i love people. i love engaging them, but i would not have been able to afford to, as a 4 day old parent, go work in a restaurant that didn't provide health care and risk at that time losing medicaid. i couldn't afford to lose medicaid. my daughter is 42 now and still has asthma. and i couldn't afford to lose medicaid. i would want to work if, in fact, i didn't risk losing medicaid. same thing with day care. just like i begged my employer -- that is not something that i calculated. my day care provider told me that earning $17,000 a year with three kids, i was still poor that i had, in fact, hit that marginal tax rate and that if i earned any more -- i was still

poor, that i -- and so when the -- when the -- so that when january came around and the automatic increases in title 20 occurred, the inflationary increases, then i being take the 50 cents an hour raise. so i want to stipulate to the fact that there are implicit, marginal tax rates that people hit, but the conclusion that poor people have been gaming the system or you should just take the benefit away is salacious. what it means is that the cost of day care in 2012 terms, $1,000 a month, $1500 a month depending on the age of your child is so great that it -- work does not pay. women cannot afford to pay without governmental assistance.

>> thank you. >> one thing i would like to point out to the gentlewoman. the purpose of the hearing, in fact, is to address these questions. you said yourself that you begged not to get a raise. >> yes, sir. >> and i want to stipulate that -- >> i'm reclaiming my time. i would like to make the point that we're working on the broke know process over the course of this congress to address this very cliff, and i think that what i'm hearing from your commentary is actually agreeing with the premise of our hearing to look at best practices and ways to better integrate information and avoid people getting into the very situation that you yourself were in as a young mother. with that, i'd like to recognize mr. neal. >> mr. chairman, i can respond to that? because that was not your time, i think that was someone else's time. so you reclaimed someone else's time. >> actually, that was my time. >> that was my time, ms. moore. we can go back to mr. neal and

then we'll come back. >> okay. i think you hit some very important points. job training. >> yea. >> health care. >> yea. >> transportation. >> yea. >> day care. >> yea. >> the other agreement that we had in '96 that was very far reaching and all-encompassing and maybe you can speak to it because you invited the question when you said you wanted to be as candid as possible, what about the role of child support? we do a pretty good job of trying to enforce child support and maybe you can give us a practical assessment of that. >> thank you for asking for that because i am a huge fan of child support. for several years the only bipartisan amendment that's been passed is me and mr. ryan's amendment to try to do 100% pass through of child support to custodial parents. i'm a huge fan of child support, particularly since all of the other sorts of supports are

wanting. ten, if it's not a very reliable source of income. it is no longer a mandatory expenditure, so i think child support is very important. i want to respond to something that chairman davis said that with my tacit agreement about hitting these marginal tax rates. i come to a different conclusion about it. instead of saying, let's take away the word supports, i'm saying that perhaps you ought to expand it because right now, for an infant, for example, if you want a woman who is on welfare to go to work to get decent day care, you know, and i mean, very modest day care for an infant, this will cost $1,000 a month in the midwest. i'm not talking about new york city or washington, d. chlt kr, how can a woman earn $1,000 a

month and still pay the rent, buy food? she can't. and so if she hits that cliff in terms of eligibility for day care at $7.52 an hour your premise is or mr. -- honorable duncan smith's premise is that she's some sort of lazy person who is lacking in character so, therefore, she would quit work, and i am saying that she is someone like me who very much wants to continue work, but needs honestly needs more support in order to be able to continue to work and so that's the clarification i would make with regard to our agreement on that. >> mr. larson's recognized for five minutes. >> thank you, mr. chairman and thank you, mr. teabarry as well.

i appreciate the spirit of which this hearing is being conducted and especially appreciated the value added that my colleague from wisconsin brings and you underscore a point. i wasn't going to speak, but to look at the magnitude of this situation and it goes beyond anecdotes and i'm speaking, i think, with a great deal of knowledge just in my own staff here at the capital. when we talk about day care, i think ed zigler, sterling professor of psychology and the father of the headstart program under the nixon program said it best, day care is nothing short of a cosmic crap shoot for people who are seeking to have their children be developed in a manner that if they could stay at home themselves, which of course, they'd all prefer, but

