private organizations and not only to help these individuals get into the workforce, but stay in the workforce. can you elaborate on this program? >> we described the work program which i think is unusual for two reasons. the first is that it's a payment by result system. so the risk is not taken by the taxpayer. the risk is taken by the private and the voluntary sector who run the program. y woo don't pay them until they've got somebody to work and kept them there for a minimum six months and after that they get further payments the longer they're in work. the second point about this, really is that we also called it a black box system and by that i mean it's not my job to tell them what they should do. it's their job to figure it out and this is where the voluntary sector comes. there are 18 of them in different areas and they'll have underneath them different subcontractors and some private and voluntary. and they tend to be the

organizer they will use to deal with systemic problems that an individual has and for example, somebody who, and we know this by knowinging who the prisoners are and they have no ability to read or write at age 10 or 11. when you get somebody in front of you like that, they simply don't stay in work because they are incapable of doing half of the jobs and they can't read the signs. what they will do is back load them very quickly to some organization that does remedial education work and enough to get them to the point where they can actually hold the job down and then they take them through to work. so they have to invest a bit before they can get paid and that's the way the process works and for the easy ones they get attached and sorted and they get rewarded at a higher level for the more difficult ones. it's taken by the prime and they don't flow the risk down to the voluntary sectors and none the levels, it all works for them in

terms of the total reward. >> this was a big departure from the past practice. >> huge. it's a complete departure. in fact, i think it's the biggest anywhere in the world where we're doing a payment by results program. it is now national and we're not quite into the first year and it's a two-year program, and we have targets for them, and if one of the primes fails and doesn't achieve the results then simply we will get rid of them and somebody else will come in. we keep the risk away from the taxpayer very much on the provider, and in turn, it's in their interests not just to get them to work and i think we also mentioned them holding them in work and that's the bit that's been missed by endless government agency which is is you churn massively after seven or eight weeks because if they're not right for work then they will not stay and work and therefore, what happens the churnout is expensive because you're chasing them after that and then they're less likely to go back to work later again because they're scarred.

when you make it once you have to make it tell once and that means the provider has to check the individuals at work constantly and see if they have problems and deal with them and then hold them and talk to the employer to hold them in that job. >> i thank you very much. it's actually work and we'll continue to learn from the experience that you have there in the uk. i yield back, mr. chairman. >> thank you. and the chair now recognizes mr. neil from massachusetts. >> thank you, mr. chairman and mr. secretary, to follow up with what mr. dogett had to say, one of the reasons that data suggests that the welfare reform act of '96 here worked was in some measure because we added a number of mitigating issue to the overall package including job training child care and not

to miss the point, that people were able to keep their health insurance and that had a profound impact on the flexibility that mr. doggett noted. i'm not going to trespass into domestic politics in the uk, but i think just having observed 3,000 miles away, the prime minister during his election cycle, he actually suggested a much more radical transformation of the health care system in the uk that he was actually able to deliver on, and i understand that because that's just the reality of what happens. but i think as a follow-up to what mr. doggett pointed out, i think what the prime minister discovered is that the health care system in the uk was pretty popular. is that a fair same? >> yes. you have to understand from the standpoint of the uk, in this area it's quite different from where you are here. there's no question the health service because of its basic principle which is that no matter what your means, you will always be able to get treatment at the point you need it without

any requests or requirement for money. so that is a -- and that is a big change. so that's ingrained in people's psyche and that's a very emotional point and they're very wary if you play with that because they don't want to see that shifted and they'll have to fork out between them and that's a big balance, but on your point, we are a coalition. i'm in a coalition which is not wholly conservative so we sometimes have to cut our cloth according to what we can do in parliamentary terms, but reforms, by and large that we've got through will make a big difference to recentering where that decision making should lie, much more with the -- with those who are responsible for the treatment and also knowing how much that treatment costs and bearing down and understanding how that money is spent better. >> good point. let me flip that argument. one of the problems we ran into in '96 was the suggestion, i think, that was fairly accurate that for many people who were

receiving public benefits they stayed with health care through the medicaid system. the problem with some measure was that two people conceivably living next door to each other, one who went to work every day and did not have health care benefits came to resent the person who was receiving a public benefit in keeping the health care benefit. so those mitigating circumstances that i referenced earlier about a level of maintenance for health care, in your instance seems to you to be more room and flexibility in terms of experimenting. >> it possibly does. by any comment i'd make on that is we all as politicians make this argument that i don't know where i'm going, but i know i wouldn't start from here is always the biggest point and dealing with our position as to where we are, we don't have that issue about health treatment in the two houses living next door, but we do have issues around welfare and that resentment in welfare is a big issue right now in the uk where someone going to

