Gore’s Plan Protects the Bottom Third

Al Gore is betting that he can win the White House by focusing on specifics. He upped the ante when his campaign released a 200-page road map detailing the economic agenda that a Gore administration would pursue over its first four years.

This hefty document lays out a number of broad policy goals. Among the most ambitious is the reduction of the poverty rate after taxes from 12% to below 10% of the population by 2004. (A family of three is considered poor if its income is below $13,000 a year.)

This objective could be realized, Gore contends, by raising the minimum wage by $1, sustaining federal funding for welfare-to-work programs and expanding the earned income tax credit. The most important aspects of the tax credit proposal are a partial alleviation of the marriage penalty built into the program and an increase in benefits for families with three or more children.

Looking just at the minimum wage and tax credit parts of the plan, the immediate impact of Gore’s proposals on the poverty rate would be much smaller than promised. And the welfare-to-work programs are too small and unproven to significantly alter this conclusion.

However, over the long run, these initiatives may well turn out to be quite successful. Because the earned income tax credit program is only available to those who work, it creates a powerful incentive for people to take a job. We estimate that its expansion could encourage roughly 100,000 household heads to enter the work force.

A higher minimum wage, to be sure, could discourage some hiring by employers. But an increase in the minimum wage would still boost earnings among the working poor, and its very modest negative effects on employment are swamped by the employment-enhancing effects of the tax credit program.

In short, work is a great antidote to poverty, one that is far superior to welfare. Indeed, if all poor, able-bodied family heads were to work full-time, the poverty rate would be more than cut in half.

Moreover, measuring the impact of such initiatives on the poverty rate alone misses their importance to those who are not poor but are still struggling to make ends meet. Roughly one-third of the population has incomes that are below twice the poverty level (about $26,000 for a typical family). Most of the benefits of Gore’s initiatives would be felt by this bottom one-third.

Gov. George W. Bush, meanwhile, takes a somewhat different approach. He proposes to “take down the tollgate on the road to the middle class”—primarily by doubling the child tax credit and reducing the lowest income tax rate from 15% to 10%. While this will result in tax reductions for some low-wage workers, it will have little—if any—effect for many in the “bottom third.”

This is because workers earning the lowest wages often have no income tax liability in the first place. Consider, for instance, a single mother with two children working full time at the minimum wage. Her tax burden under the Bush plan would be no different than it is today. Workers would need to earn around $22,000—more than twice the income of a typical full-time minimum wage worker—in order to receive a reduction in their tax burden under the Bush plan.

Gore’s proposals, which do not require a worker to earn this much to receive benefits, are the more effective at targeting support to those most in need. And by boosting employment among those formerly on welfare, these initiatives can further reduce dependency.

Polls show that a majority of the public is opposed to providing higher benefits to families that have additional children while on welfare; they likely would also oppose raising the value of the earned income tax credit for larger families.

But with this caveat, the Gore approach has the potential to garner broad public support. Overwhelmingly, polls show that Americans want to ensure that full-time workers are kept out of poverty. Thus, an agenda of work supports for those in the “bottom third” represents a rare opportunity to combine good politics with good policy.