Why hurt­ing the poor will hurt the econ­omy

The Washington Post Sunday - - SUNDAY OPINION - BY ROBERT E. RU­BIN

Not long after I be­came trea­sury sec­re­tary in 1995, a se­nior U.S. sen­a­tor sum­moned me to Capi­tol Hill for a meet­ing. He de­manded to know why our depart­ment had just opened a com­mu­nity de­vel­op­ment of­fice, tasked with fo­cus­ing on poverty, in­ner-cities and distressed ru­ral ar­eas.

“Trea­sury’s purview is eco­nomic pol­icy,” the sen­a­tor said. “What ex­actly do poverty and so­cial is­sues have to do with your job?”

The an­swer to that ques­tion has never been more im­por­tant than it is to­day: Anti-poverty pro­grams such as Med­i­caid, the Sup­ple­men­tal Nu­tri­tion As­sis­tance Pro­gram (SNAP, of­ten called food stamps) and other safety-net pro­grams de­signed to as­sist low-in­come Amer­i­cans are not only so­cial and moral im­per­a­tives — they serve crit­i­cally im­por­tant eco­nomic pur­poses.

To start, th­ese are vi­tal pub­lic in­vest­ments with high rates of re­turn. They im­prove pro­duc­tiv­ity and re­duce so­cial costs caused by crime, mal­nu­tri­tion and poor health. For adults, Med­i­caid and SNAP bet­ter en­able ef­fec­tive par­tic­i­pa­tion in the work­force.

Roughly 20 per­cent of U.S. chil­dren live in poverty. In the wealth­i­est coun­try in the world, that’s not just a moral ou­trage — it’s a se­ri­ous detri­ment to our eco­nomic fu­ture. For low-in­come chil­dren, Med­i­caid and SNAP are in­vest­ments that sig­nif­i­cantly im­prove out­comes later in life. For ex­am­ple, one study found that chil­dren who re­ceived SNAP were less likely to ex­pe­ri­ence stunted growth, heart disease and obe­sity as adults — and had grad­u­a­tion rates that were 18 per­cent­age points higher. We need to do more, not less, to help th­ese chil­dren — by pro­vid­ing early fam­ily in­ter­ven­tion, bet­ter schools and hous­ing, safer neigh­bor­hoods and much else.

What’s more, th­ese pro­grams serve as “au­to­matic sta­bi­liz­ers” dur­ing an eco­nomic down­turn: In a weak econ­omy, as more peo­ple lose in­come and be­come el­i­gi­ble for fed­eral ben­e­fits, the pro­grams ex­pand, putting more money in more peo­ple’s pock­ets. Peo­ple then spend that money, in­creas­ing de­mand and help­ing the econ­omy re­cover.

All this adds up to a clear but un­der­ap­pre­ci­ated re­al­ity: Anti-poverty pro­grams are an eco­nomic im­per­a­tive. And yet their fu­ture is in jeop­ardy.

The ma­jori­ties in Congress have ad­vo­cated cap­ping or “block grant­ing” fed­eral spend­ing on Med­i­caid and SNAP — and the Trump ad­min­is­tra­tion is also ex­pected to pur­sue a bud­get that re­struc­tures them. Over time, the ef­fect would be ma­jor cuts to th­ese pro­grams. The more im­me­di­ate ef­fect would be to elim­i­nate the pro­grams’ abil­ity to au­to­mat­i­cally ad­just to meet in­creased need, whether from a weak­ened econ­omy, nat­u­ral dis­as­ter or pub­lic-health crises such as the opi­oid epi­demic. Low-in­come pro­grams that de­pend on an­nual ap­pro­pri­a­tions are also at risk if the pres­i­dent and Congress fol­low through on plans to bring do­mes­tic spend­ing to his­tor­i­cally low lev­els.

The threat to th­ese pro­grams is par­tic­u­larly grave this year be­cause of the de­sire to lower cor­po­rate and in­di­vid­ual in­come taxes. Cor­po­rate tax cuts and cer­tain struc­tural re­forms could in­crease U.S. com­pet­i­tive­ness glob­ally and busi­ness in­vest­ment, eco­nomic ac­tiv­ity and la­bor de­mand, which could, in turn, boost jobs and wages.

But sig­nif­i­cant cuts to top per­sonal in­come-tax rates or to cap­i­tal gains taxes, or the elim­i­na­tion of the es­tate tax, would dis­pro­por­tion­ately ben­e­fit those at the top, while pro­vid­ing lit­tle or no gains for work­ers or the broader econ­omy. Such rate re­duc­tions, on both the per­sonal and cor­po­rate side, would also in­crease fis­cal deficits, even after rea­son­able ad­just­ments for pro­jected eco­nomic growth, if un­paid for. There will be tremen­dous pres­sure to off­set those deficits by cut­ting anti-poverty pro­grams.

More­over, the most likely path for­ward for a tax bill is through “rec­on­cil­i­a­tion,” the fil­i­buster-proof leg­isla­tive process for pass­ing bud­getary bills in the Se­nate. Rec­on­cil­i­a­tion bills must ad­here to cer­tain rules, in­clud­ing a re­quire­ment that they not add to the deficit in years be­yond the next decade. In 2001, Congress cir­cum­vented this prob­lem by “sun­set­ting” the Bush rate cuts. But the ma­jor­ity party in Congress is un­likely to want a ma­jor struc­tural over­haul of the tax sys­tem to be tem­po­rary. That’s be­cause such struc­tural re­forms re­quire busi­nesses to make long-term or­ga­ni­za­tional and fi­nan­cial changes. All this sug­gests there will be even greater pres­sure to make ma­jor cuts to pro­grams for the poor.

Even if cer­tain tax changes are eco­nom­i­cally ben­e­fi­cial on their own, fund­ing them with cuts to anti-poverty pro­grams would be coun­ter­pro­duc­tive. The con­struc­tive al­ter­na­tive would be to fi­nance rate cuts by re­mov­ing or lim­it­ing de­duc­tions and other tax breaks. But th­ese pro­vi­sions have strong spe­cial­in­ter­est sup­port and are un­likely to change much. The threat to anti-poverty pro­grams, which un­for­tu­nately have fewer pow­er­ful back­ers, is very real.

In to­day’s po­lit­i­cal en­vi­ron­ment, we should be aware of th­ese threats and keep our fo­cus on pro­tect­ing pro­grams that com­bat poverty. And, in the years and decades ahead, we need to fight for our na­tion’s eco­nomic in­ter­ests by sub­stan­tially in­creas­ing in­vest­ments in th­ese pro­grams, es­pe­cially for chil­dren.

Just think of how our econ­omy would ben­e­fit if we fi­nally mar­shaled the will and re­sources to ef­fec­tively com­bat poverty. It would in­crease the size and pro­duc­tiv­ity of our work­force, in­clud­ing by equip­ping chil­dren for suc­cess, and make our econ­omy more re­silient through stronger au­to­matic sta­bi­liz­ers. The writer, U.S. trea­sury sec­re­tary from 1995 to 1999, is co-chair­man of the Coun­cil on For­eign Re­la­tions.


The Manna Food Cen­ter in Gaithers­burg last year.

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