work on low and marginal income looks at the house next door with the curtains closed and looks that they're earning pretty much what they're earning because they have a larger family so that resentment does exist. it tends to exist for us in the welfare system and a lot of people in work are now deeply resentful of those not in work and this is where the cultural shift is rather than the health care. >> rob mcginnis who was an old friend of mine shook hands and it's for me to disappear in 35 years and as you noted ina an earlier conversation that we had, there are still very stubborn elements, smaller in number year after year who still are rejectionists. but as one who is very knowledgeable about the shankel and smalls road in belfast, the link between poverty and high

rates of unemployment and violence, it was the best -- i shouldn't say the best, but one of the best recruiting tools for the hardest men and women in those neighborhoods to organizations who saw destiny as never finding a common moment. >> yes, i -- my comment would be this, really. first of all, i was a soldier, and i was in the scots guard many years ago. i served in northern ireland on the balk side so i have firsthand memories of some of the violence. i've lost friends who have been killed in northern ireland. nobody was happier than i am to see the possibility of peace in northern ireland. it's been a dreadful running sore in the united kingdom for far too long, but you're right about the cocktail. it's a rather peculiar cocktail in northern ireland where you overlay deep deprivation also alongside peculiar religious division, and a lot of residual violence and some of those are

still in place today when i visit some of those communities and breaking those down is a very big job, but we're making strides toward that, but yes, hugely deprivation has a part to lay there. >> thank you. >> i thank the gentleman. mr. secretary, we thank you for taking time out of your busy schedule to come and share some of your experiences in the united kingdom. we will continue to monitor closely and look forward to learn from what you're doing and continue this dialogue. thank you again. >> thank you, mr. chairman. >> as the secretary departs i would like to thank all of my colleagues for their unanimous consent in altering our normal agenda with opening statements until afterwards to accommodate the secretary's time. i've like to proceed with opening statements and now i will begin. today's joint hearing is on

disincentives to build in the current welfare and tax credit programs in the united states. as we have heard from ian duncan smith, the safkt united king dom, other countries are wrestling with these same issues. secretary duncan's presentation as well as the testimony of the witnesses today will help us as we consider making changes on this side of the atlantic as well. two weeks ago when president obama spoke in cleveland ohio on the state of the economy, he talked about his vision for how we need to provide ladders of opportunities for folks who aren't yet in the middle class. today we'll consider whether the multitude of current welfare programs created effective ladders of opportunity or missing important rungs by effectively discouraging works or earning for millions of families. one of our witnesses, dr. clifford ties describes an income dead zone in which a family is clearly better off financially than a family not working at all. once all welfare benefits and tax credits are taken into account. other experts like harvard

economist calls this phenomenon a poverty trap. the bottom line is if you're poor, the government is ensuring that you have little incentive to improve your condition. when government benefits for low income families and as their work and earnings increase, that discourages more work and earnings. the more benefits the government provides the stronger the disincentive to work harder and earn more. ironically, many of the programs in question like the human resources jurisdiction are designed to alleviate poverty while reforming work. the tax credit which is have grown rapidly to the collective weight of these programs can have an unintended side effect to discourage harder work and higher earnings, it's about to got a lot worse. the massive new health insurance subsidies will expand this problem and extend the reach into the middle class affecting families earning up to $90,000 for a family of four. according to the policy

analysis, the exchange subsidies will yield marginal tax rates over a broad range of lower and middle incomes that are always 55% and usually above 60% and sometimes above 70%. those are staggering numbers, but as we'll learn for some people the implicit marginal tax rate can exceed 100%. that means the family is worse off when their work and earnings increase. here's how another harvard economy economist describes the story of one woman who went from earning $25,000 a year to $35,000 and could not make ends meet any more as a result. i quote, she lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance, her rent went up 30% because of the income gained which is the rule. she lost the $280 a month in subsidized child care voucher she had for after-school care for her child. she lost around $1600 a year of the eitc.

she paid payroll tax on the additional income, finally the new job was in boston and she lived in the suburb. so now she has $300 a month of additional gas and parking charges. she asked me if she could go back to earning $25,000. he estimated that the government imposed a 130% implicit marginal tax rate on her. we look forward to all of the witnesses' testimonies today including possible solutions so americans have more, not less incentive to work and support their families. this is an issue that i personally wrestled with for many years versus the volunteer before coming to congress and trying to find a way to build the bridge that would smooth this transition to work without creating a cliff, particularly for single-parent families that are trying to make a go of it and improve the quality of their lives. with that, i'd like to now turn it over to the ranking member of the human resources sub committee and representative lloyd doggett, would you care to make an opening statement? >> yes, mr. chairman. thank you very much for your courtesy. certainly, if we can perfect our

