MADISON — From welfare to making work pay, government programs have become essential in the financial lives of the working poor, according to a new book. It’s Not Like I’m Poor: How Working Parents Make Ends Meet in a Post-Welfare World explores how lower-income families spend the cash windfall they receive at tax time through the Earned Income Tax Credit (EITC), how this compares to their spending during the rest of the year and what the refund check means to them.
In contrast to cautionary tales of lottery winners blowing their new-found fortune on extravagant purchases, low-wage workers who qualify for the EITC typically spend their refund dollars paying down debts, covering the monthly bills, buying some big ticket items, like appliances, furniture, or used cars, and stashing some in savings, according to the book’s authors. Only one dollar in 10 is spent on items that might be deemed treats — birthday presents for the kids or a meal at a sit-down restaurant. The refund plays a key role in families’ budgets, helping them to dig out of debt, to build some assets, and to feel financially secure, at least for a few months.
The books tells the stories of people like Coral Nicholson, a 31-year-old single mother who works at a Boston-area coffee chain, earning $868 a month. She receives $50 a month from Supplemental Nutrition Assistance Program (SNAP, formerly known as food stamps), and her housing subsidy keeps her rent to $200. Her ex-boyfriend doesn’t make his required child support payments, leaving her to cover the expenses for their three-year-old son on her own. Yet, despite her precarious finances, in February she deposited a check for $2,200 in her bank account thanks to the EITC
The book is co-authored by Sarah Halpern-Meekin, professor in the Department of Human Development and Family Studies and an affiliate of the Institute for Research on Poverty at the University of Wisconsin–Madison; Kathryn Edin, Distinguished Bloomberg Professor in the Department of Sociology and the Department of Population, Family, and Reproductive Health in the Bloomberg School of Public Health at Johns Hopkins University and an affiliate of the UW–Madison Institute for Research on Poverty; Laura Tach, professor in the Department of Policy Analysis and Management at Cornell University; and Jennifer Sykes, professor in the Department of Social Relations and Policy at Michigan State University.
In the past 20 years, the authors say, the approach to supporting lower-income families in the United States has fundamentally changed. Following President Bill Clinton’s promise to “end welfare as we know it,” the 1990s saw the overhaul of the nation’s welfare policy and a steep drop in the welfare rolls. A legislative change that received far less public attention at the time was the substantial expansion of the EITC, a refundable credit available largely to low-income working parents. As changes to welfare policy were pushing single mothers to work, the EITC rewarded that work like never before. Today, a single parent with two children whose earnings put her at the federal poverty line — $19,790 — can receive a check at tax time for $5,460 from the EITC alone. This is equivalent to more than four months of her regular income
U.S. Census Bureau Supplemental Poverty Measure data indicate that, combined with the Child Tax Credit, the EITC lifted 10.1 million people, including 5.3 million children, out of poverty in 2012.
Just as important, though, is the meaning attached to the refund check by working parents like Coral Nicholson, the authors say. While welfare was and remains stigmatized, making its recipients feel socially marginalized, government assistance received through tax refunds is viewed very differently. It affirms their positive identities as workers and parents, and the infusion of cash allows families to participate in our consumption-driven culture. And, while the refund is largely devoted to debts and bills, the EITC’s annual lump sum offer parents the chance to dream about a brighter future, built on the foundation of the tax refund check as the down payment on a home or the funds for a child’s college education. In short, it gives parents working low-wage jobs the chance to feel that climbing the economic ladder might really be possible.