In One Image, Everything You Need to Know about the Washington-Created Welfare State (Part II)

As part of my everything-you-need-to-know series, I shared an incomprehensible flowchart showing the ridiculous maze of federal welfare programs back in 2015.

Today, let’s look at another visual that captures what’s wrong with the Washington welfare state. As you can see, taxpayers are footing the bill for a system that spends more than twice what would be required to eliminate all poverty.

The chart comes from a new report by Matt Dickerson for the Economic Policy Innovation Center. And the purpose of the chart is to show that the welfare system is grotesquely inefficient.

Here’s some of what he wrote.

…the welfare bureaucracy is broken, making it more difficult for millions of people to achieve the American Dream. …It is demeaning to believe that many Americans are simply unable to be successful and should be relegated to a life of dependence on perpetual government subsidization of their basic needs. …the welfare bureaucracy undermines and discourages employment. Only 18% of able-bodied adults receiving Food Stamps, who are expected to meet work requirements, actually work 20 hours or more per week. …Many welfare programs undermine the institution of the family — and the benefits brought by stable two-parent households — by including marriage penalties. …The principle of subsidiarity dictates that the independent sector, communities, and local and state governments should be empowered rather than the distant and bureaucratic central government. …The welfare bureaucracy is also filled with duplication and overlapping programs. According to the Congressional Research Service, there are 15 different food aid, 13 housing, 12 health care, and five cash aid programs. …Welfare is one of the largest categories of the federal budget, comprising about 20% of annual spending. …the federal government spent more than $28,100 per person in poverty — providing benefits $15,000 above the poverty threshold for individuals

At the risk of understatement, this is an utter disaster.

Terrible for taxpayers. Terrible for poor people.

So why does it exist? This clever cartoon tells part of the answer.

But this is only a partial explanation.

Don’t forget all the bureaucrats, consultants, and contractors who make a lot of money administering the programs. Walter Williams called them “poverty pimps” and they have an obvious incentive to maintain the current system.

I’ll close by emphasizing a point from Matt’s EPIC report. The answer is to get Washington out of the redistribution racket. In other words, copy the success of Bill Clinton’s welfare reform by turning all welfare programs into block grants and putting states back in charge. With the ultimate goal, of course, of phasing out the block grants so that states are fully responsible for raising and spending the money.

P.S. The goal should not merely be reducing poverty, but also reducing dependency.

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America’s Destructive Welfare State

If I want to educate someone about the harmful impact of America’s counterproductive welfare state, there are several items I like to share.

• A complex and crowded flowchart of various Washington programs to redistribute money.
• A chart showing that poverty stopped falling when politicians declared a “war on poverty.”
• A cartoon capturing how redistribution programs undermine incentives for self-sufficiency.
• A chart showing the explosive growth of social welfare spending in Western nations.
• A chart showing how redistribution programs create very high implicit tax rates.

I augment those visuals with other analysis, such as my two-part series (here and here) on the right and wrong way to reduce poverty (Hint: the ultimate goal should be reducing dependency).

And I just read a sobering article by John Goodman that I’ll add to my list. Here are two shocking/depressing findings that he shared.

First, in many cases, households that mooch get more money than households that work.

…the bottom fifth of households in 2017 had an average (after tax and after transfer) income of $33,653 per person. …The per capita income of second fifth in 2017 was $29,497; and for the middle fifth it was $32,574. Those with the least earned income had more actual total income than those in the next two higher quintiles! The average household in the bottom fifth received 14 percent more income than the average second-fifth household and 3.3 percent more than the average middle-income household.

As you might predict, people respond to incentives. John reports that the excessive welfare state has greatly undermined incentives to be productive.

Since the War on Poverty started in 1965, the labor force participation of the bottom one-fifth of households has dropped from 70 percent to 36 percent. As a group, this one-fifth now receive more than 90 percent of their income from government. For this group, our welfare system has substituted in-kind benefits for labor market income.

These two sets of numbers are horrific. We basically have a system that tells people they are chumps if they work. Their reward for work is to pay taxes.

But if they become wards of the state, they can play video games all day and get lots of freebies.

That’s a recipe to destroy societal capital.

P.S. For readers who want some international evidence, I have a three-part series (here, here, and here) on how the welfare state is hurting European nations.

P.P.S. The Biden Administration wants to lie about the definition of poverty. Which may or may not be worse than their celebration of dependency.

P.P.P.S. Here’s a ranking of which states exacerbate the problem of redistribution.

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The Right and Wrong Way to Reduce Poverty, Part II

In Part I of this series, I explained that the War on Poverty, launched by Lyndon Johnson and expanded by other profligate presidents, has been bad news for both taxpayers and poor people.

More specifically, I shared some academic research showing how it led to a big increase in dependency on government.

Let’s expand on that topic today by looking at a column published last week by National Review.

Authored by Angela Rachidi of the American Enterprise Institute, it compares the two ways of reducing poverty and deprivation. Here are some excerpts.

President Johnson introduced his Great Society agenda, setting the stage for the vast federal anti-poverty bureaucracy that we have today. Passage of programs such as Medicaid, Head Start, and a nationalized Food Stamp Program followed, and today, the federal government funds more than 80 means-tested programs or services… Unsurprisingly, this approach set the federal government on a disastrous fiscal path. Federal expenditures on means-tested programs have increased eightfold since the War on Poverty started, equating to an additional $800 billion per year in today’s dollars. …expanding transfer payments to reduce the poverty rate was simply a mathematical achievement. Fundamentally improving the lives of poor families has proved an entirely different task. …the key to the problem of poverty in this country was a failure among young people to achieve key life milestones. …when young people graduated high school, worked full-time, and married before having children, their odds of living in poverty dramatically reduced. …Analyzing 15 years of longitudinal data consisting primarily of poor unmarried mothers…, I find that many disadvantaged unmarried mothers were able to rise out of poverty when they later achieved success sequence milestones, even though they started on a different path. For example, 15 years after giving birth to a child outside of marriage, only 9 percent of mothers who earned a high school education, worked full-time, and later married were in poverty. Among mothers who failed to complete any of those three steps, the poverty rate was 79 percent.

Those “success sequence milestones” sounded familiar.

Sure enough, they are similar to what my late, great, friend Walter Williams wrote many years ago.

The problem, of course, is that government penalizes you if you get a job or get married.

Though I’m guessing the problem is worse in places like New York in California than in states like Florida and Texas.

P.S. Biden and other folks on the left want to bastardize the definition of poverty in hopes of further expanding the welfare state and creating more dependency.

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The Right and Wrong Way to Reduce Poverty, Part I

I’ve previously pointed out that the so-called War on Poverty is a failure, both for poor people and for taxpayers.

My main argument is that poverty was steadily declining throughout American history, but that progress ground to a halt once politicians in Washington decided to spend trillions of dollars.

As you might expect, folks on the left have a different perspective. Or, to be more precise, they have two different perspectives.

1. Some left-leaning people assert that that the post-1965 lack of progress is evidence that we need to have even more redistribution.
2. But some of them instead assert that there has been a lot of progress, but not the kind that shows up in the official measure of poverty.

Today, let’s examine the second argument.

We’ll start with a chart showing many different ways to measure poverty.

The official poverty rate (“Official Poverty Measure”) comes from the Census Bureau and it gets the most attention in the media and elsewhere.

But is it the right measure, and does it show the impact of redistribution programs?

In a study published by the Journal of Political Economy, Richard V. Burkhauser, Kevin Corinth, James Elwell, and Jeff Larrimore put together a “full poverty measure” that captures the value of various handouts.

Based on their approach, there is almost no material deprivation in the United States. Their poverty rate as of 2019, shown in the above chart, was just 1.6 percent.

Here’s some of what they wrote.

Almost 60 years have passed since President Johnson declared his War on Poverty. Even so, academics and policy makers still debate its outcome. …disagreement over progress in the War on Poverty stems from disagreements over how poverty should be defined… We…create a poverty measure…which we refer to as the absolute full-income poverty measure (FPM)… We include both cash and in-kind programs designed to fight poverty, including food stamps (now the Supplemental Nutrition Assistance Program [SNAP]), the school lunch program, housing assistance, and health insurance. Finally, we hold poverty thresholds constant in inflation-adjusted terms using the Personal Consumption Expenditures (PCE) price index. Using this poverty measure, we find substantial reductions in poverty based on President Johnson’s standards. Specifically, we find that the absolute FPM poverty rate in 2019 was 1.6%, well below the official poverty rate of 10.5%.

Incidentally, the official poverty rate is now 11.5, so perhaps the authors’ FPM measure also has increased a bit.

But that’s not important for our discussion today. Instead, let’s consider whether their FPM measure shows that the War on Poverty has been a success.

The answer depends, at least in part, of whether you think government dependency is an acceptable outcome.

Here are some further excerpts from the study.

…we evaluate the extent to which poverty has fallen as a result of increases in market income versus increases in government transfers. As President Johnson further stated in his State of the Union address on January 8, 1964, “The War on Poverty is not a struggle simply to support people, to make them dependent on the generosity of others”… Contrary to this goal of President Johnson, we estimate that dependence—which we define as receiving less than half of full-income from market sources—among working-age individuals increased from 4.7% to 11.0% between 1967 and 2019. Likewise, dependence among children increased from 6.0% to 13.1%. …Success in reducing material hardship has come at the cost of having a greater share of the population dependent on government for at least half of their incomes.

Here are some charts from the JPE article, all of them showing how dependency increased for just about all groups in society.

Here’s one final excerpt, showing the difference between the right way and wrong way of reducing poverty.

…the War on Poverty…was not won by making people more self-sufficient, as President Johnson sought. Dependence (defined as receiving less than half of household income from market sources) among working-age adults and children more than doubled from 1967 to 2019. However, the rise in dependence was not uniform over the entire period, with dependence falling substantially, especially among children and non-aged Black individuals, from 1993 to 2000. This period is coincident with welfare reforms that required and encouraged work as well as a strong labor market.

