More on Poverty Can "More Money" End Poverty?
Lekachman, Robert
One of the more tantalizing statistics of the decade is this: for a mere $11 billion we could raise every poor American above the poverty line as poverty is currently and officially defined—an...
...Take a very simple one first...
...Examine next a very different scheme...
...Those to the Left will not accept the first criterion as now stated...
...Whether their lot will be improved by substituting grants for some portion (or all) of welfare payments will depend upon the political constituency in which the poor family resides...
...It gives help in the form most useful to the individual, namely, cash...
...His proposal makes ingenious use of both cash grants and tax benefits...
...As this family's earned income moves upward from zero, the grant is decreased by 33%a per cent of each additional dollar earned...
...In the summer of 1966, Tobin estimated gross cost to be $12.5 billion annually...
...Chicago's Milton Friedman supports income maintenance because, as a believer in the free market, he desires a maximum freedom of choice...
...As now designed, no proposal is a complete remedy for financial poverty...
...They must be substantial enough to achieve their stated purpose, the elimination of financial poverty...
...What finally of the rather different mechanism of income support favored by Daniel Moynihan...
...It stops entirely when family earned income approaches $1200 per person...
...A family allowance for the United States roughly equivalent to Canadian or Scandinavian levels would suggest payments of perhaps $8 a month for all children under 6 years of age, and $12 a month for children between 6 and 17...
...A man earning $3,200 a year is unlikely to be thrilled at the sight of his neighbor, unemployed and granted a cash subsidy of $3,130...
...Some important questions remain, even after this much is said...
...In the more ungenerous states where welfare assistance stops at a low percentage of the poverty minimum, Tobin's system would improve the lot of many families even if all welfare payments stopped as a consequence of the grants...
...The speaker is Senator Ribicoff, a cautious and presumably representative moderate northern Democrat: The idea of giving the poor more money—whether it is a guaranteed income or a negative income tax—is being discussed a great deal these days...
...However, since welfare payments would be reduced (not eliminated as under Friedman's scheme) net costs would be much lower, possibly of the order of the year to year increase (at full employment) of federal budgetary receipts...
...2 American Economic Review, May 1965, p. 527...
...5 Friedman set his final income after assistance at so low a percentage of the poverty minimum because he feared larger benefits would impair incentives and divert benefits to those who really did not need them...
...Why doesn't Lyndon Johnson incorporate income guarantees into his domestic program instead of merely promising to appoint a commission directed to make its report safely after the 1968 Presidential election...
...It is general and could be substituted for the host of special measures now in effect...
...Those whose incomes just barely exceed $3,130 and who are therefore ineligible for assistance will, to put it mildly, be inclined to dislike a program that differentiates little between the fully employed at low wages and the "poor...
...icapped, or disabled are concerned in groups which form a very large percentage of the poor...
...Without necessarily endorsing this limited assistance, the Wisconsin economist Robert Lampman has described the way Friedman's plan would work...
...Though it is not so presented, the Tobin proposal is the most radical in its implications...
...For the United States Moynihan estimated the cost of a possible program as about $9 billion each year...
...A public policy which simultaneously sings the virtues of birth control and small families, and actually rewards financially not the childless but rather the parents of large broods, is, to say the least of it, confusing...
...from zero per cent to minus 14 per cent for, say, the unused exemptions that total $500, to 20 per cent for those that total $1,000 and 40 per cent for those that total $3,700...
...More seriously, family allowances at least on the scale presently advocated by Mr...
...Tobin's plan raises questions at the other end of the income scale as well...
...Where do we come out at the end of this quick glance at the schemes of the well-intentioned...
...It operates outside the market...
...Such points, however, are far from fatal flaws...
...Now $11 billion is not much, a mere one and a small fraction per cent of Gross National Product, considerably less than half of Vietnam's annual cost, just about the size of the Pentagon's underestimate in 1966 of Vietnam expenditure...
...They receive special tax treatment all the way up to an earned income of $7963...
...Those to the Right will quarrel with the last one...
...3.Grants should be extended in ways that strengthen rather than damage the incentive to get paid jobs in the labor market...
...On any reasonable computation the budgetary cost is also manageable...
...All the same, even within the most sophisticated and sociological definitions of poverty, lack of money is at least part of the condition of the poor...
...Now, as the world knows, poverty may be a great deal more than a shortage of money, and giving money to the poor may indeed amount to no more than treating the symptoms of deeper personal and social disorders with financial palliatives...
...But it bears repetition to say that if the objective of public policy is the elimination of poverty, no plausible scheme of income maintenance can serve as a complete substitute for other measures, including welfare, housing subsidies, retraining allowances, and unemployment compensation...
...If one believes as again I do) that present exemptions and rates outrageously favor the affluent, then any proposal which redistributes even a small sum from rich to poor and average citizens is a good thing...
...Income guarantees, properly viewed, fit properly into a public policy design which includes more liberal 5 Ibid., p. 68...
