Sunday May 09

Winter 2020

The Poor Don’t Need to Be with You Always

EXCERPT FROM

Broke in America: Seeing, Understanding, and Ending U.S. Poverty

BY JOANNE SAMUEL GOLBLUM AND COLLEEN SHADDOCK


Broke In America Seeing Understanding and Ending US Poverty

People are poor because the money they have is insufficient to pay for the things they need. That’s this issue in a nutshell. The problem is straightforward, though that does not mean that the solution will be easy to achieve. Poverty was widespread in the United States even before the pandemic caused massive job loss. Many entrenched systems are perfectly designed to preserve inequality. There are two ways to start dismantling those systems: increase the amount of money people have or decrease the price of the things they need. Some combination of these strategies could also work.

There is a growing realization that major economic reform toward fairness and inclusion must happen. Mainstream thinkers and policymakers are now talking about programs like universal basic income and a national jobs guarantee. Particularly in light of predictions that automation will drastically reduce jobs, such programs are sounding less like a socialist pipedream.

Some macro policies are now in play that could address poverty in America. None of them is perfect. It is critical to acknowledge that up front, because getting lost in the weeds is the greatest threat to creating a rational economy. But what about XYZ? is the enemy of innovation. We must recognize that no policy is nearly as flawed as our present sink-or-swim economy where a significant proportion of the country is drowning. That drowning is not without cost—in incarceration, chronic illness, and other miseries that drive spending. Preventing them is as much a financial benefit as a moral imperative.

 

Banking on People

 

A number of the policies we will review include no-strings-attached cash transfers. That may seem extreme, but proponents of such systems have included Martin Luther King Jr., Milton Friedman, and Richard Nixon, who largely delegated a pilot basic income program to a young Donald Rumsfeld. The idea of instituting a basic income gained traction during the previous administration of Lyndon Johnson. Rumsfeld and his aide, Dick Cheney, oversaw a number of basic income experiments. Figures on the right and left have seen these programs as a way to both trim down human services bureaucracies and eliminate poverty. In response to the COVID-19 pandemic, the US government made cash payments directly to citizens—something advocates for people in poverty have wanted for years. During that extreme circumstance, there was a clear recognition that the way to end economic hardship is with an infusion of resources. This most obvious of strategies, however, has rarely been employed in ordinary times to address poverty.

It is critical that any major economic reform take into account people who live in extreme poverty. Most cash transfer proposals set an income of around $12,000 a year, and many call for financing the program in part by dismantling the social safety net. While this might benefit many low-wage workers, it would leave people with no other source of income devoid of the resources that currently help them meet basic needs.

Three objections repeatedly are raised when people dismiss the idea of cash transfers: people will spend the money irresponsibly; people will stop working; and we cannot afford it. All of these assertions are false.

 

The Money Does Get Spent Responsibly

 

It’s interesting that there is a presumption that people will spend money they are given by the government differently than they spend money they receive as wages. Most of us use our paychecks to first keep the lights on and fill the refrigerator, with excess going to savings, discretionary but perfectly licit purchases, and charity. Why would a cash transfer be different? Presumably because it goes to poor people, whom we consider suspect.

Researchers have proven that cash transfers do not lead to the purchase of “temptation goods,” like alcohol and tobacco. Reviewing multiple studies of cash transfers in Latin America, Africa, and Asia, the World Bank found:

Almost without exception, studies find either no significant impact or a significant negative impact of transfers on temptation goods. In the only (two, non-experimental) studies with positive significant impacts, the magnitude is small. This result is supported by data from Latin America, Africa, and Asia. A growing number of studies from a range of contexts therefore indicate that concerns about the use of cash transfers for alcohol and tobacco consumption are unfounded.[1]

Let’s focus on that “negative impact” for a moment. A number of studies show that people smoke or drink less when they receive a cash transfer. For example, participants in a Mexican program, Oportunidades, were less likely to have a habitual drinker in their household than peers who were not receiving payments.[2] It makes sense that reducing a household’s financial stress would reduce—not increase—destructive means of coping with stress, like alcohol and tobacco.

 

Extra Income Does Not Make People Stop Working

 

Two decades of studies in the United States from the earned income tax credit show that hours worked rise when a family receives the EITC.[3] Transferring cash to families in poverty in the US has provided an incentive to work because it makes increased employment a path to greater prosperity—rather than simply a way to end up worse off because of the loss of public benefits. A study of the Mexican cash transfer program Progresa found that the program had no effect on labor market participation but a big effect on reducing poverty.[4] A series of 1970s experiments in cash transfers in the United States and Canada showed a 13 percent decrease in work hours, but that was connected to more school attendance and family childcare, both social goods.

