Director of Income Security, Center on Budget and Policy Priorities
Before the Subcommittee on Human Resources of the
Committee on Ways and Means
May 18, 2000

Madame Chairman and Members of the Subcommittee on Human Resources:

Thank you for the opportunity to testify today on child support legislation, specifically H.R. 4469, "Child Support Distribution Act of 2000" and H.R. 3824, "Child Support for Children Act." My name is Wendell Primus and I am Director of Income Security at the Center on Budget and Policy Priorities. The Center is a nonpartisan, nonprofit policy organization that conducts research and analysis on a wide range of issues affecting low- and moderate-income families. We are primarily funded by foundations and receive no federal funding.



The Center supports the basic goals of both of these bills. We believe that the complex rules for distributing child support to families that are current or former recipients of TANF need to be simplified. We also believe that children in families that are current or former TANF recipients should benefit more from child support paid on their behalf. H.R. 3824 and H.R. 4469 represent a major step toward accomplishing these goals. Most of our comments relate to H.R. 4469.

H.R. 4469 is a positive step in moving the child support enforcement system away from its historical cost-recovery mission and toward a program that benefits all custodial families and children.

We also support the basic goals of the Fatherhood Program contained in H.R. 4469. Title V of this bill contains several provisions that would increase employment services to low-income custodial and noncustodial parents. In addition, funds are provided on a competitive basis to encourage child support, TANF, and workforce development organizations to work together with community-based organizations in the delivery of a variety of services to noncustodial parents to help them increase their employment rates, become more involved in the lives of their children, and meet their parental responsibilities.

We commend you for addressing the issues of fatherhood as well as for proposing substantial improvements in child support assignment and distribution, and for sending the message about the importance of non-custodial parents (primarily fathers) assuming financial, child-rearing and emotional responsibility for their children.

Much work remains to be done to improve the child support enforcement system for low-income families. Both bills make substantial progress in ensuring that once custodial families leave cash assistance, more collected child support will reach them instead of reimbursing federal and state governments. The policies reflected in this legislation would make the goals of the child support enforcement system more consistent with the welfare reform goal of promoting financial self-sufficiency. We encourage the Subcommittee take up provisions in H.R. 3824 to provide additional incentives to states to distribute all current support directly to families that are on public assistance and to disregard a substantial portion of those support payments in calculating a family's monthly cash assistance benefit.

We do, however, have serious reservations about two areas of H.R. 4469. We are strongly opposed to the provisions in Title III that extend access to enforcement tools and to additional personal information to private child support entities and public non-IV-D agencies. Private child support enforcement entities currently have access to some private information through the Federal Parent Locator Service, but there are not adequate protections guarding private entities' use of that information. Courts have ruled that the federal Fair Debt Collection Practices Act does not extend to private child support collection companies and there is growing anecdotal evidence that several of these private entities are taking unfair advantage of both custodial and noncustodial parents.

Some privacy advocates believe that personal information is too easily accessible to private child support entities. Granting these entities access to additional sensitive information could lead to invasion of privacy and misuse of information and the further fragmenting of the child support enforcement system. The Center strongly encourages the subcommittee to bring private child support entities under regulatory authority and to require HHS to issue a report on the amount of access private and public non-IV-D entities currently have before considering the extension of additional data and enforcement tools.

In addition, while we support the intent of the hold harmless provision in Title I of H.R. 4469, which will allow states to use their federal TANF grant or use MOE funds to help finance changes in the distribution rules, we are concerned that the way the provision is currently drafted allows states to supplant TANF dollars.

Finally, we have concerns about how H.R. 4469 will ultimately be financed. Currently, the bill is not fully financed and we have heard several possibilities for how this financing gap will be closed. Even though many aspects of this bill are positive, financing it by cutting other programs benefitting low-income people could jeopardize the support of ourselves and others for this legislation. For example, we would oppose cuts in the TANF supplemental grants or in the EITC for childless workers as potential offsets for this bill. In general, we find it problematic that at a time when the budget surplus is substantial, Congress is willing to pass large tax cut bills that primarily benefit more affluent individuals without any offsets, while proposals such as this one that could significantly help low-income families become economically self-sufficient are subject to an offset requirement. This seems unbalanced and inequitable.


