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Friday, May 31, 2013

The Fair Labor Standards Act (FLSA): An Overview

Gerald Mayer Analyst in Labor Policy 
Benjamin Collins 
Analyst in Labor Policy 
David H. Bradley 
Specialist in Labor Economics

The Fair Labor Standards Act (FLSA) provides workers with minimum wage, overtime pay, and child labor protections. The FLSA covers most, but not all, private and public sector employees. In addition, certain employers and employees are exempt from coverage. Provisions of the FLSA that are of current interest to Congress include the basic minimum wage, subminimum wage rates, exemptions from overtime and the minimum wage for persons who provide companionship services, the exemption for employees in computer-related occupations, compensatory time (“comp time”) in lieu of overtime pay, and break time for nursing mothers. 

Basic Minimum Wage 

  • The FLSA requires employers to pay covered, nonexempt employees at least the minimum wage. In 2007, the basic minimum wage was raised, in steps, from $5.15 to $7.25 an hour. The basic minimum wage was raised to $7.25 an hour effective July 24, 2009. As of January 1, 2013, 19 states and the District of Columbia have minimum wage rates that are higher than the federal minimum wage rate. 
  • Basic minimum wage rates in American Samoa and the Commonwealth of the Northern Mariana Islands (CNMI) are lower than in the continental United States. In 2007, Congress passed the Fair Minimum Wage Act of 2007 (P.L. 110- 28), which mandated annual increases of $0.50 an hour in the minimum wages of American Samoa and CNMI. In 2010, Congress temporarily suspended these increases. The minimum wage in CNMI increased by $0.50 an hour to $5.55 on September 30, 2012. In July 2012, Congress delayed the increases in American Samoa. The next minimum wage increases in American Samoa are scheduled for September 30, 2015. 

Subminimum Wage Rates 

  • Tipped employees may be paid less than the basic minimum wage, but their cash wage plus tips must equal at least the basic minimum wage of $7.25. Employers may pay tipped workers $2.13 an hour in cash wages, provided the employees receive at least $5.12 an hour in tips. The latter amount is called a “tip credit.” 
  • Employers may pay special minimum wages (SMWs) to workers with disabilities. The purpose of the SMWs is to provide persons with disabilities the opportunity to work. 


  • The FLSA requires employers to pay at least time-and-a-half to covered, nonexempt employees who work more than 40 hours in a week at a given job. 
  • The FLSA allows covered, nonexempt state and local government employees to receive compensatory time off (comp time) for hours worked over 40 in a workweek. Comp time is time off with pay in lieu of overtime pay.

  • The FLSA exempts certain employers and employees from the minimum wage, overtime pay, or child labor standards of the act. 
  • Certain employees in computer-related occupations are exempt from both the minimum wage and overtime standards of the FLSA if they meet an hourly wage or weekly salary test and a job duties test. 
Domestic service workers who provide companionship services in private homes are exempt from both the minimum wage and overtime requirements of the FLSA. Under regulations proposed by the U.S. Department of Labor (DOL), minimum wage and overtime coverage would be extended to companions employed by a third party. Overtime pay would be extended to live-in domestic service workers employed by a third party. .

Date of Report: May 10, 2013
Number of Pages: 27
Order Number: R42713
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Drug Testing and Crime-Related Restrictions in TANF, SNAP, and Housing Assistance

Maggie McCarty
Specialist in Housing Policy

Gene Falk
Specialist in Social Policy

Randy Alison Aussenberg
Analyst in Nutrition Assistance Policy

David H. Carpenter
Legislative Attorney

Throughout the history of social assistance programs, administrators have attempted to limit access only to those families considered “worthy” of assistance. Policies about worthiness have included both judgments about need—generally tied to income, demographic characteristics, or family circumstances—and judgments about moral character, often as evidenced by behavior. Past policies evaluating moral character based on family structure have been replaced by today’s policies, which focus on criminal activity, particularly drug-related criminal activity. The existing crime and drug-related restrictions were established in the late 1980s through the mid-1990s, when crime rates, especially drug-related violent crime rates, were at peak levels. While crime rates have since declined, interest in expanding these policies has continued.

The three programs examined in this report—the Temporary Assistance for Needy Families (TANF) block grant, the Supplemental Nutrition Assistance Program (SNAP, formerly Food Stamps), and federal housing assistance programs (public housing and Section 8 tenant and project-based assistance)—are similar, in that they are administered at the state or local level. They are different in the forms of assistance they provide. TANF provides cash assistance and other supports to low-income parents and their children, with a specific focus on promoting work. SNAP provides food assistance to a broader set of poor households including families with children, elderly households, and persons with disabilities. The housing assistance programs offer subsidized rental housing to all types of poor families, like SNAP.

All three programs feature some form of drug- and other crime-related restrictions and all three leave discretion in applying those restrictions to state and local administrators. Both TANF and SNAP are subject to the statutory “drug felon ban,” which bars states from providing assistance to persons convicted of a drug-related felony, but also gives states the ability to opt-out of or modify the ban, which most states have done. Housing assistance programs are not subject to the drug felon ban, but they are subject to a set of policies that allows local program administrators to deny or terminate assistance to persons involved in drug-related or other criminal activity. Housing law also includes mandatory restrictions related to specific crimes, including sex offenses and methamphetamine production. All three programs also have specific restrictions related to fugitive felons.

