Poverty programs trap the poor, despite best intentions

Charlie and Dee Ivy have been working to find solutions to poverty for many years. They returned to Albuquerque not long ago from Ethiopia, where they were part of a Clinton Foundation program. These days they volunteer with RESULTS, a Washington, D.C.-based anti-poverty organization.

The Ivys showed me a fascinating graph they developed that demonstrates how much existing government programs contribute to family income. Their point is that for many people income support is inadequate, assuming our society’s goal is to build a decent financial safety net.

As we talked, the graph became a sort of Rorschach test; what we saw in the graph said as much about how we each perceive the problem as it said about government programs.

I saw a collection of wellintentioned benefits that provided incentives at certain marginal income levels to stop working. I saw complex programs that are difficult for intended beneficiaries to navigate and expensive to run. I saw a single, very simple tax- based solution to the safety-net question. I saw many political reasons why the complex programs, with all of their unintended consequences, probably will continue.

The graph accompanies this article. See what you make of it.

The graph shows how much support a single parent of one child gets in a month, depending on how much income she earns on the job, from four federal programs: monthly

child assistance, food stamps (known as SNAP), monthly housing assistance and the earned income tax credit.

Medicaid is a significant part of the safety net, but it isn’t included in this analysis because its benefits don’t slide with income. You either qualify for the entire Medicaid benefit or you qualify for none of it.

A parent earning the equivalent of $6.50 an hour over a 40-hour week has monthly income from the job of a little more than $1,000 a month. (The minimum wage is higher than $6.50 an hour, of course, so this hypothetical parent, presumably, is working a part-time or temporary job.)

At that income level, federal programs are providing about $1,400 worth of child care, housing assistance, food stamps and cash in the form of the earned income tax credit. The parent loses everything except the earned income tax credit once she earns the equivalent of $12.23 an hour. The parent loses the earned income tax credit once she earns the equivalent of $18.45 an hour.

You can see that once the parent earns more than the full-time equivalent of $7.46 an hour on the job she loses monthly payments that help her afford child care. In effect, her monthly income from work and benefits is cut from about $2,600 to about $2,300 a month because she made more money working. She loses her food stamps once she earns more than $9.51 an hour. Housing assistance goes after $12.23 an hour.

What is even more insane is that the single parent has to earn about $14.50 an hour and receive an earned income tax credit before she gets back to the monthly revenue stream she had when she earned $7.46 an hour and received child care, food stamps, the EITC and housing assistance.

No doubt there are deadbeats who will avoid work whenever possible, but my own experience says nobody likes being poor, most people would rather work, and most people will try to improve their own future prospects and those of their children. That said, a rational economic actor has to ask herself if taking a slightly better-paying job is worthwhile when the cost is loss of government support that exceeds the value of the raise.

Each of these support programs has its own rules, paperwork and bureaucracy. Benefit levels from one program can affect benefits from another. It is work to run these programs, and it is work to receive the benefits the programs offer.

Three of them could be eliminated and the support they offer replaced with a higher earned income tax credit, one that declines as the family’s income improves. Parents would decide if the support they receive is better-spent on groceries or child care or housing. The only overhead in running the program would be IRS administration, which is going to occur anyway. Because there would be only the one tax credit to administer, no government agency would have to determine if someone is qualified for help. The tax credit is simply paid when a family’s income is below a specific level.

Here is why that doesn’t happen:

Politicians and bureaucrats often don’t trust anyone enough, especially poor people, to let them make their own decisions about their own well-being when government money is involved.

Bureaucracies employ thousands of people. It’s hard to imagine Washington eliminating those jobs.

People need cash right now, not when they file their taxes in April. Some mechanism has to be in place to release funds monthly.

Food stamp programs exist in part to guarantee markets for farmers. Housing programs exist in part to support the real estate industry. These are powerful business interests with powerful lobbies that benefit from the status quo.