R. Mark Rogers[1]
Testimony on
Hyde-Woolsey Child Support Bill—HR 1488
Presented to the
Human Resources Subcommittee of the
House Ways and Means Committee
March 16, 2000
Madam Chair and Members of this Committee, thank you for permitting me to speak today. First, as a matter of tradition in accord with my employer's policies regarding employee public statements, I would like to state that the following are my personal views and do not in any way reflect those of the Federal Reserve Bank of Atlanta nor the Federal Reserve Board of Governors.
Second, I would like to mention my background. I'm a professional economist. I have authored books on analyzing economic data. Also, I served as the only economist on the 1998 Georgia Commission on Child Support. While on that commission I conducted extensive research on child costs and on the history of child support guidelines, and compared guideline impact on custodial and non-custodial parents. I have been a non-custodial parent since 1991 and have been an advocate for equality for both parents after divorce. Over one year ago, one of my two children moved to my household with eventual transfer of custody. I now can say that I have seen the needs for both custodial and non-custodial parents first hand.
I would like to arrange my comments into several categories: (1) first, and most importantly, broad philosophical and political concerns about this proposed transfer of enforcement authority (2) legal and regulatory issues and, finally (3) implications for proper policy. Before beginning, I would like to state that I am completely in favor of appropriate child support enforcement. However, "appropriate" can only be defined in the context of the proper legal framework--including due process, as part of broadly encompassed domestic relations issues, and in the context of implementation using true economics of child costs.
Broad Issues
My first reaction to placing child support enforcement under the jurisdiction of the IRS is that this would be a move that runs counter to the recent and long overdue trend to look at child support enforcement as just one facet of children living in two households. Putting child support enforcement in an agency that is technically focused on collections alone is not in the best interests of children. After perhaps two decades of educating personnel in DHHS, that department has only in the last few years acknowledged that the whole picture needs to be addressed—including non-custodial parent needs and children's needs in regard to being nurtured by non-custodial parents. Visitation access is now recognized as an issue that DHHS should be and is beginning to address. Only a department with a broad focus can properly address such a multifaceted issue of providing the proper legal and enforcement framework for not just financial support but emotional support as well. Transfer of child support enforcement to the IRS will likely result in a reversion to the old mode that non-custodial parents are good only for being a checking account for the custodial parent. This non-recognition of the other needs of children is not in children’s best interest. Additionally, the IRS would be viewed by non-custodial parents as being solely concerned about the vested financial interests of custodial parents. The IRS would not be viewed as neutral by non-custodial parents. Given Federal incentives for states to enact various child support enforcement procedures, the IRS also would be seen as a profit center for states with the child support profits being obtained at the expense of non-custodial parents.
The political issue is not a small one. It is one that in the long run will have a negative impact on the credibility of the IRS. It is generally acknowledged that any government agency will eventually develop close ties with its clientele if there are mutual benefits to reinforcing those relationships. Should child support enforcement be transferred to the IRS, the IRS would be viewed by custodial parents as their benefactor. Similarly, the IRS would see the political needs of custodial parents, as related to child support, as being in the IRS's interests in terms of maintaining or expanding its role. I do not believe that it is appropriate for this Congress to set in motion these long-run political developments with the IRS. I do not believe it is appropriate for the IRS to eventually attach itself to the politics of custodial mothers, however subtle or not-so-subtle such politics may become. In an agency solely focused on collections of child support, rather than in an agency that has authority to address the broader issues of visitation access, these inappropriate political ties are more likely to develop. Such political ties would be in sharp contrast to current policies of the IRS and also would reduce the credibility of the IRS in its more traditional role of collecting general revenues for the Federal government.