for the fact that they have to be out and employed. so it underscores, i think, what you're saying, representative moore, the need for us to continue to augment and as the chairman has said when you get to these cliffs, what is it at that cliff that we have to decide? zigler used to say that we don't utilize public schools that are on bus routes that are safe and that we can put people there that provide the kind of affordable day care that's safe and fundamentally sound and would be helpful? take a look around and especially if you're a young and expectant mother and you're in the workforce currently and you're pursuing a professional career. take a look around at what kind of day care there is for you and then consider where you may have the means, the situation of so many fellow americans that don't. i hope that underscores some of

what you had to say, representative. >> thank you for that commentary, representative larson because it is. i can tell you what the alternatives are to having $1,000 a month to pay for decent day care. you know, you could have a loving moth or mother-in-law who will take care of your kids the two days of the week that she's not on dialysis. you could have a next-door neighbor take care of your kids and maybe this would be a good family and that chester the molester will not be a resident of that household. it's a crapshoot, as you said. you could do as i did for so many years before i found this day care that finally told me that i was going to hit the cliff and i sent my kids down to the corner to a babysitter who sat my kids in front of a television with a stick, and if they moved she'd hit them and beat them. so much so that my daughter who is now 42 refused to take her brothers down there again.

you know, or, you can just hang a key around your kid's neck and your 8-year-old or 6-year-old kid and tell them to stay in the house, don't open the door, fix a peanut butter and jelly sandwich and hope that you're lucky enough that nothing will happen to them while you're gone. those are the options that i know plenty of people who have resorted to those options. that's what happens. it's not that you're sitting there calculating the implicit marginal tax rate. you're just trying to figure out, if you have to work, and it's not -- if you don't work it's not because you have poor character. it's because you cannot figure that out. you're not lucky enough to be able to figure that out. >> i yield back. >> i thank the gentleman. as one of those kids with the key around his neck from when he was 7 years old i care very dopedope ly about this issue and the individuals caught in these

situations, it is absolutely critical as a nation like great britain is doing, that we address all of the process issues to integrate effectively and be willing to ask the hard questions and with that i thank the gentlewoman for her testimony and would ask for the next panel to come up. thank you very much. >> and just thank you, mr. chairman and thank all of you for listening to my testimony.

moving on to our third panel, joining us today several distinguished gentlemen who are going to share their thoughts on the issues of reforms and addressing the issues of taxation and benefits. dr. clifford thees, ph.d professor of economics at shenandoah university, dr. eugene sterling and ph.d of the senior fellow, ph.d senior fellow of the center of budget and policy priorities and mr. ike brannen, president of the american action forum. i would like to remind the witnesses that the testimony is limited to five minutes and without objection, all of your written testimony will be made part of the permanent record. doctor, please proceed with your opening statement. >> well, good morning. i appreciate very much the emotion with which certain people have addressed the loss of health insurance upon passing

over certain thresholds and the article i wrote on, the dead zone three years ago, i myself, got a little emotional at those points. it seemed so unfair as well as socially inefficient to have these cliffs over which people would fall and there is an opportunity with health reform to address this. we have grown a series of reforms to provide an economic safety net. one of these supports the eitc has a positive incentive for working. it stands out in that regard. the impact it had in terms of increasing labor force participation was noticeable upon its e factment and upon its expansions. it does testify to the importance of these programs and

although it's anecdotal, there are lots and lots of an being dotes and almost everybody knows the anecdotes of people who were making the calculations about whether working more, was it worthwhile. these people maybe gamers of the system, my own mother, shiee wod complain of not having health insurance and working. prisoners get health care when they need it. i said mom, if you need, you can go rob a bank. in europe they have health insurance and it's paid for primarily by payroll taxes and sales taxes and it's not -- it doesn't -- it has a much bigger apparent cost than our system does. so our system has a larger, real cost in terms of the disincentive effect in terms of keeping people in a certain

status in society, instead of moving from addressing security to moving to self-actualization in new york, and instead of working with diligence and with judgment and with the degree of creativity in their work, they are trapped in a different strata, not participating fully with the rest of us in a free society. we should want a seamless transition from the place where we have the economic safety net to the place where we, most of us, at least, in our lifetime ask certainly our children will be in their life time in terms of acting as a free person and self-actualizing and associating with people on the basis of a free association. now, i was interested in the other calculations of the number

