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Domestic Policy:
Tax Code
August 5, 1971
Congressional Record - Senate: Pages 29907 - 29911
By Mr. HATFIELD:
S. 2438. A bill to provide a tax credit for contributions made directly to individuals and families whose income is below the poverty level. Referred to the Committee on Finance.
Mr. Hatfield. Mr. President, since the war on poverty was officially declared in the early 1960’s, various proposals has been made which were intended to deal the final blow to this adversary. Most particularly, attention has been increasingly paid to welfare-its present shortcomings, its rightful role, if any in our society, and possible alternatives to the present system. The irony of the richest nation in the world’s history having nearly one out of every eight of its citizens living below the poverty line has been frequently pointed to. In a country with such great wealth, this fact is appalling, but the essential question that has continually plagued us is-how to best alleviate, if not completely solve, this problem.
The Federal Government was turned to, to lead the way. Government expenditures have increased exponentially, the number of poor has varied. Between 1961 and 1971, for instance, total Federal, State, and local expenditures for welfare nearly quadrupled. Between 1960 and 1969, the number of people living below the poverty line decreased steadily from 39.8 to 24.3 million-a decrease of 15.5 million people. Yet, between 1969 and 1970, the number of poor increased to 25.5 million-an increase of 1.2 million people. A large portion of this increase can probably be explained as a result of inflation: During the past 2 years the Federal budget has increased, but in constant dollars it has decreased. Generally, there is a positive correlation between the increase in Government expenditures related to alleviating poverty and the decreasing number of poor.
Be that as it may, there still remain roughly 13 percent of our country’s citizens living below the official poverty level-$3968 for a family of four. And if these people are to be brought up to non-poverty conditions, no matter how defined, a great deal more must be done.
Much has been said about those living below the poverty line and living in poverty. But what is this line? And what is poverty? The usually accepted definition of “poverty line,” and the one used by the Federal Government, was developed in 1964 by the Social Security Administration. The core of the definition is the 1963 cost of items for nutritionally adequate food plans developed by the Department of Agriculture. Since 1964, the cost has been adjusted annually by the Bureau of Labor Statistics’ Consumer Price Index-CPI. The 1970 poverty line for a family of four based on the Social Security Administration’s definition of poverty was $3,968. The Department of Health, Education, and Welfare estimated that to bring everyone up to this line under a Federal program introduced during the 91st Congress would cost in the neighborhood of $24 to $37 billion more than is presently being spent. This expenditure would be needed to provide everyone with a cash income of at least the poverty level for a total of $11.4 billion. In other words, to get $11.4 billion into the pockets of the poor would cost the Federal Government at least $26 billion and perhaps $39 billion.
A second definition of “poverty line” that is sometimes used is one based on data of the Bureau of Labor Statistics-BLS. The BLS developed budgets for three categories of life-style: lower budget, intermediate budget, and higher budget. The differences between them are reflected by the following statement of BLS:
The manner of living represented by the lower budget differs from that in the moderate and higher budgets primarily in the specifications that the family lives in rental housing without air conditioning; performs more services for itself; and utilizes free recreation facilities in the community. The elite style reflected by the higher budget, on the other hand, specifies a higher level of home ownership compared with the moderate; more complete inventories of household appliances and equipment; and more extensive use of services for a fee. For a majority of the items in the list of goods and services that are common to the three budgets, both the quantity and quality levels in the lower budget are below, while those in the higher budget are above, the levels specified for the moderate budget.
Taking the lower budget estimate and elimination costs such as physical services, hospital care, and taxes, the poverty level would have been $5,500 in 1970 for a family of four. This year, however, that cost has risen to $6,500 as estimated by the National Welfare Rights Organization, reflecting the rising cost of living and inflation. Whereas the cost of implementing a $5,500 Federal program would have cost roughly $55.8 billion for fiscal year 1971 as estimated by the Department of Health, Education, and Welfare, the cost of implementing the $6,500 level would be in the neighborhood of $80 to $85 billion with the ratio of administrative, child care, job training, and old age benefits of presently contemplated magnitude projected into this level. Of these funds, perhaps as much as $7 billion would go for administration assuming the present ratio of expenditures and administrative costs. Looked at another way, the cost of a poverty program of this magnitude would entail an administrative budget larger than our national budget in 1940-$9,055 billion-and a total budget of approximately the same size as the Gross National Product one year earlier-1939 GNP: $87.6 billion.
The family assistance plan offered by the administration uses a third definition of $2,400 for a family of four. And it would cost nearly $15 billion the first year. If the Federal Government is to bear the responsibility of elimination poverty through federally controlled programs, then it will cost between $15 and $85 billion the first year depending upon which definition of poverty line one accepts.