This echoes my view that Bill Clinton’s welfare reform (replacing an entitlement with a block grant) was very successful and that it should be extended to other redistribution programs such as Medicaid and food stamps.

And it reinforces my view that Biden’s proposal for per-child handouts would be very harmful. The goal should be employment and self-sufficiency, not dependency and bigger government.

P.S. We can learn lessons about welfare and dependency by looking at data from Europe and Canada.

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Europe’s Most Depressing Chart

Last month, I shared data on per-capita welfare spending in American states.

The big takeaway was that states such as New York and California were spending more tan twice as much as states such as Texas and Florida. And I concluded that “Florida and Texas presumably are reducing poverty while states such as New York and California are subsidizing it.”

Are there similar numbers for the entire world? Can we see which countries have the most redistribution spending, on a per-capita basis?

I did something like that in 2019, but the comparisons were based on social welfare spending as a share of economic output, not on a per-capita basis. And the data only covered industrialized nations.

My (admittedly cursory) online search did not unearth any comprehensive country-by-country data, but this a good opportunity to share data on the Europe’s welfare spending as a share of the world’s total.

Here’s a shocking graph from a 2012 World Bank report.

Keep in mind, as you look at this data, that Europe’s population is only about 10 percent of the world total.

This has to be Europe’s most depressing chart. People have quibbled about these numbers, and we also have to assume that there may have been some changes over the past 10 years.

But it’s a safe guess that any “improvement” in Europe’s numbers would be because other nations expanded redistribution, not because European government became more fiscally prudent.

The bottom line is that European welfare states are too burdensome and that won’t end well.

P.S. By some measures, the U.S. is more redistributive than Europe. But that’s only because so much redistribution in Europe is financed by huge tax burdens on lower-income and middle-class households.

P.P.S. The World Bank study cited above also had some powerful data on the harmful impact of excessive government spending.

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Mirror, Mirror, on the Wall, Which State Provides the Most Handouts of All?

Back in 2010, I put together a “Moocher Index” based on the percentage of non-poor people in each state getting government handouts.

Based on that back-of-the-envelope calculation, Vermont, Mississippi, and Maine were the biggest moocher states and Nevada, Colorado, and Arizona were the most self-reliant states.

Then, in 2013, I shared some data looking at the value of welfare benefits in each state, compared to both the median wage and to the federal poverty rate.

Sadly, those numbers showed it was more lucrative in many states (especially in the Northeast and Hawaii) to live off the government rather than work.

Today, let’s look at which states are the most generous with handouts. The Committee to Unleash Prosperity shared this table yesterday, which ranks states based on the level of per-capita spending on public welfare.

The folks at CTUP highlighted California and Florida. Since I usually do New York-vs-Florida and California-vs-Texas comparisons, I added a couple more numbers.

P.S. Looking at the above numbers, keep in mind that there is a Laffer Curve-type relationship between redistribution spending and the poverty rate. So states like Florida and Texas presumably are reducing poverty while states such as New York and California are subsidizing it.

P.P.S. Compared to other industrialized nations, the United States has a relatively low level of welfare spending.

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Redistribution Undermines Prosperity: Evidence from Italy

I periodically explain that redistribution is bad for prosperity, mostly because it encourages sloth and dependency among recipients.

Though it is important to realize that the taxes needed to fund redistribution also are harmful (the magnitude of the problem can be viewed here and here).

I also periodically share new scholarly research on these issues.

And that’s our topic for today since the U.K.-based Centre for Economic Policy Research has published some new research about Italy.

The study, which looks at why Northern Italy is much more prosperous than Southern Italy, was authored by Jesús Fernández-Villaverde, Dario Laudati, Lee Ohanian, and Vincenzo Quadrini.

We’ll start by confirming there is a big difference in relative living standards. As you can see from this chart, this gap has existed ever since Italian unification in the 1800s and is bigger now than it was 100 years ago.

Here are some key findings, most notably the harmful impact of redistribution..

In a new paper (Fernández-Villaverde et al. 2023), we seek to identify the major drivers of the regional income differences in Italy using the macroeconomic approach based on the measurement of various wedges… The model consists of two integrated regions. The first is representative of the Northern and Central regions. The second is representative of the Southern and Island regions. …our goal is to understand which of the measured wedges are especially important for generating lower income in the South. …We…find that inter-regional fiscal transfers contribute significantly to regional income differences (see Figure 2). The combined contribution of productivity differences and inter-regional fiscal transfers accounts for more than 70% of the income gap between Southern and Northern regions. The finding that inter-regional fiscal transfers contribute to regional income disparities is the most interesting finding, and the intuition is straightforward. First, inter-regional fiscal transfers are large. …In the counterfactual steady-state equilibrium without fiscal transfers, the output gap between the South and the North is reduced by one-fourth.

That’s remarkable. One-fourth of the gap between Northern Italy and Southern Italy could be eliminated simply by getting rid of redistribution.

Here’s the aforementioned Figure 2, which also is a good depiction of the dramatic difference between north and south.

There’s one other aspect of the study that is worth mentioning.

In their research on regional prosperity, the authors find that funds for “regional development” are not helpful.

And that is true regardless of whether the handouts come from Rome or Brussels.

Italy has invested large funds in regional development for decades. Were these monies well spent? …Nowadays, the European Structural and Investment Funds account for more than one-third of the whole budget of the EU, with a forecasted expenditure of €392 billion in 2021-2027. Will these funds make a difference? Our paper’s results cast doubt on the efficacy of these regional policies per se

I’m shocked, shocked.

P.S. The good news for Italy is that policy is not getting worse over time, but that also can be bad news since the country needs some shock therapy to avert a rather grim future (elaborated on here and here).

P.P.S. Not only does Italy provide some good evidence on the damage caused by redistribution, it also has led to research showing the harm of red tape.

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Will Biden Make Poverty Hucksterism Official Policy?

There are three troubling things about the politics of poverty.

First, I frequently grouse and complain that some folks on the left don’t actually care about helping poor people. Instead, as explained in my Eighth Theorem of Government, they simply use poor people as props so they can expand the size and scope of the welfare state.

Second, I sometimes speculate that our friends on the left are more motivated by a disdain for the rich than they are by any desire to help the less fortunate (something that Margaret Thatcher observed many decades ago).

Third, some people knowingly (or perhaps in a few cases, unknowingly) lie by asserting that income inequality is the same thing as poverty – even if it means absurd conclusions such as there being more poverty in the United States than in Mexico.

For purposes of today’s column, we’re going to focus on this third group because lying about poverty may soon become official government policy.

In a column for the Wall Street Journal, the American Enterprise Institute’s Kevin Corinth warns that the Biden Administration is thinking about turning poverty hucksterism into official government policy.

A new report from the National Academy of Sciences seeks to redefine poverty. …the report’s real purpose could be to expand the welfare state. If the Census Bureau adopts the new poverty definition, millions more Americans could automatically be made eligible for benefits—leading to at least $124 billion in additional government spending over the next decade… It would also break with more than 50 years of precedent by establishing a relative standard. People could become better off and still be classified as “poor”; poverty would decline only if income at the bottom of the distribution increases more quickly than in the middle class. …Redrawing the official poverty line would be a nakedly political move without any scientific basis that could alter the scope of the safety net overnight.

I suspect readers won’t be surprised to learn that the report was put together by a very biased panel.

The 13 authors of the recent NAS paper appear to have been selected along partisan lines: 12 of them have contributed to Democratic causes or worked for Democratic administrations.

And I also suspect that nobody will be surprised to learn that a secondary effect will be to steer more redistribution to left-wing states.

As consequential is the potential reallocation of government assistance across states. The poverty line under the Supplemental Poverty Measure is higher in states like California and New York…and lower in states like West Virginia and Mississippi.

Adding $124 billion of additional cost to the welfare state would be bad news for taxpayers.

But the worst thing about this scheme is that it would enshrine dishonesty into Washington’s welfare state.

As I wrote a few years ago, it would be “insanely dishonest.” That’s because “everyone’s income could double and the supposed rate of poverty would stay the same.” Or that “a country could execute all the rich people and the alleged rate of poverty would decline.”

And now the Biden Administration is thinking about turning this type of dishonesty into official policy (which is hardly a surprise since the Obama Administration thought this awful idea was the right approach).

P.S. For anyone who actually wants to help poor people, we already know what works.

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The Horrendous Tax Implications of Basic Income

In past columns on the topic of basic income, most of my attention has focused on how universal handouts would undermine the work ethic.

To be succinct, I fear that a non-trivial share of the population would exit the labor force if they received a big chunk of guaranteed money from government.

But there’s another side to the fiscal equation, which is the tax burden would be needed to finance a basic income.

Thanks to some research from Germany, we have at least one answer to that question.

But I suspect that most people won’t like the results, which were put together by a team led by Professor Frank C. Englmann of the Institute of Economics and Law (IVR) at the University of Stuttgart.

…introducing a UBI that guarantees a livelihood while eliminating social benefits (e.g., unemployment benefits, old age security, and family allowance) would considerably simplify the German social system and greatly reduce the administrative burden. However, compared with the legal status in 2021, state transfer payments would have to be greatly increased. “According to our calculations, public expenditure on a living UBI would be up to EUR 900 billion. Considerable tax increases would be necessary in order to finance this,” says Professor Frank C. Englmann of the IVR. If the state introduced a flat tax of 66.1% for all citizens, a UBI of EUR 1,000 per month for adults and EUR 500 for children could be financed. …Compared with the status quo, there would be a considerable redistribution.

I like the flat tax, but I’ve always assumed a low tax rate.

Needless to say, a flat tax of 66.1 percent would be absurdly destructive.