Recently, the issue of drug testing in federal assistance programs has risen in prominence. In the case of TANF, states are permitted to drug-test recipients; however, state policies involving suspicionless drug testing of TANF applicants and recipients are currently being challenged in courts. SNAP law does not explicitly address drug testing, but given the way that SNAP and TANF law interact, state TANF drug testing policies may affect SNAP participants. The laws governing housing assistance programs are silent on the topic of drug testing.

The current set of crime- and drug-related restrictions in federal assistance programs is not consistent across programs, meaning that similarly situated persons may have different experiences based on where they live and what assistance they are seeking. This variation may be considered important, in that it reflects a stated policy goal of local discretion. However, the variation may also be considered problematic if it leads to confusion among eligible recipients as to what assistance they are eligible for or if the variation is seen as inequitable. Proposals to modify these policies also highlight a tension that exists between the desire to use these policies as a deterrent or punishment and the desire to support the neediest families, including those that have ex-offenders in the household.

Date of Report: May 13, 2013
Number of Pages: 36
Order Number: R42394
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The Child Tax Credit: Economic Analysis and Policy Options

Margot L. Crandall-Hollick
Analyst in Public Finance

At the beginning of 2013, Congress enacted the American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240), which made certain modifications to the child tax credit enacted in 2001 and 2003 permanent, while extending other modifications made in 2009 temporarily for five years (through the end of 2017). In light of these legislative changes, policymakers may be interested in understanding the economic impact of both the permanent and temporary changes in order to determine future modifications of the credit.

The child tax credit is currently structured as a $1,000-per-child credit that is partially refundable for lower-income families with more than $3,000 in earnings. Prior to 2001, the child tax credit was a $500-per-child nonrefundable tax credit which generally benefited middle- and uppermiddle- income taxpayers. Legislative changes to the credit, primarily those included in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA; P.L. 107-16) and the American Recovery and Reinvestment Act of 2009 (ARRA; P.L. 111-5), expanded the child tax credit’s availability to some low-income taxpayers. Specifically,

  • EGTRRA increased the maximum amount of the child tax credit from $500 per child to $1,000 per child. It also allowed lower-income taxpayers, with little or no tax liability, to claim part of the credit as a refund. 
  • ARRA reduced the refundability threshold from $10,000 (adjusted for inflation) to $3,000. 

These legislative changes, originally scheduled to expire at the end of 2010, were temporarily extended through the end of 2012 by the Tax Relief, Unemployment Reauthorization and Job Creation Act of 2010 (“The 2010 Tax Act”; P.L. 111-312). At the end of 2012, ATRA made the EGTRRA changes to the child tax credit permanent and extended the ARRA changes for five years, through the end of 2017.

This report provides an economic analysis of the current credit, focusing on the credit’s impact on fairness (also referred to as “equity”). The report then turns to an analysis of the impact of the EGTRRA and ARRA modifications to the child tax credit and the potential future impact, on taxpayers with children and on the budget, of extending these provisions past 2017.

Finally, this report concludes with an overview of other possible modifications (aside from EGTRRA and ARRA provisions) to the child tax credit. The impact of these modifications will depend on a taxpayer’s income. Modifications that benefit middle- and upper-middle-income taxpayers include increasing the amount of the credit per child and increasing the phase-out thresholds. Modifications that benefit lower-income taxpayers include reducing the refundability threshold or increasing the current refundability rate. These changes will likely have significant budgetary cost that policy makers may consider alongside their policy goals.

This report does not provide an in-depth examination of the history of the credit. For more information on the legislative history of the credit, see CRS Report R41873, The Child Tax Credit: Current Law and Legislative History, by Margot L. Crandall-Hollick.

Date of Report: May 14, 2013
Number of Pages: 21
Order Number: R41935
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Wednesday, May 29, 2013

Restrictions on Itemized Tax Deductions: Policy Options and Analysis

Jane G. Gravelle
Senior Specialist in Economic Policy

Sean Lowry
Analyst in Public Finance

The President and leading Members of Congress have indicated that income tax reform is a major policy objective. Some itemized deductions are visible candidates for “broadening the base” of the individual income tax and cutting back on tax expenditures and primarily consist of deductions for mortgage interest, state and local taxes, and charitable contributions. The benefits of itemized deductions are concentrated among higher-income individuals, and that is particularly the case for state and local income tax deductions and charitable deductions.

Proposals for addressing these provisions fall into two general classes. One approach could include repealing or restricting all itemized deductions. A different approach would consider each type of deduction and tailor a reform to the particular objectives and merits of the deductions, such as a lower ceiling on home mortgage interest deduction and a floor for charitable contributions.

This report analyzes various proposals to restrict itemized deductions—both across-the-board and individually tailored—using standard economic criteria of economic efficiency, distribution, simplicity, and estimated revenue effects. In particular, this report estimates each proposal’s potential to contribute to revenue-neutral reductions in income tax rates and the consequences for economic behavior. For an introduction to tax deductions, see CRS Report R42872, Tax Deductions for Individuals: A Summary, by Sean Lowry. For general tax data analysis on itemized tax deductions, see CRS Report R43012, Itemized Tax Deductions for Individuals: Data Analysis, by Sean Lowry.