Constitutional Issues
HR 1488 proposes to create a nationwide presumption that child support orders will be enforced by the Internal Revenue Service. In essence, a Federal law will mandate that a Federal agency will presumptively enforce individual state domestic relations orders. It is my understanding that under the Tenth Amendment to the U.S. Constitution that domestic relations issues that are not intertwined with specifically stated Federal issues, that those are matters specifically reserved for the states. Certainly, there are domestic relations issues that the Federal government can regulate as related to other Federal matters, but the U.S. Supreme Court has continued to hold to a well-defined domestic relations abstention doctrine in which specific domestic relations issues are completely reserved to the states. Specifically, the Federal government is not given authority for the granting, the issuance or modification of marriages, divorce, award of child support, or of alimony. This is spelled out in decisions such as Ankenbrandt v. Richards.[2] HR 1488 attempts to use Federal statute to presume that the IRS shall enforce and collect child support, which would mean that a Federal agency would become entwined with part of the issuance of domestic relations orders as issued by individual states. The Federal government would be telling states how to issue these domestic relations orders, in part.
On another constitutional issue, currently, there are 51 different sets of child support guidelines (including Washington, D.C.) but each state enforces its own guidelines. If the IRS is given child support enforcement responsibility, will the IRS be open to complaints of violations of equal protection? In other words, when a single Federal agency is enforcing child support, why should an obligor in Oregon pay child support based on one guideline and an obligor in Wisconsin based on another if both obligors have similar financial standing and the children similar costs? Should a single Federal agency enforce very different child support guidelines? This would be a sharp contrast to collection practices for Federal revenues. Certainly, taxpayers would complain and file suit if the IRS charged tax payers in different states different tax rates.
Legal Issues Regarding Compliance with Federal Regulations
Before the IRS is given nationwide responsibility for child support enforcement, a number of key regulatory issues need to be addressed. In fact, these issues are the key reasons for an apparent lack of compliance by child support obligors. Not only should these issues be addressed before the IRS is given child support enforcement authority, but resolving these regulatory issues is likely the best solution for child support compliance.
When the Federal government first offered incentive grants for adoption of state-wide guidelines for child support, Congress had the wisdom to establish criteria under Federal regulation that the guidelines should be based upon. Most of these are and have been found in the general vicinity of 45 CFR 300.[3] Child support guidelines were to be based on economic data on the cost of raising children within each state, were to take into account the economic necessities of the non-custodial parent, and modifications were to be readily obtained when economic circumstances justified such a modification. Congress left enforcement of these regulations with DHHS. Additional legislation with the Consumer Credit Protection Act set limits on withholding for child support, to be enforced by the U.S. Department of Labor.
However, no state has completely complied with these Federal regulations with the effect that states commonly award child support that exceeds the cost of raising children. In turn, many obligors cannot meet their obligations, leaving the impression that the fault with child support arrears is theirs rather than the lack of state compliance with Federal regulations. The problem is that for political considerations and financial gain from Federal incentive monies, states have deliberately chosen to pick and choose which regulations they wanted to comply with and DHHS has chosen to not enforce regulations related to the economic basis of the guidelines and the affordability of the awards. As you likely know, individuals have no right to sue DHHS to enforce its own regulations with the states. In contrast, if the IRS took over child support enforcement, it would no longer be a situation of states ignoring Federal regulations and states enforcing non-compliant state laws but rather a matter of a Federal agency directly interacting with individual citizens in the implementation of Federal regulations through enforcement of child support guidelines that are supposed to meet Federal regulations. The non-compliance of child support guidelines with Federal regulations could not be ignored as the IRS would likely face immediate legal challenge for enforcing non-compliant regulations—the awards based on non-compliant guidelines.
Let's examine how these non-compliant child support guidelines will create regulatory problems for the IRS unless resolved first. Let's look at one of the more basic regulations. In 1990, CFR required that states base guidelines on—among other factors—a non-custodial parent's basic living needs. Many states, however, do not have non-custodial income guaranteed for at least poverty level existence. For example, Georgia has the same before-tax percentages for child support for an obligor earning $800 a month as for an obligor earning $6,000 per month. An obligor in Georgia (and in many other states) earning modestly above the poverty level is pushed below the poverty level by presumptive child support obligations and is forced to make a choice between eating to survive and not making full payment on child support. Lack of state compliance with CFR creates this alleged deadbeat parent. Would the IRS be able to enforce such a guideline when not meeting Federal regulations?