Assignment and Distribution of Child Support Provisions in H.R. 4469 and H.R. 3824

The Center strongly supports the intentions of Title I of H.R. 4469, which would simplify the child support assignment and distribution rules for families receiving Temporary Assistance for Needy Families (TANF). As both the child support enforcement system and cash welfare programs have evolved over the last 25 years, the rules determining assignment of rights and distribution of support have become highly complex. This section focuses primarily on H.R. 4469, which would (1) substantially improve assignment provisions, primarily by further simplifying the "on/off" rule, and (2) substantially improve distribution rules by ensuring that once families leave cash assistance, they benefit first from all child support collected on their behalf.



"Assignment" rules determine who has a legal claim on child support collections. When a custodial family applies for welfare, it must assign its legal claim to child support collections to the state. Under AFDC, families were required to assign to the state all rights to child support, including child support debt that accrued before a family started receiving welfare assistance. Under welfare reform, the child support assignment rules were amended, and assignment was determined by an "on/off rule," whereby support payments are assigned to the state or the family, depending on whether the family is on or off welfare. These assignment rules were phased in gradually, and should be fully in effect by October 1, 2000. However, several major and troubling exceptions to the on/off rule remain. The assignment provisions in H.R. 4469 are a good first step in addressing these concerns by simplifying the "on/off" rule and limiting assignment to periods of time when the family is actually receiving cash welfare assistance.

The first exception to the on/off rule under current law is that states keep arrears that were owed before the family received assistance if they are collected after the family starts receiving assistance.(1) This provision under current law works against those custodial parents who try to survive financially without child support payments, but do eventually turn to cash welfare assistance as a last resort. The current system punishes these families because they can lose all of the support owed to them if it is collected after they start receiving cash welfare assistance. By contrast, families that start receiving cash assistance immediately after the noncustodial parent fails to pay child support, and that leave cash assistance once child support payments are made again, have fewer arrearages assigned to the state.

The second exception under current law concerns arrears accrued during a period that a family was not receiving welfare, but that were assigned to the state before October 1, 1997 as a condition of the family's subsequent receipt of cash welfare assistance. These arrearages continue to be permanently assigned to the state.

H.R. 4469 would address these two problems by limiting the period of assignment to the state to that time when the family is receiving TANF assistance. In other words, the state could not claim rights to arrearages accrued before or after the family received welfare assistance. States would retain assignment rights to an amount of support equal to the lesser of 1) the number of months the family is on assistance times the monthly amount of current child support due to the custodial family; or 2) the total amount of cash welfare assistance provided to the family. Limiting the amount of support that states may claim means that once families leave cash assistance, children in custodial families would benefit from more of the child support that is collected on their behalf.



The Child Support Distribution Act of 2000 also makes changes to the rules governing the distribution of child support for families that are former cash welfare recipients.

The proposal make significant improvements to distribution rules for families that have left welfare, allowing them to benefit more from child support that is collected on their behalf. The proposal requires states to distribute to the custodial family all arrears that accrued before and after a family went on welfare before repaying arrearages owed to the state for periods while the family was receiving welfare. Under current law, including arrearages collected from federal tax refund intercepts are applied first to the debt owed to custodial families and then to the debt owed to the state and federal governments. However, there was one major exception to that rule. Any collections from intercepting an noncustodial parent's federal tax refund are applied towards child support arrears owed to the state before they are applied to child support arrears owed to the children in the custodial family. About one-third of all arrears collections occur through the federal tax refund intercept, but two-thirds of arrears collections for families on welfare are collected through the federal tax refund intercept.(2) Ensuring that this money is distributed according to the family first rules would improve the well being of custodial families and simplify the distribution rules.