Regardless of the class of reform undertaken, for a given revenue target, tax reform involves a trade-off between a broader base and lower income tax rates. One objective of lower rates is presumably to reduce the distortionary effects on labor supply and saving. The analysis in this report, however, shows that this trade off, with respect to effects on labor supply or saving, may be more apparent than real. Economic theory indicates that the tax rate that should determine the supply responses is not the statutory marginal tax rate but the effective marginal tax rate (EMTR). If part of the earnings of the last dollar is spent on tax exempt uses, then EMTRs are lower, and eliminating these deductions raises them.

It is possible for a revenue-neutral tax reform to have no effect on EMTRs, or even raise them, which, for some, may defeat the purpose of tax reform. Analysis in this report suggests that eliminating itemized deductions would increase the top EMTR by approximately 4½ percentage points but permit a statutory rate reduction in a distributionally and revenue-neutral change by about 5 percentage points. Thus, the net effect of this change is a reduction of ½ a percentage point (a tenth the size of the statutory reduction). Proposals with ceilings could easily raise EMTRs.

A traditional concern of tax expenditures is generally that they distort economic behavior. However, for each type of deduction there are also some justifications, although the magnitude may be in question. The provision that may have the most support from an economic efficiency standpoint is the deduction for charitable contributions.

Some types of tax reform may simplify the tax code, but others can make it more complex. In addition, transitional rules may be needed for the mortgage interest deduction to limit the impact on taxpayers with large mortgages and to soften the potential impact on the housing market.

Date of Report: May 21, 2013
Number of Pages: 50
Order Number: R43079
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Reaching the Debt Limit: Background and Potential Effects on Government Operations

Mindy R. Levit, Coordinator
Analyst in Public Finance

Clinton T. Brass
Specialist in Government Organization and Management

Thomas J. Nicola
Legislative Attorney

Dawn Nuschler
Specialist in Income Security

The gross federal debt, which represents the federal government’s total outstanding debt, consists of (1) debt held by the public and (2) debt held in government accounts, also known as intragovernmental debt. Federal government borrowing increases for two primary reasons: (1) budget deficits and (2) investments of any federal government account surpluses in Treasury securities, as required by law. Nearly all of this debt is subject to the statutory limit. The federal government’s statutory debt limit is currently suspended through May 18, 2013.

Treasury has yet to face a situation in which it was unable to pay its obligations as a result of reaching the debt limit. In the past, the debt limit has always been raised before the debt reached the limit. However, on several occasions Treasury took extraordinary actions to avoid reaching the limit which, as a result, affected the operations of certain programs. If the Secretary of the Treasury determines that the issuance of obligations of the United States may not be made without exceeding the public debt limit, Treasury can make use of “extraordinary measures.” Some of these measures require the Treasury Secretary to authorize a debt issuance suspension period.

The debt limit was permanently increased on August 2, 2011, as part of the Budget Control Act of 2011 (BCA; P.L. 112-25). The BCA also provided for two additional debt limit increases, which occurred in September 2011 and January 2012. On December 26, 2012, then-Treasury Secretary Timothy Geithner sent a letter to Congress stating that the debt limit, the last increase provided for under the BCA, would be reached on December 31, 2012. Treasury estimated that the use of extraordinary measures would provide additional headroom under the debt limit until early 2013. On February 4, 2013, the statutory debt limit was suspended through May 18, 2013, as part of the No Budget, No Pay Act of 2013 (P.L. 113-3).

After the debt limit suspension period ends, Treasury has stated that the extraordinary measures used during prior debt limit impasses will be fully available. Budget outlays and revenue collections over the last several months of the fiscal year, along with the funds contained in the extraordinary measures, will affect the timing of when the debt limit is reached. Treasury Secretary Jacob Lew stated that the extraordinary measures will provide Treasury with sufficient cash flow though at least Labor Day. Some economists have estimated that the use of the extraordinary measures will allow Treasury to continue borrowing until as late as November 2013. It is possible that the debate over the debt limit could coincide with the start of FY2014 (October 1, 2013) and the negotiations over FY2014 appropriations bills. If the debt limit is reached and Treasury is no longer able to issue federal debt, federal spending would have to be decreased or federal revenues would have to be increased by a corresponding amount to cover the gap in what cannot be borrowed.

It is extremely difficult for Congress to effectively influence short-term fiscal and budgetary policy through action on legislation adjusting the debt limit. The need to raise (or lower) the limit during a session of Congress is driven by previous decisions regarding revenues and spending stemming from legislation enacted earlier in the session or in prior years. Nevertheless, the consideration of debt limit legislation often is viewed as an opportunity to reexamine fiscal and budgetary policy. Consequently, House and Senate action on legislation adjusting the debt limit is often complicated, hindered by policy disagreements, and subject to delay.

Date of Report: May 15, 2013
Number of Pages: 30
Order Number: R41633
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