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Home Publications Blogs Beat the Press Bad Arithmetic on the Battle Against Poverty

Bad Arithmetic on the Battle Against Poverty

Thursday, 11 October 2012 04:44

As part of the NYT's affirmative action program for right-wingers, it ran an oped column by Gary E. MacDougal, a former business consultant and executive and advisor to former Illinois Governor Jim Edgar. The main point of the piece is that we spend almost $1 trillion a year on anti-poverty programs (combining spending at all levels of government), yet we still have 46 million people in poverty. MacDougal does the arithmetic and points out that this comes to over $23,000 a year for each person in poverty. He then concludes that we would be much better off blockgranting all this money to state governments, who we know to be wizards in dealing with poverty.

Apart from the questionable assessment of the effectiveness of state governments, the main problem with MacDougal's argument is the arithmetic. A large portion of his $1 trillion goes to people who are above the poverty line. For example, more than a quarter of the money is the $250 billion spent each year on Medicaid and other health care programs. Eligibility for Medicaid varies by state but in all cases has cutoffs well above the poverty line. The same is true of the Earned Income Tax Credit (EITC), which has a cutoff for a family of four of more than $40,000, nearly twice the official poverty line. This means that MacDougal's $1 trillion is going to a population that is more than twice the size of the poverty population, so his arithmetic is wrong by a very large factor. 

It's also worth noting that much of this money is dedicated to educational programs of different sorts where payments are made to school districts and educational institutions, it is never seen by the families themselves. The money that the government spends on public education for poor children is not included in the calculation of the poverty line.

The urge to just hand money to the states may seem less compelling when we consider that more than half of the $668 billion in federal spending (18 percent of total spending) targeted by MacDougal consists of health care programs that are already administered by the states, the EITC which is paid directly to working families through the tax code and Pell grants. (Food stamps account for roughly a quarter of the rest of the money.)

While many anti-poverty programs are undoubtedly wasteful and should be reformed or eliminated, the notion that the government spends a massive amount on poverty programs is an invention of the right-wing that has no basis in reality.

Comments (8)Add Comment
written by jamzo, October 11, 2012 7:13
maybe we should blockgrant dept of defense money to the states as well
Also Consider Treatment of Direct Government Transfers
written by Nordy, October 11, 2012 8:38
Another major factor is that poverty is measured pre-tax and pre-government transfers. That is, if a family of four makes $20,000, but receives net government transfers of $5,000, they are still listed as "in poverty" even though $25,000 takes them above the poverty line of $23,050 for a family of four.

written by skeptonomist, October 11, 2012 9:07
If you're going to count the EITC as "spending", then all the tax breaks which go to corporations and the wealthy should be counted too - whenever a corporation pays less than the nominal maximum rate, that should be counted as payments to executives and shareholders. And shouldn't "temporary" tax cuts, like the cut in capital gains rates, or the giveaway which allows hedge-fund operators to count their income as capital gains, also be counted as payments? Using this type of accounting, the total of "payments" would sum to much more than actual federal revenue.

The EITC belongs to the tax-rate structure, not "payments". It does increase the progressivity of these rates, and there is no doubt that federal tax rates are progressive up to somewhat above the median income level. But the progressivity of federal tax rates almost stops there - the very wealthy pay little if any higher rates than someone in the middle of the income distribution.
A point , Low-rated comment [Show]
the poor are paid just enough to keep em quiet...
written by pete, October 11, 2012 2:41
Roosevelt justified programs to the Republicans this way. Johnson doubled down after the riots in the 60s. Note that 1968 was peak income equality. Since then, i.e., after the war on poverty....hmmm...

It is not the spending, it is the continuing segregation. Building massive freeways and subways so that the rich may live in the burbs and leave the cities and the city schools to the poor...great plan...now with energy prices surging, we get gentrification, i.e., the reverse migration....example is PG county in Maryland...grew with white flight early on, now is absorbing all the inner city folks leaving DC, whose demographics are changing rapidly.
written by Floccina, October 11, 2012 2:42
It is not so much about Government being generous to the poor they are clearly not. It is about bad government senseless wasting money with the excuse that it is needed for the poor.
America’s Biggest Welfare Program and the 47%
written by Ethan, October 11, 2012 3:07
Setting aside the corporate welfare programs such as the subsidies for agribusiness, the petroleum and mining industries, and of course the too-big-to-fail insurance for Wall Street banks, America’s biggest welfare program is not administered by the Department of Education, or Housing and Urban Development, or even Health and Human Services. America’s biggest welfare program is administered by the Internal Revenue Service.

This welfare program is know as the Earned Income Tax Credit. As the name states this is ONLY for people who have “earned income” i.e. wages, salaries, tips. That is: this program is for people who have JOBS. The people who are entitled to this program are not freeloaders, they are people who have taken responsibility for their lives and taken any job or jobs they could find, even at very low pay rates. And the program is designed to limit its benefits to the working poor and the underemployed.

To take advantage of the EITC the tax payer must have a job, most not have much investment income (such as interest, dividends, or capital gains), must not be so young that the parents are probably supporting the tax payer, must not be so old as to qualify for social security, and must not earn a whole lot of salary -- for a single taxpayer with no dependents the EITC phases out at the princely some of $13,600/year. That means that if a single person works full time and earns $7/hour, that tax payer earns TOO MUCH to benefit from this welfare program.

To be fair, the program does give more benefits to married couples filing jointly and to taxpayers with children. For example, a couple with 3 or more children could earn up to almost $50,000/year before they could no longer take advantage of EITC. But aren’t those the very people we should be trying to help -- families where the parents are trying to pull them selves up by working at whatever jobs they can find, even low paying jobs?

Statistics show that for some reason many people who would be entitled to this program do not take advantage of it. Perhaps this is because society makes people afraid of the federal government or because the media keeps telling people that the IRS only wants to take money out of your pocket, not help put some more money in your pocket. Or maybe the tax returns are just too complicated for people to know they qualify for EITC.

In any event, there are no welfare queens on this program; only the working poor and the underemployed. And here is the interesting point -- while subsequent presidents have broadened and deepened this program, it was first instituted by that wild-eyed socialist who wanted to redistribute wealth downward from the rich to the poor, Ronald Reagan.
written by Peter Whiteford, October 12, 2012 6:48
This argument also overlooks the fact that the relevant figure is not how many people are in poverty after receiving benefits, but how many people are poor before they receive benefits.

See http://clubtroppo.com.au/2011/...-servants/ for an Australian discussion.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.