Tag Archives: welfare

Income Inequality and Education

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Senators Lamar Alexander (R, TN) and Tim Scott (R, SC) are proposing legislation that would address income inequality (while acknowledging that income inequality by itself is not, of necessity, bad) by addressing a critical aspect of opportunity equality (or inequality): education.

While I disagree with the details of the plans, the two Senators most assuredly are on the right track.

Alexander’s proposed bill, the Scholarships for Kids Act, would transfer Federal dollars to States, and each State then would determine how parents could apply the funding.  Scott’s proposed bill, the CHOICE Act, would use Federal transfers to States to facilitate each State’s ability to supplement existing scholarship programs for “military families, those with children facing physical challenges, and students in impoverished areas.”

I remain adamantly opposed to using our Federal tax code for social engineering; that simply distorts the market being engineered.  Such Federal transfers have two additional seriously negative aspects: they maintain State addiction to Federal handouts, and they transfer citizens’ Federal tax dollars from, for instance, those of bankrupt Illinois to those of more flush Iowa.

It is encouraging, though, to see Alexander and Scott acknowledging the need for each State to be responsible for its own education spending (albeit with OPM) and for identifying and addressing its unique education needs.  We just need to eliminate Federal involvement (and resulting Federal diktats) from the equation.

For all that, the proposed legislations are steps in the right direction, and I don’t oppose them outright—but we need to take care in the next Congressional session to move these programs, and other programs involving Federal transfers, in the direction of eliminating the transfers altogether by eliminating the taxes that produce the funds being transferred.  Those funds should not be taken out of the pocketbooks of those who earned them.

Equality of opportunity will inevitably lead to unequal incomes (and to unequal outcomes, generally), but that opportunity will allow everyone to prosper to the extent each one is willing to work and has the talent to do so.  Education is one of a very few critical aspects of that opportunity.

Why Does America Have Poor People?

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I’ll start with an old parable.  One man makes $1,000/day, and another makes $10/day.  The “high income” man then opens a factory and hires the “low income” man, and two or three others, at $100/day.  The high income man, with his factory, now makes $2,000/day.  The income disparity difference certainly has increased, markedly, from the original $990/day to $1,900/day.

But has the disparity increased, really?  The high income man, from his factory and hirings has gone from making 100 times the low income man’s earnings to only 20 times that man’s earnings.  And while the high income man’s earnings have doubled, the low income man’s earnings have gone up 10 times.

This brings me to the subject of my post.

We have poor people exactly because the US is the quintessential country where poor people have the opportunity to better themselves, and to do so a very great deal.  They come here from other countries to take advantage of just such opportunities as the parable illustrates, and other opportunities—to be the one who starts the factory, employs others, and both prospers and gives their employees increased prosperity in return for their work.  The same opportunities exist for those who start out as poor US citizens, also.  It’s economic upward mobility that lets people stop being poor and start being middle class, to continue and join the rich, and to set the conditions for their children to do the same and more.

But there’s another reason we have poor people in this country, also.  Despite having spent $20 trillion on poverty programs (I hesitate to call them poverty fighting programs) over the last 50 years, we still have the same per centage of poor people in our population as we had at the start of LBJ’s War on Poverty: 15% of Americans are classed as living in poverty.

Our anti-poverty programs—or at least our programs intended to be anti-poverty—do not encourage people to get off welfare and get a job or get a better job.  Quite the opposite, these programs engender dependence on government in these people.  Here’s how.

As recently as 2005, for instance, poor families spent about two times their income:

A four person-household is in poverty today, according to federal poverty guidelines, if they earn less than $23,550 per year, but the consumer spending of this same household is around $45,000 per year.

They do this not by being able to borrow the difference but because government welfare payments of a variety of sorts, from “assistance” transfers to (refundable) tax credits, make up the difference.  However, because the payments and credits are keyed to household income and not to efforts to work or improve their training and/or education or otherwise to become more self-sufficient and independent, a family whose wage earner(s) get better jobs that increase their income to $40,000 per year—a 70% increase in income—will lose those welfare payments and credits, and will see a net income drop of $5,000 per year to those $40,000—an 11% decrease in actual family income/spending power.

America’s poor aren’t lazy (indeed, the only ones who say so are political hacks trying to make political points by accusing others of saying so); they’re making entirely rational economic decisions, and maximizing (as they see it) their household income.  They’re staying dependent on government rather than coming to rely on their own devices, and opportunities, by logical choice.

And that’s the dead end of our welfare programs.  As structured, these poverty programs do nothing to help our poor, but they do keep our poor poor—and short circuit their opportunity for economic upward mobility.

The American Welfare State

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James Pethokoukis, of AEIdeas, an affiliate of the American Enterprise Institute, has an article that shows the economic devastation extant in the policies of the Federal government.  It’s important to note that, much as I dislike the present administration, these results also flow from the “efforts” of a long string of administrations.

I don’t have much to add, so here is the complete article, reprinted with the kind permission of AEI.

6 charts that show the Welfare State run amok

The original purpose of Medicaid was to provide improved healthcare access for poor people, while not turning the safety net into a trap. Under President Obama’s Affordable Care Act, Medicaid will be greatly exapnded beyond what Congress originally intended.

In fact, as these charts show, it has already expanded beyond what Congress surely originally envisioned and, in the process, has created a terrible fiscal problem for the United States. (These charts and graphics come from a briefing today here at AEI, conducted by Gary Alexander, secretary of public welfare for Pennsylvania.)

A few scary factoids:

– In the 1960s, there were 18 workers per Medicaid recipient. Today that number is 2.5.

– The number of Americans on disability has risen 19% faster than jobs created during this recovery.

– There are just 1.2 private sector workers per 1 person on welfare or working for government.

– There are now just 1.65 employed persons in private sector per 1 person on welfare assistance.

Check out the charts and graphics for yourself:

1. Fewer workers and their tax payments have to support more and more Medicaid recipients.

2. The number of takers is now approaching the number of makers.

3. Medicaid and other welfare enrollment has exploded.

4. Medicaid enrollment is growing faster than economy.

5. Medicaid spending? You ain’t seen nothing yet.

6. Disability enrollees have exploded and are rising faster than job creation.

These charts show an out-of-control welfare state that is about to get even bigger, increasing both budget costs and dependency.