Rethinking Poverty in America

January 6, 2014

According to the official poverty measure, being poor means having very little cash income — for a parent with two children, less than $18,499, according to the latest Census Bureau thresholds.

For the Supplemental Poverty Measure, being poor means not having enough cash income and certain near-cash benefits like refundable tax credits and food stamps to pay for everyday basic needs, plus some other necessary expenses, e.g., medical out-of-pockets.

Those of a liberal persuasion, including yours truly, often cite analyses in the annual SPM reports as evidence that our anti-poverty programs work.

A recently-published study by some Columbia University professors was heralded because, by using a slightly modified SPM, they were able to show that major safety net programs reduced the poverty rate by 40% between 1967, shortly after the War on Poverty was launched, and 2012.

This isn’t going to make one whit of difference to the right-wingers who are fond of recycling former President Reagan’s (in)famous “We fought a war on poverty, and poverty won.”

On the other hand, we do have 16% of the population — 49.7 million people — in poverty, according to the SPM. And this isn’t because we gave up on the anti-poverty enterprise, though surely “welfare reform,” harsh anti-drug laws and diverse other policies help explain it.

Professor Mark Rank at Washington University in St. Louis argues that economist John Galbraith put his finger on the problem 30 years ago, when he said we were attacking poverty from the wrong end.

Instead of beginning with root causes, he says, we begin with preferred remedies and tailor our view of the causes to fit.

More generally, we begin with a fondness for our free enterprise system and the American Dream, which promises a reasonably comfortable lifestyle to anyone who works hard and plays by the rules.

Working backwards, we locate both the causes and solutions to poverty in the individual. For conservatives, this means finding character flaws, e.g., a propensity to laziness, imprudent choices like having children out of wedlock, indulging in alcohol and/or drugs.

So safety net programs are badly structured because … well, because they provide a safety net. So there are no bad consequences for bad behaviors. Indeed, some have long argued that the programs reward bad behaviors.

Liberals focus more on inadequacies that disadvantage individuals in the labor market — lack of education, training and thus of in-demand skills. So we have a variety of programs to level the playing field — for those who’ll exercise personal responsibility.

In either case, Rank says, “the poor are by and large at fault for their poverty,” though we make an exception for those unable to work for reasons that have nothing to do with their behavior.

And we as a society feel limited responsibilities for poor people because it’s up to them to take advantage of such opportunities as we offer. We tinker with the incentives and disincentives. We don’t doubt what Rank, like a true academic, calls the “paradigm” that underpins the remedies.

He calls for a new paradigm, based on “realities,” rather than “the myths of America.” It’s got five components — none of which, he acknowledges, is altogether new.

The first seems to me in some ways the most important because it speaks directly to the role of public policies. We need to recognize, Rank says, that poverty in America is largely the result of “structural failings.”

The most obvious of these is that there simply aren’t enough decent-paying jobs for the number of workers who need them. Indeed, there aren’t enough jobs, period. And there haven’t been even when the economy was booming along, according to research Rank cites.

At the same time, our social safety net is “extremely weak.” By way of contrast, we’re asked to consider the range and reach of income supports and publicly-funded insurance programs that are common in Europe, e.g., child or family allowances, expansive child care, universal health coverage.

Put the two together and you’ve got widespread deprivation — Rank’s preferred concept of poverty (and mine).

He asks us to think of a game of musical chairs. As you know, there are always fewer chairs than players. Those most likely not to get a seat have some disadvantage. In the game itself, that tends to be pushiness, as I unhappily recall.

In the economy, it’s lack of education and/or marketable skills. We focus on these, Rank says, when we should ask “why the game produces losers to begin with.” In other words, why aren’t there enough “viable economic opportunities and social supports” for everyone?

Rank is hardly the only one to call for a refocused approach to poverty in this country. Many progressives have, in various ways, urged us fellow travelers to shift our attention to structural economic reforms.

They’re pushing back against what Rortybomb blogger Mike Konczal refers to as “pity-charity liberal capitalism” — a doubling-down on “welfare” at the expense of policies that would empower workers, both in the workplace and the in political sphere.