But poverty has more than economic implications. Oscar Lewis, a noted author and researcher, has stated this very well in his book, “Five Families:”
Although poverty is quite familiar to anthropologists, they have often taken it for granted in their studies of preliterate societies because it seemed a natural and integral part of the whole way of life. In fact, many anthropologists have taken it upon themselves to defend and perpetuate this way of life against the inroads of civilization.
But poverty in modern nations is a very different matter. It suggests class antagonism, social problems, and the need for change…Poverty becomes a dynamic factor which affects participation in the larger national culture and creates a subculture of its own. One can speak of the culture of the poor, for it has its own modalities and distinctive social and psychological consequences for its members. It seems to me that the culture of poverty cuts across regional, rural-urban, and even national boundaries. For example, I am impressed by the remarkable similarities in family structure, the nature of kinship ties, the quality of husband-wife and parent-child relations, time orientation, spending patterns, value systems, and the sense of community found in lower class settlements in London…in Puerto Rico…in Mexico City slums and Mexican villages and among the lower class Negroes in the United States.
Alleviating the economic plight of those individuals living in poverty would not solve the problem, although it is central to it. Poverty has psychological and sociological implications as well which must be dealt with if any welfare program is to be successful. It is these factors which determine the parameters of any constructive solution to poverty. Education, housing, transportation, health facilities, nutrition, family, and friends are intricate components of any meaningful program. To effectively deal with poverty, an entire subculture must be altered, as Oscar Lewis points out. This implies not only a substantial investment, as I pointed out earlier, but also will take considerable length of time due to the deeply rooted nature of the problem.
The first step that must be taken is in the economic realm. The United States has a trillion-dollar Gross National Product, having increased more than 10 times its size over the past 3 decades-$109.4 billion in 1941 and $1,005 billion in 1971. The Federal budget has also seen an increase roughly proportionate to the GNP, The Federal budget, for instance, has increased from $13.25 billion in 1941 to $164.7 billion in 1971, a more than twelvefold increase over the past 30 years.
If this Nation were to make a firm commitment to eliminate poverty, what would be the economic implications? Depending on the definition of poverty one assumes for a family of four and the inclusiveness of such a definition the cost for a totally federalized program of income’s supplements would range between $3 billion and $85 billion-from at $1,600 to a $6,500 level for a family of four-as presently contemplated. As the poverty line increases, however, the tax base decreases. At present, with no change in the welfare level, the tax base would be $545 billion. If the level were increased to $2,400, the tax base would be decreased to $468 billion. And if the level were increased to $5,500, the tax base would decrease to $246 billion. What this means is that a greater burden would be borne by fewer people for the cost of welfare as the income level defined as the poverty line increases. At the $5,500 level, for instance, almost three-fifths of the citizens of the United States would keep welfare benefits in order to continue other programs at present levels, calculating the additional burden of increasing welfare payments, average tax rates would have to increase between 0.7 to 68.9 percent-again using the $1,600 and $5,500 range.
Mr. President, I would like at this time to ask unanimous consent that a table utilized by Mr. Edward Moscovitch in an article written for the January/February edition of the New England Economic Review indicating the increased tax burdens for differing poverty levels be printed at the end of my remarks.
The PRESIDING OFFICER (Mr. BENTSEN). Without objection, it is so ordered.
(See exhibit 1.)
Mr. HATFIELD. Mr. President, this would consequently affect the amount of disposable income that individuals would have. For example, with a $2,400 basic allowance for a family of four, a family of four with a $10,000 income would have a disposable income of $8,700. A family of four with an income of $30,000 would have a disposable income of $16,900 with a poverty level of $5,500.
In the same article quoted earlier there appears another table delineating this in greater detail and I, therefore, ask unanimous consent that the table appear at the end of my remarks.
The PRESIDING OFFICER. Without objection, it is so ordered:
(See exhibit 2)
Mr. HATFIELD. Mr. President, having examined some of the economic implications of this type of income maintenance program at differing poverty levels, there are some critical choices to be made. Any changes put forth must take these factors into consideration, as well as the shortcomings of the present system, for instance, the cost of administering such a large program on a national basis-administration absorbs approximately $1 for every $12 of aid; the degradation of the recipients under the current program; today only 40 percent of those under the officially designated poverty line receive aid; work is discouraged in many instances; aid levels vary disproportionately from State to State.