Once we accept that poverty is a matter of resources, solutions begin to present themselves.

Female spouses reduced their hours and re-entered the workforce less quickly after a break. The general result found in all the experiments was that secondary earners tended to take some part of the increased family income in the form of more time for household production, particularly staying home with newborns. Effectively, married women used the GAI [guaranteed annual income] to finance longer maternity leaves. Tertiary earners, largely adolescent males, reduced their hours of work dramatically, but the largest decreases occurred because they began to enter the workforce later. This delay in taking a first job at an older age suggests that some of these adolescent males might be spending more years in school. The biggest effects, that is, could be seen as either an economic cost in the form of work disincentives or an economic benefit in the form of human capital accumulation.[5]

 

We Can Afford a Significant Increased Benefit to Poor US Americans

 

We already spend the money—just not on the people who need it most.  The single-greatest investment in housing made by the US government is the mortgage interest deduction, which benefits people in mansions more than people in bungalows and does not benefit renters at all.

A 2017 report by the Institute of Taxation and Economic Policy found that nearly 20 percent of US corporations operating at a profit had an effective tax rate of 19 percent or less. AT&T, Wells Fargo, JPMorgan Chase, Verizon, and IBM all enjoyed more than $130 billion in tax breaks during the eight-year period covered by the study. That alone is enough to nearly double SNAP for two years. A number of large companies, including General Electric, Pacific Gas and Electric, and Priceline.com, actually received more in breaks than they paid in.[6]

 

Policies to Hasten the End of Poverty

 

Once we accept that poverty is a matter of resources, solutions begin to present themselves. The United States actually has a number of programs that are effective in connecting people and resources, but these programs have never been scaled to eliminate poverty. Around the globe there are tried-and-true as well as promising new policies that could easily be adapted here.

 

Expanding the Social Safety Net

 

When the government gives resources to people in poverty, it decreases human misery, dramatically improves outcomes for children, and stimulates the economy. Only the thorough demonization of people in poverty could make these programs controversial or explain the annual rending of garments that happens around their funding. Programs such as SNAP, Section 8, and TANF are consistently under fire and have never been funded at anything approaching adequate levels. People who could benefit from them do not qualify; benefits are too low; and people get kicked off prematurely because of a fear of the dreaded “dependency.”

Rather than begging for crumbs from the table, people who care about poverty might launch public campaigns to dramatically increase funding for these programs. For example, what if we launched a campaign to eradicate hunger in the United States? As of April 2018, the US Department of Agriculture reported 39.6 million people participated in SNAP with an average monthly benefit of $122.39. Both the benefit and the participation rate were lower than a year previous. New work requirements and other restrictions will lower participation further.

 Meanwhile, forty-one million US Americans live with food insecurity, including thirteen million children, according to the nonprofit Feeding America. While child health is particularly at risk when nutrition is poor, it is important to remember that most childless adults will get thrown off the SNAP rolls after three months—regardless of whether their circumstances have changed. (Can’t let them become dependent!)

The numbers tell us that approximately 1.4 million hungry US Americans are not receiving SNAP. As we discussed in detail in chapter 2, even those who are getting SNAP benefits are shortchanged. The “Thrifty Food Plan” that determines SNAP benefits is unrealistic and too low to support a healthy diet.

As with all the policy possibilities that we’ll recount, there is a cost. In no case is that cost unbearable. It is simply a matter of priorities. In 2017 the US government spent $70 billion on SNAP and other domestic food assistance programs. By way of comparison, it spent $590 billion on defense.

We could easily double spending on nutritional programs, ensuring that everyone who needed the help got enough support. That money could conceivably come from defense or some other generously funded discretionary federal spending category, or by eliminating tax breaks that privilege corporations and the wealthiest individuals. What if instead of letting US Americans go hungry, we asked Amazon to pay taxes?

Another important change would be to require that cash payments from TANF be sufficient to raise people above 50 percent of poverty in every state. We also could require that at least 50 percent of state TANF dollars go directly to providing for the basic needs of families, rather than diverted to fund other state priorities.

 

Federal Subsidies for Basic Needs

 

No matter how poor you are, there are roads that run through your town. There are schools where you can send your children free of charge. They may not be particularly good roads or good schools, but they still provide a benefit. They are universally available because we recognize that you cannot run a viable society without free movement and education.

