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Wednesday, October 31, 2012

Child Welfare: State Plan Requirements under the Title IV-E Foster Care, Adoption Assistance, and Kinship Guardianship Assistance Program



Emilie Stoltzfus
Specialist in Social Policy

Under Title IV-E of the Social Security Act, states, territories, and tribes are entitled to claim partial federal reimbursement for the cost of providing foster care, adoption assistance, and kinship guardianship assistance to children who meet federal eligibility criteria. The Title IV-E program, as it is commonly called, provides support for monthly payments on behalf of eligible children, as well as funds for related case management activities, training, data collection, and other costs of program administration. For FY2011, states spent $12.4 billion under the Title IV-E program and expected to receive federal reimbursement of $6.7 billion, or 54% of that spending.

As a condition of receiving this funding, states, territories. and tribes must have a Title IV-E plan that is approved by the U.S. Department of Health and Human Services (HHS), Administration for Children and Families. That plan must ensure direct financial assistance is made available to eligible children under the Title IV-E program. Further, it must ensure that the state, territory, or tribe will adhere to federal plan requirements primarily intended to ensure children’s safety, permanence, and well-being.

Title IV-E plan requirements other than those related to provision of direct financial assistance to eligible children are the focus of this report. Those requirements are intended to (1) enable children to be reunited with their families or prevent their entry to foster care; (2) promote children’s placement with relatives and maintain sibling connections; (3) ensure children’s living arrangements are safe and appropriate; (4) provide for regular oversight and review of each child’s status in foster care and timely development and implementation of a permanency plan; (5) ensure timely efforts to find a permanent home for children or youth who cannot be reunited with their families; (6) ensure the health care and education needs of children in foster care are addressed; (7) help youth make a successful transition from foster care to adulthood; and (8) ensure program coordination and collaboration and meet certain administrative standards.



Date of Report: October 26, 2012
Number of Pages: 25
Order Number: R42794
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Child Welfare: A Detailed Overview of Program Eligibility and Funding for Foster Care, Adoption Assistance and Kinship Guardianship Assistance under Title IV-E of the Social Security Act



Emilie Stoltzfus
Specialist in Social Policy

Under Title IV-E of the Social Security Act, states, territories, and tribes are entitled to claim partial federal reimbursement for the cost of providing foster care, adoption assistance, and kinship guardianship assistance to children who meet federal eligibility criteria. The Title IV-E program, as it is commonly called, provides support for monthly payments on behalf of eligible children, as well as funds for related case management activities, training, data collection, and other costs of program administration. In FY2011, states (including the 50 states and the District of Columbia) spent $12.4 billion under the Title IV-E program and received federal reimbursement of $6.7 billion, or 54% of that spending. At the federal level, the Title IV-E program is administered by the Children’s Bureau, an agency within the U.S. Department of Health and Human Services (HHS).

More than two-thirds of all Title IV-E spending supports provision of foster care, which is a temporary living arrangement for children who cannot remain safely in their own homes. Title IVE foster care maintenance payments are subsidies provided to foster caregivers to support the daily living costs of eligible children. Title IV-E program administration primarily supports caseworker and agency efforts to ensure the safety and well-being of each child in foster care and to plan for, and achieve, permanency for them via family reunification, adoption, or legal guardianship. Just 29% of the $8.3 billion in total (state and federal) Title IV-E foster care spending for FY2011 was used for maintenance payments, while close to half (46%) of those Title IV-E foster care dollars supported program administration (primarily for case planning and case management).

Close to one-third of all Title IV-E spending (state and federal) supports children in permanent adoption or guardianship placements. Title IV-E adoption assistance payments are monthly subsidies provided for eligible adopted children (most of whom were previously in foster care), for whom the state determined they could not be returned home and that there was a condition or factor that precluded their adoption without assistance (e.g., age, medical condition, or membership in a sibling group). Kinship guardianship assistance payments are ongoing subsidies for eligible children placed with a legal relative guardian, for whom returning home from foster care is not possible or appropriate and for whom the agency also determines adoption is not appropriate. In FY2011, more than 80% of the total spending for Title IV-E adoption assistance ($4.0 billion) and Title IV-E kinship guardianship assistance ($51 million) supported ongoing subsidies for eligible children.

States receiving Title IV-E funding are required to provide foster care and adoption assistance to eligible children. They may also choose to provide kinship guardianship assistance to all eligible children. Federal eligibility for all types of Title IV-E assistance is limited by age. Additional criteria vary by the kind of assistance but often require children to have been removed from low income households. Each month during FY2011, an average of 168,400 children received a Title IV-E foster care maintenance payment and 413,800 received Title IV-E adoption assistance. On a national basis, children who received Title IV-E foster care maintenance payments comprise less than half of all children in foster care and about one-quarter of those receiving ongoing adoption subsidies.