How many people – either in Germany or any other nation – would choose to work when faced with such punishment? Especially when instead they could sit on a couch all day and collect a basic income?

No wonder Swiss voters overwhelmingly rejected the idea in a 2016 referendum.

P.S. Joe Biden at one point understood the downsides of universal payments. Given his support for per-child handouts, he’s obviously since moved in the wrong direction.

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More Evidence Against Universal Basic Income

I’ve repeatedly expressed opposition to “universal basic income” and I repeated those concerns as part of a conference at the Acton Institute earlier this week.

If you don’t want to spend two minutes to watch the video, all you need to know is that I’m worried that more redistribution will lead to more dependency and less work.

This is captured in this Wizard-of-Id parody, with the only difference being that UBI is a big handout for everything rather than a set of handouts for specific reasons (food stamps, welfare, housing subsidies, etc).

There’s already academic evidence against UBI, as I wrote in 2021 and 2022.

Now we have new evidence this year. Three European academics – Timo Verlaat, Federico Todeschini, and Xavier Ramos – produced a study on the consequences of an experiment in Barcelona.

Here are their main findings, published by the Germany-based Institute of Labor Economics, all of which confirm that a basic income would be bad news.

…we aim to advance the literature on unconditional transfer programs by describing their employment effects in the context of an advanced welfare state. Our analysis uses data from a field experiment in Barcelona (Spain), trialing a generous and unconditional municipal cash transfer program. …we find strong evidence for sizeable negative labor supply effects. After two years, households assigned to the cash transfer were 14 percent less likely to have at least one member working compared to households assigned to the control group; main recipients were 20 percent less likely to work. …Another important finding concerns the persistence of effects. Employment rates in the treatment group remain lower even six months after the last transfer, indicating that households’ labor supply decisions may be hard to reverse.

I have to give credit to Matt Weidinger of the American Enterprise Institute. I did not know about this new study until I saw his article, which also merits a few excerpts.

That program is similar in many respects to universal basic income (UBI) programs proposed in Congress and being tested in multiple locations across the US. It also bears similarities to the unconditional expanded child tax credit payments temporarily made to tens of millions of households with children in 2021, which President Joe Biden’s latest proposed budget seeks to revive. Those similarities suggest American policymakers should take heed of the study’s findings… As Jon Baron, a longtime expert on evidence-based policy, recently described, the findings of the “high-quality” randomized control trial reflected in the study “suggest a need for caution in the design of anti-poverty programs, to avoid discouraging work effort.”

Since I’m a policy wonk rather than an academic, I don’t need qualifiers such as “a need for caution.” I can bluntly state that redistribution programs have a very negative impact on labor supply.

The moral of the story is that a basic income would make a bad situation even worse, especially when you consider that politicians almost surely won’t get rid of the handout programs that already exist (this is the “public choice” problem I mentioned in the above video).

Instead of moving in the wrong direction, existing redistribution programs need to be scaled back. But that’s just part of the solution. The federal government should get out of the way.

It’s time to shift all of these programs back to the state level, building on the success of Bill Clinton’s welfare reform from the mid-1990s.

P.S. Back in 2017, Joe Biden said some sensible things about work and dependency. Given what he’s now pushing, he obviously was not being sincere back then. Or maybe he doesn’t remember.

P.P.S. I can’t claim perfect memory. Regarding the Swiss referendum on basic income, I was wrong about the margin of victory (77 percent rather than 78 percent), wrong about the year (it was in 2016 not 2015), and the proposed handouts were even bigger than I remembered.

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Another Poverty Huckster

There are some policy fights that focus on technical disagreements (for instance, how much do deadweight losses increase when tax rates go up?) and other policy fights that involve moral disagreements (for instance, should drugs be legalized when that may lead some people to harm themselves?).

Other policy fights, however, involve dishonesty.

Poverty hucksters might be the most irritating example. These are the people who push an utterly dishonest definition of poverty, which I first wrote about back in 2010. But this article from 2019 has the best summary.

…folks on the left have decided to use an artificial and misleading definition of poverty. One that depends on the distribution of income rather than any specific measure of poverty. Which is insanely dishonest. It means that everyone’s income could double and the supposed rate of poverty would stay the same. Or a country could execute all the rich people and the alleged rate of poverty would decline. No wonder the practitioners of this approach often produce absurd data, such as the OECD’s assertion that there’s more poverty in the United States than in basket case economies such as Greece and Italy.

Sadly, the many complaints from me and others have not stopped the poverty hucksters.

Here’s a chart I just downloaded from the Organization for Economic Cooperation and Development, one of the organizations pushing the dishonest measure of poverty.

As you can see, they want people to believe that there’s more poverty in the United States than in nations such as Turkey, Italy, and Greece.

Heck, they also want people to think the wealthy nations of Luxembourg and Switzerland have more poverty than Hungary.

I’m sharing this information because it’s time to add a new member to our collection of poverty hucksters.

Timothy Noah of the New Republic has a column in the Washington Post that utilizes the OECD’s inaccurate definition of poverty. Here are some excerpts from his article.

How can the richest nation on Earth have so much poverty? …The Bible tells us that the poor are always with us. But devout resignation can’t explain why the United States, with the world’s largest economy (gross domestic product: $26.15 trillion) should house more poverty than many much poorer countries. In 2021, the Organization for Economic Cooperation and Development ranked 37 member nations by poverty rate. Costa Rica had the highest rate, followed by Bulgaria, but way up there at No. 10 was the United States. …We may not have the means to eliminate poverty. But we can certainly do better than Estonia.

If you read Noah’s entire article, you’ll quickly see why he uses the OECD’s dishonest data.

Like Biden, he wants a massive expansion of class-warfare taxation and a big increase in the welfare state, so it is in his interest to portray America as a dystopian hellscape of suffering and deprivation.

It would be nice, however, if he relied on accurate data. Then again, accurate data would backfire on him.

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The Adverse Economic Consequences of Busting Social Security’s Wage Base Cap

Today we are going to look at proposals to expand the burden of Social Security payroll taxes, and let’s start by recycling this 2008 video.

All of the analysis in the video is still accurate, but two of the numbers need to be updated.

• Social Security’s long-run deficit is now $56 trillion rather than $24.9 trillion as was the case back in 2008.
• Social Security payroll taxes now apply to income up to $162K rather than $102K as was the case back in 2008.

If you don’t have time to watch a 9-minute video, I can summarize the issue by noting that Social Security was designed as an “earned benefit,” which means workers contribute to the system in exchange for future benefits. The more you earn, the more you pay, and the more benefits you receive.

But because Social Security is supposed to be akin to an insurance program, there’s a limit on both the amount of benefits any retiree can receive and the amount of taxes that any worker must pay (the same principle applies in many other nations).

Some politicians want to get rid of the limit (the “wage base cap”) on the amount of taxes workers must pay. Instead of applying the 12.4 percent Social Security payroll tax on the first $162,000 of income, they want to impose the tax on all income.

In some cases, they want this big increase in marginal tax rates in order to prop up the Social Security system while in other cases they actually want to expand the program.

In either case, the economic consequences would be very bad.

In today’s Wall Street Journal, Travis Nix explains why this would be counterproductive.

…lawmakers in both parties are mulling the idea of lifting the payroll tax cap. The resulting increase in revenue would do little more than delay the inevitable by extending the program’s life a few more years. …European countries cap payroll taxes at much lower incomes than the U.S. does. Germany caps payroll taxes for health insurance at about $62,000 and the Netherlands caps theirs for social security at $40,370. Uncapping the payroll tax in the U.S. would only widen the disparity and make America a less attractive country in which to work and invest. …Uncapping the payroll tax would raise the top tax rate on Americans’ labor income—income and employee payroll tax combined—to as high as 43.2%. This excludes state taxes and the employer payroll tax, which make the rate even higher. The U.S. hasn’t seen labor tax rates that high since before Ronald Reagan. …European countries that cap their payroll taxes at relatively low incomes understand that you can’t fund a social-safety net without providing an incentive to work. The U.S. should too.

Let’s also look at what Mark Warshawsky of the American Enterprise Institute wrote last year.

…imposing a massive tax increase — 12.4 percentage points — on the earnings of about 10 million highly productive, mostly middle-class workers earning more than $160,200 would have several notable consequences. It would reduce their support for the program, severely discourage their labor market participation, and encourage payroll tax avoidance through converting earnings to incentive stock options and other forms of employee stock ownership. …In many instances, these workers would have their wages taxed at federal, state and local levels at rates exceeding 70 percent. …almost 20 percent of current and future covered workers are projected to earn above the taxable maximum in any one year.

And here is some of Allison Schrager’s analysis from 2020.

When it comes to financing the future of Social Security, many Democrats have a simple and wrong solution: lift the cap on earnings subject to the payroll tax. …there are costs to these plans. A 12.4% marginal tax increase is significant. If the cap is eliminated, an individual who makes $250,000 a year would see their Social Security tax liability increase by 88%. …many households—especially those in states with high state taxes—will be paying more than 60% in federal, state, and local income and payroll taxes… only 6% of the population earns more than the cap. But income varies over people’s lives: 36% of Americans will be in the top 5% of earners at least one year of their career.

I’ll close by observing that it we’ve had big fights under Bush, Obama, Trump, and Biden about whether the top personal income tax rate should go up by about 3 percentage points or down by 3 percentage points.

Since keeping marginal tax rates low helps encourage productive behavior, those were important fights.

Now we face a fight that should be far more important since some politicians want to raise the marginal tax rate by 12.4 percentage points.

It is true that Social Security is in deep financial trouble, but propping up (or expanding) the current system would be bad news for the economy and it would produce a bleaker future for young people.

It would be far better to begin a transition to personal retirement accounts.

P.S. Chile and Australia have created personal retirement accounts. You can also learn about reforms in Switzerland, Hong Kong, Netherlands, the Faroe Islands, Denmark, Israel, and Sweden.

