• Tom Cleary

Ignoring the Poor


In all the battles over the budget there is a presumption by both parties that these battles are primarily about the poor. The Left assumes that the poor pay too much in taxes and the Right think that the poor receive too much in benefits. Is either characterization accurate? If not are the poor getting screwed and how?

When looked at closely it becomes apparent that the poor are simply not much of a factor in the tax and spend process.

Let’s look at taxes first. Clearly the wealthy pay more as a share of total federal income tax receipts. In 2014, the top 50% of earners paid 97.3% of all individual income taxes and the top 1% paid 39.5% of all individual income taxes. Individual income taxes make up about 50% of all federal revenue. See here-table 2.2 and here.

When looking at taxes paid as a percentage of adjusted gross income (AGI) the numbers show a clear tendency for the wealthier to pay more. This should surprise no one as this is where the money is located. So, the poor aren’t a factor here.

How about spending? Do the poor get the benefit of government spending? No. For purposes of this discussion I will divide the budget into two groups; means tested expenditures and non-means tested expenditures. Means tested simply means you must make a certain amount of money or less to qualify for the program. In short, you must be of modest means. These are programs directed specifically at the poor. Major programs in this category include Medicaid, Supplemental Nutrition Assistance Program (Food Stamps), a variety of tax credits, the largest of which is the Earned Income Tax Credit and various other programs subject to an asset test. A more complete list can be found here on page 18.

Non-means tested programs are all other expenditures, which are deemed necessary because the political process says so. This would include interest on the debt that goes to bankers, Medicare and Social Security that goes to relatively affluent seniors, export-import subsidies that go to large businesses, farm subsidies that go to large agri-businesses. So, between these two groups, who gets the most money. An appropriately jaded person would say that it is not the poor. They would be correct! According to the Office of Management and Budget-Table 8.3 the highest means tested spending ever got was 18.1% of federal spending in 2015. That means that 82% of federal spending is showered on the non-poor. Since 1966, the first budget year that included Medicaid and the “War on Poverty” programs the average percentage of federal spending directed at the poor was 10.9%. To be sure, it has been rising but is still dwarfed by spending aimed at the relatively affluent.

This phenomenon exists irrespective of political party in control of the executive and/or legislative branch. During the Reagan years (1981-1988) the percentage of means tested spending was just over 7%. In the Clinton years (1993-2000) it was 12.26%. George W. Bush (2001-2008) clocked in at 13.9% and Obama (2009-2016) at 16.39%. The Trump estimates for 2017-2022 have means tested spending at 17.32%. So, the long-term trend is up but regardless of party, non-means tested spending dominates.

Why would anyone think this surprising? The affluent tend to vote more so they have a greater chance of getting their perspective into power in the first place. The affluent also have access to lobbyists and possess the networks to get their perspective over weighted in the process. Additionally, the government must rely on industry “experts” to enact many programs so this leads to the capture of the process by those affluent groups.

In the end the tax and spend process is a shuffling of money between the middle and upper classes. How this plays out depends upon the constellation of political factors: geography, demographics, industry, etc. Whether, in the end, you are a net tax payer or receiver determines whether you “win” by this process.

Even if an affluent person pays more in taxes than they get in benefits they still have an advantage. Since they have assets they benefit from the stock and housing bubble, they can still get better credit terms and because of their education have better job prospects.

It is however, the poor who disproportionately suffer the consequences of governmental activity. All government programs (means and non-means tested) create deadweight loss to the economy regardless of specific winners and losers of this process. It creates economic distortions, miss-directed asset allocations, perverse incentives and via Federal Reserve support of this spending, a complete deformation of the capital markets. All this distortion starves the real economy of the means needed to raise productivity and therefore real wealth in a sustainable manner. This harms those at the bottom of the pyramid most, who are least able to defend themselves against these depredations. This is shown in that real median income was lower in 2015 than in 2000 and does much to explain the populist anger building in this nation. Ignoring the poor in this manner can only lead to dire consequences.

The longer the consequences of all this government are ignored the greater the pressure rises, like an over-heated pressure cooker. It will only make matters worse if the pressure valve is controlled by rank demagogues of the Right or Left, who will promise relief from fear and frustration in exchange for our worship of them and the false God of state power.

In every area of governmental interference, Christians need to offer clear explanations of the true source of the problem both moral and practical and a non-violent humane solution, before the pressure cooker explodes. We ignore the underclass, who suffer from these games, at our own peril.

Praise be to God

#Economy #Poverty #Policy #Justice

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