Other Changes in Titles I and II of H.R. 4469

Limit the Recovery of Medicaid Birthing Costs

We strongly support the provision that prevents states from recovering Medicaid birthing costs from noncustodial parents. Requiring noncustodial fathers to pay the Medicaid costs of birth discourages fathers from establishing paternity. It also can dissuade pregnant women from seeking important prenatal medical care.


Review and Adjustment of Child Support Orders

We are pleased that H.R. 4469 requires that TANF agency to contact the IV-D agency when a custodial family leaves welfare and provide information regarding the change in welfare status. We support the provision requiring the child support agency to conduct a review of child support obligations when a family is about to leave TANF. This review process is important to both custodial and noncustodial parents. A review of child support orders at this time helps to ensure that child support orders reflect NCPs' current income, and to prevent the build-up of large arrearages. A review of the support order at this time would be especially helpful to the custodial family if an upward modification is appropriate. In addition, requiring communication between the welfare and child support agencies may help avoid delays of three to six months in child support receipt that occur when families leave cash assistance. These delays occur when the child support office is unaware of the change in status, and continues to retain support checks for several months. This delay is especially problematic for families making the transition from welfare to work, a time when such families are financially vulnerable. This provision should help ensure that families leaving welfare start receiving child support sooner once they leave cash assistance.


State Financing Options

 H.R. 4469 authorizes states to use TANF funds or MOE credit to finance changes in assignment and distribution. The Center believes that the state financing provision allows states to supplant TANF dollars to finance changes in the distribution rules.

We support the intent of the provision, which is to hold states harmless from additional costs associated with distributing the state's portion of child support collected to custodial families. Under this proposal, states may use their federal TANF grant or use TANF MOE funds for the state share of the amount of support distributed to former recipients. However, as a result of this proposal, the amount of additional child support distributed to the custodial family also counts as a state child support expenditure and could be used to draw additional federal child support funds. States would receive credit as a TANF expenditure for the amount of support distributed (the portion that formerly would have belonged to the state) and would count this pass-through as a child support expenditure, thereby drawing down federal matching dollars for child support at the 66 percent FMAP rate. In effect, states would be allowed to use federal dollars to draw down other federal dollars. Allowing the funds to be used in this manner will result in a significant amount of supplantation of TANF dollars—an undesirable result.

The Center also believes that states should not receive this credit indefinitely. After all, the bill is mandating that custodial families be given what they are owed when child support is collected from the noncustodial parent. In principle, states should not continue to be held harmless for years to come from changes made to distribution rules. These changes will cost the federal government, and since the child support enforcement program is a federal/state partnership, states should ultimately bear some of the cost. The additional TANF credit for full distribution should be applicable until 2004 to give the states an incentive to implement these changes in distribution rules as soon as possible.


Further Suggestions for Child Support Changes

In this section, we suggest several additional changes regarding child support assignment and distribution that would solidify the role of the child support enforcement agency as an income support program for low-income children in families, rather than a system that serves to recover costs associated with cash welfare payments. A few of our suggestions are reflected in H.R. 3824.

H.R. 4469 continues the practice under current law of allowing states the option to fully pass through child support to families currently receiving welfare. We believe that a mandatory full distribution policy, as reflected in H.R. 3824, would further simplify administration and would benefit both custodial families and noncustodial parents. A full distribution policy may also encourage more fathers to pay child support more regularly because the custodial parent would know when the NCP (noncustodial parent) paid child support and how much he paid. We urge the subcommittee to consider legislation that moves closer to full distribution by eliminating entirely the on/off rule and allowing all child support payments to be distributed to the family, regardless of its TANF status. TANF disregards would remain a state option.

To work properly, the current system requires constant, immediate, and substantial flows of information in both directions between the TANF, food stamp, and child support offices. To determine benefit levels accurately, the TANF and food stamp offices must know whether the custodial family has cooperated with the child support enforcement agency (in terms of establishing paternity and assigning child support rights to the state), as well as the amount of child support that has been collected. Substantial anecdotal information and reports from state non-profit organizations suggest that this system is not working well because there is a significant delay before the child support office becomes aware of changes to the custodial family's TANF status. The result is that families that leave TANF frequently do not receive the current child support collections to which they are entitled until 3 to 6 months later.