The number of children in foster care overall, as well as the number of those children receiving Title IV-E foster care support has been in decline for most of the past decade; the amount of money spent for Title IV-E foster care is also declining. During most of the same time period, however, the number of children receiving Title IV-E adoption assistance and the amount of spending for Title IV-E adoption assistance grew rapidly. Although representing a small part of the program now, both the number of children assisted via Title IV-E kinship guardianship assistance and the amount of spending for that purpose are expected to increase.



Date of Report: October 26, 2012
Number of Pages: 76
Order Number: R42792
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Constitutionality of Retroactive Tax Legislation



Erika K. Lunder
Legislative Attorney

Robert Meltz
Legislative Attorney

Kenneth R. Thomas
Legislative Attorney


The question is frequently asked whether Congress can enact retroactive tax legislation. It can be an important one for Congress because (1) an ever-growing number of tax provisions have expiration dates and some may not always be extended in a timely manner; (2) an interest in finding new revenue can encourage making a provision retroactive in order to increase the amount raised; and (3) an intent to influence behavior by means of a tax provision can sometimes include a desire to “penalize” past conduct.

It is clear there is no absolute constitutional bar to retroactive tax legislation. Nonetheless, it is possible, albeit rare, for retroactive tax legislation that increases a taxpayer’s tax liability to violate the Constitution. For example, some cases where retroactive taxes have been struck down suggest that extended periods of retroactivity and lack of notice of a wholly new tax can raise due process concerns under the Fifth Amendment.

While it is often asked whether such legislation would violate another of the Fifth Amendment’s provisions—the Takings Clause—it seems unlikely this would be the case. The Supreme Court has long ruled that the sovereign’s taxing power and its power to take private property upon payment of just compensation are distinct. Most of the retroactivity challenges to taxes have been litigated on a substantive due process rather than takings theory. On the other hand, if a court can be convinced that what looks like a tax is, in reality, an arbitrary confiscation of property, then a taking might be found.

Other provisions of the Constitution may be implicated if the legislation appears to target certain taxpayers or attempts to penalize past conduct. Any retroactive tax legislation found to be a criminal penalty will likely be struck down as a violation of the Ex Post Facto Clause, which the Supreme Court has done on at least one occasion. In extremely rare circumstances, tax legislation that seems to target certain taxpayers might raise concerns under the equal protection guarantees of the Fifth Amendment. Finally, it might also be asked whether such legislation is an unconstitutional bill of attainder. While there do not appear to be any instances of this occurring, it seems possible that retroactive tax legislation could, depending on its specifics, meet the criteria to be a bill of attainder. The two main criteria that courts have used to determine whether legislation is an unconstitutional bill of attainder are (1) whether specific individuals are affected by the statute (“specificity” prong), and (2) whether the legislation inflicts a punishment on those individuals (“punishment” prong). The Supreme Court has identified three types of legislation that would fulfill the “punishment” prong of the test: (1) where the burden is such as has “traditionally” been found to be punitive; (2) where the type and severity of burdens imposed cannot reasonably be said to further “non-punitive legislative purposes”; and (3) where the legislative record evinces a “congressional intent to punish.”



Date of Report: October 25, 2012
Number of Pages: 16
Order Number: R42791
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The Impact of the Federal Estate Tax on State Estate Taxes



Steven Maguire
Specialist in Public Finance

An estate tax is a tax levied on the assets left behind by a decedent. The federal government and many state governments levy estate taxes or some type of tax on the transfer of assets at death. In 2012, the federal estate tax allows for a $5.12 million exclusion and a top rate of 35%. The federal estate tax is scheduled to revert to the pre-2001 structure on January 1, 2013, with a $1 million exclusion and top rate of 55%. The Administration’s FY2013 budget proposes a federal estate tax with a $3.5 million exemption and top rate of 45% for 2013. Many states also levy estate or inheritance taxes (or both) that are linked to federal law. If the federal estate tax is allowed to revert to pre-2001 law, state and federal estate tax revenue will increase significantly by imposing a greater tax burden on estates than would an extension of 2012 law or the President’s FY2013 budget proposal. The percentage increase in state estate tax revenue would likely be greater than the percentage increase in federal estate taxes under a return to pre-2001 law. The principal cause is the return of the federal credit for state death taxes when the tax changes originally enacted by the Economic Growth Tax Relief and Reconciliation Act in 2001 (EGTRRA, P.L. 107-16) expire.