tax system so that it does more to reward work, we should do it. and if we can ferret out any abuse of existing benefits or tax credits that are not being properly used in accordance with the law we should do that and should take corrective steps, but i must say respectfully that it's my belief that the focus of this hearing and the focus of the overall work this year and last year of the ways and means committee in this area is misdirected. let's look at the facts. the richest one-fifth of americans are reported to own 84% of the wealth of this country while the bottom 84% are estimated to own about 3% or 4% of the wealth of this country. the congressional budget office reports that over the last three decades after-tax income for the top 1% soared by 277% while two-thirds of the income gained

from 2002 to 2007 flowed to the top 1% of households. the focus of this hearing is not on the 1500 millionaires who paid zero income tax in the recent year. it is not on those corporations who with not only paid zero such as in some years, general electric, boeing, wells fargo and in some cases actually received money back and credits from the government. it's not on the area where revenues are not flowing to our government. it's not on those at the top. it is all focused on whether those who have an ownership interest in 3% or less of our nation's wealth, whether they're getting too much. the overall concept of this hearing seems to follow closely of the report last year of the house republicans study committee considering the disincentives of the current

system. this is the same group and same set of reports that condemned as welfare and seemed to call for reductions, condemned as welfare, pell grant, title 1 grants to disadvantaged schools, headstart, the school lunch program and the school breakfast program. i believe that is on a mischaracterization of those important initiatives that help those who are struggling to become part of the middle class and to share in the american dream to help them advance, that it is wrong to continue to deny those opportunities. when a mother with a couple of children who lives in austin or san marcos or san antonio leaves the welfare program for a full-time, minimum wage job the earned income tax credit and the child tax credit are available to help her and other working families that increases the value of her work in a significant way and is an

incentive to advance. the -- at the same period of time through the recent reception there are reports by the pugh research center that hispanics, particularly, represented the hardest hit by the recession. a 66% drop in wealth from 2005 to 2009, a wide edge of the gap that had not been seen in the last quarter of a century during the time that data was collected. these are serious problems that need to be addressed to encourage and help people move into the middle class and to see that our nation has the revenues that it needs in order to sustain those programs opinion. we need more focus on the real problems rather than the small issues raised by today's hearing and i yield back. >> i you now turn to the

chairman of the select revenue measures. >> thank you, chairman davis, thank you for your leadership on this issue and it's a real pleasure to have an opportunity to have a joint hearing with our subcommittees today. providing an adequate safety net for americans who have fallen on hard times i believe is a non-partisan issue in this congress. it's something that all of us believe in. as is making government -- making sure government does not stand in the way of americans who want to work to achieve a better life and fulfill their american dream. i know first hand for the need of a safety net, when i was in high school my father who emigrated to america with my mother with nothing lost his job of 25 years, lost his pension and our family lost our healthcare. at that time i was thrown into the free and reduced lunch

program in high school. the good news is my dad found a job. he was rewarded and we went on being a family again. today, what's dangerous with the tax code, is it appears that people or what the tax code is saying to people, to americans who are down on their luck, who had a job loss that they'll be penalized if they turn their luck around and are fortunate to find an opportunity of work. comprehensive tax reform is a way to solve this problem and tax reform we should ensure that low-income americans are not punished through extraordinarily high implicit marginal rates. we should reduce complexities well. there's no reason why our father should have to see a tax accountants for his tax returns. our current code is a nuisance where taxpayers, for instance,

claiming the earned income tax credit in many times and many places have to use a paid tax preparer costing them money from their own pockets. i look forward, mr. chairman, to discussing how we can fix this issue to empower americans to live the american dream. i yield back. >> thank you very much. the chair now recognizes mr. neal, ranking member of the select subcommittee. >> thank you, mr. chairman. >> thanks to you for holding the hearing. i want to quote ronald reagan and the earned income tax credit is the best anti-poverty program and the best pro-family, and the best job-creation measure to come out of congress. the earned income tax credit is a bipartisan idea and it was signed into law by president ford with the democratic congress and expanded by every president since ward, both democrat and republican.

here's an opportunity where we might change the rhetoric in congress when we frequently hear that 47% of the american people don't pay taxes. of course, they do. >> they pay the most onerous taxes and payroll taxes and it will be ezy to have the some harsh rhetoric by the simple acknowledgement. president reagan was the earned income tax credit was successful at increasing work and lowering welfare receipt. making the tax more fair for low to moderate income families and reducing poferren. in 2010 the low income tax credit lifted 6.3 million americans out of poverty and almost 3.3 million children. the number of children living in poverty would have been one quarter higher. is it perfect? of course, it's not. there's no provision in our tax code that's perfect and i'm open to working with our republican friends in congress to strengthen the credit.