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The Economic and Societal Case Against Per-Child Handouts, Part I

The worst piece of legislation in 2021 was Biden’s so-called stimulus, which added $1.9 trillion to America’s fiscal burden.

The worst provision of that legislation almost certainly was a temporary per-child entitlement of $3,000-$3,600.

Biden then wanted to make this entitlement permanent as part of his $5 trillion plan to “build back better.”

Fortunately, that boondoggle sank under its own weight and the slimmed-down (but still bad) version that ultimately was enacted earlier this year did not include any per-child handouts.

That’s the good news, at least relatively speaking.

The bad news is that Congress and the White House have renewed their push for a permanent per-child entitlement.

And, because Republicans will control the House of Representatives starting in January, they are trying to push the policy through next month.

The Wall Street Journal editorialized today about per-child handouts.

A core Democratic priority in Congress is resurrecting a $3,000 child tax credit for dependents ages six and up, with a $600 bonus for younger children. …The Internal Revenue Service is now another turnstile of the welfare state. That’s because over time Congress made more of the credit “refundable,” which means available to those who don’t owe federal income taxes. …a universal basic income for people with children. …The full Democratic allowance would cost $1.6 trillion over 10 years… Low-income voters are always assumed to support cash benefits, but 46% of those earning less than $50,000 opposed the payments. That may be because Americans understand that poverty in the U.S. is now less about material deprivation and more about idleness, addiction, mental illness and other destructive realities that can’t be cured with a bigger check.

There were many arguments against these per-child handouts (reversing Bill Clinton’s welfare reform, setting the stage for universal basic income, etc).

But those topics are not playing a big role in this debate.

Instead, the White House and Congress are engaged in a naked vote-buying scheme.

They want to create more dependency, regardless of the economic and societal consequences.

What are some of those consequences? Those are discussed in a column by Scott Hodge, which also is in today’s Wall Street Journal.

He starts with a mea culpa about his role in creating child credits and also warns about the risks of creating a system where the IRS is a dispenser of goodies rather than a tax-collection agency for almost half the population.

I was one of the inventors of the child tax credit, nearly 25 years ago—and I think it’s a bad idea. …Key elements of this plan made their way into the 1994 House Republicans’ Contract with America. Congress enacted the $500 child tax credit as part of the Taxpayer Relief Act of 1997, and it grew from there. …The Bush tax cuts in 2001 temporarily doubled the credit to $1,000… The 2017 Tax Cuts and Jobs Act doubled the credit again, to $2,000… Each expansion meant fewer households on the tax rolls. …The expanded credit…contributed significantly to increasing the number of households with little or no income-tax liability. …some 74 million tax filers—or nearly half (48.3%) of all filers in 2021—had no income tax liability. …Can we have a sustainable tax system if the number of nonpayers continues to grow?

Since I’m mostly worried about the economic consequences, here’s the part of Scott’s column that grabbed my attention.

…recent studies estimating the economic effects of the proposed expansion suggest that it would cause people to leave the workforce, reduce work effort, and lower capital investment, ultimately shrinking economic output. A recent study by economists at the University of Chicago determined that without any changes in behavior, expanding the credit would reduce child poverty by 34% and “deep” child poverty—families whose income is less than half the poverty level—by 39%. But those gains would come at a cost: the diminution of the workforce by 1.5 million people. …A new study by Congress’s Joint Committee on Taxation…determined…the policy would reduce the labor supply by 0.2% and reduce the amount of capital by 0.4%. As a result of the reduced supply of labor and capital investment, gross domestic product would shrink by 0.2%.

I’m guessing that some readers will be shrugging their shoulders because numbers such as 0.2 percent and 0.4 percent don’t sound very big.

But keep in mind that we have dozens of bad policies in Washington that have this type of effect, and their cumulative impact is very big.

And for those who like comparisons, it’s worth observing that living standards in Europe are significantly below American levels precisely because politicians in places such as Greece, France, and Italy have made even more of these mistakes.

The bottom line is that free enterprise is the best way of helping poor people, not government dependency.

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Thanksgiving, Property Rights, and Redistribution

I normally share this video from Reason every Thanksgiving.

But this year I’m going to recycle instead a video from John Stossel.

The moral of the story is that societies based on collectivism do not succeed.

People don’t work hard when the rewards of their labor go to others. Even in small communities, that approach does not work.

By contrast, they have a much greater incentive to be productive when the benefits accrue to themselves and their families.

In a nutshell, redistributionism does not work. This is why the original Plymouth Colony was failing. And it’s why places such as Cuba today are so miserably poor.

This is a lesson to keep in mind when people on the left or right try to tell you that bigger government is a good idea.

Let’s conclude with some Thanksgiving-themed humor about libertarians.

There  are lots of jokes about a Trump-loving uncle causing discord over turkey, but libertarians have similar abilities.

They even relish the opportunity.

Two more items for our collection.

P.S. This column from the archives shows how politicians might ruin Thanksgiving.

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The Scottish Version of Great Moments in Human Rights

Redistribution is a bad idea primarily because of economics.

People getting handouts have less incentive to be productive and people paying taxes to finance that spending have less incentive to be productive.

That translates into less economic output, which means lower living standards.

But there’s another reason to be concerned about redistribution. I worry that it erodes societal capital (i.e., the traits such as work ethic, self reliance, etc, that are associated with successful societies).

What happens, for instance, when politicians convince people that have a “human right” to other people’s money?

It would be very difficult to be optimistic about a society where most people have that mindset.

This is why I’m very pessimistic that there will ever be a meaningful economic rebound in nations such as Greece and Argentina.

Simply stated, too many people thing they have a right to government-provided goodies. Which means, of course, that they think they have the right to live off the labor of others.

Let’s look at an example.

Remy Tumin reports in the New York Times that Scottish politicians have decided that there is a human right to tampons and sanitary pads.

Period products are now free to anyone in Scotland who needs them, nearly two years after the country’s Parliament approved a landmark piece of legislation. The initiative makes Scotland the first country in the world to provide free sanitary products, part of a global effort to end “period poverty”… The 2020 legislation in Scotland came on the heels of an earlier law that provided free access to tampons and sanitary pads in schools, colleges, universities and other public buildings. …People can find the nearest location with free period products through a mobile app… Seventeen states and Washington, D.C., have passed laws that require free access to period products for students.

As an economist, I’m irked that the story keeps referring to “free.”

Period products will still have a cost. All that’s happening is that taxpayers are paying instead of users.

I’m also dismayed (but not surprised) that there is no discussion about the potential impact of “third-party payer.” In all likelihood, producers will take advantage of this new entitlement by increasing prices.

But the most depressing part of the story is that this idea seems quite popular. So what comes next? Well, food is even more important to human existence, so why not make food “free” as well?

That’s a recipe for creating a nation filled with people like Obama’s Julia and Biden’s Linda.

And Margaret Thatcher warned us where that leads.

P.S. Here are some other not-so-great moments in human rights.

• In Canada, there’s now a right to be an employed alcoholic.
• Across Europe, a satellite dish is now a human right.
• The Department of Housing and Urban Development asserts there is a right to “emotional support animals” in college dorms.
• In Finland, broadband access is a basic right.
• In France, it is against the law to say your husband is under-endowed or that your wife is fat.
• There’s now an entitlement for free soccer broadcasts in Europe.
• In Italy, you have the right to…um…your testicles.
• Both the United Nations and the Obama Administration think there’s a right to taxpayer-financed birth control.
• In the United States, the elderly have the right to taxpayer-financed sex-change operations.
• There’s even a right to a “special accommodation” if you’re a pee-shy worker in America.

P.P.S. Today’s column revolves around the battle between what some call “positive” and “negative” rights and liberties.

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The Depressing Reincarnation of Build Back Better

One of the best things about 2021 was the fact that Congress did not approve Joe Biden’s economically debilitating plan to raise taxes and expand the welfare state.

His so-called Build Back Better plan was a very bad mix of class-warfare tax policy and redistributionist spending policy.

But one of the worst things about 2022 may be the reincarnation of a slimmed-down version of Biden’s plan.

Simply stated, the “slimmed-down version” of a terrible piece of legislation is bad news – even if it is possible to envision something even worse.

The Wall Street Journal‘s editorial on the package illustrates why it is bad news that Senator Joe Manchin is trying to rescue Biden’s statist agenda.

As the economy slouches near recession, Majority Leader Chuck Schumer and West Virginia Sen. Joe Manchin…unveiled a tax-and-spending deal that they call the Inflation Reduction Act. Is their aim to reduce inflation by chilling business investment and the economy? …A more accurate name would be the Business Investment Reduction and Distortion Act since that will be the result of its $433 billion in climate and healthcare spending, and $615 billion in new taxes and drug price-control “savings.”

The editorial highlights four terrible provisions.

First, there’s a big tax hike on American companies, with the biggest tax hike on firms that make new investments.

…the 15% minimum tax on corporate book income…will slam businesses whose taxable income is lower than the profits on their financial statements owing to the likes of investment expensing.

For all intents and purposes, politicians would be creating a second type of corporate income tax.

Heavy compliance costs for the business community, of course, but the rest of us probably care more about the estimated loss of 218,000 jobs according to the National Association of Manufacturers.

Second, there are corrupt “green energy” provisions that will degrade America’s energy efficiency and security.

…the bill’s $369 billion in climate spending, most of which is corporate welfare. …All of this will steer private investment into green energy at the cost of reduced investment in fossil fuels. Wind and solar subsidies are already creating distortions in power markets that make the electric grid less reliable and energy more expensive. The expansion of subsidies will compound these problems.

If you want to know why this is bad, just remember Solyndra.

Third, the legislation imposes back-door price controls on the pharmaceutical industry.