Mr. President, any national program should supplement local efforts to cope with the problems of poverty-not the reverse, as seems to be the current trend. By “local,” I do not mean even State or city, but the community and neighborhood. Not the various levels of State and Federal Governments do not have a role to play, but help for those in less fortunate circumstances than others through no fault of their own, should be helped on an individual, neighborhood level primarily with larger regional governments becoming involved secondarily. The proposal I am introducing today, I believe to be a step in the direction of accomplishing these ends, as well as helping eliminate the problems inherent in the present and/or any national welfare program organized and controlled by the Federal Government.
The bill would allow tax credits to individuals or organizations who donate funds to others whose income is below the poverty level-to be defined on an annual basis by the Secretary so that inflation, cost of living, and other factors could be taken into consideration. The credits would progress over a 10-year period starting at 10 percent the first year and increasing at 10-percent increments each year to 100 percent the last year. The credits would be cumulative on an annual basis so that an individual could pay out more in 1 year than his total income tax for the same year, but be credited for whatever his future income tax might be.
The individuals receiving these funds from other individuals would have to qualify with local agencies and receive the funds on a prorated basis during each fiscal year. At the end of each fiscal year during the 10-year implementation period, the Secretary will report to the Congress the effects of the next year’s credit increase on the Federal budget and the general economy.
I believe the potential consequences of this proposal would be profound. It would most importantly bring the problems of poverty back to the human level involving people with one another to solve a mutual problem rather than having to deal with an impersonal bureaucracy and the dehumanizing effects that follow. Second, this proposal would significantly cut the administrative costs to the Federal Government by placing more responsibility with the potential recipient and the individual or organization interested in involving himself in the problems of poverty.
Before examining the budgetary and other implications of my proposal, a word must be said regarding the date available for analyzing and projecting the numerous, complex aspects of poverty, and any welfare program. With few exceptions, the necessary data is only estimated in the roughest of terms. In many cases, as in the following material, new and more valid data is needed before an ultimate choice is made. Be that as it may, the figures I am utilizing today are from official records of hearings or from various Government agencies unless otherwise indicated. From these figures, various projections were made, and if shortcomings in the mathematical analysis can be brought forth, they would be most welcome.
One of the first questions that come to mind regarding the proposal I am making today is the possibility of depleting the income tax revenues for the operation of the Federal Government. Mr. President, I would like to ask unanimous consent that two charts, labeled exhibit 3 and exhibit 4, indicating the possible consequences of this program on revenue sources between fiscal years 1973-82 be printed in the RECORD at the conclusion of my remarks.
The PRESIDING OFFICER: Without objection, it is so ordered.
(See exhibits 3 and 4)
Mr. HATFIELD. Mr. President, the first chart exhibit 3 projects the anticipated incoming revenues to the Federal Government for each of the next 10 fiscal years at various poverty levels, if the full tax credit were used each year. The GNP was assumed to be increasing at an average rate of 8 percent, welfare expenditures were held constant, and an 11 percent GNP figure was used to project anticipated income taxes. For both exhibits 3 and 4, a poverty gap, which I described earlier, for each poverty level was determined to be roughly two-thirds the required gross Federal outlay for each level. The poverty gaps utilized are as follows:
[In billions]
Poverty gap
$1,600_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _$2.3
$2,400_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _4.2
$4,000_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _1.4
$5,500_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _40.5
$6,500_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _50.0
As will be noted, even for fiscal year 1973 at the $6,500 level, the income taxes remaining for utilization of the Federal Government by the most conservative estimates is more than $5 billion above the estimated income taxes for fiscal year 1972-$135.4 billion as compared to 130.4 billion.
Exhibit 4 is based on the same data as exhibit 3, but instead of assuming a constant Federal outlay for welfare expenditures increases in the poverty ranks were assumed a rate relative to population growth over the next decade. Again, if one will note the anticipated income revenues remaining in fiscal year 1973, at the $6,500 level, the figure is still above the projected income taxes through fiscal year 1972-$130.9 billion as compared to $130.4 billion. And as time progresses, the difference becomes greater. In order to make this comparison more clear, I ask unanimous consent that at the conclusion of my remarks a chart indicating the projected income taxes through fiscal year 1982 be printed in the RECORD at the conclusion of my remarks.
The PRESIDING OFFICER. Without objection, it is so order.
(See exhibit 5.)
Mr. HATFIELD. Mr. President, by fully utilizing a program of this nature, great savings could be anticipated. If by 1982, full advantages were taken of the tax credits, the Federal Government would not have to be making any expenditure for income maintenance and consequently have more flexibility in its budget. But even if this were not the case and the credits were not fully utilized, the opportunity, would still be present and without jeopardizing the Government’s revenue sources.
