Friday, September 17, 2010

Reduce Poverty: Remove Work Disincentives From Government Entitlement And Transfer Programs

A response I wrote to a Wall Street Journal opinion, "Wealth and Poverty: How's that inequality thing working out?" published on September 17, 2010:
The article actually explains a lot about why inequality and poverty exists in the US in mentioning that the Census data overstates poverty because it excludes noncash government payments like housing subsidies, food stamps, the earned income tax credit or entitlements like Medicaid.

The strategy of the US response to poverty, at least since the end of WWII, is to transfer payments to the poor and needy through subsidies and entitlements. Transfer payments and entitlement programs do not promote the principles for success in the US.

Success in the US requires hard work, education, motivation, skills and good work habits. Transfer payments promote dependency, reduce motivation and interfere with skill development. Transfer and entitlement payments have income eligibility cutoffs, which act as a large marginal tax increase and motivate people to avoid generating income to lose the government income. All government entitlement and transfer programs have some eligibility requirement or unintended consequence that works against successful achievement. It can be the previous single parent requirement for government benefits for a child, which broke up families and removed fathers from homes, or income eligibility requirements for lunch programs and food stamps, which forces families close to the cutoff income level to choose between earning more money and feeding their children nutritionally.

Similarly, the minimum wage laws prevent many unskilled workers below the poverty level from developing good work habits and needed job skills because they remain unemployed. It is too costly for employers to hire and train these unskilled workers at minimum wage levels. At the same time, all across the US, middle and upper income kids can learn valuable job skills as interns without pay because it is educational, but training an unskilled employee requires minimum wage.

The best way to reduce poverty in the US is to review and eliminate all the disincentives to full time work skill development our transfer and entitlement programs have in them. Some programs need to be eliminated and others need to be modified. For example, unemployment insurance acts both as a needed safety net in time of unemployment and as a disincentive to finding work while there are remaining benefits. Modify the unemployment program to act as an incentive to find work by allowing the benefits to be continued (at a reduced level) after one finds a new job so one is better off working with unemployment benefits than either not working or working without benefits.

Some of our poverty and lack of workforce skill training (which increases poverty) is the result of the unintended disincentives in place in many transfer and entitlement programs.

Many of the governments new programs to help families during this recession, such as the recent housing foreclosure prevention programs, contain requirements that act as disincentives to working or making more money above eligibility levels.

Remove from all transfer and entitlement the disincentives for work and skill training and the economy will grow, poverty will decline and household income will increase.
Read the complete Wall Street Journal opinion piece here.
If the full Wall Street Journal opinion is unavailable at the previous links, try this link. It may help.

1 comment :

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