Under a full distribution policy, there would be no assignment rights to the state. Communication between child support and TANF would flow in one direction; the child support office would keep the TANF office informed of the amount of child support paid by the noncustodial parent. No information would have to flow from TANF back to the child support office. Alleviating the administrative hassles so common under current law also could potentially result in significant government savings: when asked to estimate the proportion of administrative resources that State IV-D agencies expend on distribution issues (excluding systems development costs), the answers of four former IV-D directors clustered around 6 to 8 percent, or in the range of $250 million per year.(3)

If states are unwilling to forego assignment and to distribute all child support to families regardless of TANF status at this time, the next best option is to limit the state and federal government's assignment rights to those periods of time when the custodial family is actually receiving assistance. As noted earlier, the Johnson bill makes significant progress here.

This would mean, for example, that for a family currently receiving welfare, any arrearage collections would be applied to arrearages owed to the family before the collections are applied towards arrearages owed to the state. Depending on the custodial family's welfare status, current law treats families in similar situations very differently. For example, assume two cases where the family is owed $5,000 in arrearages and the state is owed $2,000. A total of $1,500 in arrearages is collected through the federal tax refund intercept. If the family is currently on welfare, the money would go to the state, but if the family is a former welfare recipient, it would go to the family.

States could also be given the option of an even simpler system that would allow the state to eliminate all arrearages owed to it and to the federal government after a family leaves cash assistance. While a family is a current welfare recipient, states could require the family to assign its child support rights to the state, and could would still have the option of retaining any current support collected. However, if an arrearage accrues during the period of time that the family receives cash welfare assistance, once the family leaves cash assistance, this debt would be owed only to the custodial family rather than to the state. This step would dramatically simplify the accounting that states must do by eliminating the need to keep track of arrearages owed to the state after a family has left welfare.

Currently, states determine whether or not to "disregard" child support income in determining the size of a family's monthly cash assistance check. The 1996 federal welfare law repealed a requirement that states pass-through and disregard the first $50 per month in child support payments to custodial parents and their children, rather than retaining the full amount as reimbursement for cash assistance. To ensure that custodial families are made better off financially when noncustodial parents pay child support, states should be encouraged to disregard child support payments when calculating the TANF benefit.

In states where the $50 disregard was eliminated, many noncustodial fathers (and custodial mothers) are discouraged and frustrated by the fact that child support payments yield no benefits for their children. In these states, child support payments are counted dollar for dollar against TANF benefits, effectively resulting in a 100 percent tax rate on those child support payments. Under these circumstances, fathers have no economic incentive to pay child support to their children because no matter how much they pay, their children are not better off economically. Of the $2.6 billion dollars of child support collected on behalf of all children in custodial families receiving TANF in 1998, only $152 million, or less than 6 percent, was distributed to TANF families.(4)

States should be encouraged to disregard more child support that is passed through to the custodial family when calculating TANF benefits. States have a number of options in structuring this disregard. The disregard could equal all child support paid; or equal a fixed amount of child support each month, or equal a specific percentage of paid child support. For example, with a 50 percent disregard, every dollar of child support would reduce welfare payments by 50 cents (rather than by a dollar), thus ensuring that custodial families are better off when child support is paid.

We believe the best way to encourage, not mandate, states to disregard child support payments when calculating TANF benefits is to relieve states from their obligation to reimburse the federal government for its share of disregarded child support. We would suggest two modifications to current law. The text of H.R. 3824 reflects our first suggestion. First, we recommend that states no longer be required to reimburse the federal government for child support that is distributed to the custodial family. For example, under current law, if a state collects $400 in current support for a custodial family that is receiving welfare, and disregards $200, the state would still be required to send the federal share of the entire amount of child support collected (a percentage equal to its Medicaid match rate) to the federal government. In this case, we assume the match rate is 50 percent: the state would be required to send $200 (50 percent of the $400 collected), to the federal government. We suggest that in this situation, the state would only be required to send a portion of the child support that it retains to the federal government — in this example, this would equal $100, or 50 percent of the $200 that the state government retained after distributing and disregarding $200 to the custodial family.