At the same time, we do need those safety net and social insurance programs. They’re under such heavy attacks from the right these days that we’re forced into a defensive posture.

We should acknowledge, however, that the challenge ahead is not only to preserve what works, but  change what doesn’t — or does, but not as well as it should, including our economy.

I expect we’ll be hearing a lot about this in the days to come because we’re about to celebrate the 50th anniversary of the War on Poverty.


Why Is the Chained CPI in the President’s Budget?

April 25, 2013

My last post took on some of the basic questions raised by the debate over using the chained CPI (Consumer Price Index) to adjust Social Security benefits.

I deferred the question in the headline here because the post was already quite long, and the answer isn’t simple. So here goes …

Social Security and the Deficit

Strictly speaking, Social Security doesn’t belong in the budget at all — at least, not in the package of spending and revenue proposals we ordinarily think of as such.

It has its own revenue stream — the payroll tax, plus an earmarked portion of income taxes paid on some of the benefits it provides. It also has $2.7 trillion in reserves, i.e., the unused portion of these taxes, invested in Treasury bonds, and the interest on these.

That’s all it’s got.

A shortfall would be dreadful, but it would have no impact on the deficit — unless, as seems likely, Congress used general tax revenues to avert a sudden, big benefits cut.

This, however, is an argument for crafting a measure that will keep the program solvent, not for putting the chained CPI in the budget.

Some say that the Trust Fund is just an accounting fiction. The Treasury bonds the reserves are invested in signify money that’s being used to help pay for items in what we ordinarily think of as the budget.

When Social Security starts drawing on its reserves, as it already has, the Treasury Department has to sell some bonds to other investors in order to pay the program what it owes — or use revenues from taxes not specifically intended for Social Security.

This doesn’t mean that Social Security is contributing to the deficit, however — any more than you or I could be said to increase the deficit if we cashed in some savings bonds a grandparent once gave us.

More Revenues Without Tax Reform

The chained CPI is probably in the President’s budget in part because it would increase tax revenues without any rate-raising or loophole-closing at all.

According to Congressional Budget Office estimates, the federal government would gain $123.7 billion* over the first 10 years because tax brackets and other annually-adjusted tax provisions, e.g., the personal exemption and standard deduction, would rise more slowly.

So even a quite small increase in income could get taxed at a higher rate. The amount we’d owe wouldn’t be a whole lot greater than what we’d owe if the Internal Revenue Service continued to use the same inflation measure it’s been using.

But the tax code would be somewhat less progressive because filers at fairly low and moderate-income levels would take the biggest hits.

And at least some low and moderate-income families would get smaller reductions and/or refunds from the Earned Income Tax Credit because the maximum credit is adjusted for inflation, as are the phase-outs that gradually lower the credit when earnings reach some level above the amount eligible for the maximum.

There would be no impact on the refundable Child Tax Credit if Congress makes the current threshold for claiming it permanent, as the President has proposed.

Big if here, since we know that Congressional Republicans have wanted the EITC and the Child Tax Credit to revert to their more restrictive pre-Recovery Act forms.

Political Strategy

The revenues raised would be a small portion of the total increase the President now says he’d settle for. So it’s pretty clear the chained CPI is in the budget mainly for strategic reasons.

The received wisdom seems to be that he’s again striving for a grand bargain — offering Republican Congressional leaders the chained CPI and Medicare spending cuts they said they wanted in the fond hope they’ll agree to a scaled-back revenue-raising plan.

Or if not that, perhaps proving they’re altogether unreasonable and ought to lose their House majority next year so that Congress can get important business done.

This is what Michael Tomasky at The Daily Beast thinks the President is up to — and why he thinks no one should fret about the chained CPI.

The Nation‘s John Nichols thinks otherwise. Look, he says, at how the chairman of the National Republican Congressional Committee is already messaging the President’s proposal as a “shocking assault on seniors.”

