Tax Policy

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In addition to raising revenue to finance government expenditures and ensuring a sustainable fiscal budget, a progressive tax system plays an important role in reducing inequality and expanding opportunities for all Americans. The Hamilton Project explores innovative tax proposals that promote growth, encourage shared economic opportunity, and improve the attractiveness of the United States as a place to work and invest, while tailoring individual tax burdens to families’ ability to pay.


Related to Tax Policy

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Building on the Success of the Earned Income Tax Credit

Papers • June 2014 • Hilary Hoynes

In this policy memo, Hilary Hoynes proposes expanding the Earned Income Tax Credit (EITC) by raising the benefits for families with one child to be on par with the benefits for families with two children. This proposal aims to strengthen work incentives for low-income, one-child families; raise 410,000 people—including 131,000 children—out of poverty; and increase after-tax income by about $1,000 for one-child EITC beneficiaries, leading to improvements in health and children’s cognitive skills. This proposal is chapter eleven of The Hamilton Project’s Policies to Address Poverty in America, and a segment in Improving Safety Net and Work Support.

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Policies to Address Poverty in America, Introduction

Papers • June 2014 • Melissa S. Kearney, Benjamin H. Harris, Karen L. Anderson

The introduction to The Hamilton Project’s new volume, Policies to Address Poverty in America, presents an overview of America’s poverty crisis, and makes the case for why poverty belongs on the national policy agenda. The introduction also  frames the 14 policy proposals that are part of the volume, and the particular aspects of poverty they address. The proposals fall into four general categories: promoting early childhood development, supporting disadvantaged youth, building skills, and improving safety net and work support. 

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The Hamilton Project Policy Response to the 2014 State of the Union Address

Papers • January 2014

In his 2014 State of the Union address, President Barack Obama spoke of a “breakthrough year for America” and foreshadowed a “year of action.” He focused on ways to expand opportunities for Americans by enhancing employment and education options for low-and middle-income citizens, developing more robust worker training programs, investing in America through infrastructure investments and energy innovation, the importance of making progress on immigration reform, and more. Since its launch in 2006, The Hamilton Project has released a range of targeted policy proposals that provide innovative, evidence-based approaches to addressing many of the policy priorities set forth in the Presidents address.

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A Dozen Facts about America’s Struggling Lower-Middle Class

Papers • December 2013 • Melissa S. Kearney, Benjamin H. Harris

These economic facts focus on two key challenges facing lower-middle-class families: food insecurity and the low return to work for families who lose tax and transfer benefits as their earnings increase.

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Giving Secondary Earners a Tax Break: A Proposal to Help Low- and Middle-Income Families

Papers • December 2013 • Melissa S. Kearney, Lesley Turner

The current tax system hampers low- and middle-income families who add secondary earners to the workforce to augment their primary breadwinner’s income. In a new Hamilton Project discussion paper, Melissa Kearney and Lesley Turner propose a secondary earner tax deduction that would help make work pay for dual-earner families.

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The Many Benefits of a Carbon Tax

Papers • February 2013 • Adele Morris

Adele Morris proposes a carbon tax as a new source of revenue that could also help address climate change. She suggests that a carbon tax would reduce the buildup of greenhouse gasses, replace command-and-control regulations and expensive subsidies with transparent and powerful market-based incentives, and promote economic activity through reduced regulatory burden and lower marginal tax rates.

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Creating an American Value-Added Tax

Papers • February 2013 • William G. Gale, Benjamin H. Harris

Creating a value-added tax (VAT) in the United States could raise revenue in a manner that does not distort saving and investment choices. William Gale and Ben Harris consider how a VAT could be designed to help address the nation’s fiscal challenges.

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Limiting Individual Income Tax Expenditures

Papers • February 2013 • Diane M. Lim

Diane Lim’s approach to individual income tax expenditures would raise revenue more efficiently and progressively by reducing tax expenditures, limiting potential negative impacts on subsidized sectors by preserving certain tax incentives, and equalizing implicit subsidies across middle- and higher-income taxpayers. 

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Better Ways to Promote Saving through the Tax System

Papers • February 2013 • Karen Dynan

Karen Dynan examines the design of government incentives for personal savings, outlining how reforms to these programs would improve saving and economic security for low-income households and reduce expensive and ineffective federal subsidies for high-income households.

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Eliminating Fossil Fuel Subsidies

Papers • February 2013 • Joseph E. Aldy

Limiting subsidies for fossil fuels could raise revenue for the federal government while also benefiting the environment. Joseph Aldy proposes eliminating twelve subsidies to help level the playing field among fossil fuel producers relative to other businesses, and lead to potentially lower global fuel prices by providing the United States with increased leverage in negotiations over eliminating fossil fuel subsides in the developing world.

