FRANK A. KAUFMAN, Chief Judge.
On August 13, 1982, plaintiffs filed a complaint against the Secretary of the Maryland Department of Human Resources (DHR), (the state defendant), individually and in his official capacity, charging that the method used by that state agency to compute eligibility and the amount of benefits to be paid under the Aid to Families with Dependent Children (AFDC) program violates Federal statutes and regulations, because the state defendant considers mandatorily withheld taxes (state, local and federal income taxes and Social Security or Federal Insurance Contributions Act (F.I. C.A.) taxes) as income available to an AFDC family with an employed person. Plaintiffs are Carolyn Bell, a working AFDC recipient whose grant amount has been diminished as a result of defendant's inclusion of withheld taxes within the definition of income, and the Maryland Welfare Rights Organization, which includes at least three members who are adversely affected by application of the state defendant's challenged policy. The state defendant has estimated that there are over 3,000 open AFDC cases statewide in which one parent has earnings. Plaintiffs sought, and this Court has certified, pursuant to Fed.R. Civ.P. 23(b)(2), a class composed of
Plaintiffs ask for preliminary and permanent injunctive relief and a declaratory judgment that defendant's policy of counting federal, state, and local income and F.I.C.A. taxes mandatorily deducted from earnings, as income available to plaintiffs, is contrary to 42 U.S.C. § 602(a)(7) and an implementing regulation, 45 C.F.R. § 233.20(a)(3)(ii)(D), as amended 47 Fed.Reg. 5675 (Feb. 5, 1982). Plaintiffs also seek an Order from this Court requiring the state defendant prospectively to restore plaintiff and all members of the class to AFDC grant amounts calculated by subtracting allowable deductions from gross earnings minus mandatorily withheld taxes and requiring the state defendant to send relief notices to all members of the class whose AFDC applications have been denied or whose AFDC grants have been terminated or reduced within ninety days before the filing of this action.
After the inception of the within case, the Secretary of the Department of Health and Human Services (DHHS) (the federal defendant) was joined as an additional defendant. The federal defendant has filed a motion for summary judgment. The state defendant has moved to dismiss the within action pursuant to Fed.R.Civ.P. 12(b)(6) for failure of plaintiffs to state a claim upon which relief can be granted. That latter motion will be treated as one for summary judgment under Fed.R.Civ.P. 56 because numerous documents, other than pleadings, are included in the present record in this case. The relevant and material facts are not in dispute. The legal issues can be succinctly stated as follows:
(1) Are mandatorily withheld tax deductions (a) "income" as that word is used in 42 U.S.C. § 602(a)(7) and/or (b) "earned income" as those words are used in 42 U.S.C. § 602(a)(8)? If the answer to that question is "yes", (2) are such tax deductions included within the flat $75.00 disregard for work expenses established by the 1981 amendment to 42 U.S.C. § 602(a)(8)? The answer to both questions is "yes."
Four federal district courts have already dealt with those issues
The controversy in those four cases and in the within case was generated by the passage in 1981 of the Omnibus Budget Reconciliation Act of 1981 (OBRA), Pub.L. No. 97-35, 95 Stat. 357 (1981). OBRA effected certain cost-savings changes in AFDC which were intended to limit the AFDC program to the "truly needy" by, among other things, eliminating some work incentive disregards from the program. Underlying those OBRA changes was the seeming assumption that working AFDC recipients whose earned income is supplemented by AFDC are less needy than persons who are not working. The specific statutory change at issue is the conversion from a so-called open-ended work expense disregard (a deduction of all expenses reasonably related to the earning of income from total earnings in calculating the AFDC grant amount) to a flat $75.00 maximum work expense disregard, regardless of the actual amount of a working AFDC recipient's work-related expenditures. In certain instances, that change caused an actual reduction in the amount of money available to an AFDC household; in others it resulted in total ineligibility for AFDC benefits. Under pre-OBRA law, as interpreted by the Supreme Court, the states were not permitted to place any "... limitation, apart from that of reasonableness, ... upon the recognition of expenses attributable to the earning of income." Shea v. Vialpando, 416 U.S. 251, 260, 94 S.Ct. 1746, 1753, 40 L.Ed.2d 120 (1974). In Shea, Justice Powell explained (at 253-54, 94 S.Ct. at 1750):
By way of contrast, AFDC claimants since the passage of OBRA, are no longer able to obtain AFDC benefits reflecting the full value of actual work-related expenses deducted from their earnings. Plaintiffs argue in this case that mandatorily withheld tax deductions are not income at all, and that any such withholding should be subtracted from gross pay before the flat $75.00 maximum work expense disregard is applied.
At issue in this litigation is the question of whether Congress intended "income", as
In 1962, that section was amended to state as follows:
In 1968, § 602(a)(7) was further amended to link it with a revised § 602(a)(8) which detailed disregards of earned income:
In 1981, §§ 602(a)(7) and 602(a)(8) were amended to provide as follows:
The 1939 enactment required the states to take into account, "in determining need" of the child, "any other income and resources." The phrase "any other income and resources" has remained the same to the present. Plaintiff urges that a 1940 Social Security Board policy statement
42 U.S.C. § 602(a)(7) was amended in 1962 to require the states to "take into consideration ... any expenses reasonably attributable to the earning of ... income." Justice Powell, for a unanimous Supreme Court in Shea, wrote that the term "income" in 42 U.S.C. § 602(a)(7), in reference to the law in force and effect after the 1962 amendment, meant "gross income":