This is likely to depress votes for Democrats next year, Nichols predicts, citing examples from past mid-term Congressional elections.

The chained CPI proposal certainly has complicated life for Democrats in Congress now, even if they ultimately don’t have to cast an up-or-down vote on it — still TBD.

The larger issue, I think, is that the President has, to some extent, legitimized use of the chained CPI as a way to “save” Social Security — and chosen it instead of lifting the payroll tax cap.

So, as Blake Zeff at Salon asks, “How hard would it be for Republicans to push cuts through, when this [the chained CPI] is now mainstream Democratic policy?”

Cuts, I’d add, that could extend to programs specifically for low-income people, which the President’s proposal would hold harmless.

Note how House Majority Leader John Boehner grudgingly welcomes the chained CPI as an acknowledgment that “our safety net programs are unsustainable.”

This implies something far more sweeping than what the President has proposed for Social Security and Medicare, which arguably aren’t safety net programs anyway.

Well, maybe the rumblings and grumblings, mine included, are just worst-case scenarios. But I’m not ready to bet on that.

* The Office of Management and Budget estimates the revenue gain at $100 billion. Differences between CBO and OMB estimates are not unusual.


DC Council Chairman Rethinks Taxes

August 25, 2011

So DC Council Chairman Kwame Brown thinks that maybe a new top income tax bracket would be okay after all. As Washington Post reporter Tim Craig tweets, “BIG Change.”

Yet, as Brown explains it, the income tax increase he has in mind comes with strings attached.

The first string — and undoubtedly most important to him — is that the new bracket would replace the tax on out-of-state bond interest the Council passed in mid-June and then backtracked on a couple of weeks later.

Mayor Gray wouldn’t go along with the alternative the Council passed. So now it has to find about $13 million.

One option, of course, is to start collecting the out-of-state bond interest tax next year, as originally planned. But some bondholders have reportedly raised a ruckus.

All of a sudden, the new income tax bracket, which Brown staunchly opposed, looks more attractive. Also perhaps more attractive to Councilmember Mary Cheh, who was against it but strongly objects to the bond interest tax.

Now for the second string — one that, so far as I know, has no history or analysis behind it. All the revenues raised from the new tax bracket would have to be dedicated to maintaining city-owned properties — or perhaps to maintaining only schools, parks and community centers.

Craig says that Brown’s new-found openness to the tax bracket “could represent a major break through for progressive advocates, who have long argued the city needs a more progressive tax structure.”

Well, yes, we have. But I, for one, have reservations about Brown’s trial balloon.

First off, the Gray administration estimated that the new tax bracket would raise $10 million next year. So it looks as if the Council would still be short some $3 million.

Where will the extra money come from? Might the Council whittle down funds it restored to some key safety net programs that Gray’s proposed budget had cut?

Call me paranoid, but programs that serve low-income residents have repeatedly been tapped when revenues were short.

The second and larger issue is the restriction. Why should property maintenance get an indefinitely large revenue stream, untouchable for any other priority?

No question that schools, recreation centers and the like should be kept in good repair. But what much would that cost per year?

Surely the Council should have a good fix on the figure before it votes to dedicate the entire new bracket’s revenue stream. Also a plan for the millions I suppose would be freed up, since I assume the budget already makes some provision for maintenance.

And what about future years? Even with a slow economic recovery, we should expect revenues from the new tax bracket to rise — maybe more than essential maintenance requires. Yet the excess couldn’t be used for anything else — unless the Council “undedicated” it.

Meanwhile, there’s every reason to believe that other vital programs and services will need more local funding.

The Council, for example, has agreed to large cuts in funding for key affordable housing programs — unless next year’s revenues prove many millions of dollars more than projected.

Seems to me it would want to undo the damage in future budget cycles. Also to anticipate increased needs for homeless services, precipitated in part by the affordable housing cuts.

Cash benefits under the Temporary Assistance for Needy Families program have been cut for long-term participants. For the rest, they’ve been frozen since 2008, pushing families who depend on them further and further below the federal poverty line.

