The seemingly boundless prosperity of the past decade has left some Americans behind. In 1998, almost one out of every eight Americans—almost one in five children—was poor, defined as living on an income of less than about $17,000 a year for a family of four.
Even poor Americans, of course, have access to goods and services (television, cars, phones, and health care) once considered luxuries. Moreover, many people are poor only temporarily or remain poor less because they lack opportunity to move up than because they fail to take advantage of the doors that are open to them. Still, poverty in the midst of plenty gives many people pause.
The leading presidential candidates, including those who have dropped out of the race, all share the goal of enabling more Americans to participate in the current prosperity. George W. Bush and John McCain want to reduce taxes on lower-income families and marshal the “armies of compassion” within the voluntary sector. Al Gore and Bill Bradley want to increase the minimum wage and expand the earned income tax credit (an income supplement available primarily to working families with children and incomes of less than $30,000 a year). They also propose to give almost all children access to health insurance (Bradley) or a preschool education (Gore).
Each of these proposals carries a big price tag and would absorb a big chunk of the projected federal budget surplus not dedicated to Social Security over the next decade. McCain’s tax cuts, however, are far smaller than Bush’s, while Gore’s spending proposals are more restrained than Bradley’s. Although fiscal constraint is commendable and can boost economic growth, it doesn’t benefit all income equally. Indeed, the rising tide that once lifted all the boats may not do so unless some of the leaks can be repaired.
Of particular interest is what is not being said in this campaign. No major candidate is proposing big trade restrictions although half of all Americans were sympathetic to those who protested the World Trade Organization summit in Seattle last year.
Nor is redistributing income through higher taxes on the wealthy on the table although concentrations of both income and wealth are at peak levels. Although Bush favors eliminating the estate tax, he has not endorsed that perennial GOP favorite, a cut in the capital gains tax.
Finally, no one on the Democratic side proposes to bring back the old welfare system. While it is too early to judge fully the new system, so far it has mostly succeeded. Caseloads have been halved since 1994, most former recipients are working, child poverty rates have declined, and children do not appear to have been harmed. Although the strong economy has helped, virtually all analysts agree that welfare reform itself, together with new supports for the working poor, has played a substantial role.
Instead, the focus of the campaign appears to be ensuring that poor working families have the tools they need to succeed. The question is which tools do they need? A lower tax rate? A stronger voluntary sector? More income from work? More health care or child care and education for their children? Or some combination of these or other policies?
Conflicting Views of the Problem
“The success of America has never been proven by cities of gold, but by citizens of character: men and women who work hard, dream big, love their family, serve their neighbor.” George W. Bush
“I want to keep our prosperity going … not by letting people fend for themselves, or hoping for crumbs of compassion, but by giving people the skills and knowledge to succeed in their own right in the next century.” Al Gore
The policy debate grows out of conflicting views about the causes of poverty and inequality and the effectiveness of various ways to narrow the gaps. Research cannot resolve all the relevant questions, which hinge as much on one’s basic values as on how one understands the issues. But research does strongly suggest that growing poverty and inequality in recent decades have resulted from changes both in the economy and in the culture.
On the economic front, new technologies, global competition, and a more white-collar economy have increased demand for educated workers and bid up their wages. The salary differential between men with and without a college degree has more than doubled since the early 1980s. Wages of unskilled workers have declined. The wage premium for education has already begun to spur more people to get more schooling. Improving the public schools, especially those serving disadvantaged children, is another long-term solution. But neither will do much to improve the lives of today’s adults or their families.
On the cultural front, more and more families are headed by a single parent, and among husband-wife families, far more have two earners. These developments can explain all the increase in child poverty and perhaps half the increase in income inequality since the early 1970s. Most poor children now live in single-parent families. Even when these parents work full time, they have trouble escaping poverty, especially if they must pay for child care.
