The Price of Poverty

Update 414: The Price of Poverty

Before we go to Las Vegas, the site of tonight’s Democratic presidential debate, let’s have a look at what happens when wages are lost to layoffs or when luck turns and a car wreck or a diagnosis pushes a family over the economic edge.

How many Americans are living on the edge and what solutions to the most vexing problems they face are being debated in Congress? We explore the issues of cash bail, interest rate caps, and surprising medical billing and prospective legislative solutions below.

Best,

Dana

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Democrats’ 2020 economic message against Trump reflects a hard and cold economic fact: 40 percent of Americans would be hard-pressed to come up with even $400 to pay for an unexpected expense. This figure, from the Federal Reserve’s 2018 Survey of Household Economics and Decision Making, has become a vivid illustration of our divided economy.  

A few months ago, we detailed what Democrats plan to do about the problem and focused on the ongoing legislative push to allow taxpayers an advance on a portion of their Earned Income Tax Credit benefit. Below, we drill deeper into how costly it is to be poor in America. 

Cash Bail

On any given day in the U.S., about 535,000 individuals occupy city and county jails despite not having been convicted of a crime. These detainees comprise two-thirds of the country’s jail population and one-quarter of the total incarcerated population at the state and local levels. While a small number of defendants are detained pretrial as significant flight or public safety risk, over 90 percent of pretrial detainees are eligible for bail.  

But bail is prohibitively expensive for many people. Even with the use of a private bail bondsmen, who can post bail on a defendant’s behalf in exchange for a nonrefundable premium (usually equal to 10 percent of the bail amount), those at the bottom of the income distribution do not have the financial assets to qualify for pretrial release. Those released on bail tend to have pre-arrest incomes twice as high as their counterparts who remain in jail. 

Pretrial detention has a substantially negative economic impact on individuals, particularly defendants whose jobs are at risk or whose children require care. Pretrial detention leads to a higher likelihood of conviction, driven almost entirely by the increased likelihood of detainees pleading guilty. Pretrial detainees are also 32.2 percent more likely to be charged with a new offense and significantly less likely to be employed in subsequent years. If and when they do find work, their annual earnings are reduced by 40 percent, per a 2017 article in the Boston University Law Review.

Legislative state of play

  • In 2018, Senator Sanders introduced the No Money Bail Act, S. 3271. The bill would prohibit the use of money bail in federal cases, provide grants to states to implement alternate pretrial systems, and withhold grant funding from states that continue using cash bail systems. In the House, Rep. Ted Lieu (D-CA) introduced H.R. 4474 — also the No Money Bail Act — in September 2019.  

Interest Rate Caps

Many low-income earners face a paradox: they need credit, but high interest rates drive them deeper into poverty. Americans hold over $1 trillion in credit card debt, and the average interest rate stands at a historic high of 17.71 percent, per CreditCards.com. 12 million Americans rely on payday/short-term lending every year, and the average interest rate on a payday loan is 391 percent. Some payday lenders point borrowers into costly plans when alternatives are available. Workers are trapped in a cycle of borrowing, and poverty continues. 

Legislative state of play:

There is some precedent for nationwide interest rate caps. The 1980 Federal Credit Union Act capped interest rates on credit union loans to 15 percent, and in 1991, the Senate voted 74-19 to cap credit card rates at 14 percent (the legislation did not become law).

  • A bipartisan bill, the Veterans and Consumers Fair Credit Act of 2019, H.R. 5050/S. 2833, led by Reps. Jesús “Chuy” García (D-IL) and Glenn Grothman (R-WI) in the House and Democratic Sens. Brown and Merkley in the Senate, would extend the 36 percent APR interest rate cap on payday and car-title lenders in the Military Lending Act to cover all Americans. 
  • Progressive members of Congress, Sen. Sanders and Rep. Alexandria Ocasio-Cortez introduced the Loan Shark Prevention Act, H.R. 2930, which would establish a national usury rate of 15 percent on credit cards and other consumer loans. 

Surprise Medical Billing

Surprise medical bills can devastate a household’s finances. A 2018 survey cited by House Education and Labor Chair Bobby Scott found that 57 percent of consumers say they have received an unexpected medical bill that they thought was covered by insurance. Another survey found that seven in 10 patients who get expensive out-of-network medical bills were unaware that their provider was out-of-network at the time they received the services. 

Legislative state of play: 

  • Last week, the House Ways and Means Committee unanimously approved the Consumer Protections Against Surprise Medical Bills Act of 2020, H.R. 5826. This bill, led by Chair Neal and Ranking Member Brady, would establish an arbitration process for disputes between health care providers and insurers that are unable to agree on payments for out-of-network care. Trump even tweeted out his support, though an official White House endorsement is unlikely. 
  • Another bill, the Ban Surprise Billing Act, H.R. 5800, was approved 32-13 out of the House Education and Labor Committee. This legislation would go further than the Neal-Brady bill by setting a monetary threshold for arbitration to kick in and limiting cost-sharing to a plan’s in-network rate. Chair Scott and Ranking Member Foxx supported the bill, though four Democrats joined a group of Republicans to oppose it, arguing it would intervene in markets and raise costs on doctors and hospitals. A similar bill, S. 1985, was reported out of the Senate HELP committee with a 20-3 bipartisan majority. 

Political Opportunities

President Trump will likely run for re-election against the backdrop of economic numbers. The macroeconomy, juiced by tax cuts and low interest rates, looks durable on the surface; GDP growth is steady, unemployment is low, and the stock market is enjoying record highs. Digging beneath the surface though, the economy possesses significant weaknesses that Democrats will seek to remedy. Economic inequality has worsened during Trump’s tenure, and wages are stagnant while the cost of living continues to rise. 

The Democratic presidential hopefuls have campaigned on reducing wealth and income disparities, righting wrongs in the tax code, expanding the social safety net, and reforming the criminal justice system, arguing that these proposals are not just important moral but economic issues. Looking at just three issues — cash bail, the high cost of credit, and surprise medical bills — Democrats are rightly focused on the needs of disadvantaged Americans. If these issues are spotlighted during the general election, Democrats may have a larger audience than meets the eye. 

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