The Consumer Credit Protection Act (CCPA) sets limits for debtors on garnishment by their employers. Wage withholding generally does not exceed 25 percent of after-tax income unless there are child support or alimony withholdings in which case employer withholding can go up to 50 percent of after-tax income (the percentage rises somewhat when there are arrears). Federal regulations have required states to enact statutes or regulations that employers cannot exceed these percentages for child support withholdings. However, Federal regulations do not require that presumptive child support guidelines and awards comply with the CCPA—only the withholdings. This means arrears develop when awards exceed CCPA ceilings on withholdings. Indeed, a number of states do not constrain child support guidelines to fall under the CCPA ceilings.
Georgia, for example, has presumptive awards that exceed CCPA ceilings when the obligor makes as low as $3,100 per month gross for 5 children cases and $4,500 month gross for 4 children cases. This is for a basic award and does not include add-ons, such as medical insurance, which push the gross income levels lower for which presumptive awards exceed CCPA ceilings. Further problems arise when obligor income falls after presumptive awards are set and courts refuse to downward modify obligations. Would the IRS be allowed to enforce child support awards that exceed CCPA limits?
Other CCPA issues have not been resolved. Most realize that the CCPA sets limits on withholding as a percentage of after-tax income. Few realize that the CCPA exempts the first "30 times minimum wage" weekly earnings for standard types of debt payment withholdings. This is intended to help guarantee subsistence income. However, this exemption does not apply for child support withholdings. There is no subsistence earnings guarantee. As long as the percent requirement is met, the wage earner can still be left with almost no take home pay after child support withholdings. How can subsistence earnings be protected for one type of creditor but not another? What is the rational basis for this distinction? Will the IRS become embroiled in equal protection issues again because of inconsistencies in the CCPA?
Federal regulations require that child support guidelines be based on economic data. This is intended to ensure that both custodial parents and non-custodial parents are treated fairly in these matters. Yet, no child support guidelines implemented by the states are truly based on data on child costs. Some states such as Wisconsin and Georgia simply took welfare case guidelines (fixed before-tax percentages that are high to reflect child costs high share of expenses at low incomes) and applied them to all income situations—even in the context of rapidly rising income taxes.[4] In these states, it has been documented that in most situations, the custodial parent ends up with a presumptively notably higher standard of living than the non-custodial parent—even when the custodial parent earns significantly less than the non-custodial parent. The Supreme Court of Oregon issued an opinion that welfare case guidelines are inappropriate for non-welfare situations.[5] Will the IRS face constitutional challenges for attempting to enforce guidelines that have no rational economic basis—such as welfare percentages applied to high-income cases?
Other states have taken guidelines from studies allegedly based on child costs. So-called income-shares states do not base their guidelines on actual expenditures on child costs but are instead based on indirect measures of child costs. This may come as a shock to some, but income-shares guideline states use guidelines that are based on comparisons of adult consumption of alcohol, tobacco, and adult clothing in intact households—not child expenditures. This methodology estimates the income needed to restore the custodial parent’s standard of living after supporting children by restoring certain discretionary prior adult consumption—specifically for the above-mentioned adult goods.
This indirect measure is used to award “child support” so as to cover the full cost of raising children and to restore the adult lifestyle to its pre-divorce level for an intact household. The adult lifestyle-restoration bias has the effect of incorporating an alimony component into child support plus it ignores the added overhead for non-intact families. In turn, with these types of guidelines the custodial parent at moderately low to moderately high incomes generally has the higher standard of living than the non-custodial parent—assuming that child support can and is paid.[6]
Essentially, we are judging child support compliance on badly estimated and inflated measures of child costs. Reports of non-compliance may look especially high for states which do not incorporate self-support reserve components into their guidelines as required by Federal regulations. Those states are failing to assure that obligors can actually afford to support themselves while paying presumptive child support awards.