Slowing the growth of single-parent families by reducing early childbearing or encouraging marriage would go a long way toward alleviating poverty, but in the interim, such families may need help supporting their children. The tension between the longer-term objective of strengthening families and the more immediate need to shore up their incomes is reflected in the contrasting approaches advocated by the candidates. Bush would rely heavily on the voluntary sector to provide the personalized attention and moral framework within which he believes the problem of poverty is best addressed. Gore also emphasizes the need to rebuild families, but sees a greater role for government in, for example, cracking down on deadbeat dads and encouraging businesses to locate in neglected neighborhoods. Bradley advocates a more traditional program of direct income assistance to working families that will “end child poverty as we know it.” McCain has endorsed such principles as promoting work, responsibility, and self-sufficiency along with devolving authority to lower levels of government and providing vouchers or tax credits for education. But he has provided almost no details on these or other domestic issues.
These contrasting positions rest on strikingly different views of what causes poverty. As Jonathan Rauch puts it, they represent “one of the most genuinely fundamental debates in all of public policy. Are the poor the same as you and me, only poorer? Do they mainly need money? Or do they need something else?”
At bottom, the debate will always be about what should be expected of individuals as against governments in ending hardship. Too much public assistance can undermine an individual’s incentives to take responsibility for his or her own actions. Too little can lead to a downward spiral of hope and opportunity and an increasingly divided society. The challenge is to design both the right amount and the right kind of assistance for those who have been left behind.
Lower Tax Rates
“We will take down the tollgate on the road to the middle class.” George W. Bush
Let us begin with the tax system. Bush claims that his tax plan will help low-income families. He would cut the 15 percent tax rate to 10 percent and double the child tax credit from $500 to $1,000 per child. But because this credit is not refundable, doubling it does nothing for those whose incomes are so low—less than $26,000 a year for families with several children—that they owe no income taxes. Indeed, most U.S. families pay more in payroll taxes than in income taxes. Only among the more affluent do income taxes loom large.
Even among families who pay income taxes, Bush’s plan is less progressive than it appears. Although lower-income families would get the biggest percentage tax cut, their after-tax incomes would grow little. A more effective, less costly way to assist the less affluent would be to cut payroll taxes or to provide a more generous earned income tax credit or a refundable child credit. (For details and different perspectives on tax proposals, see the articles by Henry Aaron and William Gale and by Bill Frenzel that follow.)
A Stronger Voluntary and Faith-Based Sector
“In the most affluent country of history, there are still people in need of help and hope. And there are private and religious groups in every community willing to provide both…. Without more support and resources, both private and public, we are asking them to make bricks without straw.” George W. Bush
Both Bush and Gore would rely more heavily on nonprofit organizations, including churches and other religious groups, to reduce social ills. Both note the limits of government in solving social problems and the need to engage the recipients of assistance in changing their own lives.
The push to marshal the voluntary sector is central to Bush’s compassionate conservatism. He would encourage more private giving by allowing the 70 percent of all taxpayers who do not itemize to deduct contributions to charity. He would also allow faith-based groups to use public funds to provide services to the needy—as long as the money is not used for purely sectarian purposes and recipients are free to choose a non-faith-based provider. Both Bush and Gore would use the voluntary sector to help curb violence, dropping out of school, drug abuse, and teen pregnancy.
One issue with this proposal is whether the resources made available by the new charitable deduction would reach their intended beneficiaries. Americans now give an estimated $175 billion a year to nonprofit organizations, including religious groups, universities, hospitals, and cultural institutions. Less than 10 percent goes to “human services,” and only some of that is for the disadvantaged. Making all charitable gifts tax deductible among non-itemizers would end up subsidizing a great deal of current giving—much of it to causes deemed worthy by the donor but with little or no impact on the poor. And, unless restricted to certain purposes, only a small share of any new giving is likely to have the desired effect of assisting the poor.
