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Economic Insecurity
Implications of Federal Budget Proposals for Low-Income Working Families

Authors: Nancy K. Cauthen and Kinsey Alden Dinan
Publication Date: April 2005

This is an excerpt from the full brief.

Federal budget proposals put forth by President Bush and the U.S. Congress call for dramatic cuts to programs that assist low-income families and their children. Nearly 40 percent of the nation’s children live in families with low incomes, i.e., below 200 percent of the poverty level, which is $32,180 for a family of three and $38,700 for a family of four. A full 83 percent of low-income children have parents who work—and most of these parents work full time, year round.

But a full-time job at low wages is not enough to make ends meet, and many parents cannot get ahead simply by earning more. As earnings increase—particularly as they rise above official poverty—families begin to lose eligibility for the benefits that support work. It is these families, with parents who are working for low wages, who are likely to be hardest hit by current budget proposals.

Medicaid, food stamps, housing assistance, and child care subsidies face significant cuts. All of these programs have been shown to support work. Funding for both Medicaid and child care was increased substantially in the 1990s to facilitate transitions from welfare to work. Despite these increases, funding for public work supports does not begin to meet current need. Families who are eligible for housing and child care assistance are regularly turned away or placed on waiting lists; millions of parents and children lack health insurance. Yet current proposals would force thousands of additional families to go without these benefits.

What happens when a family loses one or more vital work supports? This brief uses the Family Resource Simulator, developed by the National Center for Children in Poverty, to illustrate the impact of the loss of benefits on working families. The Simulator is a web-based tool that calculates a family’s resources and basic expenses in the context of federal and state policies as family earnings increase. Calculations are based on hypothetical families, created by selecting family characteristics and making choices about which public benefits the family receives when eligible.

The simulations used in the following analyses are based on hypothetical families, each with two children (one preschool-aged and one school-aged), living in four major U.S. cities. These examples illustrate the kinds of effects on low-income working families that we can expect nationwide if proposed benefit cuts are implemented. All simulations assume that the family receives applicable federal and state income tax credits, since the majority of eligible families take advantage of these benefits.