Agenda - 12-04-1995 - Early - Special Work Session

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i a M1,• APPENDIX The calculation of benefits for the family without a worker is relatively straightforward. We assume that the family has no earnings or income and therefore receives the maximum amount of AFDC. Since AFDC is included as income in the calculation of food stamp benefits, a family receiving the maximum amount of AFDC will receive $45 less each month in food stamps than the maximum. We assume that the family does not qualify for any other deductions besides the food stamp standard deduction. Earned income is equal to $5.25 an hour multiplied by 40 hours each week multiplied by 52 weeks, or$10,920 each year. The Federal EITC is the maximum in 1994 for families with two children earning under $11,000 a year in wages and salaries, or$2528. Federal payroll taxes are equal to 7.65 percent of wages, or$835. State income taxes are equal to 6 percent of income after subtracting a standard deduction h of$4400 for a head of household and $6000 for three personal exemptions. The tax is therefore 6 percent of$520, or $31. In 1995 and 1996, this family will have no State income tax liability under changes enacted by the General Assembly. A local Blue Cross HMO charges about twice as much for a parent and child as for an individual worker alone. That ratio was applied to the Medicaid benefit of$3312 to compute the Medicaid benefit for the children and the health insurance cost for the adult. Food stamp benefits for the working family are computed on the basis of the earned income and food stamp standard deduction alone. No other income or deductions (for dependent care, etc) was included. The sales tax on food was 6 percent of the difference in$1644 in food stamp amounts t between the family without a worker and the family with a worker. a; Tanner, Michael, Stephen Moore,and David Hartman,The Work vs. Welfare Trade-Off: An Analysis of the Total Level of Welfare Benefits by State,Cato Institute: September 1995. 2 US Government Accounting Office,Low-Income Families: Comparison of Incomes of AFDC and Working Families,January 1995. ' Walden, Michael,The Impact of the Expanded Earned Income Tax Credit on Work Incentives for Welfare Recipients in North Carolina. September 1994. °The Cato report acknowledges that not all recipients receive all benefits. Pages 28 and 30 of their report describe a package of AFDC, Medicaid and food stamps as more typical. 5 Castillo, Monica D., US Department of Labor, Bureau of Labor Statistics, A Profile of the Working Poor, 1993.July 1995. G US General Accounting Office,op cit. Tanner and Moore,"Why Welfare Pays", Wall Street Journal, September 28, 1995,p. A20. " Iowa, Maryland, Minnesota,New York, Rhode Island, Vermont and Wisconsin have state EITCs.