A second concern is whether faith-based groups can and will take on the challenge of serving huge numbers of the poor. Religious groups now use private contributions amounting to some $15-$20 billion a year to deliver social services, mostly short-term assistance in the form of food, shelter, or clothing. The hope is that augmenting the private donations with public funds would enable the sector to do much more. But so far only 3 percent of all congregations have elected to take advantage of the public funds made available for such purposes in the 1996 welfare reform bill. A third of their leaders have expressed interest in stepping up involvement, but whether the congregations have the administrative capacity to take on more than a modest array of tasks is uncertain.
A third issue is how effective faith-based organizations are. What makes these approaches so appealing is, in Bush’s words, their potential “to transform hearts and save lives.” It is true that some inner-city ministries have been credited with helping reduce juvenile crime and other social problems. But the evidence remains largely anecdotal and the role of faith only poorly understood.
A final concern for many is the importance of keeping religion out of politics and politics out of religion. The Supreme Court has ruled that government may contract with faith-based organizations as long as the money is not used for “pervasively sectarian” purposes. But if too much effort is devoted to separating the two to meet constitutional requirements, then the faith component may be lost.
More Income from Work
“The foundation of our effort should be the guarantee that no one who works full time, year round, should have to live in poverty.” Bill Bradley
Reflecting a public consensus that work is better than welfare—and that if you work, you shouldn’t be poor—Congress has for several decades been improving programs to assist the working poor. The most important initiative is the earned income tax credit, a $30 billion program that can provide as much as $3,800 a year (the equivalent of an extra $2 an hour) to a low-wage worker with children. Because the credit is refundable, families who owe no income tax can receive a direct payment from the Treasury at the end of the year. Low-income working families may also get health insurance through Medicaid, as well as child care subsidies, food stamps, and other help, none of which is counted in official measures of poverty but all of which help reduce hardship.
The major complaint about the earned income tax credit is error and fraud. Despite attempts by the Treasury to crack down, as much as one-fifth of all EITC benefits go to those who are ineligible. Critics fault Medicaid and food stamps for the opposite reason—many families who have left welfare for work but remain eligible for assistance are not receiving it, in part because of administrative problems in the states.
Another way to help working families is by increasing the minimum wage. A proposal to increase the federal minimum from $5.15 to $6.15 an hour failed by only two votes in the Senate late last year and is strongly endorsed by Gore, Bradley, and other Democratic candidates. Although politically popular, an increase in the minimum wage is less targeted than the EITC because some of the benefits flow to secondary earners in higher-income families. Moreover, especially if pushed too high, minimum wages may discourage employers from hiring low-skilled or inexperienced workers or may worsen inflation if the cost increases are passed along to consumers in the form of higher prices.
Many of these programs have had at least some bipartisan support, with disagreement centering on whether, or how much, to extend them further. When the Republican Congress threatened to delay payment of the existing EITC last year, George Bush openly criticized the effort to “balance the budget on the backs of the poor.” Almost all candidates support efforts to ease access to Medicaid and food stamps among families who are eligible but not participating, a theme that Gore, in particular, emphasizes. Bradley would go further by creating a more generous EITC for families with three or more children and phasing down benefits more slowly as earned income increases. Bradley would not only increase the minimum wage but also make future increases automatic by indexing it to median wages.
Finally, most candidates have tried to remedy the EITC’s unintended effect of discouraging marriage between two low-wage workers. Whether it makes sense to provide greater benefits to larger families as Bradley has proposed is debatable. Most middle-class families do not receive a raise when they have additional children. They feel constrained to limit their children to the number they can afford to support.
None of these proposals will do much to reduce the poverty that results from people not working or working very little. In 1998, 73 percent of the poor lived in families headed by an adult who either did not work or worked only part of the year. The public policy implications of this fact are viewed quite differently by different people. To some, the lack of work is an argument for providing subsidized jobs and training or for relaxing welfare rules that require work. To others, it suggests that nonworkers have unreported sources of income from relatives, boyfriends, or off-the-books jobs. One thing is clear: the employment rates of less-skilled women are quite sensitive to both the availability of, and the net rewards to, work. From 1995 to 1998, for example, as a result of tight labor markets, welfare reform, and expansion of the EITC, the share of single mothers participating in the job market increased from 58 percent to 73 percent while the share of married mothers hardly budged. These dramatic gains suggest that current policies (including macroeconomic policies) are working to mainstream the poor.