Before EGTRRA, all 50 states and the District of Columbia imposed an estate tax where state estate taxes were linked directly to the federal credit for state death taxes paid (“death” taxes because the credit could also be used for inheritance and succession taxes). The dollar-for-dollar credit meant that state taxes were not an additional burden, creating the equivalent of a revenue sharing arrangement between the federal government and the states as most states structured their taxes to match exactly the federal credit. EGTRRA gradually replaced the federal credit with a deduction. Because of this change to a deduction, state estate and inheritance taxes were no longer offset on a dollar-for-dollar basis and, as a result, imposed an additional burden on estates and heirs. States were then lobbied for relief from this additional estate tax burden. As a result, by 2012, just 16 states and the District of Columbia imposed an estate tax and 8 states imposed an inheritance tax (2 states levied both).

As Congress considers the future of the federal estate tax, questions concerning the coordination of the tax with the states have arisen. This report examines the interaction of federal and state estate taxes under three policy alternatives: (1) extend the 2012 law, (2) revert to the pre-2001 law, and (3) return to the 2009 law as proposed in the Administration’s FY2013 budget proposal. A fourth option, repeal of the federal estate tax, has also been proposed. If the federal estate tax were repealed, repeal of most remaining state estate taxes would likely follow. This option, however, would most likely be considered in the context of broader tax reform and is beyond the scope of this report.

Which course of action Congress will choose is uncertain and the impact on the states is unclear. What is more certain is that coordination with states would likely reduce administrative and compliance costs of the estate tax, increase the progressivity of the code generally, and possibly increase the economic efficiency of state estate taxes.



Date of Report: October 24, 2012
Number of Pages: 22
Order Number: R42788
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An Overview of the Transaction Account Guarantee (TAG) Program and the Potential Impact of Its Expiration or Extension



Sean M. Hoskins
Analyst in Financial Economics

In September 2008, the ongoing financial turmoil became a financial panic—large financial institutions were failing, the stock market was falling, and credit markets were freezing. The federal government responded with a series of lending and guarantee programs to contain the panic and to mitigate the damage to the broader economy. Among the many policy responses, the Federal Deposit Insurance Corporation (FDIC) established the Transaction Account Guarantee (TAG) program on October 14, 2008.

The FDIC’s initial TAG program provided unlimited deposit insurance for noninterest-bearing transaction accounts (NIBTAs). A NIBTA is an account in which interest is neither accrued nor paid and the depositor is permitted to make withdrawals at will. NIBTAs are frequently used by businesses, local governments, and other entities as a cash management tool, often for payroll transactions. In spite of a loss of confidence in other parts of the financial system, the insured banking sector saw few bank runs during the financial crisis. The establishment of TAG in addition to the existing deposit insurance may have helped bolster depositors’ confidence in banks as reliable counterparties and prevented them from suddenly withdrawing their deposits.

The second TAG program, which was established by the Dodd-Frank Wall Street Reform and Consumer Protection Act (P.L. 111-203; the Dodd-Frank Act), was a temporary extension of the original program with some changes. This TAG program is set to expire on December 31, 2012. If the program expires, the $1.4 trillion currently insured by TAG in NIBTAs would no longer have unlimited deposit insurance but would have the $250,000 standard maximum deposit insurance amount. Changes to the FDIC’s authority made by the Dodd-Frank Act make it unlikely that the FDIC could act to extend the program under its own authority. An extension may require congressional action.

Opinions are divided on the merits of extending the program. Underlying the divergent policy views are contrasting opinions about the state of the economic recovery and the role of the government in guaranteeing bank liabilities and in determining the size of the traditional banking system.

If the TAG program expires, depositors could keep their deposits in the traditional banking system, or they may decide to transfer some or all of their deposits to nonbank investment options. TAG deposits that remain in the banking system may migrate to the largest or most interconnected banks if large depositors view these as safer, or TAG deposits could move away from the largest banks in response to changes made by the Dodd-Frank Act. TAG deposits that go to nonbanks may flow to money market funds, which are often cited as one of the most popular short-term investment options. A decrease in deposits could affect the liquidity position of a given bank—the ability of the bank to meet its liabilities—but the overall liquidity of the banking system has increased since 2008.

If the TAG program is extended, the resulting risk exposure could put additional strain on the FDIC’s Deposit Insurance Fund. In addition, a TAG extension could increase moral hazard by neutralizing market mechanisms that penalize the banking system for taking on additional risk. A TAG extension could take multiple forms, ranging from a permanent extension to a temporary, voluntary extension with a short phase-out period.



Date of Report: October 24, 2012
Number of Pages: 15
Order Number: R42787
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