As Congress continues to negotiate to resolve the fiscal showdown that threatens to unravel our fragile economic recovery, much is at stake for Americans of every race and income level—particularly those who are trying to regain their economic foothold after the Great Recession of 2007–2009.
Thanks to congressional Republicans holding the economy hostage during the debt ceiling debate in 2011, a package of automatic across-the-board spending cuts called sequestration is set to go into effect in early 2013. At the same time, the Bush tax cuts and a number of other tax breaks will expire, meaning that a massive fiscal cutback will occur if Congress and President Barack Obama are unable to reach an agreement to forestall the looming spending cuts and tax hikes. The president has proposed a balanced approach to resolve this crisis, asking the wealthiest Americans to pay their fair share, but congressional Republicans are risking massive and harmful spending cuts and across-the-board tax increases in order to protect tax cuts for the richest 2 percent.
It is unconscionable to think that given the number of Americans who suffered the devastation of the Great Recession, combined with our long-term needs to prepare a workforce fit for a 21st century global economy, Republican members of Congress continue to threaten key educational and safety net programs for the sake of protecting the pocketbooks of millionaires and billionaires.
President Obama has been clear—he wants to extend the tax cuts for those making less than $250,000 per year and end it for those that make more than $250,000. By doing so we would prevent a tax hike for 98 percent of Americans while asking the wealthiest 2 percent of Americans to a pay a little more.
Additionally, by ending the tax cut for those making $250,000 or more, we would create significant revenue without threatening our economic recovery. The potential revenue—$850 billion over 10 years—would help reduce the deficit and would be a significant boost to financing programs that drive the economy.
If Republicans prevent a deal to protect the already well off, it would mean taking about $800 billion out of the economy next year alone. Such a severe shock could send the economy back into a recession, driving unemployment back up and erasing the gains families have made over the last four years. What’s more, the long-term impact of cuts to education, health, and training programs will be felt for generations to come, particularly in communities that are disproportionately younger, since less access to academic programs, fewer resources for financial aid, and diminished job-training opportunities will have a lasting negative impact on their economic success. This is particularly true for people of color who suffered first and worst during the Great Recession, are disproportionately younger than the rest of the population, and continue to struggle to regain their economic foothold.
Communities of color are paying close attention to the debate on the fiscal showdown. Latinos, African Americans, and Asian Americans—along with the rest of the American electorate that supported the president—identified jobs and the economy as the top issues of concern in this election. In re-electing President Obama, they resoundingly voted in support of the notion that our economy should work for everyone—not just for the wealthy few. Here is how the expiration of tax cuts and the potential spending cuts across the board would impact key programs that are essential for all Americans, including people of color.
If the Bush tax cuts expire, it would result in the average household paying $2,000 to $3,000 more in taxes each year. Blacks and Latinos have a median household net worth of $4,995 and $7,424, respectively, compared to $110,729 for whites. Based on this and other economic indicators, it is plain to see that Latinos and African Americans cannot afford a tax increase.
Below are three tax credits set to expire at the end of year that are essential for people of color:
- Child tax credit: The child tax credit is a tax reimbursement that households can claim for each offspring. Right now the credit is $1,000 per child, but if Congress fails to compromise, this credit will drop to $500. According to the Center on Budget and Policy Priorities, in 2010 the child tax credit lifted 1.3 million children out of poverty. In 2011, 34 percent of Hispanic children and 39 percent of black children lived in poverty. Given these high numbers and the proven benefit of the child tax credit, Latinos and African Americans can ill afford to lose this credit that provides needed resources for their families.
- Earned income tax credit: The earned income tax credit is a federal tax credit for low- and moderate-income working families and individuals—it is designed to encourage and reward work, as well as to offset federal payroll and income taxes. This credit is the largest cash or near cash assistance program targeted at low-income families and refunds an average of $2,240 per family.
- American Opportunity Tax Credit: Set forth in the American Recovery and Reinvestment Act of 2009, the American Opportunity Tax Credit gives working families and students a $2,500 per year tax credit for students attending college. This tax credit helps provide relief for those pursuing their first four years of college and affects 11 million families. More than 70 percent of black students receive need-based financial aid to attend college, compared with 40 percent of white students, meaning that black Americans are more likely to benefit from financial incentives to spur college attendance, making credits like this particularly crucial.
The possibility of deep cuts to the unemployment provision is deeply troubling for communities of color because they are still facing many obstacles in regaining the job losses from the Great Recession. As of October 2012 the unemployment rate for Latinos is 10 percent, and a staggering 14.3 percent for African Americans. Although blacks and Latinos are less likely to receive unemployment benefits—23.8 percent and 29.2 percent, respectively, compared to 33.2 percent for whites, due to low levels of education, concentration in occupations or industries where workers are less likely to be covered, and short tenure on jobs—unemployment benefits remain a lifeline for far too many low-income households.
According to the National Employment Law Project, an estimated 2 million people stand to lose their benefits in January if Congress doesn’t extend the deadline to file for extended benefits.