Next, the Administrative Procedure Act (APA) requires that all implementations of Federal regulations have a stated “basis and purpose.” Without Administrative Procedure Act-compliant guidelines, validity of the orders that the irs seeks to enforce may be subject to Federal court challenges. Many states have enacted guidelines without complying with APA. For example, Georgia’s statements concerning child support guidelines appear to lack any basis showing how the state considered “the cost of raising children” as required by Federal Regulations. No economic basis is stated. There is no explicit economic basis for rebutting the presumptive awards. The state of Georgia expresses no requirement that “child support” monies be used for the benefit of the children. Because Georgia gives no guidance—as is required under APA, these transfer payments that are characterized as “child support” may or may not trickle down to the children, but no one–neither the father nor the children–has any standing to sue for an accounting of use of the funds. Since many states such as Georgia do not have a stated basis and purpose, the IRS may have difficulty enforcing these guidelines until such time states are forced to comply with APA.
Other complications would arise for the IRS as child support enforcement agent. The IRS would become holder of records for child support cases. As a matter of due process, parties in child support cases enforced by the IRS would be entitled to access to IRS records. Likely, IRS confidentiality would be compromised as a legal right for parties involved. The IRS clearly would be subject to standard requests for disclosure for court and perhaps FOIA requests. The IRS would regularly be put on the witness stand to disclose its records and practices—including for IRS records for child support purposes. It does not appear that the IRS would be able to continue its current policies of confidentiality should the IRS become chief enforcer for child support.
Before the IRS is assigned child support enforcement duties, these state compliance lapses should be addressed so as to prevent embroiling the IRS in conflicts grounded in failures to comply with Federal regulations. More importantly, forcing states to comply with current Federal regulations would solve most of the child support enforcement problems and preclude the need for building a huge and expensive administrative agency within the IRS that would duplicate existing agencies at the state level and at DHHS.
However, should the IRS be granted this authority, I believe it is important that child support obligors be given a bill of rights analogous to a tax payer bill of rights. I’ve brought a draft version for your consideration.
Madame Chair and committee members, thank you for your attentiveness and thank you again for allowing me this opportunity to speak. If any member has any questions, I will be happy to answer them now or wait upon your bidding.
ADDENDUM:
A CHILD SUPPORT PAYER’S BILL OF RIGHTS
I. Use of Child Support
1. Child support shall be used solely for support of the child, not support of the parent’s lifestyle.
II. Calculation of Child Support
1. Generally Accepted Cost Accounting Principles shall be employed in developing child support guidelines. Child support estimates shall be based on the incremental cost of supporting a child. Those cost estimates shall control the finder of fact in determining the amount of child support to be allocated between the parents.
2. Individualized estimates of child support to be awarded shall employ Generally Accepted Cost Accounting Principles and shall be based on the incremental costs of supporting the child.
3. If a parent has multiple children from multiple marriages, child support shall be calculated only on the incremental cost of supporting each child.
4. Child support shall not reduce a parent’s income to a level that entitles that parent to any form of need-tested government entitlement.
5. A non-parent shall not collect more child support from both parents than either parent would be obliged to pay separately.
III. Who Shall Pay Child Support
1. Child support may not be imposed on any individual other than the biological father or mother or an adoptive parent.
2. No parent who has been shown by DNA testing to not be the father shall be obliged to pay child support for that child.
IV. Payment through a Financial Intermediary
1. Child support shall be treated as any conventional debtor-creditor relationship.
2. Separation of duties shall be accomplished by utilizing lockbox, automatic transfer, or other commercial banking services to receive and deposit funds.
3. Funds shall be handled in accordance with good fund accounting practice and with Generally Accepted Accounting Principles.
4. Child support collection operations shall comply with all statutes and regulations that apply to financial intermediaries in general.
5. All payments received shall be credited to the obligor’s account within two business days and posted as of the date received.
6. The obligor may direct application of payments: The recordkeeper shall apply payments to current and past obligations as directed in writing by the obligor. Those writings shall be accepted and acted upon as if they were endorsements to a financial instrument as described in the Uniform Commercial Code whether the obligor pays directly or through some intermediary, e.g., through income deduction.
7. All funds received by a child support receiver or its contractor by 2 PM shall be assembled into a deposit to a commercial bank and physically deposited in that bank the same day.