Our unemployed and under-employed residents need more and better job training. And whatever comes of the Gray administration’s outreach to Wal-Mart and other corporations won’t yield either funds or the types of training needed to move a significant number of people into jobs that pay enough to cover the high costs of living here.

We read that Mayor Gray is calling for more federal help. But the end result of the deficit reduction deal will almost certainly be less — not only for job training, but for a wide range of other critical needs.

Seems to me then that it would be extraordinarily imprudent to do anything that would limit funding choices now.


DC Council Looks To New Revenue Estimate As Answer To Conflicting Priorities

May 18, 2011

Monday’s DC Council budget discussion answered my question about where the money’s going to come from to restore cuts Councilmembers don’t like while also rejecting revenue raisers they really, really don’t like.

Or rather, it answered the question of where Councilmembers think it will come from. They’re banking on the next revenue estimate from the Chief Financial Officers.

Council Chairman Kwame Brown says the estimate will show at least $20 million — maybe as much as $60 million — more than the estimate the Gray administration used for the proposed budget.

Councilmember Jack Evans, who chairs the Finance Committee, says it could be as much as $90 million more.

But the Council’s apparently not going to use much of the found money to restore the deep cuts the mayor’s budget makes in affordable housing or key safety net programs.

Council Chairman Brown’s plan would allocate just 25% for the entire range of programs that “assist District residents in need.” Assuming his hopeful $60 million projection, that could still mean cuts totaling at least $116 million.

So it seems that homeless families may get year-round shelter. But judging from the discussion, homeless individuals will still be on the streets, except during the winter season.

Families that the Temporary Assistance for Needy Families program hasn’t helped to achieve self-sufficiency will probably, as one Councilmember remarked, be punished for the program’s failures.

Low-income individuals with severe disabilities will be on their own for the many, many months they wait to get approval for Supplemental Security Income.

Under the Chairman’s plan, another 25% of the additional revenues would go to investments in the District. Given the cryptic description and the heated discussion, a portion could, in effect, substitute for revenue raisers that some Councilmembers find gravely offensive.

At least four take out after the notion that the residential parking fee for a second car would go up to $50. How, Councilmember Evans asks, can his family get along without two cars when he and his wife have six kids?

And, as Greater Greater Washington reports, Councilmembers Mary Cheh and Muriel Bowser join him in arguing for a rollback in current downtown parking rates — though Cheh half-retracts later.

But I’m guessing that top priority will be given to building up the police force. Councilmembers spent at least twice as much time on how much bigger it should be than on the impacts of the cuts to safety net programs.

What about the remaining 50% of the future found money? Brown’s plan would allocate it to replenishing the general fund reserve balance.

Note that the Council has already passed legislation to do this, using funds agencies haven’t designated for spending by the end of each fiscal year.

Very different from creaming off revenues that are urgently needed to shore up core programs for the fiscal year ahead. And besides, tweets the DC Fiscal Policy Institute, the fund reserve has got at least $890 million now.

In any event, Councilmembers are counting chickens that haven’t been hatched. They’re scheduled to vote on the Budget Request Act (the actual budget for next fiscal year) and the Budget Support Act (the legislation needed to implement it) on May 25.

If past is prologue, the revised revenue estimate won’t be issued until some time after the Council must cast its second and final vote on the BSA.

And it must vote for a budget that’s balanced on the basis of the latest revenue estimate. So the best it can do is write into the BSA how any additional revenues that materialize will be used.

Will it use this option to kick the hard, divisive decisions into the future? Guess we’ll find out next Wednesday.

UPDATE: After I posted this, DCFPI published its own posting on the next revenue forecast and Council Chairman Brown’s plan to commit half of any additional revenues to building up the fund balance. It says the balance is expected to be $690 million by the end of this fiscal year.

UPDATE #2: I just saw the complete set of PowerPoints distributed to Councilmembers. It shows that the second vote on the BSA will be June 14 — later than the schedule I used to predict that the vote would occur before the Council get the next revenue estimate.


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