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Chapter 33: How we can win the War on Poverty

July 16, 2012

“The tax that was supposed to soak the rich has instead soaked America. The beneficiary of the income tax has not been the poor, but big government. The income tax has given us a government bureaucracy that outnumbers the manufacturing work force. It has created welfare dependencies that have entrapped millions of Americans in an underclass that is forced to live a sordid existence of trading votes for government handouts.” —Paul Craig Roberts

What’s wrong with our poverty policies

  • Our “War on Poverty” is a dismal failure.  In 1964, President Lyndon B. Johnson committed the nation to “cure” poverty.  His intentions may have been good.  But nearly 40 years later, the situation has only gotten worse — with more people than ever dependent on government hand-outs.
  • Political gridlock. All of us would prefer an ideal world with no poverty, but we all disagree—sometimes passionately—about how best to minimize poverty.
  • Inefficiency. As explained in the “Government” chapter, the federal government doesn’t do anything very well or very efficiently. For the war on poverty, it takes money out of the economy via taxation, ships it to Washington, spends a lot of it on inefficient bureaucracies, and then sends what’s left back to other governments with so many mandates that even more money is wasted before anybody actually helps the poor.
  • Costs are out of control. The government claims there are forty-six million poor people in America. The Heritage Foundation estimates total federal and state government welfare spending at $714 billion. That’s nearly $16,800 per year for each poor person.  If you include people who receive welfare even though they aren’t below the official poverty level, government spends $7,000 per year per person, or $28,000 annually for a family of four.
  • Undermining families. The government’s welfare programs encourage the wrong behaviors—such as avoiding marriage and giving birth to unwanted children in order to increase welfare amounts.  When the War on Poverty started, 7 percent U.S. births were to unwed parents; today that number is 39 percent.
  • Dependency. Government programs to help the poor often increase government dependency. These programs rob people of the self-respect that comes from achieving self-sufficiency, and they too often result in multiple generations of dependency, helplessness, and low self-esteem.
  • Political dishonesty.  Even one truly needy family living in poverty is too many, but governments tend to misrepresent the state of poverty in America in order to get more money for the bureaucrats who run poverty programs.  Examples: Many Americans labeled by the government as living in poverty actually live in more comfort than the average family in many other countries.  The federal census counts only four percent of total welfare spending as income. And the federal budget never counts welfare spending by the states even though most of spending by the states is mandated by the federal government.
  • Government has stolen charity. American history is full of heartwarming stories about neighbors helping neighbors. Especially during the Great Depression, those stories included people sharing what little they had with complete strangers who were in even greater need. That spirit still survives, but it has been marginalized and subdued as government—using our tax money and our future credit—has become the biggest giver. What difference does the average citizen’s $10 donation make if the government is giving $10 billion of our money to the same cause?
  • Socialism doesn’t work. As discussed in the Economics” chapter, the only proven way to reduce poverty is to increase prosperity, and the only proven way to increase prosperity is through individual liberty, capitalism, and free markets. It’s not a matter of dividing the pie “fairly”; it’s a matter of growing it.
  • Class warfare. Career politicians and the special interest groups that control them have corrupted America’s political and economic processes while giving lip service and false promises to the poor. The most unprincipled politicians put the nation’s long-term future at risk by fanning the flames of class warfare.