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Supplemental Nutrition Assistance Program (SNAP) Participation Rate and Unemployment Rate, by Year

December 19, 2013 • Charts

SNAP is a key program for providing assistance to Americans when they need support the most. This can be seen in the correlation between SNAP participation and unemployment rates; SNAP participation rises during economic downturns and falls during recoveries. In 2013, the average participation rate for SNAP was 19.4 percent of the U.S. population, serving 47.7 million individuals each month, compared to a pre-recession participation rate of only 11.3 percent in 2007. As shown in the figure above, SNAP historically has tracked rates of unemployment and economic downturns closely (denoted by the teal dotted line and gray bars, respectively). SNAP participation rates (as seen in the shaded blue area) are expected to fall as the economy continues to recover, as would be expected based on the pattern observed in previous recessions. By 2020, the participation rate is projected to revert to 2009 levels—about 14.3 percent of the population.

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Household Food spending as a Fraction of the Thrifty Food Plan Minimum Spending Target for Households under 200 percent of the Federal Poverty Level

December 19, 2013 • Charts

SNAP is designed to supplement recipients’ purchasing power so that through a combination of SNAP benefits and their own spending out of available cash resources recipients can afford to purchase enough food to feed their families under the Thrifty Food Plan (TFP). However, the TFP minimum spending target for food is based on outdated and inappropriate assumptions. In particular, the TFP implicitly assumes that households have unlimited time to prepare food, and therefore are able to cook meals primarily from scratch instead of using prepared ingredients. Over the past twenty years the majority of low-income families spent more on food than would have been suggested by the cost of a minimally adequate food budget that the benefit formula is based on. This difference in spending compared to the TFP target may indicate that some families face higher food prices than those assumed by the TFP.

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Rates of Food Insecurity, 1998-2012

December 19, 2013 • Charts

SNAP benefits are an effective tool for mitigating food insecurity since they increase a family’s ability to purchase food. A recent study by USDA revealed that SNAP participation is associated with a reduction in overall food insecurity rates by 10 percentage points over a six-month period from the time a household enters the program. Furthermore, food insecurity rates for children decreased by about one-third during this same period. Hunger in the United States spiked both during and after the Great Recession. In 2012 over 14 percent of all households were food insecure at some point throughout the year. Furthermore, 20 percent of households with children experienced food insecurity. These rates increased nearly 35 percent from their pre-recession levels.

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Breakdown of Family Characteristics, by Income Relative to the Federal Poverty Level (FPL)

December 19, 2013 • Charts

Household composition of families in the struggling lower-middle class varies substantially from the household composition of families in poverty. Of families with income below the federal poverty level (FPL) (approximately 7.1 million families), 70 percent are headed by a single parent (61 percent are single female parents), 24 percent are headed by a married couple with one or two earners, and 6 percent are headed by a married couple with no earners. The composition of the struggling lower-middle class—defined here as working-age families with children under age eighteen whose income places them between 100 and 250 percent of the FPL—is markedly different from families in poverty in terms of marriage and presence of earners.

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Low-and Middle-Income Families See Little Benefit from Adding a Second Earner

December 19, 2013 • Charts

This figure displays the percentage of income generated by the addition of a secondary earner’s income that a family takes home after accounting for payroll and federal income taxes, SNAP benefits, and the cost of child care. Each set of bars represents a family of four (two adults, two children) headed by a full-time worker that earns between 100 and 250 percent of the federal minimum wage (i.e., $15,080 to $37,700 annually). The green and purple bars represent the take-home earnings generated from adding a part-time and full-time secondary earner, respectively, with the same hourly wage. In all eight scenarios represented, a family ultimately keeps less than half of the earnings generated by the secondary earner.

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Highest Educational Attainment of Family Head, by Income Relative to the Federal Poverty Level (FPL)

December 19, 2013 • Charts

College attainment differs markedly by poverty status. 33 percent of household family heads below 100 percent of the federal poverty level (FPL) attended at least some college, although just 6 percent of those family heads have a bachelor’s degree or higher. Among household family heads with income between 100 and 250 percent of the FPL, 48 percent have attended some college, and 14 percent have a bachelor’s degree or higher. In stark contrast to those living at or below 250 percent of the FPL, 77 percent of household family heads above 250 percent of the FPL attended at least some college, and about half have a bachelor’s degree or higher. Only a very small share of this group (4 percent) did not earn a high school diploma.