8. All payments shall be disbursed within two business days.
9. No child support payment may be deposited to any account where it might be commingled with any funds excepting other child support payments.
10. Child support collection activities and workers shall be subject to fiduciary obligations as they apply in general to governmental officers or employees who handle or control funds. All individuals who handle or control funds shall be bonded in the same manner and amounts as other government officials and employees with similar fund handling duties.
11. An arms-length relationship shall be maintained between the organization that receives, posts, and disburses payments and the organization that enforces collections.
12. Upon inception of any child support order requiring payment through any financial intermediary, and upon any change of organizational address or telephone number of the organization(s) (governmental office or contractor) that maintain(s) records of that payor’s payments received, application of those payments to obligations, and disbursement of payments to the ordered recipient, the obligor shall be notified of the identity of the organization(s) which maintain(s) authoritative records of that information.
13. The obligor shall be notified at inception, and upon any change, of the address for mail and in-person requests, and phone numbers for telephonic and (if available) facsimile requests. The recordkeeping organization shall accept written requests for information telephonically, by in-person delivery and by facsimile transmission during their entire working day. Mail delivery by U.S. Postal Service employees directly to the recordkeeping unit shall be maintained.
14. The obligor shall, on request, be permitted to inspect and optionally, to copy, a history of posting dates and amounts of child support payments posted, application of those payments to current and past-due obligations, and amounts and dates of payments disbursed to the recipient in the most concise form available to the recordkeeper. For any account paid through income deduction, the recordkeeper shall retain and permit inspection and permit copying at no charge of the employer’s transmittal letters detailing payments remitted on the employee’s behalf.
15. If the child support recordkeeping organization is unable to provide employer transmittal letters, the employer shall, at the obligor’s request, provide copies of transmittal letters and canceled remittance checks endorsed by the child support receiving organization within 7 working days after the request.
V. Collection Operation Audit
1. Each such individual child support recordkeeping unit (including all contractors) shall operate in accordance with Generally Accepted Accounting Principles and individual obligors accounts shall be audited annually applying “Standards for Audit of Governmental Organizations, Programs, Activities and Functions,” issued by the U.S. Comptroller General and, supplementally, state administrative policies and procedures manuals.
2. A separate annual audit shall be performed at each child support recordkeeping location of individual obligor accounts, using those same definitions and requirements. The audit shall be unannounced and shall test the timeliness and accuracy of posting of obligations and payments, and of disbursement of remittances to obligees, and accuracy of obligor’s account balances and transactions. Substantive tests of balances and transactions shall be performed in sufficient number to support an opinion based on an estimate to a 95% confidence level of the maximum number of accounts in which errors will be found and the percentage such number of accounts bear to the total number of currently active accounts. Substantive tests shall be performed to estimate the average and maximum days from receipt of a payment to posting for each recordkeeping location to a 95% confidence level. For all locations for which obligees disbursements are issued, one hundred percent testing by EDP auditing shall be performed to determine the average and maximum days from posting of a payment to its disbursement for each recordkeeping location.
3. An audit report and management letter incorporating recommended improvements shall be issued for each recordkeeping location. A copy of all audit reports and management letters shall be made available for inspection at the recordkeeping location upon walk-in request during regular working hours and copies shall be made available to the general public at a cost no higher than that charged for FOIA requests.
4. Certified copies of such records of obligations, payments and application of payments maintained by a recordkeeping location for which an audit in each of the two previous years estimates errors of less than 1% to a confidence level of 95% shall, without further proof, be admitted into evidence in any legal proceeding in this state. Records showing a failure to meet these standards shall be admissible in court in support of a defense of inaccurate recordkeeping.
VI. Child Support Determination
1. There shall be no ex parte child support decisions.
2. A parent is entitled to a jury trial in a request for modification of child support.
3. Child support obligations shall not be exempt from generalized statutes of limitations.
VII. Alternative Payment Arrangements
1. Both parents may agree to binding arbitration in any matter concerning child support by any individual who is not a government employee or grantee directly or indirectly. That arbitration shall be binding upon the courts and child support collection and enforcement personnel. Parents may agree to direct child support payments without the intervention of any governmental collection process.
