A New War on Poverty
It has been 40 years since President Lyndon B. Johnson declared his well-intentioned, but poorly planned, war on poverty. Like so often happens, this far left administration fell back on traditional wealth-redistribution schemes, subsidizing economic inactivity and consumption while taxing work and productivity to pay for it. And, as Representative Jack Kemp, the hero of Reform Conservatism, so aptly put it, “If you want more of something, subsidize it. And if you want less of something, tax it”. Punishing success while inadvertently promoting poverty is no way to seriously engineer economic growth or provide opportunities to those on the lower end of the economic spectrum.
Conservatives are to blame for this continuation of traditional tax-and-spend attempts to reduce poverty. For too long we have preferred to ignore the issue of poverty, relying solely on economic growth and private charity to provide assistance to the indigent. By ignoring this important issue, we opened up an opportunity for the left to gain a monopoly on this area of public policy, allowing ourselves to be cast as heartless and losing countless votes in the process. Conservatives instead should be making the insidious welfare trap, created and promulgated by the bureaucrats and politicians, a centerpiece of our argument against big-government liberalism. How can we expect to be taken seriously if we do not even have an agenda to end this welfare trap and seriously make a dent in poverty? We will continue to be viewed as heartless tools of the economic elite unless we apply our Conservative philosophy to providing economic opportunities to those who need them the most. We cannot pretend that the government has no role in reducing poverty; government has a very real duty to combat the blight of the poor. However, the government’s role is to harness the power of the free market to do so, as opposed to harming the market in the process.
We have seen the success of Conservative anti-poverty policies in the past, most recently with the successful Welfare Reform Act of 1996, which, by applying work requirements to welfare, reduced the caseload of TANF by 50%, with the vast majority of those leaving the program finding gainful employment and leaving poverty. The problem with this bill is, it doesn’t go anywhere near far enough. We applied our principles to one of 77 federal welfare programs, and left the other 76 programs untouched. It is high time to take a serious look at how we can reduce the economic disincentives found in these other programs which trap millions of innocent people in poverty each year. Often times, the individuals on welfare would lose up to 50% of their income if they were to get a job or a second one, due to a loss of federal benefits. This is essentially a 50% tax on work for the poor, and exemplifies all that is wrong with transfer payments. My proposal: replace every welfare program, excluding food stamps, with a Negative Income Tax (NIT), such as the one proposed and championed by Milton Friedman. The NIT would set a tax threshold of, say, $10,000 (the real amount would have to be higher but for the purposes of simplicity we will use $10,000). An individual would only pay taxes on income made above this amount, and, if an individual made less than the threshold, they would qualify for benefits that would cover the difference between their income and the threshold. For example, an individual making no income would qualify for $10,000 in benefits; however, in order to ensure that the benefits would only cover necessities and not luxuries, there would be a 50% tax rate applied to said benefits. So, someone not making any income would qualify for $5,000, while a person making $4,000 a year would qualify for $3,000 of benefits, bringing them to a total income of $7,000.
As previously mentioned, the $10,000 figure was only used for simplicity and would realistically be far too low to cover even the bare essentials of life in a developed economy. The NIT is a desirable alternative to traditional welfare schemes because it minimizes economic disincentives, thus minimizing the regressive nature of most welfare plans. While someone receiving welfare under current federal policies would fear losing a large part of their income if they were to make more money from the private sector, under an NIT, no one in poverty would have to fear becoming poorer from more work. The NIT would incentivize work and prosperity, making it far easier for the poor to break the cycle of poverty and achieve the American dream. Paired with a strong work requirement to minimize fears over people simply living on the benefits, the NIT would be a powerful tool for reducing poverty, all while reducing costs associated with the welfare bureaucracy and assisting in reducing the deficit. Alongside the NIT, the government should do to food stamps what they did to TANF in 1996; apply work requirements and block grant the program to the state, empowering food stamp recipients to leave poverty and ending the idea of ‘something for nothing’.
The NIT and food stamp reform would make a serious dent in the welfare trap created by our government, but alone they would not be enough. The government should also enlist the help of businesses and entrepreneurs in this war on poverty by applying any savings from the NIT and food stamp reforms to creating Federal Empowerment Zones, providing tax cuts and incentives, as well as regulatory relief to businesses who either start in, or relocate to, poorer or economically distressed areas, in order to stimulate the economies of areas where a large number of residents live in poverty. Alongside empowerment zones, the government should harness the entrepreneurial spirit by providing small business loans without collateral to the indigent, encouraging poor Americans to use their enterprising energy and start a small business which will not only lift them out of poverty but also make society as a whole better off.
The government should also provide the poor with the opportunity to retire wealthy through personal investment accounts, or ‘personalization of social security’. Allowing individuals to invest the amount that they otherwise would have contributed to social security will give them the opportunity to amass wealth and retire well off, as opposed to simply retiring with a safety net which covers the bare necessities. The government can minimize the potential risk of this program by setting up a fund dedicated to any victims of the boom-bust cycle; the government can assure that, for anyone who retires worse off on the private system than they would have on traditional social security, the difference between their actual savings and their social security check will be covered. This has been tried before, and each time, there has been a very limited amount of times that any differences will have to be covered, because empowering people to control their own retirement dollars will almost always result in them retiring better off, often with a sizable sum of money that could be passed onto their children. Any savings from these reforms to the federal safety net should be funneled into reducing the deficit or providing a permanent payroll tax cut, resulting in the minimizing a regressive tax which squeezes the income of the poor and reduces their job opportunities.
This new, Conservative, war on poverty is designed to minimize economic disincentives. It is engineered to harness the power of the enterprising spirit locked within every American and the power of the free market to reduce poverty, instead of simply subsidizing poverty. It is focused on driving the poor out of their situation, and encouraging them to thrive, not just survive. The time has come for a Conservative focus on reducing poverty, and the way to do it is not through empowering bureaucrats and politicians further; it is through incentivizing entrepreneurialism and hard work as ways to lead to a thriving and expanding middle class, as opposed to a stagnating lower class.