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Marginal Tax Rates under 2012 Law, by Earnings Relative to the Federal Poverty Level (2012)

December 19, 2013 • Charts

Marginal tax rates—the tax collected on an additional amount of income or earnings—are often highest for families at or just above the federal poverty level (FPL). 10 percent of families with earnings between 100 and 149 percent of the FPL have marginal tax rates of 60 percent or higher—meaning that these families keep 40 cents or fewer of each additional dollar they earn. For the poorest families and for those with incomes above 250 percent of the FPL, the top 10 percent of marginal tax rates fall around 35–45 percent. High marginal tax rates for some low-income families are a byproduct of safety-net programs that aim to provide means-tested benefits—benefits aimed at low-income families—to the most vulnerable households. An unfortunate consequence is that some low-income households have little incentive to work because they risk losing significant benefits as they move up the income distribution.

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Income Distributions For Working-Age Families with Children Under 18

December 19, 2013 • Charts

More than half of America’s working-age families with children under age eighteen (approximately 20.1 million families) have annual incomes of $60,000 or below. This is true whether we consider only earned wages and salary, or if we use a broader definition of pretax, pretransfer income, which also includes some unearned sources of income, such as investment income and alimony payments. The blue and green dotted lines in the figure, corresponding to the right axis, show the cumulative share of families with income under various thresholds. Around 40 percent of families earn $40,000 or less each year, 54 percent of families earn $60,000 or less (demonstrated by the black dotted line), and 76 percent of working-age families earn $100,000 or less. For working-age families with children, earning over $100,000 is the exception, not the rule.

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U.S. Personal Saving Rate, 1970-2012

March 14, 2013 • Charts

The U.S. personal saving rate has declined dramatically over the past several decades and is currently very low by historical standards. Americans saved about 4 percent of after-tax personal income in 2012, down from average saving rates of 5.5 percent in the 1990s, 8.6 percent in the 1980s, and 9.6 percent in the 1970s. Although, in the short run, higher personal savings reduces consumption and can slow the economic recovery, over the longer run, higher personal saving would lead to stronger economic growth. The correlation between a country’s saving rate and its investment rate remains large and significant despite the globalization of international capital market.

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Reductions in After-Tax Income as a Consequence of Eliminating Certain Tax Expenditures

May 3, 2012 • Charts

Eliminating or limiting tax expenditures are commonly endorsed tax reform options. However, as with other approaches to raising taxes, the distributional consequences of reducing tax expenditures depend largely on which tax expenditures are eliminated. This chart presents the distributional consequences of eliminating each of the six largest individual tax expenditures.

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The First Step to Cutting the Red Tape: Better Analysis

April 30, 2014 • Michael Greenstone

Hamilton Project Advisory Council member Michael Greenstone testified before the Joint Economic Committee. His testimony focused on how to design a regulatory structure that protects the well-being of our citizens without imposing unnecessary costs on American businesses and society as a whole.  

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Testimony of Laura D’Andrea Tyson

July 31, 2013 • Laura D’Andrea Tyson

Hamilton Project Advisory Council member Laura D'Andrea Tyson testifies before the Joint Economic Committee on corporate tax reform. 

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Testimony of Adam Looney

May 22, 2013 • Adam Looney

Hamilton Project Policy Director Adam Looney testifies before the Senate Budget Committee on the role of tax reform in supporting broad-based economic growth and fiscal responsibility.

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Progressive Tax Reform in the Era of Globalization

January 30, 2009 • Jason E. Bordoff

Hamilton Project Policy Director Jason Bordoff’s remarks to the Annual Conference of the National Academy of Social Insurance.

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Testimony of Dr. Susan Dynarski

May 1, 2008 • Susan M. Dynarski

Hamilton Project expert Susan Dynarski testified before the House Ways and Means Committee on designing effective tax incentives for post secondary education.

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The Concept of Neutrality in Tax Policy

April 15, 2008 • Jason Furman

On April 15th, tax filing day, Hamilton Project Director Jason Furman testified before the Senate Finance Committee on the concept of tax neutrality.

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Reform Options for the Estate Tax System: Targeting Unearned Income

March 12, 2008 • Lily L. Batchelder

In a testimony, Lily L. Batchelder of NYC School of Law discusses her Hamilton Project proposal to replace the estate tax with a tax on inheritances.