The bill will require the Health and Human Services Secretary to “negotiate” Medicare prices—i.e., impose price controls—for dozens of drugs. But the $288 billion in putative savings are fanciful. Manufacturers will hedge potential future losses by launching drugs at higher prices. …The bill will also discourage investment in innovative treatments that could reduce future healthcare spending.

For those of us who value the development of new drugs to fight problems like cancer and Alzheimer’s, this is very bad news.

Fourth, a very corrupt internal revenue service is rewarded for its bad behavior.

Speculative revenue of $124 billion will also come from an $80 billion boost for the IRS. Most of this will finance more audits. The rich can afford more tax lawyers, but middle and upper-middle class Americans will be inclined to settle IRS claims, however meritless, lest they spend even more to defend themselves.

P.S. I can’t resist sharing one final bit of information.

If you peruse the Joint Committee on Taxation’s analysis of the bill, you’ll find that Joe Biden is breaking his promise not to raise taxes on people making less than $400,000 per year.

Not that anyone should be shocked. I have repeatedly explained that the big spenders need to pillage lower-income and middle-class household if they want to finance bigger government.

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More Evidence Against Basic Income

Some people argue the government should give everyone a “basic income.”

The problem with that approach (and the problem with other types of redistribution) is that some people will choose not to work if they can simply rely on handouts from the government.

That’s not good for the overall economy because total output is determined by the quality and quantity of labor and capital being utilized.

Some supporters of basic income claim that basic income would not discourage work.

They point out that giving the handouts to everyone would solve the problem that exists with most forms of redistribution, which is punitive, implicit marginal tax rates if recipients try to become self-sufficient.

It would be great to solve that problem, but I’m skeptical that basic income would be a net positive.

Let’s review some new evidence about no-strings handouts. Allysia Finley of the Wall Street Journal summarized the key findings of some new academic research.

Did pandemic stimulus payments harm lower-income Americans? That’s the implication of a new study by social scientists at Harvard and the University of Exeter. Liberals argue that no-strings-attached handouts encourage better financial decisions and healthier lifestyles. …The Harvard study put this hypothesis to the test and found the opposite.During a randomized trial conducted from July 2020 to May 2021, researchers assigned 2,073 low-income participants to receive a one-time unconditional cash transfer of either $500 or $2,000. Another 3,170 people with similar financial, demographic and socioeconomic characteristics served as a control group. …The top-line result: Handouts increased spending for a few weeks—on average $26 a day in the $500 group and $82 a day in the $2,000 group—but had no observable positive effect on any individual outcome. …Handout recipients fared worse on most survey outcomes. They reported less earned income and liquidity, lower work performance and satisfaction, more financial stress, …and anxiety than the control group.

The main takeaway is that redistribution does not work. It’s bad for taxpayers and it is bad for recipients.

But I fear our friends on the left will not learn any lessons.

These findings contradicted the predictions of 477 social scientists and policy makers the researchers surveyed. That’s not surprising. Most liberal academics and politicians believe government handouts are the solution to all problems. If transfer payments were a ticket to the middle class, the War on Poverty would have succeeded long ago. …It’s no surprise that people who received a large percentage of their monthly income for doing nothing were less motivated to work and less satisfied with their work.

Very true. The so-called War on Poverty certainly showed government is capable of redistributing money.

But it has not produced good results, at least if one values economic independence and self-sufficiency for the less fortunate.

P.S. Ms. Finley’s column also mentioned another study that found a negative link between food stamps and diet quality.

…the study isn’t a one-off in documenting a link between transfer payments and worse outcomes. A 2018 study in the Journal of the American Medical Association examined the diet quality of food-stamp beneficiaries from 2003 to 2014, a period in which average benefits increased more than 50%. Similar low-income people who didn’t get food stamps ate more healthily than those who did. The non-food-stamp group consumed significantly fewer sugar-sweetened beverages, and their diets improved more over time.

P.P.S. Finland experimented with basic income and decided it did not work, while Swiss voters overwhelmingly rejected a scheme for universal handouts in their country.

P.P.P.S. Joe Biden expressed skepticism about basic income back in 2017, but that did not stop him from proposing per-child handouts after taking office.

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The OECD’s Despicably Dishonest Campaign for Redistribution

The past two days have featured columns about Estonia, with the first one focusing on the nation’s impressive rebound after decades of communist enslavement and the second one criticizing the Organization for Economic Cooperation and Development (OECD) for suggesting tax-and-spend policies that would undermine the country’s prosperity.

Both columns used data from a recent OECD report. Today, I’m going to write a third column using data from that report, but I won’t be focusing on Estonia. Instead, I want to address the OECD’s ongoing efforts to promote redistribution by lying about poverty.

Here’s a chart that ostensibly shows poverty rates in various member nations.

Any sentient person should immediately recognize that the chart is garbage. Notice, for instance, that that United States supposedly has the second-highest poverty rate among OECD nations.

Yet does any rational person actually think poverty is a bigger problem in America than it is in Mexico or Turkey? Or Italy, Hungary, or Greece?

Of course not. Heck, poor people in the United States often have incomes that are equal to or higher than average incomes in other nations.

So what’s going on?

Well, if you read the fine print, you’ll find that the chart doesn’t actually measure poverty. At all.

Instead, it’s a measure of income distribution. The OECD’s bureaucrats have decided that anybody who makes less than 60 percent of a nation’s average income is poor.

This is an absurd approach.

Heck, the OECD’s dishonest approach would show that there’s almost no poverty in the world’s poorest nations, such as North Korea, Haiti, Cuba, and Congo. After all, if almost everyone is equally destitute, then almost nobody will be below 60 percent of the median.

Here’s another example that exposes the OECD’s scam. Imagine that everyone in the United Sates suddenly had three times as much income as today. That would seem like great news, especially for lower-income Americans. Yet based on the OECD’s dishonest approach, the poverty rate would not change.

So why is the OECD publishing nonsensical and dishonest numbers?

I answered that question back in 2012.

The main thing to understand, though, is that this new approach is part of an ideological campaign to promote bigger government and more redistribution. Which is very much consistent with the OECD’s overall agenda.

The fact that this type of agenda hurts poor people doesn’t seem to bother our friends on the left. So long as rich people are hurt even more, that’s a good thing from their perspective.

Remember, they are motivated by equality of outcomes.

Good people, by contrast, seek policies that enable poor people to improve their lives (as captured by the Eighth Theorem of Government).

P.S. Here’s my collection of other hucksters that peddle dishonest poverty data.

P.P.S. Here’s a story from Sweden about what happens when the ideology of equality produces very bizarre outcomes.

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Stadium Subsidies, Reverse Redistribution, and Cronyism

Redistribution is bad economic policy.

As the great Thomas Sowell observed, the people who finance redistribution are hurt because they get taxed for working and producing. And the people on the receiving end often are hurt because they get lured into dependency.

But not all forms of redistribution are equally bad.

For instance, I don’t like America’s welfare state, which redistributes from the rich to the poor.

But I utterly despise government programs that redistribute from the poor to the rich (such as the Export-Import Bank, the National Endowment for the Arts, bailouts for student loan deadbeats, ethanol subsidies, etc).

Amazingly, some politicians even want to subsidize millionaires and billionaires. It’s happening in my state!

Sarah Rankin of the Associated Press summarizes a sweetheart deal that Virginia politicians have prepared for the local NFL team (formerly the Redskins, now the Commanders).

Virginia lawmakers are advancing a measure intended to lure the Washington Commanders to the state by allowing the NFL team to forgo what could be $1 billion or more in future tax payments to help finance a potential new football stadium. The move…is intended to help Virginia secure its first major pro sports franchise. …“They’re going to go someplace. Absent some kind of incentive, they’re likely not to be here,” Tray Adams, a lobbyist representing the team, told a panel considering the legislation. …The House and Senate passed differing versions of the measure this month with broad bipartisan support… Both versions of the legislation would create a Virginia Football Stadium Authority tasked with financing the construction of a stadium and related facilities. The nine-member authority would be allowed to issue bonds, then recapture certain tax revenues to pay down that debt. …Virginia’s newly inaugurated Republican governor, Glenn Youngkin, seemed to throw support to the idea… In an interview with the AP, Youngkin said he hoped he and the Legislature could reach agreement on a bill that would “best reflect the interests of Virginia taxpayers and hopefully bring the Washington Commanders to Virginia.”

As a Virginia taxpayer, I can assure the Governor that it’s not in my interest if I have to pay taxes while millionaire players and a billionaire owner get a sweetheart deal.

In a column for the Washington Times, Michael Farren and John Mozena explain why taxpayers are the big losers when politicians subsidize sports stadiums.

Proving that bipartisan ideas can be just as bad as those cooked up by a single party, legislation just passed in both the Virginia House and Senate to create a “Virginia Football Stadium Authority” — a government entity that would fund construction of a new stadium… Here’s what most people don’t understand about Virginia’s multibillion-dollar proposal: …it looks like nearly all taxes — sales, corporate income and personal income — collected at the stadium and entertainment complex will go to the stadium authority, not Richmond. The stadium authority then funnels the tax revenue back to the team, meaning the legislation creates a miniature tax haven for the team owners. In other words, ..other Virginia residents and businesses will have to compensate for the fact that the Commanders will pay almost nothing at all. …three leading sports economists — J.C. Bradbury, Dennis Coates and Brad Humphreys — just threw a penalty flag. Their recent research summarizes more than 120 academic studies from the past 30 years regarding the effects of stadium subsidies… “The large subsidies commonly devoted to constructing professional sports venues are not justified as worthwhile public investments.” That confirms the results of a University of Chicago survey of some of the nation’s leading economists, including seven Nobel Laureates. The consensus was that subsidies cost communities more than they deliver in economic benefits. Only 4% disagreed. …Maybe a better team name would be the Washington Tax Demanders.

For what it’s worth, I think the Washington Leeches would have been the best name. And I’ve thought that ever since I moved to Virginia in the 1980s.