Federal nutrition programs
The Special Supplemental Nutrition Program for Women, Infants, and Children—a federal nutrition-assistance program for poor pregnant and breastfeeding mothers and their very young children—is among the programs that would face automatic cuts if an agreement is not reached. This program, which would be cut by $543 million, has had a significant impact on all communities, but particularly among Latinos, who make up a large share of the program participants. In 2008 more than 4 million Latino women and children received assistance from the program, representing 42.1 percent all women, infants, and children in the program, according to the National Council of La Raza. Nutrition-assistance programs are also crucial for African Americans, who make up about 19.6 percent of WIC program participants.
A longitudinal study of the program’s participants found that accessing services reduced acute hunger and household food insecurity among pregnant women and children.
Job-training programs across the board will be deeply affected by the cuts triggered by sequestration. Among them, the Workforce Investment Act, Job Corps, and the Veterans’ Employment and Training Service will see their funding significantly cut.
According to Secretary of Labor Hilda Solis:
In terms of job-training programs, we are looking at a hit of about $500 million to our workforce system, and also the inability … of being able to reach 1.7 additional participants. And, of course, you and I know … in a time of high unemployment, that is not a good sign. With respect to veterans, which I know this subcommittee is very focused on as well, we are looking at a reduction of about $13 million overall in the efforts to try to find employment services and provide that for veterans.
The Workforce Investment Act state grants provide employment and training services to underemployed adults as well as youth who have dropped out of high school and want to go back to school or enter the labor market. According to a report by Sen. Tom Harkin (D-IA), 413,500 fewer people would receive services across the country if the sequestered cuts would take effect. Job Corps is an education and training program that helps young people learn a career, earn a high school diploma or GED, and find and keep a good job. Similarly, more than 4,300 fewer youth would receive training from the program under the proposed cuts.
Unemployment rates among youth of color (ages 16 to 24) are staggering. According to the Bureau of Labor Statistics, as of July 2012, 28.6 percent of black youth and 18.5 percent of Hispanic youth were unemployed, compared to 14.9 percent of their white peers. The youth participants in these programs are the nation’s future workforce and it’s crucial that we invest in these growing communities now, instead of gutting the programs that are preparing them to be contributing members of the workforce.
The Veterans’ Employment and Training Service, or VETS, offers employment and training services to eligible veterans through funds allocated to state workforce agencies to assist veterans seeking employment within their state. According to a March 2012 Census report, the unemployment rate in 2011 for veterans who served on active duty in the U.S. Armed Forces at any time since September 2001 was 12.1 percent. Yet, and most troubling, young male veterans (ages 18 to 24) who served during the Gulf War II era had an unemployment rate of 29.1 percent in 2011, higher than that of young male nonveterans. Under the sequestration cuts more than 51,400 veterans would lose access to the program. According to the National Center for Veteran Analysis and Statistics, there are 2.5 million black veterans, more than 1.3 million Hispanic veterans, and 298,000 Asian veterans.
Cuts to vital job-training programs like the Workforce Investment Act, Job Corps, and VETS, coupled with the high rates of unemployment in communities of color, will have a damaging long-term effect in these communities.
Based on information from the Congressional Budget Office, the National Education Association has calculated that 9.3 million students would be directly affected by almost $5 billion in sequestration cuts. The cuts include Title I funding aid, special education programs, Head Start, and financial aid programs for higher education, among many others.
Title I funding provides education funding to states and school districts with high concentrations of low-income and disadvantaged students. According to the National Association of Secondary School Principals, Title I funding would be cut by $1.2 billion and would affect almost 1.8 million students and eliminate 16,100 jobs. In addition, special education programs serving 476,000 students would be gutted by nearly $1 billion, and support for rural school districts with 437,000 students would also collapse.
If the sequestration cuts are allowed to take effect, the Department of Health and Human Services estimates that up to 100,000 low-income children will lose access to Head Start and Early Head Start Services. Head Start provides comprehensive education, health, nutrition, and parent-involvement services to low-income children and their families.
The sequestration cuts would also result in an approximate 8 percent cut in federal student aid, which would reduce financial aid for more than 2 million college students, slamming the door of opportunity shut for many. The federal Pell Grant program would be cut by $94 million, in part by reducing the maximum grant for the 2013-14 academic year from $5,635 to the current $5,550. Reducing federal student aid would have a disproportionate impact on students of color since they constitute more than half of all Pell Grant recipients.
All Americans should be deeply concerned about these educational cuts because these kinds of disinvestments ripple across generations and only add to the hurdles K-12 students and young people already face in completing a solid education and earning a college degree, all of which have implications for our future workforce and economic outlook.
Letting tax cuts that benefit only the richest 2 percent expire would save nearly $1 trillion in revenue over the next 10 years. By letting the tax cut expire for millionaires and billionaires, we would be simply asking that they pay their fair share of taxes since they have benefited disproportionately from the tax reductions enacted since 2001. Since 2004 millionaires have gained more than $1 million each on average from these tax cuts. We cannot afford to continue giving tax cuts to those who need them least.
What we need is a balanced approach of cuts and revenue, but when contemplating cuts we must focus on what is needed to protect the middle class and those aspiring to become part of it. We must also continue making needed investments for our collective economic future. Even more importantly, by ensuring that the safety net is not damaged further and that educational and training opportunities continue to be available to those who need them most, we’ll ensure that the ladder of opportunity and the American Dream remain strong for the next generation of Americans.
Vanessa Cárdenas is Director of Progress 2050 at the Center for American Progress.