Freedomnomics

Article published July 21, 2008, at Fox News.

Obama Comes Up Short in Approach to Poverty

By John R. Lott, Jr.

Does government do enough to help the poor? John McCain and Barack Obama could not be more divided on their approach. Obama’s Web site even has a section entitled “poverty,” with a large list of new antipoverty programs, while McCain's doesn’t.

Yet, this is part of a bigger difference between the campaigns in whether to single out specific groups for help.

While Obama’s website includes issue headings for “women,” “rural,” “seniors,” and “disabilities,” McCain’s website generally focuses only on broad issues that effect everyone such as “energy,” “education,” and “economic plan.” Both websites have sections on veterans.

On poverty, Obama has a very long list of proposals, including government-created “transitional jobs and career pathway programs,” a “Green Jobs Corps,” money to ensure that “low-income Americans have transportation access to jobs” and provide a large array of new social programs specifically targeted to criminals when they are released from prison.

Those are just his top four proposals. Others include trained registered nurses for home visits to all low-income expectant mothers and first time mothers, a $500 tax credit to all low and middle income people who are working, an affordable housing trust fund, other tax benefits for the poor, a new health care program for the uninsured, and so on. Other proposals -- such as expanding paid sick days for low-wage workers and higher minimum wages -- would have to be paid for by employers.

While Obama talks about personal responsibility, he proposes a government program to be involved in every aspect of people's lives.

By contrast, McCain’s programs are generally not set up specifically to help just the poor. The poor benefit much more from educational choice for their kids primarily because their children are in the worse schools. Tax credits for individuals buying health insurance gives individuals portability and the choice of which insurer suits them best. Both proposals help the poor, but they also help all Americans. Lowering corporate tax rates increases companies' incentives to invest in their workers.

Yet, before figuring out what new programs we should have, it might be useful to re-examine the welfare system we already have.

A new book entitled “Stealing from Each Other” by Edgar Browning, an economics professor at Texas A&M University and world-renowned expert on government finance, has added up the costs and consequences of the existing programs.

By 2005, the Ways and Means Committee in the House of Representatives pointed out 85 separate programs that primarily aided persons with limited incomes. Total federal, state, and local expenditures amounted to $620 billion. That came to $16,750 per person in poverty, or over $50,000 for a welfare family of three, several times higher than the official poverty line for a family of three, which was $15,577 in 2005.

Browning estimates that only 10 percent of these expenditures went to administrative costs. He provides some perspective: “We are already spending more than enough to completely eliminate poverty, even if the poor have zero earnings or other sources of income on their own.” The official government estimates of the number of poor people rarely count the government aid when calculating the poor’s income. Browning also notes that there are so many programs and some are so complicated, “no one understands fully how the welfare system operates.”

Yet even these numbers underestimate how much help the government spends on the poor. For example, Social Security does not provide benefits that are proportional to what people pay into the system. The system provides large transfers from high-income to low-income individuals. Browning estimates the welfare portion of Social Security accounts for $100 billion a year. According to him, adding this to Medicare, other uncompensated medical care, and other costs increases welfare payments to over $1 trillion in 2005.

By comparison, Browning has noted elsewhere that the first five years of the Iraq and Afghanistan wars cost $473 billion, less than half what the war on poverty spent in one year.

But the desire to help the poor creates its own problems. Giving more money to people, the poorer they are, also means that the more income these poor individuals make, the more government assistance is taken away from them. Just as higher taxes discourage work, the loss of a significant portion of one’s benefits will also discourage work.

Unfortunately, many of Obama’s proposals learn little from this lesson. Raising the minimum wage at the same time that mandates are put on companies that want to hire poor people will make it so that firms won’t want to hire those workers. And the people who are hired will get fewer fringe benefits and shorter hours. Minimum wage jobs are also the first jobs people get that give them training, which makes better jobs possible in the future. At the same time, expanding the size of income support and housing allowances creates more of an incentive not to work.

Obama’s plans try to offset some of these problems with other new programs that make a complicated and at times contradictory set of programs even more complicated. To offset the disincentives for training, new government training programs will be set up. There is a twist in that many will be set up in politically correct jobs such as the environment. Other subsidies will be set up to attempt to offset the disincentives to work.

The differences between Obama’s and McCain’s approaches couldn’t be starker. While neither Obama nor McCain will eliminate any of the existing programs aimed toward the poor, McCain also doesn’t try to use new programs, subsidies, and taxes to coax people into certain jobs. He wants to let people decide for themselves what choices they like best.

Obama might urge that black Americans take more personal responsibility, but his programs have government agencies trying to micromanage their lives. McCain’s policies fit better than Obama’s do with Obama’s rhetoric.

*John Lott is the author of Freedomnomics and a senior research scientist at the University of Maryland.

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