A further word, I feel, must be said about the cost of eliminating or significantly diminishing, poverty from our country. The Federal programs put forth the 91st and 92nd Congresses to date have been relatively small in comparison to the magnitude of the problem. For instance, child care must be provided if parents are to work. Jobs must be found if those living in poverty, no matter how defined, are to become self-supporting. Training must be forthcoming if those below the poverty line are to be able to obtain jobs. None of the programs put forth to date have really taken on this problem, the rationale utilized being that our country cannot afford it. I would not question that assertion if the programs emanated from and were directed by the Federal Government. The cost would be highly prohibitive. For instance, by combining only the gross outlays, administrative, and full child care costs-not including land purchase, construction or renovation-the expenditures would be as follows:
[For fiscal year 1972 in dollar billions]
Poverty level Federal
Expenditure
$1,600_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _$19.2
$2,400_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _16.3
$4,000_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _76.6
$6,500_ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _125.2
And I reiterate, these figures do not include job training, medical aid, or job creation and it assumes that parents would pay one-half the cost of child care programs-not including land purchase, construction or renovation.
Yet the problem can be met, if coordinated, integrated programs emanate from the local level and are supplemented by the Federal and State governments.
This might be viewed as anachronistic and/or archaic, but a large Federal program, with the leadership attempted at the Federal level, cannot do the job-it can help. If this does not occur, I do not see any reasonable hope for breaking the poverty cycle and freeing millions of Americans today or in the foreseeable future.
Theoretically, this program could completely replace any of the welfare programs which are not operating, but its success would depend completely on the citizens within our country. The responsibility cost rest more with the individual; he could truly be his brother’s keeper and not only be involved in a purely financial transaction, but serve as a base for helping the less fortunate find other sources of income, jobs, education, and all of the other benefits in which the majority of Americans presently participate.
There have been examples in our history of programs of this nature operating successfully. The first that comes to mind is the communal programs developed by the Mormons. Each member of the local church contributes what he can to a community fund in case a member of his group runs into hard times. If this does happen, he and his family can use the community fund until he is back on his feet. It is only through this type of involvement that a program dealing with such personal and vital aspects of an individual’s life can be successful. All cannot begin to cope with the complex problems of poverty without personal involvement and dedicated effort. This bill I am proposing today is an attempt to provide the opportunity for such an endeavor.
I ask unanimous consent that the bill was ordered to be printed in the RECORD, as follows:
S. 2438
A bill to provide a tax credit for contributions made directly to individuals and families whose income is below the poverty level.
Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled, That (a) subpart A of part IV of subchapter A of chapter 1 of the Internal Revenue Code of 1954(relating to credits against tax) is amended by renumbering section 40 as 41, and by inserting after section 39 the following new section:
“SEC. 40. DIRECT ANTIPOVERTY CONTRIBUTIONS.
“(a) General Rule-There shall be allowed to an individual, as a credit against the tax imposed by this chapter for the taxable year; an amount equal to a percentage (determined under subsection (c)) of the amount of certified direct antipoverty contributions made by such individual during the taxable year.
“(b) Limitations.-
“(1) Application with other credits-The credit allowed by subsection (a) shall not exceed the amount of the tax imposed by this chapter for the taxable year reduced by the sum of the credits allowable under section 33 (relating to foreign tax credit), section 35 (relating to partially tax-exempt interest), section 37 (relating to retirement income), and section 38 (relating to investment in certain depreciable property).
“(2) Verification.-The credit under subsection (a) shall be allowed with respect to any certified direct antipoverty contribution only if such contribution is verified in such manner as the Secretary or his delegate prescribes by regulations.
“(c)) Determination of percentage.-The percentage of the amount of certified direct antipoverty contributions made by an individual during a taxable year for which he may claim a credit under subsection (a) shall be-
“(1) 10 percent for taxable years beginning after December 31, 1972, and before January 1, 1973;
“(2) 20 percent for taxable years beginning after December 31, 1973, and before January 1, 1974;
“(3) 30 percent for taxable years beginning after December 31, 1974, and before January 1, 1975;
“(4) 40 percent for taxable years beginning after December 31, 1975, and before January 1, 1976;
“(5) 50 percent for taxable years beginning after December 31, 1976, and before January 1, 1977;
“(6) 60 percent for taxable years beginning after December 31, 1977, and before January 1, 1978;
“(7) 70 percent for taxable years beginning after December 31, 1978, and before January 1, 1979;
“(8) 80 percent for taxable years beginning after December 1, 1979, and before January 1, 1980;
“(9) 90 percent for taxable years beginning after December 1, 1980, and before January 1, 1981;
“(10) 100 percent for taxable years beginning after December 31, 1981.