i do get antsy with recent comments i heard from some that would suggest or imply that we should raise -- mr. cantor recently stated we also know that over 45% of the people in this country don't pay income taxes at all and we have to question whether that's fair. again, an opportunity to reshape language. majority leader cantor and i clearly have definitions of the word fair. some are calling for increasing taxes on the poor and moderate income americans and at the same time they're calling for lowering taxes on the wealthy. that's hardly fair. the republicans tell us that we can't increase taxes on the wealthy because of the negative impact on jobs, but ironically they link increasing taxes on poor people because they say it will encourage them to work. we've come a long way since those days when with president reagan proudly proclaimed that the signing of the tax reform act of '86 that quote millions

of the working poor will be dropped from the tax roles altogether and the wealthy will pay their fair share. that's ronald reagan's quote. let me highlight that i'm open to working on this legislation. i hope that the one-year enhancements that we're attempting to offer eitc and the child tax credit would make their way toward the end of the year and i would hope that members of the subcommittee and the full committee can find a common path forward on these issues. yield back. >> i thank the gentleman. i now turn to the member panel where glen moore will be testifying. we worked together on the financial services committee affecting affordable housing and dealing with child homelessness and domestic abuse. i would like to ask representative moore to limit her statement for to five minute, however all of the written testimony will be made part of the written record. please proceed with your testimony. >> thank you so much, chairman

davis and ranking members, neil and doggett. it's certainly a privilege to be here as an expert witness on being poor. i am, indeed, an expert. as many of you may know i had my first child at age 18. she is now 42 years old and talks back very regularly, but let me say that times were not always so easy. the very first welfare benefit that i received, sir, was medicaid because i gave birth to my daughter on medicaid. the subject of this and i can tell you that if, in fact, welfare reform would live up to its promises and its rhetoric of making work pay and helping to lift people out of poverty, to give people a hand up, instead of a handout i can guarantee you that for the 4 million people

who are now receiving which stormed the capital and demand welfare reform, but of course, that is more rhetoric than it is reality. i was able to listen to some of the testimony of our distinguished guests. the honorable duncan smith, catch a bit of his testimony before i walked over here today, and i must say that as a britainer, he must appreciate the fact that britain is the country with probably the least social mobility among the oecd states which means that you could predict people's social mobility more by what their father's stationed whether they were a duke or earl or what their income was than you can with anything that welfare would have done. and i say that, with all due

respect, and i mean it, with all due respect, that the title of this hearing how welfare and tax benefits can discourage work it is at best a misnomer and non sequitur because it assumes, i heard the testimony and it assumes a lot about the lack of character on the part of welfare recipients and it doesn't talk at all about the structural intent of these welfare programs. y just want to quote, since i see my time is expiring against my will here, i would like to just quote from charles dickens, i think that's appropriate given our first panel. spark notes quote on dickens. the theme of david copperfield focuses on orphan, women and the

mentally disabled to show that exploitation, not pity or compassion, is the rule of an industrial society. so that when we look at the tax benefits, the marginal tax rates that people experience, it's because our benefits are not high enough to make work pay. i would submit, and i look forward to the question and answer period, i would submit that people don't work just for their self-esteem or for their dignity. they need to make enough money to be able to pay the rent and put a barbie doll under the tree at christmas. i'm happy to share details with you that my daughter had her first asthma attack at age four days old. i could not afford to have a job that would have separated me from the medicaid benefit that we had and i once had a job and begged my supervisor not to give me a 50 cent an hour raise left

i lose $20 day care and as a person who survived childhood rape, i knew how important it was to have day care. i would like to say that if we want to encourage work things like the earned income tax credit and things like providing child care and things like providing food supplements and encourage work and not to simply take the position that we're going to take the keynesian approach and say the thing to do is to snatch food stamps, snatch housing benefits and snatch medicare so that we can literally deliver this poor group of people, primarily women, to the workforce so they'll be forced to work because, in fact, they will not have any other choice. and with that, i'd be happy to answer questions, mr. chairman.

>> do any members have a question? >> thank you very much for your expert testimony, ms. moore. do you think that americans that are out there being looking for work are more focused on the issues of child care, job training, job availability than they are on calculating their potential, marginal tax rate if they work a certain number of hours? >> no, sir. i can tell you that they are not, but i want to stipulate, mr. doggett that welfare recipients are not stupid. they have common sense even though they may not have the ability to calculate implicit tax on marginal rates. i can tell you that it's just common sense. like what i learned as a parent of a 4 day old child is that i had to have health care so i think i would have been very