Grudz. I had a terrible time. I became ill and could no longer work, so my income was slashed to zero for a year. It was a struggle to keep a roof over my head.
Studies have shown that extreme stress causes a decrease in one's thinking ability. It can come back, but because the individual is so overwhelmed with survival, the brain simply isn't able to process some things very well. That has a great deal to do with why the poor don't always make the best decisions. They can't. Their brain is not capable at that time.
I had a similar problem. I did mess up my account, plus the bank ran the biggest check first, and then could charge overdraft fees for smaller ones that should have been covered. It's an old bank trick. Then they plopped on another fee for having an overdrawn account. Fee upon fee, charge upon charge.
It's sad what happens to people who are less able to help themselves. A higher minimum wage wouldn't fix everything for them, but it might give them a fighting chance.
That must be what happens to me. When I am prostrated with the agonies I tend to be overwhelmed with survival and often say things because my brain is less capable at that time.
I am glad you dug yourself out of that hole, Ms. Geelsdottir. A young woman like you can be a role model to many.
Thank you Grudz. I'm glad too.