and the tax rate is somewhat problematic because of the cliffs that are involved and the eitc phases in and phases out and that's pretty easy to calculate the implicit tax rate. how do you handle something where you have a cliff where you lose eligibility entirely or the adults lose health insurance and then the children are still covered for a while and then they lose eligibility. so then there is some art to making those calculations. i wondered whether i should update the calculations i had in my 2009 articel for this presentation, but i, like everybody else, am waiting for the supreme court to speak on the issue of health care reform and then also we have the problem of the payroll tax going up, of the federal income tax rate for the first bracket going up and of the child tax care credit going down. so i thought let me just have the same calculations i had

several years ago. the point is pretty clear. when you consider income after taxes and plus benefits that you receive that there isn't much incentive for a lot of our fellow americans to work, and the take home net effect, maybe 50 cents for some and maybe as much as 100% for others and we should have a big, robust, tangible effect for everybody in our system. this speaks to the tax simplification and tax reform so that they all pay their fair share and the focus today being that the court not pay their own fair share on the marginal dollar of productivity and the payroll tax is a very big tax and it's paid twice by the worker and by their employer.

it is a very large tax. why do we have that tax when we're trying to help people? if you look at an alternate measure of income for the purpose of calculating poverty based not on the official income that we currently base our poverty rate on, but based on income, after taxes and plus benefits, at least for the state of minnesota and the urban institute shows that you have the same poverty rate. we push about as many people into poverty, and we pull the same people in and out, yo-yoing them in the process. >> can you sum up quickly so we can move on? >> we want to have an integrated approach with a robust incentive to work at every phase of the income distribution. >> thank you very much. dr. sterling? you're recognized for five minutes. >> members of the two

subcommittees, thank you for the opportunity to appear before you once again. as noted, the nation's real tax system is difrn from the tax system just by looking at direct statutory rates such as the income tax and the social security tax and phasing out various benefits in the expenditure and tax programs and i tend to call expenditure taxes, because like tax expenditures they remain largely hidden from the government and they're influenced on behavior. these expenditures, i want to be clear, are a classic, liberal conservative compromise and mr. chairman, you commented earlier about needing to work together to solve this problem and one reason that they have to work together is because it is a liberal, conservative compromise that got us there in the sense that they favored these implicit taxes as a way of increasing progressivity and they have non-budget revenues, both of which are legitimate goals which have resulted in very high tax

rates and although the low and modern income households are especially affected and they have the amt and pell grants and dozen, if not hundreds of programs including the subsidies that are in the tax system. in the urban institute, we've done a lot of work of trying to calculate these taxes and the first graph that you actually see here on the screen is the same as the figure in my testimony. it shows close to the maximum benefits for which a single head of household with two children may be eligible and how they phase out as income increases. rates are low, are even negative from $10,000 to $15,000 of income and it's thereafter that they rise quickly. in the next figure that i'll be showing you which is figure 3 of my testimony, i show the effective tax rate for a household as income rises from $10,000 to $40,000. essentially income and social security taxes take away about

30% of earnings and then universally available programs and by universally they're available to all of us if we have children and these are am whys like eitc or snap that raises the rate to about 55% and for those households who happen to be into welfare programs and housing benefits and programs, e rate can rise well above 80%. what used to be called a poverty trap has moved to the twice poverty trap. that is the high rates hit house hoeltd ds more than poverty. many studies have been affected to show the rates on work. work subsidies encourage labor force participation that may tend to discourage work at higher income levels particularly for second jobs in a family moving to full time work as i note for marrying someone who has a job. design matters greatly. medicaid will discourage work among the disabled more than a

subsidy system such as the health exchange subsidy. on the other hand, that will discourage work for older people who are encouraged to retire earlier. for the same amount of cash the major conclusion is a program that requires work will lead to more work than one that does not. in that regard the earned income credit and welfare reform have done bet on the work front than did afdc. other consequences need examining. means testing and joint filing have resulted in hundreds of billions of dollars of marriage pemities for low and middle income households. not marrying is the tax shelter for the poor. many programs do help these with special needs. although they very widely inefficiency and effectiveness. a well developed program can improve behavior such as school attendance and maternal health. i have to question our able toy to judge the long-term consequences of these programs

