� Fighting Poverty in America�What Can We Do Better?��Ed Dolan�Senior Fellow, Niskanen Center�Lions Club of Northport, MI�September 23, 2021

Terms of Use: These slides are provided under Creative Commons License Attribution—Share Alike 3.0 .

• When President Lydon B. Johnson declared his War on Poverty in 1964, a quarter of the US population lived in poverty
• By 1978, according to the official poverty measure, that percentage had reached 11.4 percent
• Since then it has changed little. The poverty rate was again 11.4 percent as recently as 2020

• International poverty rankings don’t mean much because of differing definitions
• This chart ranks US and other high-income democracies by strength of social protection policies
• Equality of income distribution
• Satisfaction of basic needs
• Social protection spending
• The US trails the top 20 by a wide margin

• But doesn’t the US do better by other measures, like more personal freedoms, stronger democracy?
• Not really. The US falls short of its peers in 4 out of 5 key measures
• It does have a slight advantage in market institutions, allowing us to produce more billionaires

• Meanwhile, the federal government spends some $850 billion per year on programs intended to help people with low incomes
• With all that spending, why do poverty and inequality remain so high?
• What can we do better?

​

Problem No. 1: Fragmentation

• Poverty spending is fragmented among too many separate programs
• Each one is designed to help a specific group or a specific need
• But fragmentation leaves gaps and programs interact with unintended consequences

Problem No. 2: Means testing

• Means testing is intended to direct aid to those most in need
• Benefits can be reduced by a specified amount for each dollar earned (“benefit reduction rate”)
• … or they can cut off at a specified income threshold (“benefit cliff”)

In this example, families with no earned income receive a $6,000 benefit, which is reduced by 50 cents for each dollar earned and then cut off altogether when earned income reaches $8,000

Unintended consequence

• Benefit reductions of multiple programs are additive
• Here a family gets $4,000 in food aid and $4,000 in housing aid, both with a 40% benefit reduction rate
• The total benefit reduction rate is 80%
• Earning $10,000 leaves the family only $2,000 better off than earning nothing

The poverty trap

​

• In the real world, benefit reduction rates of multiple programs are highest for families near and just above the poverty line
• Work incentives are weakest for those just on the verge of making it to self-sufficiency

Problem No. 3: Work Requirements

• A substantial share of welfare beneficiaries who are not officially disabled do not work or work only part time
• Work requirements are intended to deny benefits to people who could work but choose not to
• Clinton reforms of 1990s
• Trump proposals
• Are they effective?

• In practice, the number of nonworking beneficiaries realistically available for jobs is small
• A quarter of nonworkers have illness or disability that does not qualify for SSI
• Caregiving and school account for half of remaining nonworkers
• People who could work but choose not to account for less than 5% of all beneficiaries

Source: https://www.kff.org/report-section/work-among-medicaid-adults-implications-of-economic-downturn-and-work-requirements-issue-brief/

Reasons for not working among non-aged non-SSI adult Medicaid recipients

• In practice work requirements produce modest results if any
• The chart shows results of 11 large-scale experiments conducted in the 1990s
• Results showed less than 5% increase in jobs
• Average income often fell because wages were less than lost benefits

Source: https://www.milkenreview.org/articles/earning-it-why-work-requirements-dont-work?IssueID=27

Results of 1990s Experiments

​

Four reasons work requirements don’t work

• WR incentives are offset by high benefit reduction rates for other programs
• Jobs people get are unstable and low-paid
• Difficult administrative rules make it hard to qualify
• WRs work best when coupled with intensive one-on-once counseling, often not offered

​

Source: https://www.milkenreview.org/articles/earning-it-why-work-requirements-dont-work?IssueID=27

Results of 1990s Experiments

How to fix it (1): Consolidate

​

• Consolidate programs to avoid flat spots and kinks in the benefit reduction rate
• Cash out as many programs as possible to give families flexibility to meet their most urgent needs (food, housing, transportation, etc.)
• Include small minimum grant for everyone regardless of work and family status

How to fix it (2): Wage subsidies

​

• Build on EITC to give bonus incentive to those just entering job market
• Improve on EITC
• Monthly checks, not annual tax refund
• Cover childless workers

​

How to fix it (3): Child allowance

​

• Separate child allowance from other programs
• Monthly payments, not tax credit
• Amount child gets should not depend on job status of parents

What could we do with what we are spending now?*

​

• Basic grant of $6,200 per adult (half of “deep poverty” income for single person)
• Child grant $4,500 per child
• Wage subsidy at 50 cents per dollar on first $4,800 earned
• Combination is known as Integrated Cash Assistance

Outcomes:

• End “deep poverty” for all Americans
• End official poverty for any family with at least one adult working half-time or more at minimum wage
• Lower poverty rates and stronger work incentives
• Better than current policies which raise only 44 percent of poor above official poverty line

*Based on 2018 data

• Integrated cash assistance could replace much of the existing welfare system
• However, many other social programs should continue to help with problems of
• Health care
• Mental health
• Substance abuse
• Domestic violence
• Education

A bit of hope:

​

• During the pandemic the government made extraordinary efforts to avoid a spike in poverty
• Why not replace those emergency measures with permanent programs?

Further reading:

• A social safety net for an age of uncertainty
• New Research on the Poverty Trap
• Why work requirements don’t work