More Health Care for Children and Low-Income Adults
“When it comes to America’s health, this is not the time to be timid.” Bill Bradley
Most poor children are now eligible for health insurance through two publicly funded programs, Medicaid and the Children’s Health Insurance Program (CHIP), but many poor adults are not. Moreover, the rules are complex, leading to low enrollment rates and widely varying eligibility and coverage rates from state to state. Overall, 44 million Americans—16 percent of the population—lack health insurance. Both Bradley and Gore propose to cut that number, but Bradley’s plan is much more ambitious.
Bradley would eliminate the two public programs, replacing them with federally funded subsidies that could be used to buy health insurance in the private market. The value of the subsidy would vary with income, but it would fully cover children in families with modest incomes ($34,000 for a family of four) and all poor adults, including those without children. The costs of this and other Bradley health proposals, though difficult to estimate, are likely to be huge—at least $65 billion a year.
Gore’s approach is more incremental and much less costly. It would cover uninsured poor children and, more important, their parents (but not other adults) by boosting enrollment in, and improving access to, Medicaid and CHIP.
Bradley’s plan is so costly because it would provide the same basic coverage to all lower-income Americans regardless of where they live or work. In the process it would shift substantial health insurance costs from employers and states to Washington. Some benefits would accrue, at least initially, to employers, who would be freed of the cost of covering their lower-wage workers. Faced with lower costs, these employers might then raise wages. Thus, the plan promises both to reduce the number of people who are uninsured and to boost incomes for lower-income families who now have employer-based coverage.
Investing in Child Care and Early Education
“In order to stay first in the world economically, we must become first in the world educationally.” Al Gore
More than two-thirds of all mothers of preschool children are now in the workforce. Most poor mothers, who might once have relied on welfare, must now work. These developments, in combination with a belief that early education can be good for children, have put the issues of access to quality child care or a preschool experience squarely on the public agenda. The problem is especially acute for lower-income families for whom the costs of care loom large. Among families who pay for care, the average cost is around $5,000 a year—from a third to half of family income for a single mother in a low-wage job. For her, the choice becomes whether to rely on unpaid care of dubious quality or to remain poor. Day care subsidies available through a federal block grant to the states cover only 10-20 percent of all those eligible. As for the higher-quality preschool experience that many believe would most benefit children from poor families, the federally funded Head Start program does not begin to cover all those who are eligible.
Responding to these perceived needs, several candidates have promised new assistance to working families with children. Gore endorses the Clinton administration’s plan to expand child care assistance by $21 billion over the next five years. He also wants to make preschool universally available by the end of his first term and has committed $5 billion a year to do so. The federal funds would match state spending dollar for dollar to encourage states to expand access to most four-year-olds. States could use a wide variety of providers, including public and private schools, day care centers, and churches.
Both Gore and Bradley would expand Head Start, but Bradley has been more explicit, earmarking $1 billion a year over four years, a total that would cover all poor children. (Bush has also endorsed the program but wants to move it from the Department of Health and Human Services to the Department of Education to help ensure a higher-quality curriculum.)
The two Democratic candidates both emphasize investments in children, but one has staked his campaign on the importance of access to early education and the other on access to health care. Both are critical investments for at least some children who do not have such access, and both are likely to improve the economic situation of some low-income families (by either boosting their wages or lessening the cost of child care). Both would shift to the federal government some costs now borne by families, employers, or the states. Finally, both proposals extend assistance well up into the middle class, but Gore’s proposals tend to be less income-targeted than Bradley’s.
At a time when sound bites and negative ads have become the staples of presidential campaigning, it is gratifying to see so many serious proposals on the table for debate. Although the proposals may not “end poverty as we know it” or redress in any fundamental way current concentrations of income and wealth, they are nonetheless consequential measures based on sound, if somewhat different, understandings of the underlying problems.