from the impeerical studies that we perform. among the many approaches worthy of consideration are one seeking broad based essential welfare reform. rather than adopting programs one by one with multiple phase outs. two, starleting to mfds opportunity and education over adequatesy and consumption. we can start moving the budget in the pormer direction rather than the latter. doesn't necessarily cutting back on programs. it means the growth on program which gets emphasized in a different way. three we could put tax rates directly in the tax code. four, we can make work a a stronger requirement. fifth, a maximum marginal tax rate for some programs combined. ened six, i believe we can let child benefits go with the child and wage sub dis go with low

income workers rather than combining the two the goal is not to favor work, but to start an inclusion many the welfare structure many of these low income working single people who are excluded all together and have access to the system mainly by going to prison. thank you. >> thank you very much. >> i thank you for inviting me to testify today. my first point, however, is i believe it's essential to broaden the question at the heart of this hearing for policymakers to best understand the impact of the policies urnd review, we must not just investigate disincentives, but earned incentives. a numerous times we've heard about the earned income tax credit has large work incentive effects. it lifts millions of families out of poverty.

working families. to what extent do they chief their poverty reduction targets? >> in other words, to examine only the marginal tax rates associated with our anti-poverty programs, understanding the im% of the programs on work, and well being. research on these questions finds the following. while benefits of means tested programs are by definition reduced as incomes rise, their work disincentives differ. a number of work programs are found to have positive or neutral effects on labor supply. the eitc extensively studied in this regard has yielded the following finding from a recent comprehensive review. the overwhelming finding the impeerical littleture has been successful at encouraging the employment of single parents specially mothers.

a recent exhaustive review of the full scope of our safety net and social insurance programs found, quote, the combination of the means tested and social insurance transfers in the system have a major impact on poverty, reducing deep poverty, and near poverty rates by 14 percentage points in the u.s. population as a whole. the next findsing from that study the particularly germane to today's hearings. quote, this poverty reduction impact is only negligentbly affected by work incentives which in the aggregate have almost no effect in the transfer rates of poverty many the population as a whole. this research finds the significant large poverty reduction effects after accounting for any work disincentives implicit in the programming. other recent research has found positive generational effects of safety net programs on later

education and earnings outcomes of children from families that received such benefits. for example, one study finds that raising a poor family's income by $3,000 a year and that's a fairly typical amount for a poor family to receive from the child tax credit or the eitc before age 5 is associated with a 17% increase in earnings and an average of 135 hours of additional per hour compared to similarly low income children whose families do not receive the benefits of these safety net programs. one poverty expert summarized the findings as quote, a remarkably strong body of research much-it based on large scale well. gymed research designs showing that supplementing the earnings of parents helps raise families out of poverty and improves the school perform asbestos of young children. this research clearly suggests that reducing those benefits would net of any work disentive effects lower income, raise poverty and harm future

generations in terms of their educational and earnings out comes. finally, the to the extent that work disincentives exist, policymakers should consider ways to reduce or eliminate them in. the final section of my testimony i offer three ways to do so. first, lower marginal tax rates by extending phase out ranges, though, of course, this increases costs. provide work supports such as child care and transportation assistance. and third, increase the number of jobs available to low income workers through demand side policies. given the persistent weakness and the low wage labor market in recent years i want to be sure to stress the importance of the last point. research has shown that the most effective work incentives are tight labor markets with rising pretax wages. in this regard policies such as the job creation measures in president obama's american jobs act will prove far more effective in incentivizing work

than lowering marginal tax rates on safety net benefits. conversely it would be a mistake to require recipients of benefits without first ensuring adequate job availability. even in a climb of strong work incentives without adequate job availability this is a policy recipe for rising poverty and the companying strain on families and children. thank you. >> thank you, dr. bernstein. >> i want to thank the committee for the opportunity to speak here. as a tax economist, i realize that tax rates matter. very high tax rates tepid to deter employment and how much people want are willing to work. one of the thins we've seen is because of these various problems is you have marginal tax rates that regularly reach

40% for low in people and can in certain situations go up as high as 80% or even 100% if you take into account the various state and local programs. no one really designed the programs to be this way. to quote a former treasury secretary just like the tax system we should have a welfare system that looks like it was designed on purpose. every program was designed well and it was put in by well meaning people. but when you have 12 or 13 different programs at the federal level, the state level and sometimes at the local and regional level these things act to create tremendous disincentives. i know i'm preaching to the choir. this is something to appealed to a number of people many the committee. that's why you have duncan smith to talk about what they're doing in the united kingdom. instead of having several different programs that might be at odds andmb