“(d) Definitions.-
“(1) Certified direct antipoverty contribution.-For purposes of this section, the term ‘certified direct antipoverty contribution’ means a contribution of money to an individual or family who, at the time such contribution is made, is certified as an eligible recipient under subsection (e), but only to the extent such contribution or gift is certified under subsection (f).
“(2) Total economic income.-For purposes of this section, the term ‘total economic income’ means all income from whatever source derived, including (but not limited to) the cash value of food stamps or other non-monetary benefits received from the Federal government or the government of any State or political subdivision thereof, wages, net earnings from self-employment, payments received as an annuity, pension, retirement, or disability benefit (including veterans’ compensation and pensions, workmen’s compensation payments, old-age, survivors, and disability insurance Benefits, railroad retirement annuities and pensions, and unemployment benefits), prizes and awards, life insurance proceeds (less medical and burial expenses of the deceased paid from such proceeds), gifts, support and alimony payments, inheritances, and rents, dividends, interest, and royalties.
“(e) Certification of Eligible Recipients.-
“(1) Eligibility requirement.-An individual, who is 18 years of age, or older, or a family may be certified as eligible to receive certified direct antipoverty contributions of his, or their, total economic income (other than income from certified direct antipoverty contributions) for the taxable year is expected to be less than that determined by the Director of the Office of Management and Budget to be a poverty level income.
“(2) Certification procedure.-The Secretary or his delegate shall provide for the voluntary registration of individuals and families who wish to receive certified direct contributions and for the periodic certification of those determined to be eligible to receive such contributions. Any agency of the Federal government, or of the government of any State or political subdivision thereof, which is designated by the Secretary or his delegate for such purpose may certify individuals and families as eligible under this subsection in a in accordance with procedures established by the Secretary or his delegate by regulation. Any denial of certification by any such agency may be appealed to the Secretary, whose determination shall be final.
“(f) Certification of Contributions.-The Secretary or his delegate shall provide for the certification of contributions to individuals and families who are certified as eligible recipients under subsection (e). A contribution to an individual or family may be certified only to the extent that such contribution, when added to-
“(1) the amount of certified direct antipoverty contributions previous received by the individual or family during the taxable year, and
“(2) the total economic income (other than income from certified direct antipoverty contributions) expected to be received by the individual or family during the taxable year, does not exceed the poverty level income for the individual or family as determined by the Director of the office of Management and Budget.
“(g) Carryover.-If the amount of certified direct antipoverty contributions paid by an individual during any taxable year exceeds the amount of the credit allowable under this section for such taxable year, such excess shall be treated as a certified direct antipoverty contribution the payment of which is made in the next taxable year.
“(h) Poverty Level Income.-For purposes of this section, the Director of the Office of Management and Budget shall determine poverty level incomes for individuals and families on a uniform basis throughout the United States.
“(1) Regulations.-The Secretary or his delegate is authorized to prescribe such regulations as may be necessary to carry but this section.
“(j) Cross Reference.-
“For disallowance of credit to estates and trusts, see section 642 (a) (3).”
(b) The table of sections for such subpart is amended by striking out “Sec. 40. Overpayments of tax.” And inserting in lieu thereof:
“Sec. 41. Overpayments of tax.
(c) Section 642 (a) of such Code (relating to credits against tax for estates and trusts) is amended by adding at the end thereof the following new paragraph:
“(3) Direct antipoverty contributions.-An estate or trust shall not be allowed the credit against tax for direct antipoverty contributions provided by section 40.”
(d) (1) Part II of subchapter B of chapter 1 of such Code (relating to items specifically included in gross income) is amended by adding at the end thereof the following new section:
“SEC. 84. AMOUNTS RECEIVED AS DIRECT ANTIPOVERTY CONTRIBUTIONS
“Gross income includes the amount of any certified direct antipoverty contribution (as defined in section 40 (d)) received by the taxpayer during the taxable year.”
(2) The table of sections for such part is amended by adding at the end thereof the following:
“Sec. 84. Amounts received as direct antipoverty contributions.”
Sec. 2. The amendments made by the first section shall apply to taxable years ending after December 31, 1971, but only with respect to certified direct antipoverty contributions the payment of which is made after such date.
Sec. 3. On or before the first day of August of each year from 1973, through 1982, the Secretary of the Treasury shall report to the Congress an evaluation of the effect of the tax credit for contributions under section 40 of the Internal Revenue Code of 1954 upon poverty in the United States during the fiscal year ending on the thirtieth day of June next preceding such report, together with such additional comments and recommendations, including recommendations for legislation, as he may have with respect to the effects of such section.
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