Our second suggestion for creating incentives for states to disregard a substantial portion of child support collections would apply to states that disregard at least 80 percent of the aggregate amount of child support for current cash welfare recipients. States that could show that they disregarded at least 80 percent of the aggregate amount of child support collected for current cash welfare recipients would not have to send any child support payments to the federal government.

In general, mandating a full pass-through and creating economic incentives for states to disregard a significant portion of paid child support disregard would solidify the role of child support in improving the living conditions of children, especially children in low-income families. It would rationalize the message of the child support office, and make it consistent with that of the welfare program in promoting and facilitating financial responsibility and self-sufficiency.


Fathers Count

On a previous occasion, I testified in support of the Fathers Count bill, much of which has been incorporated into Title V of H.R. 4469. We support the basic goals of the "Fathers Count" provision in the bill and believe this legislation is a good first step in funding services for low-income noncustodial parents to help them build the capacity to support their children both financially and emotionally. We believe the federal government should take more steps to promote the development of effective strategies for providing services to low-income noncustodial parents. These services would include encouraging marriage where appropriate, strengthening fragile families, and increasing the likelihood that children will benefit from the financial support as well as the personal involvement of two parents. Efforts to promote financial support and personal involvement of noncustodial parents in the lives of these children are likely to be successful only if they reflect a comprehensive approach.

Given the lack of financing for broader efforts to promote fatherhood or assist non-custodial parents in meeting their parental responsibilities, this bill is helpful, although considerably more remains to be done. There is much we need to learn about how government policies should be structured and coordinated to make them most effective in assisting non-custodial parents to become self-sufficient and meet their parental responsibilities. That is why Subtitle A is the right place to begin. This title funds a series of fatherhood grants to launch and evaluate pilot programs to improve noncustodial parents' ability to pay child support, make child support policies for those parents more responsive and more appropriate for low-income families, improve the parenting skills of noncustodial parents, and increase contact and interaction between these fathers and their children.

We commend the changes to the fatherhood provisions in H.R. 4469 that address domestic violence. These changes provide an exception to helping fathers arrange and maintain a consistent visitation schedule with their children in situations where these visits would be unsafe. The changes also give a funding preference to entities that cooperate with community-based domestic violence programs. The prevalence of domestic violence is high in low-income communities, especially among women who are current or former recipients of cash welfare assistance. As policies are put in place to increase noncustodial fathers' involvement with their children, care must be taken to ensure the safety and well-being of children and their mothers.

Title V of this proposed legislation also should be improved by limiting the charitable choice language. Faith-based organizations should be involved in providing services to low-income noncustodial parents. However, we have serious concerns about discrimination in hiring that would be allowed under this charitable choice provision.


Expanding Child Support Enforcement to Public Non-IV-D Agencies and to Private Entities

The Center strongly opposes Title III of H.R. 4469, which would allow states to provide additional information and enforcement mechanisms to public non-IV-D agencies and to private child support agencies for the purpose of collecting child support. Private and Public non-IV-D child support entities currently have access to some private information by requesting "locate only" data through the Parent Locator Service. Private child support entities are unregulated and there is anecdotal evidence that many are engaged in irresponsible practices that are harmful to consumers—both custodial and noncustodial parents. Private collection agencies may already have too much unrestricted access to private information and ought to be subject to regulations on the use of the data they currently have. We urge the Subcommittee to study and to regulate the industry's current level of access before allowing them additional data and enforcement tools. Allowing private companies and non-IV-D public agencies access to new data sources, including the National Directory of New Hires, could jeopardize families' right to privacy and will raise concerns about the ability of IV-D agencies to monitor and regulate private contractors use of the data. Ultimately, supporting the growth of private child support agencies will further fragment the child support enforcement system and potentially divert resources from state agencies.

