Fate of working poor depends on stimulus priorities
October 17, 2001
The economic downturn is ominous news for the working poor.
More than 200,000 layoffs have been announced since the attacks of Sept. 11. Lower Manhattan's out-of-work janitors and restaurant workers could become the harbingers of broader hardships to come.
The downturn had already started before last month's assaults. Almost half a million more people filed for unemployment benefits in the first eight months of 2001 than in the same period last year.
Many Americans are ill prepared for this recession. While the poverty rate fell to 11.3 percent during the 1990s economic expansion, the poor have become poorer, according to a recent Census report.
In 2000, the average poor person's income dropped further below the official poverty line, setting an all-time record. Millions of non-poor families struggle to make ends meet at wages barely above the federal poverty line of $13,738 for a family of three.
And consumer debt now stands at $6.5 trillion. Debt racked up in good times will be difficult to pay in hard times.
The growth during the boom wasn't shared across the economic spectrum. Only 3.6 percent of national income went to the poorest one-fifth of households in 2000, tying 1967 for the lowest level on record, according to the Census report. The share received by the middle three-fifths set a new low of 46.8 percent while the share received by the top one-fifth set a new high of 49.7 percent. Widening income inequality during the boom leaves the working poor especially vulnerable during recession.
For the 2.5 million people who left welfare for work since the 1996 welfare-reform laws, the declining economy is especially worrisome. They tend to work in the very industries -- hotel, restaurant, travel, tourism and retail -- hit hardest by the Sept. 11 fallout.
States will find their tax revenue dropping just as applications for benefits increase, and for the first time, federal matching funds will not automatically arrive to make up the shortfall. What will happen to jobless families turned down by cash-strapped states with new, stricter eligibility rules for welfare?
Unfortunately, the stimulus packages proposed by President Bush and the House Ways and Means Committee would do little to help. The congressional tax-cut package would give $70 billion -- out of $100 billion -- in relief to businesses, according to the New York Times. Both packages are loaded with corporate welfare and tax cuts for the rich.
Many economists agree that the path to economic recovery is some combination of direct government spending and putting money in the hands of consumers. The House bill takes one step in this direction, giving rebate checks to the 26 percent of taxpayers who didn't get them in the first round because their taxable income was too low. But only about 11 percent of the 2001 stimulus goes to these rebates.
The rest goes to early Christmas gifts for wealthy taxpayers and corporations. General Electric alone would reap billions over the next decade, as would many automakers. The bill has outrageous giveaways, such as refunding all the alternative minimum tax corporations ever paid. This bill could be named the Loophole Restoration Act.
The richest 1 percent of individual taxpayers would get 41 percent of the 2002 tax cuts in the House bill, about $27,000 each, according to Citizens for Tax Justice. The 60 percent of Americans with the lowest incomes would only get 7 percent of the tax cuts, about $78 each. The wealthy get the lion's share, though they are far more likely than low-income families to save their tax breaks rather than spend them on the goods and services needed to stimulate the economy.
We need an economic-recovery policy that works. That means directing money to laid-off and underpaid workers, while rescinding the rest of the Bush tax cut, passed by Congress when a surplus was projected.
The stimulus plan proposed by the House Progressive Caucus would redirect tax cuts to lower-income Americans, expand unemployment benefits, increase federal spending on health care and invest in long-neglected public works, such as affordable housing and school repair.
Not only would this approach jump-start economic recovery, it would be fairer for the hard-working people who got less than their share of the recent economic boom.
Betsy Leondar-Wright is the communications director at United for a Fair Economy in Boston, and is co-author of "Shifting Fortunes: The Perils of the Growing American Wealth Gap" (United for a Fair Economy, 1999). She can be reached at firstname.lastname@example.org.