Those who can work should have the opportunity to work
Nearly 50 million Americans live below the poverty line, while tens of millions of others are struggling to keep their heads above water. Unfortunately, there are just as many Americans living in poverty today as there were when the last recession ended in 2009.
A compassionate nation like ours can help raise its people out of poverty while spending resources wisely. By streamlining programs, empowering state and local governments, and creating incentives to work, we can give poor Americans the opportunity to thrive while shielding them from the worst effects of poverty.
Economic growth is the best long-term solution to poverty. However, growth has been weak under President Obama because of excessive taxes, overregulation, and runaway government spending. We can remove these barriers to our economy, but we still need to help the poor while the engines of growth are restarting.
Tax Credits and Wage Supplements
The Earned Income Tax Credit (EITC) is one program that shows how we can fight poverty while encouraging work—it provides a tax refund for those who have jobs but don’t earn enough to be self-sufficient. One shortcoming of the EITC is that tax refunds may not arrive until someone has been working for more than a year. To provide a stronger incentive to work, there should be immediate benefits for those who have jobs. This can happen by transitioning from tax refunds to wage supplements, which add money to every paycheck, starting from day one. Wage supplements also create a strong incentive to spend more time at work, since the benefit rises with each hour spent on the job.
By adding to the paychecks of low-income workers, EITC and wage supplements accomplish the same goal as an increase in the minimum wage, but without reducing the number of jobs available or punishing job creators. If the federal minimum wage rose from $7.25 to $15 per hour—the number proposed by Hillary Clinton—many jobs that pay $9 or $10 per hour would disappear, because employers could not afford the cost. When such jobs disappear, the primary victims are the poor and unemployed, who depend on such jobs to acquire skills and get a foot in the door so they can eventually rise up.
Empowering State and Local Government
Instead of relying on the federal government to figure out the best way to fight poverty in every community, state and local governments should play the leading role. There is no reason to believe that the best way to fight poverty in Washington D.C. or Baltimore is the same as the best way to fight poverty in rural Kansas or Georgia. That’s why state governments should be able to customize anti-poverty programs in response to the particular challenges they face.
The federal government can encourage customization by rescinding the thicket of intrusive regulations that restrict how the states can run various anti-poverty programs. Washington can also spur innovation by creating special flexible funding pools to support customized programs. The best programs supported by these pools could become models for all 50 states.
Another essential means of helping the poor is to strengthen Medicaid. In America, everyone deserves access to healthcare regardless of whether they have a job. However, there is very little evidence that Medicaid actually improves the health of its recipients, despite its tremendous cost.
The way to strengthen Medicaid is the same as the way to strengthen other government health programs; we need to put patients, families, and doctors first. Instead of limiting choice and increasing red tape, the government should encourage competition to provide better services for recipients.
In the case of Medicaid, the states’ reliance on federal matching funds leads to inefficiency, because the system rewards states for spending more instead of spending more wisely. Instead, there should be a fixed cap on federal support. This can be accomplished by giving states block grants instead of federal matching funds, or by giving states a fixed dollar amount for each individual enrolled in Medicaid. The advantage of the latter is that in the event of an unexpected increase in enrollment—because of a recession, for example—states will be able to handle the change.
The purpose of Medicaid and other anti-poverty programs is to raise people out of poverty, not just to ease the burdens of being poor. Undoubtedly, federal, state, and local governments must make sure that poor Americans have enough to eat and other basic necessities of life. But a highly centralized big government approach to welfare has resulted in runaway costs without raising people out of poverty. In fact, there are 10 million more Americans living in poverty than there were 20 years ago. By reducing waste, incentivizing work, and empowering state and local governments, we can help poor Americans to achieve the self-sufficiently that they truly want.