Though I confess that’s simply because so many member’s of D.C.’s parasite class root for the team.

But I’m digressing. The message of today’s column is that cronyism is bad, but the worst kind of cronyism is upside-down redistributionism that gives special preferences to the rich and powerful.

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The Zero-Sum Fallacy

There are many well-meaning people who support statist policies such as punitive taxation because they believe in the zero-sum fallacy, which is explained in this short video by Madsen Pirie of London’s Adam Smith Institute.

The zero-sum fallacy is especially noxious because it naturally leads to all sorts of misguided policies. Not just class-warfare taxation, but also protectionism and the welfare state.

But I can understand why people are drawn to such ideas. If they sincerely believe that people like Jeff Bezos and Elon Musk only become richer because the rest of us become poorer, it’s hard to blame them.

This is why I repeatedly share evidence showing that the zero-sum fallacy is, well, a fallacy.

• Data showing that Americans today are far richer than previous generations – and this didn’t happen at the expense of people at the bottom.
• Data showing that Western Europeans became rich during the 1800s and early 1900s – and this didn’t happen at the expense of the poor.
• Data showing the entire world is far richer today than in the past – and this didn’t happen at the expense of the less fortunate.
• Data showing that China’s partial liberalization made that society richer – and this didn’t happen at the expense of low-income people.

Indeed, one very powerful lesson from the above examples is that poor people have been huge winners from economic growth.

As shown by U.S. Census Bureau data, there’s a strong correlation between rising income and falling income among all groups.

Given the importance of this issue, let’s take a closer look at the zero-sum fallacy.

In an article for the Foundation for Economic Education, John Williams used the example of a poker game to explain this cornerstone of bad economics.

Economic activity is depicted in terms of a poker game. One player’s chips are observed to have increased. Immediately one concludes that some other player has lost chips. Poker is, as they say, a zero-sum game: Gains enjoyed by one party must be balanced by losses suffered by another. So it is, people embracing the fallacies of “static wealth” and “the zero-sum game” insist, with economic exchanges. “Winners” must be balanced by corresponding “losers.” …According to the mercantilists, wealth was a constant, a given—like the chips in a poker game. If one community—and typically the mercantilists thought in terms of communities—improved its overall economic situation, another community must have lost out. …What Adam Smith perceived, essentially, was first that “wealth” was not something static and given like gold, or, indeed, poker chips, but rather consisted of goods and services that could be created, and second that both parties to an economic exchange could improve their respective situations. …There are two winners, not one. This is a positive-sum, rather than a gem-sum game.

This type of thinking may even be hard-wired in our brains, as explained by Professor Paul Rubin of Emory University in a column for the Wall Street Journal.

…the worldview of Marxists and woke leftists alike is fundamentally primitive. …It is the economic view of the world that evolved in our brains before the development of the modern economy. …Zero-sum thinking was well-adapted to this world. Since there was no economic growth, incomes and wealth didn’t grow. If one person had access to more food or other goods, or greater access to females, it was likely because of expropriation from others. Since there was little capital, a “labor theory of value”—the idea that all value is created by labor alone—would have been appropriate… Adam Smith and other economists challenged this worldview in the 18th century. They taught that specialization of labor was valuable, that capital was productive, and that labor and capital could work together to increase income. …the creation of wealth would benefit everyone in a society, not only the wealthy. …Members of the woke left want to return to policies based on this primitive economic thinking. One of their major errors is thinking that the world is zero-sum. …Dislike of the rich makes sense in a world where one can become rich only by exploiting others, but not in a society full of creativity and useful inventions.

Prof. Rubin also wrote about this topic back in 2010.

P.S. The good news is that very few left-leaning economists believe in the zero-sum fallacy. They recognize that growth benefits all income groups. Where they go wrong is thinking that bigger government is needed for growth and/or thinking that less growth is okay if rich people suffer more than poor people (they tend to be so fixated on inequality that they overlook very good news).

P.P.S. Just as poor people aren’t poor because of rich people (at least the ones that get rich by markets rather than cronyism), poor nations aren’t poor because of rich nations.

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More Nonsense from the OECD’s Poverty Hucksters

I created the Eighth Theorem of Government to illustrate the difference between well-meaning people (who want to help the poor) and zero-sum people (who seem to think some people are poor because other people are rich).

This raises the interesting question of whether folks in the latter group are misguided or malicious?

For what it’s worth, I assume most people who fixate on inequality simply don’t understand the issue.

I like to think that they would change their minds if – for instance – they were shown Scott Winship’s devastating, slam-dunk response to Gabriel Zucman.

But there are others (like Zucman) who almost certainly know better, yet they push the inequality narrative for political or ideological reasons.

The bureaucrats at the Organization for Economic Cooperation and Development definitely also belong in the malicious category.

I first exposed the OECD’s disingenuous approach back in 2012, noting that the Paris-based bureaucrats used an utterly dishonest definition of poverty to make the laughably inaccurate claim that there was more poverty in the United States than in nations such as Greece, Hungary, Turkey, and Portugal.

Well, the OECD is still being dishonest. Here’s a look at the bureaucracy’s latest “poverty” measurement.

For those of us who actually pay attention to details, the data in the above chart have nothing to do with poverty.

Instead, the OECD is showing a particular way of measuring how income is distributed (in this case, the share of the population with less than half of the average income).

To see why it is profoundly absurd to measure poverty by looking at the distribution of income, consider these two examples.

1. Haiti is a wretchedly poor nation, with per-capita yearly income of $1729. But since almost everyone (other than the political elite) in the country is equally destitute, Haiti would have almost no poverty according to the OECD’s perverse definition.
2. Poor people in the United States have income equal to (or greater than) than middle class people in other developed nations, yet OECD bureaucrats want people to think poverty is a bigger problem in America than in a backward economy like Mexico’s.

I’ll close by pointing out the greatest absurdity of all.

If something miraculous happened and everyone in the United States somehow wound up with ten times as much income next year, guess what would happen to America’s poverty rate, as measured by the OECD? How much would it decrease?

Give yourself a gold star if you correctly answered that it would not change. At all.

What a crock of you-know-what.

P.S. The OECD is not the only guilty party when it comes to lying about poverty. Others who (willingly or unwittingly) misrepresent distribution data as poverty data include:

• The United Nations
• The New York Times
• The Equal Welfare Association
• Eduardo Porter of the New York Times
• Germany’s Institute of Labor Economics
• The Obama Administration
• The European Commission
• Professor Noah Smith
• The Economist

P.P.S. It’s also worth noting that poor nations aren’t poor because rich nations are rich.

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Economic Freedom and “Positive Liberty”

Back in May, as part of a discussion about the tradeoff between free markets (efficiency) and redistribution (equity), I put together a chart to show how poor people are better off in the long run if policy makers focus on the former rather than the latter.

I made sure to assume that pro-market policies would generate only a small increase in growth.

However, thanks to “the miracle of compounding growth,” even that tiny increase results in the poor being better off when compared to a world with less growth and more redistribution.

But I was just providing a theoretical example, and it would be easy to change some assumptions to show that the poor would have better lives (as measured by consumption levels) with bigger government.

Fortunately, there’s a new study, authored by Justin Callais of Texas Tech University and Vincent Geloso of George Mason University, that looks at hard data to see which approach is best for poor people.

Here’s a description of their methodological approach, which uses the positive liberty vs negative liberty construct.

While it is true that economic freedom speaks directly to negative liberty, it also speaks indirectly to positive liberty because of its well–documented effects on economic growth, health outcomes and education. …We build on these works by using a rich dataset of estimates of income mobility of people born in the 1980s. …the dataset employed includes a larger number of poor and rich countries. Combining these data with those of the Fraser Institute’s Economic Freedom of the World (henceforth EFW) index, we try to measure its indirect effect (through growth and income levels) on intergenerational income mobility in a horse race with income inequality.

For all intents and purposes, they want to see which effect dominates in this flowchart.

And here’s the way they describe the chart.

…the true effect of economic freedom on intergenerational mobility is 𝛽1 + 𝛼1𝛽2. As long as 𝛽1 + 𝛼1𝛽2 > β3, economic freedom’s effects outweigh those of income inequality on positive liberty (as intergenerational income mobility is a stand–in for positive liberty).

So what did they find?

We find that economic freedom has both a direct and indirect effect on intergenerational income mobility. More importantly, those effects are more important than those of income inequality. We argue that our results militate for the claim that good institutions matter more to securing positive liberty than income redistribution does. …we find that the lifetime institutional environment is a strong predictor of incomes today. The indirect effect of economic freedom (through income levels) on mobility is again strong and negatively correlated (indicated greater income mobility). …economic freedom has both a direct and indirect effect on intergenerational income mobility. …Economic freedom provides the legal right to engage in commerce, but through economic freedom’s impact on income, the institutional environment speaks to increasing the practical and realistic choice sets of people to better their situation.

The bottom line is that the poor are better off with economic freedom (i.e., negative liberty). Free markets lead to more upward mobility and higher living standards.

So if you want less poverty, push for more capitalism.

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Should the United States “Shrink the Gap” with Europe by Increasing Childcare Subsidies?

Let’s look today at one of main arguments for Biden’s tax-and-spend agenda.

A column in the New York Times, authored by Spencer Bokat-Lindell, suggests that the United States needs to increase government spending on child care to “shrink the gap” with other nations.

The main evidence for this proposition is a chart showing the United States at the bottom.

The obvious goal is to convince readers that the United States is doing something wrong.

And that comes across in the text of the article.

If you’re active on social media there’s a decent chance you came across this chart…about how much less the U.S. government spends on young children’s care than other rich countries. The infrastructure and family plan that President Biden proposed and that’s now being negotiated in Congress is an attempt to shrink the gap through four key policies: a federal paid family and medical leave program, an extension of the child tax credit (in the form of a monthly payment) that debuted this year, subsidized day care, and universal pre-K.