416 U.S. at 254, 258-60, 94 S.Ct. at 1750, 1752-53 (emphasis added).
It is true that the Department of Health, Education and Welfare (HEW) Handbook of Public Assistance Administration, published in 1963, interpreted the newly enacted work-expense deduction and did not list withheld taxes as "expenses reasonably attributable to the earning of such income." Further, an HEW report, "State Methods for Determining Need in the Aid to Dependent Children Program," Public Assistance Report No. 43, published in March,
416 U.S. at 254-55, 94 S.Ct. at 1750-51. (emphasis added) (footnote omitted).
In Shea, the Supreme Court also implicitly approved HEW's implementing regulation, in which "earned income" was defined as gross income, irrespective of income tax deductions:
416 U.S. at 261-62, 94 S.Ct. at 1754 (emphasis added).
"Income" includes unearned as well as earned income. Thus, "earned income" is a subset within "income." It is difficult if not impossible to read the words "income" or "earned income" as not including income tax deductions. See 45 CFR § 233.20(a)(6)(iv) (1981), quoted by Justice Powell in Shea 416 U.S. at 261 n. 10, 94 S.Ct. at 1754 n. 10.
As to the second question posed supra at page 388, there is every indication that Congress intended that the flat $75.00 disregard or standard work-expense deduction should not be augmented by all or any part of mandatorily withheld taxes. It can be argued that the congressional motive in 1981 of avoiding administrative complexity and of curbing abuse, which seemingly, at least in part, motivated the enactment of the flat $75.00 disregard, is not served by including mandatorily withheld taxes within the umbrella of the $75.00 figure, since the amounts of such withholdings are easily verifiable.
See also the following response by the Secretary to subsequent questioning when he appeared before the Senate Finance Committee:
The potential disincentives to work embodied in the Administration's income disregard cost-cutting proposals were emphasized by speaker after speaker during the congressional hearings. Further, several of the individuals representing national advocacy groups brought to the attention of the committees that $75.00 was an unrealistically low figure and that it included mandatorily withheld taxes.
There are cases decided both before and after Shea which have interpreted 42 U.S.C.
S.Rep. No. 97-139, 97th Cong., 1st Sess. 501, reprinted in 1981 U.S.Code Cong. & Ad.News 396, 767 (emphasis added).
See also Report of the House Committee on Ways and Means accompanying H.R. 6369 (May 25, 1982) which was not enacted. That bill proposed to restore the work incentives removed from the AFDC program by OBRA. In a chart comparing the bill with law prior to OBRA, the Committee noted that under prior law:
H.R.Rep. No. 97-587, Pt. 1, 97th Cong., 2nd Sess. 6 (1982) (emphasis added).
See also the same Committee's statement concerning the introduction of earnings disregards into the AFDC program, which specifically refers to mandatory tax deductions as work-related expenses:
Prior to enactment of the Omnibus Budget Reconciliation Act of 1981 (P.L. 97-35), in determining a working AFDC family's benefit level for a month, States were required to reduce the State monthly payment by the amount of the family's earnings that remained after the following amounts had been excluded or disregarded: (1) the first $30 of earnings; (2) plus one-third of remaining earnings; (3) plus work expenses for the month (any expenses, including child day care, reasonably attributable to the earning of income). (The $30 plus one-third disregards could be applied in determining the monthly benefit only if the family was determined to be eligible for AFDC without the application of these disregards.)
Id. at 12 (emphasis added).
"[A]lthough committee reports commenting on a previously enacted statute are said not to be part of the legislative history of that statute, they are nevertheless `entitled to some consideration as a secondarily authoritative expression of expert opinion'." 2A C.D. Sands, Statutes and Statutory Construction, A Revision of the Third Edition of Sutherland Statutory Construction § 48.06 (4th ed. 1973) (footnote omitted). In this instance, since the same House Committee, which in 1981 had considered the 1981 legislation, sought unsuccessfully in 1982 to have enacted into law a change in the 1981 statute, that committee's 1982 report would seem particularly pertinent.
The Federal defendant has submitted an affidavit from JoAnne Ross, The Deputy Associate Commissioner for Family Assistance, Social Security Administration, DHHS, in which it is stated that cost savings estimated by the Administration and by the Congressional Budget Office for the changes in earned income disregards made by OBRA were based on the application of the $75.00 disregard to gross earnings, not earnings net of mandatory tax deductions. Plaintiffs assert that the Ross affidavit is defective in that it contains vague, unsubstantiated statements, does not contain the supporting data on which her conclusions are based and her personal knowledge of the matters asserted is not clear. Since there is other evidence in the record of legislative history, the affidavit is simply cumulative, and is not relied upon by this Court in reaching its decision herein.
Hearings, Committee on Ways and Means, supra note 14, at 88-89 (emphasis added).
Marian Wright Edelman, President of the Children's Defense Fund, testified as follows before both the Senate Finance Committee and the Committee on the Budget of the House, and introduced a "Children's Defense Budget" as a proposed alternative:
Hearings Before the Senate Committee on Finance, supra note 15, at 227. (emphasis added).
Budget Issues for Fiscal Year 1982: Hearings Before the Committee on the Budget, House of Representatives, Vol. 1, 97th Cong., 1st Sess. 419-20 (1981) (emphasis added).
The statements of witnesses before the congressional committees prior to the passage of the 1981 legislation may well constitute only "weak evidence." 2A C.D. Sands, supra, at § 48.10. However, in any event, those statements seem merely to highlight what appears to be clear, though warmly debated, legislative and regulatory history.