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Day Two: Addressing America’s Poverty Crisis

June 20, 2014 • Washington, DC

On Friday, June 20, The Hamilton Project continued its two-day anti-poverty summit, Addressing America’s Poverty Crisis. Day two of the summit focused on policies to improve the safety net and work support, including the role of work-share and minimum wage policies to support American workers.

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Addressing America’s Poverty Crisis

June 19, 2014 • Washington, DC

On June 19–20, The Hamilton Project hosted a summit to discuss a range of policy approaches for combating poverty in the United States.  The Hamilton Project released 14 proposals from experts around the country, each intended to tackle a specific challenge related to poverty, including new approaches to building skills, promoting early childhood development, and supporting disadvantaged youth. The authors of the new proposals were joined by public and private sector experts to discuss these ideas as part of our two-day event.

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Supporting America’s Lower-Middle-Class Families

December 4, 2013 • Washington, DC

More than half of American families earn $60,000 or less a year -- outside of poverty but with limited economic security. Many of these families rely on government programs for support and one major setback could throw their lives into chaos. On December 4th, The Hamilton Project hosted a forum to highlight two new proposals for aiding America’s lower middle class families featuring a diverse range of experts.

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Real Specifics:  15 Ways to Rethink the Federal Budget—Part II:  Addressing Entitlements, Taxation, and Revenues

February 26, 2013 • Washington, DC

On February 26th, The Hamilton Project hosted a forum featuring a diverse group of experts from around the country who discussed 13 targeted policy proposals that were released that day on reforming entitlement spending, tax reform, and how to create new sources of revenue and efficiency. The proposals provide specific strategies on how lawmakers can address many different areas of the budget, and address options to reduce both mandatory and discretionary spending.

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Economic Facts About Taxes: Rates, Revenues and Reform Options

May 3, 2012 • Washington, DC

Fiscal issues will rapidly come to the fore next fall as the federal government faces the looming expiration of the Bush-era tax cuts, the onset of the deficit “trigger,” and another debate on the debt limit. Across the political spectrum, one of the few points on which today’s policymakers can agree is that the tax code is in desperate need of reform. On May 3, The Hamilton Project hosted a policy forum on the economic context for tax reform and the economic criteria that should be used when evaluating tax reform options. 

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Missing Markets: Fostering Market-Based Solutions to Major Risks

June 5, 2008 • Washington, DC

The Hamilton Project hosted a discussion on what the government can do to foster market-based solutions to major risks.  Markets that could potentially mitigate or reduce some of the biggest risks faced by the American people and their broader communities are nonexistent or underutilized.

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Reforming Taxation in the Global Age

June 12, 2007 • Washington, DC

A two-part forum and release of a new set of policy proposals that address the challenges of reforming the U.S. tax system.

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Addressing America’s Poverty Crisis - Day 2, Panel 1 Audio

June 20, 2014 • Audio

Day two of The Hamilton Project’s anti-poverty summit, Addressing America’s Poverty Crisis, focused on policy proposals to improve safety net and work support. The first panel of the day discussed expansions to the Earned Income Tax Credit, reforms to the Child and Dependent  care tax credit, and the potential benefits of predictive analytics and rapid-cycle evaluation to improve social services. The authors, Scott Cody of Mathematica Policy Research, Hilary Hoynes of UC Berkely, and James Ziliak of the University of Kentucky, were joined in the roundtable discussion by Gordon Berlin of MDRC, and Robert Greenstein of the Center on Budget and Policy Priorities. Director of The Hamilton Project, Melissa Kearney, moderated the discussion.

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Addressing America’s Poverty Crisis - Day 2, Panel 2 Audio

June 20, 2014 • Audio

The second panel for day two of Addressing America’s Poverty Crisis focused on minimum wage policy at the state and local levels, and reducing unemployment through work sharing. Authors Arindrajit Dube of the University of Massachusetts Amherst and Katharine Abraham of the University of Maryland introduced their proposals, and were joined by Jared Bernstein of the Center on Budget and Policy Priorities, and Gregory Mankiw of Harvard University. Christopher Edley, Jr. of UC Berkely moderated the discussion.

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Addressing America’s Poverty Crisis - Day 2, Welcoming Remarks

June 20, 2014 • Video

On June 20, The Hamilton Project continued day two of Addressing America’s Poverty Crisis, and introduced dynamic policy proposals focusing on ways to improve the U.S. safety net and provide support for low-wage workers. Roger Altman, Founder & Executive Chairman of Evercore, opened the forum and introduced the first panel.