But why is it bad to be at the bottom of this list when all the nations above the U.S. have lower living standards?

I’ve repeatedly made the point that we don’t want to “catch up” to nations that have lower levels of prosperity.

• Household consumption is 50 percent higher in the United States than the average of other developed nations.
• The bottom 20 percent of Americans have higher living standards than the average European
• The bottom 10 percent of Americans enjoy better lives than the average citizens of OECD nations.

But maybe this isn’t just about living standards.

The article also suggests that childcare subsidies are needed to avert demographic decline.

…Why does the United States have such an exceptional approach to family and child care benefits…? European and Latin American countries began enacting these policies…the end of World War II accelerated the process, particularly in Europe… “Part of it had to do with fears of demographic decline…the need to recover from those years and to ensure that there was a strong work force going forward,” Siegel told the BBC.

For what it’s worth, I agree that demographic decline is a major issue.

Falling birth rates and increased life expectancy are a very worrisome combination for government budgets.

Which leads to the hypothesis that childcare subsidies can help deal with this problem by enabling higher levels of fertility.

That’s theoretically possible, I’ll admit, but we certainly don’t see it in the data. Here’s the chart from the New York Times, which I’ve augmented by showing fertility rates.

As you can see, the United States has a higher fertility rate than almost every other nation on the list, which certainly suggests that childcare subsidies are not an effective way of encouraging more babies.

Moreover, U.S. fertility of 1.71 is higher than the OECD average of 1.61.

And when you compare the United States to peer nations (“OECD rich nations” and “EU-15 nations”), the fertility gap is even larger, 1.71 to 1.52.

One moral of the story is that government handouts are not an effective way of increasing fertility.

And the other moral of the story is that it’s not a good idea to copy nations that are economically weaker.

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Biden’s Budget: Affordable Isn’t Sensible

A couple of days ago, I shared the most-recent data about “actual individual consumption” in nations that are part of the Organization for Economic Cooperation and Development.

My goal was to emphasize my oft-stated point about people in the United States enjoying higher living standards – in large part because European nations are saddled with a bigger fiscal burden of government.

President Biden, however, wants to make the United States more like Europe.

• More taxes
• More spending

What’s happening this week in Congress may determine whether he succeeds.

Since I’m policy wonk rather than a political pundit, I don’t pretend to have any great insight on matters such as vote counting.

But I feel compelled to warn that adoption of Biden’s plan would have a negative economic impact.

And I’m not the only one raising alarm bells.

Professor Greg Mankiw of Harvard opined for the New York Times about Biden’s fiscal plan. He starts be noting that Biden’s plan is affordable.

President Biden and many congressional Democrats aim to expand the size and scope of government substantially. …People of all ages are in line to get something… If there is a common theme, it is that when you need a helping hand, the government will be there for you. …Western European nations have more generous social safety nets than the United States. The Biden plan takes a big step in that direction. Can the United States afford to embrace a larger welfare state? From a narrow budgetary standpoint, the answer is yes.

But affordable is not the same as sensible.

He points out that a bigger government will mean a smaller economy.

The costs of an expanded welfare state…extend beyond those reported in the budget. There are also broader economic effects. Arthur Okun, the former economic adviser to President Lyndon Johnson, addressed this timeless issue in his 1975 book, “Equality and Efficiency: The Big Tradeoff.” …As policymakers attempt to rectify the market’s outcome by equalizing the slices, the pie tends to shrink. …Which brings us back to Western Europe. Compared with the United States, G.D.P. per person in 2019 was 14 percent lower in Germany, 24 percent lower in France and 26 percent lower in the United Kingdom. …In other words, most European nations use that leaky bucket more than the United States does and experience greater leakage, resulting in lower incomes. By aiming for more compassionate economies, they have created less prosperous ones.

And less prosperous economies mean lower living standards, as honest folks on the left (such as Okun) openly admit.

That’s bad news for everyone, including lower-income people who theoretically are supposed to benefit from the various new and expanded redistribution programs in Biden’s fiscal plan.

Yes, they may get money from government in their pockets in the short run, but even a small reduction in economic growth will lead to larger income losses in the long run.

The bottom line is that the American experiment has been successful. Why put it at risk by copying nations that aren’t as successful.

After all, you don’t want to “catch up” to countries that are lagging.

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The Negative Relationship between Welfare and Work

Ten days ago, I shared some data and evidence illustrating how redistribution programs result in high implicit tax rates and thus discourage low-income people from climbing the economic ladder.

Simply stated, why work harder or work more when an additional dollar of income only leads to a net benefit of 10 cents or 20 cents? Or why work harder or work more when you can actually wind up being worse off?

Or why work at all if the governments provides enough goodies?

But don’t ask such questions if you’re in the same room as Helaine Olen of the Washington Post. She is very upset that some people think welfare payments discourage work.

It’s a dangerous myth, this idea that government help causes some people to just loaf off. It’s also untrue. Reminder: Before the pandemic, most working-age people receiving benefits like food stamps worked. They just didn’t earn enough money. …the temporary child tax credit signed into law this year by President Biden demonstrates the opposite. It is an extraordinary success. Almost 90 percent of families with children under age 18 are eligible to receive a monthly check from the federal government through the end of the year. …Many other developed nations offer almost all residents a child allowance of some sort.

If you read the entire column, you’ll notice that she provides very little evidence, particularly considering her very bold assertion that a negative link between redistribution and labor supply is “a dangerous myth.”

Yet we know from the experience of welfare reform in the 1990s that work requirements did boost labor supply.

And don’t forget about the very recent evidence that turbo-charged unemployment benefits encouraged more joblessness.

We also have evidence from overseas showing that there’s a negative relationship between handouts and idleness.

Including research from the Netherlands and the Nordic nations such as Denmark. And the same is true in Canada. And the United Kingdom.

Ms. Olen seems primarily motivated by her support for permanent per-child handouts, as President Biden has proposed.

And she wants us to believe that everyone will continue to work, even if they can get $3000-plus for each kid, along with all the other goodies that are provided by Uncle Sam (often topped up by state governments).

For what it’s worth, I think she admits her real agenda toward the end of her column.

…an argument can be made that the children of the irresponsible deserve more support from us, not less. Children can’t push their parents to get with the work-and-education program. As a result, you’re not “helping” children if you insist on financially punishing their parents for not making an “effort.” …human infrastructure matters too.

In other words, Ms. Olen seems to share Rep. Ocasio-Cortez’s view that money should be given to people “unwilling to work.”

Which is how some of our friends actually view the world. They think there is a right to other people’s money. Which is why they support big handouts, including so-called basic income.

The bottom line is that Biden’s per-child handouts and other expansions of the welfare state clearly would make work less attractive for some people.

Not all people, of course, because it takes time to erode societal capital.

But why would we want a society where a growing number of people think it’s okay to live off of others?

P.S. There is scholarly research that redistribution programs lure older people out of the workforce.

P.P.S. There is also scholarly research showing redistribution programs discourage households from building wealth.

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Two (Humorous) Images to Understand Biden’s Fiscal Policy

Yesterday’s column was a completely serious look at five graphs and tables that show why Biden’s tax plan is misguided.

Today, we’re going to make the same point with satire. And we’ll only need two images.

First, here’s a look at what happens when politicians create never-ending handouts financed by ever-higher taxes on an ever-smaller group of rich taxpayers.

In the past, I’ve referred to this as “Greece-ification” and Biden’s fiscal plan definitely qualifies.

It’s also a different way of looking at the second cartoon from this depiction of how a welfare state evolves over time.

This Chuck Asay cartoon makes the same point.

Second, here’s a cartoon that nicely captures why I think Biden’s agenda will erode the nation’s societal capital.

The same theme as this excellent cartoon.

While amusing, there’s a very serious point to be made. Politicians already have created a system that rewards people for doing nothing while punishing them for creating wealth.

Those policies hinder American prosperity (as honest folks on the left acknowledge), but we can survive with slower growth. What really worries me is that we may eventually reach a tipping point of too many people riding in the wagon (and out-voting the people who pull the wagon).

Simply stated, we don’t want America to become another Greece.

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Political Alchemy, Part II: Turning Spending Increases into Tax Cuts

More than 10 years ago, I wrote about President Obama’s disingenuous strategy of pretending that spending increases were tax cuts.

Politicians in Washington have come up with something far more impressive than turning lead into gold or water into wine. Using self-serving budget rules, they can increase the burden of government spending and say they are cutting taxes instead. This bit of legerdemain is made possible…by adopting or expanding refundable tax credits. But in this case, “refundable” does not mean the government is returning money to taxpayers. Instead, it means that money is being redistributed to people who do not earn enough to be subject to the income tax. This is hardly a trivial issue. …the amount of income redistribution being laundered through the tax code is now so large that the bottom 40 percent of the population has a negative “effective” income tax rate.

Indeed, the IRS is now the biggest redistribution agency in the world, in charge of giving away a massive amount of money.

Far more than is spent on traditional welfare (what used to be called aid to families with dependent children and was reclassified as temporary aid to needy families), as illustrated by the chart.

The so-called earned income tax credit is the biggest redistribution program, though there’s also a large amount of spending on child credits.

And the cost of the so-called child credits is going to explode if President Biden’s plan for per-child handouts is approved.

Matt Weidinger of the American Enterprise Institute opined on Biden’s version of political alchemy.

Democrats are fond of saying their massive $3.5 trillion spending bill includes significant “tax cuts.” They are referring to the effects of continuing the expanded child tax credit… President Biden said it was “one of the largest-ever single tax cuts for families with children.” …The facts say otherwise. …Such payments to those who do not owe federal income taxes are known as “refundable” credits, or in budget terms “outlays” — the same as benefits provided under welfare, Medicaid, food stamps, and similar spending programs. The outlay portions of these tax credits are not “tax cuts” for the simple reason that the payments exceed any taxes the recipient owed in the first place. Put another way, it is impossible to “cut taxes” if you do not owe taxes.