...Like any other measures to alleviate poverty, it reduces the incentives of those helped to help themselves, but it does not eliminate that incentive entirely, as a system of supplementing incomes up to some fixed minimum would...
...A $400 grant added to a small Social Security pension leaves their beneficiary well below the poverty line...
...Friedman summarizes in this way: The advantages of this arrangement are clear...
...Broadly, these criteria describe the position of economists who are also liberal Democrats...
...For a family of four children, this would increase income by, say, $40 a month, or roughly $500 a year .4 Of this approach to income support, it must be said at the outset that it raises in the most direct form an issue of social policy implicit in all income maintenance schemes...
...This last point deserves amplification, for in Friedman's view the preservation of incentives requires termination of assistance at incomes far below the poverty line...
...As a person with some political experience, you can recognize how hard it is to put the idea across...
...Here is an example of the political reality Tobin and Moynihan may have held in mind...
...And the emphasis upon incentives appears decidedly misplaced so far as the elderly, hand 1 Milton Friedman, Capitalism and Freedom, University of Chicago Press, p. 192...
...I think the American people will just not be able to swallow this...
...At present population levels this would cost $9 billion a year, just over 1 per cent of the gross national product...
...No wonder than that economists of very different ideological preferences and diverging motives have come to perceive merit in some version or other of income maintenance as a part or (on occasion) the whole of the assault upon poverty...
...This is likely to be especially true of elderly widows or widowers whose sole present income derives from Social Security...
...4 See The New York Times Magazine, February 5, 1967, p. 71...
...On the incentive side, the plan scores well...
...The mind rather boggles at public subsidy, say, to Senator Kennedy's 10 children...
...Above that income the family continues to pay taxes at the same 33% per cent rates until it attains earnings of $7963 where it begins to encounter normal tax treatment...
...In his testimony before the RibicofE Committee, Moynihan spoke strongly in favor of a family allowance scaled to the number and age of dependent children...
...2 But the gain in incentives would entail a high cost: many families would be left far below the poverty line and some would be placed in a worse situation than welfare now puts them in...
...The program will evidently do nothing at all to assist the childless or the elderly...
...But even if sudden altruism swept over the national psyche, a number of issues of principle would be important, indeed rather more important than they are now in the 1967 political mood...
...Tobin makes a deliberate effort to compromise among incentives, grant adequacy, and financial burdens upon the community...
...It is apparent that in Tobin's model, families whose earned incomes do not reach $2500 will still be below the poverty line even after they receive their income grants...
...Thus, if a family of four earns only $2,000, the prescription is a cash grant of $1,130...
...Or, to put the matter sharply, should the extremely prosperous subsidize not alone the poor but also the less prosperous...
...One of the more tantalizing statistics of the decade is this: for a mere $11 billion we could raise every poor American above the poverty line as poverty is currently and officially defined—an income below $3,130 for a family of four...
...A good income maintenance scheme will substitute for that portion of welfare now most burdensome upon both recipient and social worker, the portion which consists of grants for food, shelter, and clothing...
...It must also be said that of all the ways to assist the unfortunate, simple transfer of funds is the simplest, the least niggling, and the most respectful of human dignity...
...This of course raises the question, if the New Conservatives at Chicago join New Frontiersmen at Yale, Harvard, and MIT in favor of income maintenance, why doesn't some alert, major-party politician adopt this mechanism for his very own...
...How successfully does this schedule of benefits and taxes compromise among Tobin's three objectives...
...As the family's earned income rises to $2,500, diminish the grant to $630, and when earned income touches $3,130, discontinue the subsidy entirely...
...The remainder just might be found in the sheer meanness which seems to compel so many pious Americans to deplore the prospect of giving their fellow citizens money they haven't worked for...
...If a family's earned income is too low, why not just give its members whatever is needed to bridge the gap between its present situation and the poverty minimum...
...To say "yes" unequivocally to these questions (as I do) is to make a judgment about the equity of present taxes and the fairness of the present distribution of income between rich and poor...
...Without further preamble, let us glance at some of the actual proposals that have been made...
...In part it is the result of prudent estimates of political reality...
...Moynihan will not of themselves raise a very large proportion of the poor out of their poverty even when families are large...
...At the least these number four: 1.Money should be given to those who need it but not to those who do not (of this more later...
...Either of two magnificently efficient agencies, the Internal Revenue Service or the Social Security Administration, can handle the affair with infinitely less sweat than the assembled social workers and Welfare Departments of the land who spend substantially smaller sums...
...The most seriously worked out (and the most generous) version of income maintenance is that of James Tobin, a member of the first Kennedy Council of Economic Advisers and now Professor of Economics at Yale...
...As he noted, most industrial nations (including neighboring Canada) operate family allowance plans, so that the idea itself is less novel than negative income taxes or other forms of generalized income grants...
...The Tobin approach has the effect of relieving a rather larger percentage of poverty but only at the cost or with the added merit (according to viewpoint) of indulging in some redistribution of income in the direction of equality...
...It makes explicit the cost borne by society...