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Addressing America’s Poverty Crisis - Day 2, Panel 1

June 20, 2014 • Video

Day two of The Hamilton Project’s anti-poverty summit, Addressing America’s Poverty Crisis, focused on policy proposals to improve safety net and work support. The first panel of the day discussed expansions to the Earned Income Tax Credit, reforms to the Child and Dependent  care tax credit, and the potential benefits of predictive analytics and rapid-cycle evaluation to improve social services. The authors, Scott Cody of Mathematica Policy Research, Hilary Hoynes of UC Berkely, and James Ziliak of the University of Kentucky, were joined in the roundtable discussion by Gordon Berlin of MDRC, and Robert Greenstein of the Center on Budget and Policy Priorities. Director of The Hamilton Project, Melissa Kearney, moderated the discussion.

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Addressing America’s Poverty Crisis - Day 2, Panel 2

June 20, 2014 • Video

The second panel for day two of Addressing America’s Poverty Crisis focused on minimum wage policy at the state and local levels, and reducing unemployment through work sharing. Authors Arindrajit Dube of the University of Massachusetts Amherst and Katharine Abraham of the University of Maryland introduced their proposals, and were joined by Jared Bernstein of the Center on Budget and Policy Priorities, and Gregory Mankiw of Harvard University. Christopher Edley, Jr. of UC Berkely moderated the discussion.

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Addressing America’s Poverty Crisis , Day 2 - Photo Gallery

June 20, 2014 • Photo Galleries

On Friday, June 20, The Hamilton Project continued its two-day anti-poverty summit, Addressing America’s Poverty Crisis. Day two of the summit focused on policies to improve the safety net and work support, including the role of work-share and minimum wage policies to support American workers.

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Addressing America’s Poverty Crisis - Day 1, Framing Remarks Audio

June 19, 2014 • Audio

On day one of Addressing America’s Poverty Crisis, Hamilton Project Director Melissa S. Kearney delivered framing remarks on recent trends of poverty in the United States, and why fighting poverty needs to be a national policy priority. Kearney also presented the release of The Hamilton Project’s new volume, Policies to Address Poverty in America, which combines 14 proposals confronting specific issues related to poverty in America.

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Supplemental Nutrition Assistance Program (SNAP) Participation Rate and Unemployment Rate, by Year

December 19, 2013 • Charts

SNAP is a key program for providing assistance to Americans when they need support the most. This can be seen in the correlation between SNAP participation and unemployment rates; SNAP participation rises during economic downturns and falls during recoveries. In 2013, the average participation rate for SNAP was 19.4 percent of the U.S. population, serving 47.7 million individuals each month, compared to a pre-recession participation rate of only 11.3 percent in 2007. As shown in the figure above, SNAP historically has tracked rates of unemployment and economic downturns closely (denoted by the teal dotted line and gray bars, respectively). SNAP participation rates (as seen in the shaded blue area) are expected to fall as the economy continues to recover, as would be expected based on the pattern observed in previous recessions. By 2020, the participation rate is projected to revert to 2009 levels—about 14.3 percent of the population.

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Household Food spending as a Fraction of the Thrifty Food Plan Minimum Spending Target for Households under 200 percent of the Federal Poverty Level

December 19, 2013 • Charts

SNAP is designed to supplement recipients’ purchasing power so that through a combination of SNAP benefits and their own spending out of available cash resources recipients can afford to purchase enough food to feed their families under the Thrifty Food Plan (TFP). However, the TFP minimum spending target for food is based on outdated and inappropriate assumptions. In particular, the TFP implicitly assumes that households have unlimited time to prepare food, and therefore are able to cook meals primarily from scratch instead of using prepared ingredients. Over the past twenty years the majority of low-income families spent more on food than would have been suggested by the cost of a minimally adequate food budget that the benefit formula is based on. This difference in spending compared to the TFP target may indicate that some families face higher food prices than those assumed by the TFP.

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Rates of Food Insecurity, 1998-2012

December 19, 2013 • Charts

SNAP benefits are an effective tool for mitigating food insecurity since they increase a family’s ability to purchase food. A recent study by USDA revealed that SNAP participation is associated with a reduction in overall food insecurity rates by 10 percentage points over a six-month period from the time a household enters the program. Furthermore, food insecurity rates for children decreased by about one-third during this same period. Hunger in the United States spiked both during and after the Great Recession. In 2012 over 14 percent of all households were food insecure at some point throughout the year. Furthermore, 20 percent of households with children experienced food insecurity. These rates increased nearly 35 percent from their pre-recession levels.

Hamilton Project Updates

A periodic newsletter of events, policy briefs, and working papers from The Hamilton Project.