Extending access to the additional information and enforcement tools to non-IV-D entities, public or private, raises serious concerns about privacy. The 1996 welfare reform law gave child support enforcement agencies access to additional personal information through the creation of the National Directory of New Hires. The legislation drew a carefully constructed line that defined what information IV-D agencies could collect and access and how that information could be used. With these new tools, the child support enforcement system has been successful in significantly increasing the amount of child support collected. If the data available through these enforcement tools are made more widely available, there is a very real danger of a "privacy backlash" that would undermine support for using the data to enforce child support payment. Advocates of privacy rights have legitimate concerns about the importance of protecting personal information. Although this proposal allows child support entities to require private entities to follow privacy guidelines set up by the state, we have concerns that state agencies will be limited in their ability to enforce these rules. If there is a perception that information in the New Hire Database is not protected, there will be many who advocate eliminating the Directory entirely.

Extending the information to outside entities also raises concerns about the continued efficacy of the National Directory of New Hires. Although legislation mandates that employers provide information about new hires to the Directory, employers comply with this system on an essentially voluntary basis. There is no strong enforcement mechanism if employers do not provide data to the New Hire Directory. If New Hire information is distributed to non-IV-D agencies, and employers become wary of how the information is used, the progress in child support collections that the Directory of New Hires has made possible in the past years in collecting data may be eroded.


Extending enforcement to private entities

There are actually two forms of privatization within the child support enforcement world. One form of privatization adopted by many state child support agencies involves an outside contractor bidding to act as "an agent of the state" to carry out parts of the child support enforcement mission. These contractors, such as Maximus and Lockheed-Martin, are performing many functions that were once performed by state child support enforcement agencies. States hold these "agents of the state" accountable to the same rules guarding privacy and access to information as state agencies themselves. Subtitle B of Title III of this bill is not concerned with this type of privatization.

Instead, the Title III option to extend to private child support enforcement entities the information and tools of the child support agencies applies to private companies working outside the child support enforcement system. This provision gives states the option to require state child support enforcement agencies to provide any data relevant to seeking or establishing child support obligations to private entities. Currently, some custodial parents are willing to pay private entities for the service of retrieving child support obligations from noncompliant noncustodial parents. Under current law, these private entities operate independently of the child support enforcement system, with no obligation to follow child support enforcement's regulations, and also without access to the state Directory of New Hires that contains sensitive information.

Custodial families that turn to private child support entities pay a premium for their services. Private child support entities retain between one-quarter to one-third of the support they collect. Under this proposal, private entities would be required to pay a fee to cover the child support agency's costs associated with obtaining information about noncustodial parents; however, these private entities would nevertheless benefit substantially from the work performed by public child support agencies in issuing wage withholding orders or intercepting federal tax refunds. This amounts to a diversion of federal and state resources to help generate profit for private businesses.

In addition, many of these private child support collections companies use problematic means to collect child support. Numerous instances of these companies using harassment and threats to collect support have been documented. Courts have ruled that the federal Fair Debt Collection Practices Act (FDCPA) does not extend to private child support companies, so clients and debtors do not have the same consumer protections that cover private collection agencies. Title III would grant these unregulated private entities access to sensitive information stored in state databases but would not require them to follow state agency rules and regulations.

Furthermore, extending information and tools to non-IV-D entities will undercut the efforts of state child support enforcement agencies and could fragment the child support enforcement mission. In the past several years, the child support enforcement system has made great progress in building a central state-based system that serves both welfare and non-welfare families, with central state disbursement units, and a National Directory of New Hires. A competition between a private child support agency that can pick and choose which delinquent fathers to pursue and a public child support agency that must enforce all court-ordered support is an unfair competition. If private child support companies out-perform state agencies by "creaming" those debtors whose delinquent payments are easiest to retrieve, the child support agency will be left with a considerably more difficult caseload. In an unfair competition, state agencies' performance may suffer.

