Poverty as a Structural Problem

Rydell, Lars

WHOLEHEARTEDLY concur with Barry Blue stone's position in "The Poor Who Have Jobs" (DISSENT, September-October 1968) that the currently popular proposals to adapt the poor to our modern...

...WHOLEHEARTEDLY concur with Barry Blue stone's position in "The Poor Who Have Jobs" (DISSENT, September-October 1968) that the currently popular proposals to adapt the poor to our modern industrialized economy through programs of manpower training and development are totally inadequate as solutions to relative poverty...
...Table 2 VALUE OF INDIRECT SUBSIDY (TAX SAVINGS) IN 1967 TO A FAMILY OF FOUR FOR STANDARD PERSONAL DEDUCTIONS AND HYPOTHETICAL MEDICAL EXPENSES OF $300 AND REAL ESTATE TAXES OF $200...
...The solution rests in some mechanism to redistribute income, and the task ahead is to develop rationales that lead to the implementation of such a mechanism...
...This is done in Table 1 by looking at the share of the national income received by the bottom and top 20 per cent of the income scales in both countries...
...His attempt to document this by focusing on the structural factors which perpetuate poverty—his distinction between employment in low- and high-wage industries and his analysis of the factors which cause and perpetuate these low-wage industries —is important evidence...
...low wages, family size, absence of a male provider, disabilities, and unemployment...
...From this perspective the government already has, implicit in its tax structure, a system of individual allowances, government subsidization of medical expenses, and housing allotments...
...Second, the existing formula preserves the maldistribution of income because, while deductions are ostensibly given for basic expenses, the actual tax savings are in terms of an individual's or family's highest marginal tax rate...
...However, the formula by which these allotments and subsidies are allocated—deductions from earned income—serves to support the present maldistribution of income, rather than to foster a more equitable redistribution...
...This does not mean that a solution to relative poverty is only possible through the socialization of the economy with restrictions placed on incomes at all levels...
...The truth of this assertion and the limits of Bluestone's policy proposals are brought into sharp relief by comparing the earned income distribution in the United States with a country that has both the policies which Bluestone criticizes and those which he proposes, namely Sweden...
...Per Cent of Total Quintile Income Received in United States* 1947 1953 1962 Bottom 5% 5% 5% Top 43 41 42 Sweden* 1948 1955 1964 5.4%Bottom 5.5% 4.9% Top * Based on census data on incomes for families, from Leon H. Keyserling, Conference on Economic Progress (Washington, D.C., 1964...
...However, as he mentions in passing at the end of his paper, this is really a problem of . . an inequitable income distribution . . which, incidentally, low wages is only one of many causal components) and that .. negative tax proposals [or one might add any redistribution mechanism outside the economic structure] must be seen as crucial to the whole problem of the working poor [and nonworking poor] in America...
...The striking finding of the table is that the respective shares of the national income received by the top and bottom fifth for each country are the same-5 per cent for the bottom fifth, and 40 per cent for the top fifth...
...The size of the subsidies is equivalent to the amount of tax savings accrued by taking the deductions...
...A system of income redistribution to alleviate relative poverty could be developed in the United States by arguing that all citizens, workingand middle-class as well as the poor, should have an equal right to receive the same size of individual allowances, housing allot ments, and medical care subsidies that the upper income groups now receive indirectly through the federal income tax system...
...COMMUNICATIONS assertion that relative poverty is not the result of a constellation of attributes of individuals which can be effectively manipulated to eliminate poverty...
...The negative income tax proposals or social dividend taxation schemes would work to ameliorate all of these causes...
...However, if one changes perspectives slightly and starts with the federal government's right to tax the incomes of its citizens, then these deductions or tax-free incomes appear as a system of indirect governmental subsidies...
...This lacuna is America's present system of tax deductions...
...The findings suggest, however, that we must direct our attention and energies toward developing and implementing alternative systems to redistribute the income which the economic system inherently distributes inequitably...
...In other words, the subsidies are progressively larger for higher income levels...
...To enable low income groups to benefit equally from and to make effective use of these subsidies, they would have to be given the option of receiving either their unused credits in the form of a yearly tax refund or their subsidies in monthly payments...
...The most difficult problem is to find a rationale and an entree which is acceptable to, or which side-steps, the American value structure's emphasis on an individual's earning his own living...
...Rather, poverty appears to be an inevitable and inherent feature of a capitalist economy, even under the extensive governmental regulations and supports present in advanced welfare states such as Sweden...
...The analysis of our current tax system presented above will hopefully prove to be a step in that direction...
...Table 2 clearly shows this inequity in the case of families of four at various income levels...
...Subsidization of local taxes is a form of housing allotment, since local taxes are primarily real estate taxes...
...The data clearly support Bluestone's original Table 1 PER CENT OF THE TOTAL INCOME RECEIVED BY THE TOP AND BOTTOM QUINTILES IN THE UNITED STATES AND SWEDEN IN SELECTED YEARS FROM 1947 TO 1964...
...This is basically the social dividend taxation scheme proposed by Lady Rhys-Williams in England during World War II...
...This is, first of all, because low-income groups have unused deductions and thus receive no tax savings or subsidy from these deductions...
...The original rationale for these deductions appears to have been that only incomes over and above that spent on basic necessities—defined as $600 per individual medical expenses, and taxes to other levels of government—should be subject to federal income taxes...
...The major problem in this effort is not to design a system that can have an impact on all the causes of poverty and other economic inequalities in the country, e.g...
...This presumably fostered equality by not requiring those with very low incomes to pay taxes...
...Thus, as Bluestone's analysis and the comparison between the United States and Sweden clearly show, the problem of relative poverty is a structural one that will not disappear by itself or through minor economic reforms or supports...
...THE srzE of the allowances given through the tax structure to members of a family earning $50,000 is three and one-half times larger than those given to a family earning $3,200, and two to two and one-half times larger than those given to a family earning $10,000...
...One possible source of such a rationale is a lacuna in America's tax structure, which when coupled with her commitment to equality (that everyone is equally entitled to the same rights and privileges or goods and services that others in the society are given as a matter of course) may provide an effective entree...
...The data also show that relative poverty is not a minor structural problem which can be solved or ameliorated through minor manipulations or reforms within the present economic system...
...This could be accomplished within the present tax structure by giving equal tax credits, applied to taxes to be paid, rather than deductions from taxable income, for basic expenses, housing costs, and medical care...
...Based on declared income of income earners, 268 44.6 42.3 44.3 from Goran Therborn, "Till kritiken av den blandade ekonomin," in En fly vanster, ed...
...The same unequal ratios exist in regard to the percentage of medical expenses and local taxes subsidized...
...Income Level Value of Indirect Subsidy from Deduction S tandard Personal Deductions Husband Wife First Child $ 3,200 $ 98 $ 96 $ 90 $10,000 132 132 132 $50,000 300 300 300 $300 in $200 in Medical Real Estate Expenses Taxes Second Child $ 80 $ 42 $ 28 120 57 38 300 150 100 269 COMMUNICATIONS This is the inequity which forms the basis of most discussions of negative income taxes...
...Goran Therborn (Stockholm: Raben and Sjogren, 1966), p. 136...
...In addition these shares have remained constant over the past two decades, exactly when the Swedish welfare state regulations should have had their greatest impact...

Vol. 16 • May 1969 • No. 3


 
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