...Instead of talking about a guaranteed income tax, suppose we talk about guaranteeing everybody a job...
...It is fair then to restate a point which has run through this essay...
...As far as the effect upon the poor is concerned, increasing earned income from one point below the poverty line to another, higher point means a tax of 100 per cent upon earnings, a poor impetus indeed to initiative and extra effort...
...it would retain positive incentives through a set of grants that would gradually diminish as earned income rose...
...Speaking of our present structure of taxes, Lampman notes that the "present rates fall from 70 per cent at the top to 14 per cent at incomes just above $3,700 for a family of five, to zero per cent for income below $3,700...
...Where welfare counsels, trains, or treats, the argument is for extension of present programs not contraction...
...If the public will allows, it is perfectly possible to reform welfare practices in such a way as to avoid automatic curtailment of assistance by as much or more than the income grant...
...In part this outcome is the consequence of intent (as in the Friedman proposal...
...It is directed specifically at the problem of poverty...
...4.Finally, the grants should be substitutes only for that portion of welfare assistance which covers goods freely available in the market place to those with the money to buy them—food, clothing, recreation, and the like...
...If a family has no income from earnings at all, Tobin would pay it $400 per person...
...But for Tobin this is by no means the maximum...
...Conceivably Tobin's position may be damaged if the income grant serves as a pretext for the elimination of more generous welfare supplements to his Social Security pension...
...It would be easy to extend the progressive tax structure downward: The average negative tax rates could move...
...But how about the man who works 40 hours a week for $3,500 a year and sees his neighbor get $3,000 a year for not working...
...As the table makes clear, families will receive actual cash grants even though their income from earnings substantially exceeds poverty minima...
...This would amount to a minimum income of $1,480 for a family of five...
...A portion of Tobin's illustrative table will make the consequences of the Tobin arrangement plainer: 3 MARRIED COUPLE WITH THREE CHILDREN (1) (2) (3) (4) (5) Family Income Present Tax Schedule Tax (-) Proposed Schedule before Federal Tax (-) Income after Allowance or Income after Tax Allowance Tax Tax or Allowance $ 0 TO TO $2000 $2000 1000 0 1000 1667 2667 2000 0 2000 1333 3383 2500 0 2500 1167 3667 3000 0 3000 1000 4000 3700 0 3700 767 4467 4000 - 42 3958 667 4667 5000 -185 4815 333 5333 6000 -338 5662 0 6000 7000 -501 6499 -333 6667 0 7963 -654 7309 -654 7309 8000 -658 7342 -658 7342 • Income level at which the present and the proposed methods of calculating taxes and benefits coincide...
...3 James Tobin, "The Case for an Income Guarantee," The Public Interest, Number 4, Summer 1966, p. 38...
...Should we thus assist families, substantially above the poverty line, and actually above the median income level of all American families, a figure not much in excess of $6000...
...All plans seems to demonstrate that it is impossible to design a proposal which simultaneously eliminates financial poverty, stimulates incentives, and avoids "unneeded" rewards to the moderately prosperous, nonpoor...
...Some of the relevant numbers appear in this quotation...
...But in comparatively liberal constituencies like New York City and Connecticut, many poor persons will actually be worse off...
...An extra dollar earned always means more money available for expenditure.' In this statement Friedman made explicit his intent: rely on free choice, substitute grants for welfare services, and preserve incentives...
...At least for liberals and still more for radicals, income guarantees, however designed, are an addition to the armory of social care, not a substitute for everything from job retraining to psychiatric counseling...
...Some of the answer may lie in the politician's timidity before any new idea...
...One way to identify the issues is to list the criteria of a good income maintenance scheme...
...Moreover, some families will enjoy special tax treatment all the way up to nearly $8000 of earned income...
...For Lampman's family of five this would be $2000 as compared to the $1,480 contemplated on Friedman's assumptions by Lampman...
...Moreover, as every consumer of aspirin should be able to testify, symptomatic relief is much to be preferred to no relief at all...
...Income maintenance will facilitate the long-overdue reconstitution of welfare as individual case work...
...Cash benefits are superior to present welfare measures for reasons that Mr...
...This procedure severely tests the incentives of the poor and the generosity of the just barely not poor...
...above this income (as at the $8,000 level included in the last line) the present tax schedule applies...
...Social Security programs, a full-employment level of aggregate demand, provision in public service employment for those unable to secure jobs even in time of high demand, genuine desegregation of schools, suburbs, and cities, and a serious attempt to turn our cities into livable abodes for free citizens...
...2.The grants should not be tokens...
...It is important to recognize that any proposal which promises really substantial help to the poor (on a scale far larger than Tobin contemplates) will redistribute income and at the same time fracture the fragile alliance which joins liberal and conservative exponents of income maintenance plans...
...Beneficiaries of the scheme are allowed to retain two-thirds of additional earnings...
...The person earning $100,000 a year wouldn't be worried very much about someone who would be getting $3,000 a year, even though he was not working...
Vol. 14 • September 1967 • No. 5