Without a full understanding how reliant these private child support collection entities are on the work of public agencies, state legislatures may be encouraged to underfund the publicly-funded child support agency on the rationale that the services are available through the private sector. Because private entities do not receive state funding, state legislators may assume that it is more cost-efficient to allow private agencies to perform child support enforcement functions, and thus underfund public agencies. Underfunding public child support agencies could fragment child support enforcement so that middle and upper income custodial families relied more heavily on private collection agencies, where they paid fees as high as one-third of the amount collected, and lower-income custodial families relied on the public IV-D agency. A two-tiered system of child support would be inefficient and would stigmatize low-income mothers who rely on state-funded system.


Enforcement Tools

Title IV of H.R. 4469 expands the use of several child support enforcement tools. Several Administration proposals have been made to expand child support enforcement tools; this proposal has selected the best of these proposals:

Lowering the level of arrearages that must have accumulated before a passport can be denied from $5,000 of arrearages to $2,500 seems reasonable. We believe it would be helpful to fund a study that determines why noncustodial parents who apply for a passport are not being caught earlier in the system. One assumes that people who apply for passports and can afford overseas travel are not low-income fathers, but rather middle- and upper-class fathers with regular employment who should have been forced to pay regular child support at an earlier date through other enforcement mechanisms, such as automatic wage-withholding.


Possible Financing of H.R. 4469

While H.R. 4469 contains commendable provisions on simplifying assignment and distribution of child support and expanding services to low-income fathers, the Center is very concerned about how this bill may be financed. The bill has several offsets, but they cover only a portion of the costs associated with the bill. A financing gap still exists. We have heard of several options for closing this gap, including cutting the Earned Income Tax Credit (EITC) for childless workers, and cuts to TANF supplemental grants. The Center strongly opposes any attempt to finance this proposal using an offset that cuts the Earned Income Tax Credit for childless workers or cuts the TANF supplemental grants.

The EITC for childless workers is a tax credit for poor workers between the ages of 25 and 64 who do not live with minor children. Only two percent of EITC benefits goes to poor working individuals and married couples not raising minor children. Abolishing this small EITC would result in a tax increase for some of the nation's poorest workers. Single workers are the only group in the United States who begin to owe federal income tax before their income reaches the poverty line. The federal income tax code consequently taxes them somewhat deeper into poverty. Abolishing the EITC for which they qualify would make their tax burdens larger and push them farther below the poverty line.

Moreover, the EITC for poor workers and couples who are not raising minor children never exceeds 7.65 percent of their wages, the amount withheld from their paychecks for the employee share of payroll taxes. Thus, if this small EITC is abolished, these workers will receive no offset to their payroll tax burdens. Even for those workers too poor to owe any federal income tax, abolition of this credit would result in a tax increase; since none of their payroll taxes would be offset, their net tax burden would rise.

Eliminating the EITC for poor workers not raising minor children thus would result in an increase in the tax burdens of more than three million very poor workers. If such a step were taken, and some of the tax measures the House and Senate have passed this year also were enacted, the result would be that some of the nation's poorest workers would have their taxes raised at the same time that some of the nation's wealthiest individuals in the country received substantial tax cuts.

These poor workers already pay an unusually high percentage of their small incomes in federal taxes. A Congressional Budget Office analysis showed that between 1980 and 1993, the average federal tax burden of the poorest fifth of non-elderly households climbed 38 percent, dwarfing the increase in tax burdens borne during this period by any other group of households in any income category. CBO data also show that today, even with the EITC, the poorest fifth of non-elderly individuals who live alone is estimated to pay an average of 17.1 percent of income in federal taxes,(5) a percentage that far surpasses the percentage of income that poor elderly individuals and poor families with children pay. In fact, this percentage is nearly as large as the average tax burden that the middle fifth of families with children bear. A single worker with income equal to the poverty line, which is projected to be $8,884 in 2000, currently pays $1,500 in federal income and payroll taxes after the EITC is taken into account. (6)

Finally, financing this proposed legislation by eliminating the EITC for individuals who are not living with their children would contradict the message and intent of this bill. On one hand, this proposed legislation aims to help low-income NCPs by improving the child support system, and providing parenting and employment services. On the other hand, financing this bill by cutting the childless worker credit would harm the same population it intends to serve by eliminating a valuable work support.