It is increasingly clear that you cannot run a viable society where people do not have their basic needs met. Humanitarian considerations aside, people who lack basic needs cannot participate robustly in the economy, as workers, consumers, or taxpayers. There are plenty of examples of subsidy programs that work.

 

  • In Sweden residents can apply for a housing allowance, or bostadsbidrag, if they need help making the rent or mortgage payment. This differs dramatically from Section 8, the US federal rental assistance program. Section 8 has caps. There are only so many slots available—and availability has nothing to do with need. People may have to wait years before there is even an opening to apply for Section 8. While US Americans are increasingly spending more than the government recommended 30 percent of income on housing, Swedes on average spend 21 percent, according to the Swedish government.[7]
  • The Rand Corporation reviewed programs that subsidized the purchase of healthy foods. In almost all the twenty locations worldwide that the review addressed, the subsidies increased consumption of high-quality foods. The exception was the United States, where they reviewed an incentive program to get SNAP users eating more fruits and vegetables. The program failed, the cited study concluded, because the subsidy was too low to make a difference. Suppose we started subsidizing the purchase of fruits and vegetables at the retail level? Diabetes cost the United States $327 billion annually, according to the American Diabetes Association, in health-care dollars and lost productivity. So we do have the money to spend subsidizing healthy diets—but now we spend it subsidizing the consequences of not having a healthy diet.
  • Japan approaches basic needs in a fundamentally different way. Article 25 of the country’s constitution states: “All people shall have the right to maintain the minimum standards of wholesome and cultured living. 

“In all spheres of life, the State shall use its endeavors for the promotion and extension of social welfare and security, and of public health.”

Japan is clearly a capitalist county, but it enshrines social welfare in its constitution. That has far-reaching consequences. For example, childcare at government-approved facilities is essentially free in the country for children up to age five, thanks to subsidies.


 

[1] David K. Evans and Anna Popova, “Cash Transfers and Temptation Goods: A Review of Global Evidence,” Policy Research Working Papers, May 2014, doi.org/10.1596/1813-9450-6886.

 

[2] Manuela Angelucci, “Love on the Rocks: Domestic Violence and Alcohol Abuse in Rural Mexico,” The B.E. Journal of Economic Analysis & Policy 8, no. 1 (October 26, 2008), doi.org/10.2202/1935-1682.1766.

 

[3] V. Joseph Hotz and John Karl Scholz, “The Earned Income Tax Credit,” in Robert A. Moffitt, ed., Means-Tested Transfer Programs in the United States (Chicago: The University of Chicago Press, 2003); Bruce Meyer, “The Effects of the Earned Income Tax Credit and Recent Reforms,” in Jeffrey R. Brown, ed., NBER Book Series Tax Policy and the Economy (National Bureau of Economic Research, 2010), www.nber.org/chapters/c11973.

 

[4] Emmanuel Skoufias and Vincenzo Di Maro, “Conditional Cash Transfers, Adult Work Incentives, and Poverty,” Journal of Development Studies 44, no. 7 (September 18, 2008): 935–60, doi.org/10.1080/00220380802150730.

 

[5] Evelyn L. Forget, “The Town with No Poverty: The Health Effects of a Canadian Guaranteed Annual Income Field Experiment,” Canadian Public Policy 37, no. 3 (September 2011): 283–305, doi.org/10.1353/cpp.2011.0036.

 

[6] Matthew Gardner, Robert S. McIntyre, and Richard Phillips, “The 35 Percent Corporate Tax Myth: Corporate Tax Avoidance by Fortune 500 Companies, 2008 to 2015,” Institute on Taxation and Economic Policy, March 9, 2017, itep.org/the-35-percent-corporate-tax-myth/.

 

[7] Statistics Sweden, “Smaller Share of Income Goes to Housing Costs,” December 15, 2014, https://www.scb.se/en/finding-statistics/statistics-by-subject-area/household-finances/income-and-income-distribution/households-finances/pong/statistical-news/household-finances-2013--housing-and-housing-costs/

 


JOANNE GOLDBLUM is CEO and founder of the National Diaper Bank Network, encompassing more than 200 member organizations that provide diapers and other basic needs to families across America.

COLLEEN SHADDOX is a print and radio journalist and activist. Her publication credits include New York Times, Washington Post, National Public Radio, America, and many more. Broke in America is available from www.benbellabooks.com in Dallas, Texas.

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