How to fix poverty in America

  • Phase out all federal welfare programs. Since government has only made poverty more enduring, all government welfare programs and mandates should be phased out except tax deductions for charities and adoption of a negative income tax.
  • A safety net. Taking wealth from people who earned it to give to people who didn’t earn it is like giving a person a fish instead of teaching him or her how to fish. It’s self-defeating to consider the economic pie as something that must be divided up fairly; a much better approach is to free the economy so the pie can grow in ways that will benefit everybody. However, this shouldn’t rule out the possibility of a safety net for the truly needy. A negative income tax would be the ideal safety net.
  • Negative income tax. The federal government should replace all its failing poverty programs with a brilliantly simple negative income tax as envisioned by the late libertarian economist Milton Friedman. This would give people a temporary “hand up” when they most need it, remove the stigma of being on welfare, provide incentives for people to pull themselves out of poverty and climb the economic ladder, and eliminate the bureaucracy, waste, and fraud in the existing programs.
  • How a negative income tax could work. Every adult and family would file a simple income tax return. Those earning under a minimum level (let’s say, for example, $10,000 per adult or $20,000 per family) would receive cash (or a combination of cash and vouchers) to bring them up to the minimum; for every dollar earned, the subsidy would be reduced by fifty cents (so they would always have an incentive to earn more).
  • Negative income tax examples.Continuing with the example above, a family with $0 income would receive $20,000 in cash and vouchers, for a total income of $20,000. A family that earned $10,000 would receive $15,000, for a total income of $25,000; a family that earned $20,000 would receive $10,000, for a total income of $30,000; a family that earned $30,000 would receive $5,000, for a total income of $35,000; and a family that earned $40,000 or more would pay income taxes only on the amount over $40,000.
  • Funding the negative income tax. Hundreds of welfare programs administered by federal, state, and local governments could be eliminated entirely. The savings could determine the base income for the negative income tax and therefore entirely cover the cost of a negative income tax. The needy would actually get a lot more direct help than they do currently because the administrative overhead, waste, and fraud of the existing welfare programs would be eliminated. It would cost taxpayers no more in the short-term than is being spent currently—and it would cost less in the long-term because of the built-in incentives for people to work themselves up the economic ladder.
  • What if recipients don’t spend the money wisely? If some of the recipients prove incapable of managing the money wisely, vouchers for food and medical insurance could be substituted for some of the cash; the vouchers programs would best be administered at the state level.
  • Marriage and unwanted babies. If the minimum income for single people is exactly half the amount for families, there would no longer be a financial incentive to avoid marriage. And if the minimum income for families is fixed regardless of family size, there would no longer be a financial incentive for poor people to have more children than they can afford. (If this creates a hardship for some larger families, charities could step up to help.)
  • Why federal?  The reason for the negative income tax being federal is (as Willy Sutton used to say about robbing banks) “that’s where the money is.” As the federal government phases out its failing welfare programs and phases in a negative income tax, poverty would be dramatically reduced.
  • Fighting poverty locally. Any remaining poverty issues (and there will always be some) could be dealt with by private individuals, religious organizations, foundations, and state and local governments. Individual charities and individual states—not the federal government—can best decide which programs are worthy, effective, and deserving of continued support. Imagine, for example, the potential of fifty different approaches to reducing poverty being tried by fifty different states.
  • Ending poverty in America. The modest safety net provided by the negative income tax would assure that nobody would starve. Individuals who truly can’t work due to family complications, physical problems, or mental issues would have their basic needs covered. This would eliminate any excuses for poor people to turn to crime or beg in the streets. And everybody would still have an incentive to work if they are able.
  • Work/school requirementsOne way to administer the negative income tax would be for the federal government to send block grants to the states; then the individual states could determine whether its citizens should be required to work or get job training in order to qualify for the payments. It would take huge and expensive bureaucracies, however, to enforce a work/school requirement, and the bureaucrats would predictably do a lousy job of it. So, some states might choose to take a “no fault” approach, keep the safety net amount low enough that people will still have an incentive to work to better themselves, while counting on charities to take up the slack for those whose needs are greater.
  • Avoid class warfare. The negative income tax would avoid the class warfare toward which the nation seems to be headed by creating a safety net for the poor and disabled while also giving poor people an incentive to climb the economic ladder.
  • Reasons to support a negative income tax. Conservatives and liberals should support the negative income tax because it would give the needy a start up the economic ladder—but without the overlap, waste, and bureaucratic overhead of hundreds of existing government poverty programs.

“Welfare rights are pseudo-rights: They rely on the force of law to take private property for the use of others without compensation and without consent. Public charity is forced charity; it is not a virtue but a vice.” —Economics professor and Cato Journal editor James A. Dorn

“Wealth is ultimately the only thing that can reduce poverty. The most dramatic reductions in poverty, in countries around the world, have come from increasing the amount of wealth, rather than from a redistribution of existing wealth…And let the rest of us exercise more judgment as to how much charity is beneficial and how much more simply perpetuates dependency, grievances and the polarization of society.”—American author and economist Thomas Sowell

“[T]he sprawl of government into every conceivable realm of life has caused the withering of traditional institutions. Fathers become unnecessary if the government provides Aid to Families with Dependent Children. Church charities lose their mission when the government provides food, shelter and income to the poor. And the non-poor no longer feel pressed to provide aid to those in need, be they aged parents or their unfortunate neighbors—”compassion” having become the province of the state.” —American author and columnist Mona Charen

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