The Center also strongly opposes using cuts in the TANF supplemental grants as an offset for this proposal. The Administration has proposed these cuts as a potential offset, but that does not mean these cuts are a wise idea. Madame Chairman, you have successfully fought back previous attempts to cut TANF. We commend you for those efforts and urge you to not change your position with regard to cuts in the TANF block grant. The supplemental TANF grants were enacted to provide additional resources to poor states whose TANF block grants were small relative to wealthier states with similar populations. The original formula for calculating TANF block grants was inadequate because the size of the TANF grant was based on historical AFDC spending, and the poor states were spending significantly fewer dollars per poor child under AFDC than were wealthier states.

The TANF expenditure rates of the 17 states that received a supplemental grant in 1999(7) are comparable to the expenditure rates of all states: the median state nationwide has 13 percent of its TANF money unspent (unobligated or unliquidated). Seven of the 17 states that received a supplemental grant have a lower percentage unspent. In addition, the 1999 spending level of five of the states that received a supplement (Alaska, New Mexico, North Carolina, Texas, and Utah) exceeds their basic TANF allocation (not including the supplement). These states would face fiscal trouble if their supplemental grants were cut.

Clearly no cuts should be made to the supplemental grants of those states that have been spending down their TANF funds. Nor should cuts be made to those states that have not yet spent all of the TANF monies available to them. Cutting the supplemental TANF block grants would put Congress at the top of a troubling slippery slope in which the grants to other states ultimately could be reduced as well.

In considering offsets for H.R. 4469, it should be remembered that offsets were not required for the tax measures being passed by Congress this session, some of which would reduce the taxes of the nation's wealthiest individuals. It is troubling that Congress would find that such measures need no offset, while a much less costly measure to support low-income fathers in meeting their duties to their families does require an offset.



In sum, we:

Because the H.R. 4469 advances the goals of better child support enforcement and better opportunities for low-income fathers, it would be a shame if the provisions of Title III or the offsets that are chosen prevent the enactment of the rest of the bill.


End notes:

1. See OCSE Action Transmittal 97-17, Case Scenario 5. For example, a family fails to receive child support regularly; by October, 2000, $500 in child support arrears are owed to the family. The family starts receiving cash welfare assistance in November, 2000. The family must temporarily assign the rights to the $500 in arrears to the state and permanently assign any rights to child support owed while the family is receiving cash assistance. The custodial family typically regains rights to the temporarily assigned arrears after leaving welfare. However, if child support is not fully paid while the custodial family is receiving cash assistance and the noncustodial parent owes chid support arrears to both the family and the state, arrearage collections can reduce the amount of the $500 in temporarily assigned arrearages, which means that once the custodial family leaves cash welfare assistance, the custodial parent regains a claim to only a portion of the total arrearages that accrued before the family started receiving cash assistance.

2. OCSE Annual Report and OCSE press release, January 27, 2000.

3. Letter from Bob Williams to Ron Haskins, November 1, 1999.

4. Office of Child Support Enforcement administrative data reported in Department of Health and Human Services, Temporary Assistance to Needy Families (TANF) Program: Second Annual Report to Congress, August, 1999.

5. CBO Memorandum, "Estimates of Federal Tax Liabilities for Individuals and Families by income Category and Family Type for 1995 and 1999," May 1998, pp. 28-9. In accordance with standard economic analysis, the figures in the CBO analysis, as well as in the CBO data in Table 2, include both the employer and the employee share of the payroll tax.

6. This includes both the employee and the employer share of the payroll tax. Most economists believe that both the employee and the employer shares of the payroll tax are borne by workers in the form of lower wages.

7. The 17 states that received a supplemental TANF grant include: Alabama, Alaska, Arizona, Arkansas, Colorado, Florida, Georgia, Idaho, Louisiana, Mississippi, Montana, Nevada, New Mexico, North Carolina, Tennessee, Texas, and Utah.