2. Payers shall be permitted to authorize any federally insured financial institution to automatically deduct child support that may be disbursed either directly to the recipient or to another (government-sponsored) financial intermediary.
VIII. Income Deduction Orders and Implementation
1. An income deduction order shall not emanate from a criminal proceeding. Child support is a civil obligation.
2. The term of an income deduction orders shall not extend beyond the term of the underlying obligation.
3. There shall be no statutory exclusion of defenses to income deduction orders.
4. The payor shall be notified in the manner of personal service two weeks before an employer is notified of an income deduction order.
5. An employer may not take any action against an employee because of an income deduction order.
6. Existence of an income deduction order may not be inquired about nor taken into consideration in hiring decisions.
7. While an income deduction order is subject to appeal, all funds deducted shall be held in escrow pending a final determination.
8. The income deduction order shall state all fees or interest that have accrued and shall be accompanied by a computation of the components of those amounts.
9. Proof of deduction from a paycheck shall be a complete defense to non-payment by the obligor. Proof of remittance shall be a complete defense to non-payment by the employer.
10. Employers shall permit employees to inspect and copy records of withholding and remittance of child support withheld from the employee no less than once per year and whenever an allegation arises as to status of child support.
11. Annotations on pay stubs shall clearly indicate “child support” so as to facilitate legal defense.
12. Child support payments in controversy may be collected but shall be held in escrow until the controversy is resolved.
IX. Enforcement
1. Administrative Procedures prescribed by HHS OCSE publication “Essentials for Attorneys in Child Support Enforcement” shall be employed.
2. Any notice issued in enforcement of child support obligations shall be accompanied by a summary of obligations met and unmet, payment history, and application of payments sufficient to permit a finder of fact to review the relevant transactions.
3. Obligors in arrears shall be notified if the arrearage exceeds one month’s obligation. The arrearage shall be treated as unknown to the obligor until notified by certified mail.
4. In addition to any other adjudicatory authority, an adjudicatory officer with the authority to temporarily restore license privileges shall be available in the same times and business locations as is authority to issue an arrest warrant.
5. No government employee or contractor may act in a matter of law on behalf of a parent who is not a current recipient of needs-tested governmental entitlement.
6. Payers and recipients files shall be merged and both parties shall have access to all contents of the merged file.
7. Warrantless searches for financial information shall not be permitted in the context of child support. Financial institutions shall not divulge information without a court order. Financial institutions shall not divulge under the guise of child support enforcement any personal financial information concerning persons merely alleged to owe child support or persons who are not alleged to owe child support.
8. Levies upon property shall not issue without notice and hearing.
9. Collection organizations shall be liable for withdrawal penalties and loss in market value in the case of unjustified liquidation of financial instruments, securities, and accounts.
10. No license may be revoked or suspended without personal service on the licensee nor without hearing and a showing of arrearage at the time of the hearing.
X. Paternity
1. Accused fathers shall have access to all DNA testing work product and shall be permitted to obtain an opinion by an analyst of their choice as to the indications of that test. That analyst shall be permitted to testify. An accused father shall be entitled to a jury trial.
XI. Enforcement of These Rights
1. A child support recipient and a child support obligor shall be entitled to take legal action in any court of record in the state in which an alleged violation occurs.
[1] The speaker presents this testimony as an expert as a member of the 1998 Georgia Commission on Child Support (not necessarily representing other commissioners' views) and as an economist published on child costs and other areas of economics. Presenter’s email: rmrogers@mindspring.com.
[3] See specifically 45 CFR 302.56.
[4] R. Mark Rogers, "Minority Report of the Georgia Commission on Child Support,” July 1, 1998.
[5] Smith v. Smith, 626 P2d 342 (1980).
[6] R. Mark Rogers, "Wisconsin-Style and Income Shares Child Support Guidelines: Excessive Burdens and Flawed Economic Foundation," Family Law Quarterly, Spring 1999, pp.141-162.
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