And here’s the relevant table from the Joint Committee on Taxation.

By the way, note how the spending estimates decline after 2025.

This is a budget gimmick. To make Biden’s expansion of the welfare state seem less extravagant, supporters designed the proposal so the expanded per-child handouts disappear in 2026.

But they openly argue that they will be extended because of the assumption that many Americans will get hooked on “free” money from Washington.

P.S. I’m not a fan of child credits, even for families that pay taxes. Simply stated, there are other types of tax cuts that will do a much better job of boosting after-tax family income.

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High Implicit Tax Rates Trap Poor People in the Quicksand of Government Dependency

The welfare state and the so-called war on poverty has been very bad news for taxpayers.

But it’s also very bad news for poor people, in part because various redistribution programs can lure them out of the productive economy and into total dependency on government (and this will become an even bigger problem if Biden’s per-child handouts are approved).

But it’s also bad news because redistribution programs can result in very high implicit tax rates for low-income people who try to improve their lives by climbing the economic ladder.

I shared an example back in 2012, which showed how a single mother in Pennsylvania would be worse off with $57,000 of income instead of $29,000.

In other words, she would be dealing with a de facto marginal tax rate of more than 100 percent.

If you want to understand how this happens, Professors Craig Richardson and Richard McKenzie wrote about this topic in an article for The Library of Economics and Liberty.

…by expanding public assistance programs, the President’s plan will unavoidably impose a higher, hidden tax rate—known as an “implicit marginal income tax rate” (which we shorten to implicit tax rate)—on low-wage workers who receive welfare benefits. Those workers will pay an implicit tax rate because many welfare benefits are reduced as earnings rise. Ironically, the poorest Americans often pay implicit tax rates that are far higher than the IRS’s explicit marginal income-tax rates imposed on the country’s highest income earners. …Consider a household that receives benefits from only two welfare programs, with one tapering off at 20 cents for each added dollar earned and another tapering off at 40 cents for each added dollar earned. Those cuts create an implicit tax rate of 60 percent, which means the worker has only 40 cents in additional spendable income for each added dollar earned. This implicit tax rate can be expected to affect work incentives in much the same way that a federal income tax rate does.

The authors cite a real-world example.

…consider a real-life, low-income single mother of two children in Forsyth County, North Carolina earning $10 an hour in a full-time job, which means she has a monthly earned income of $1,600 (or $19,200 annually). Suppose the single mother receives monthly benefits from five welfare programs: $425 in food stamps, $1,471 in subsidized childcare, $370 in housing subsidies, $180 in WIC benefits, and $493 in an earned income tax credit (EITC). Her monthly welfare benefits will total $2,939 (or $35,271 a year). Now, suppose the single mother takes a new job paying $15 an hour, a 50 percent increase. Her monthly earned income will rise by $800 to $2,400 (with her annual income rising to $28,800 a year, an annual earnings increase of $9,600). However, she will face decreases in four out of her five monthly benefit streams, with each benefit reduction based on the same $800-increase in earnings (a problem known among welfare researchers as the “cumulative stacked effect”). The single mother will lose $231 in food stamps, $80 in childcare benefits, $216 in housing benefits, and $166 in EITC. Her total decrease in monthly benefits will reach $694 (which means her annual benefit total will drop by $8,328).4 Her implicit tax rate on her added monthly earnings of $800 is 87 percent—more than two times the highest explicit marginal tax rate proposed for the rich. …In addition, the single mother will be required to pay an added $185 a month in federal and state income taxes on her added earned monthly income of $800, which is an explicit tax rate of 23 percent. Adding the 87 percent implicit tax rate to the 23 percent explicit tax rate leads to an overall tax rate of 110 percent. Her raise has left her $79 per month poorer in lost wages and benefits—surely a strong disincentive for her to take the higher paying job.

Here’s a table showing those results.

If you want more evidence, check out Chart 7 from this column and Figure 8 from this column.

And the same problem exists in other nations as well.

P.S. Obamacare may have lured as many as 2 million people into full dependency.

P.P.S. I already mentioned how Biden’s per-child handouts could lure many more into full dependency, but “basic income” could be far worse.

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Primitive Keynesianism from the Joint Economic Committee

Washington is filled with dishonest and self-serving analysis. Much of that shoddy output is driven by privileged groups seeking bailouts, subsidies, protectionism, or a tilted playing field.

• The health insurance and pharmaceutical companies supported Obamacare.
• Big agribusiness firms support farm subsidies.
• The big Wall Street Firms supported Dodd-Frank.

But that’s not the only type of dishonest and self-serving you find in Washington.

Let’s take the example of President Biden’s proposal to gut welfare reform with per-child handouts.

The micro-economic problem with that policy is that it reduces incentives to work – as illustrated by this Wizard-of-Id parody or this cartoon about socialism.

The macro-economic problem with that policy is that it’s part of a radical expansion in the burden of government that will make the U.S. more like Europe.

For today’s topic, though, I want to call attention to a recent report by the Democratic staff of the Joint Economic Committee. It relies on the sloppiest and most disingenuous analysis imaginable.

To recycle a term from 2015, let’s call it primitive Keynesianism.

Here’s the relevant excerpt.

The Treasury Department released information on how much money went to each state, which allows us to estimate the impact of the newly expanded CTC on local economies. Using an estimated multiplier of 1.25—or how much additional spending each $1 in CTC payments will generate, as people use their funds to buy goods and services that in turn generate income for other people and businesses—implies that the expanded CTC will generate nearly $19.3 billion in spending in local economies each month. This increased economic activity is a boon to local businesses, creating jobs in communities across the United States.

You’ll notice an astounding omission.

Nowhere in the JEC “report” is there any acknowledgement that politicians can’t “inject” money into local economies without first taxing or borrowing the money from the private sector.

Honest Keynesians acknowledge that there’s no magic money tree. They know the government can’t put money in our right pocket without first removing from our left pocket.

So they make arguments about things such as the “marginal propensity to consume.”

I disagree with that argument, but at least the folks making that case are being ethical.

The JEC report, by contrast, is utter garbage.

• No recognition of the negative consequences of higher taxes.
• No recognition of the adverse consequences of more debt.
• No recognition of the harmful consequences of bigger government.
• No recognition of the deleterious consequences of more dependency.

But I guess we shouldn’t be surprised. They’re trying to sell very bad policy, so the staff have no choice but to produce nonsensical “research.”

P.S. Arthur Okun would be very disappointed.

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The Case Against Biden’s Per-Child Handouts

Joe Biden wants to dramatically expand the welfare state (more than $5 trillion of new spending over the next 10 years).

In this discussion with Ross Kaminsky of KHOW in Denver, I warn that the President’s proposal for per-child handouts is an especially bad idea.

In part, my opposition to per-child handouts is motivated by a desire to protect the welfare reform law enacted in the 1990s.

As I noted in the interview, that reform reduced dependency and it reduced poverty. And Biden’s plan, for all intents and purposes, will repeal that law since it will be possible to get big chunks of money while not working, simply by having kids.

But since I’m a public finance economist, I’m also motivated by opposition to a massive new entitlement program.

At the risk of understatement, we don’t need to spend another $1.1 trillion when we can’t even afford all the programs that already are burdening taxpayers.

Others share my concern about the impact of Biden’s plan.

Matt Weidinger dissects per-child handouts in an article for National Review.

This year, parents don’t need to have paid taxes at all to collect an annual allowance of up to $3,600 per child. …According to the New York Times, “more than 93 percent of children — 69 million” will benefit from the new federal giveaway. …No work is expected from parents collecting them. That’s reminiscent of welfare programs before bipartisan 1996 reforms that required parents to work or attend training in order to receive government checks. In fact, the biggest beneficiaries of the new child allowance will be parents who earn less than $2,500 per year — including those who don’t work or pay taxes at all. …As explained in a 2019 report proposing child allowances in the U.S., the idea comes “from other countries.” …American policy-makers could merely be following suit. But it seems more likely that they’re just searching for a palatable way to package their current explosion of new spending, a spin on a return to the failed policies of the past: bigger benefits, for more people, funded by others’ tax dollars. After all, calling such payments “welfare” just wouldn’t do, would it?

David Henderson of the Hoover Institution also explains why Biden’s scheme is misguided.

Child allowances are a bad idea. It’s wrong to forcibly take money from some and give to others simply because they have children. Moreover, child allowances would create increased dependence, are not targeted at the needy, could reduce the work effort of lower-income women, and would add to the already huge federal budget… Scott Winship, the director of poverty studies at the American Enterprise Institute…worries that child allowances will undercut the successful welfare reform of the mid-1990s and thereby cause a substantial number of unmarried low-income mothers to stop working. …in the 1990s he thought welfare reform would increase child poverty and he now admits that he was wrong. He writes that in the United States, “Poverty among the children of single parents fell from 50 percent in the early 1980s to 15 percent today, with an especially sharp decline during the 1990s.” …the urgent need is to get federal spending under control. This means slowing the growth of Medicare, Medicaid, and Social Security, the three programs most responsible for the coming federal deficits. But it also means not adding major new programs.

By the way, Henderson’s column focuses on Mitt Romney’s plan, but his criticisms apply equally (actually, even more) to Biden’s proposal.

I’ll close with some encouraging polling data that was shared by G. Elliott Morris of the Economist.

Biden’s plan has only 29 percent support (versus 43 percent opposition).

I suspect that polling data would look even better if the pollsters had been honest and asked whether people favored expanded redistribution payments based on number of kids (“refundable” tax credits are simply spending that gets laundered through the tax code).

The bottom line is that the United States already has a big problem with government dependency. Per-child handouts will make a bad situation even worse.

P.S. Some advocates of the handouts say we need to copy Europe, but they never explain why “catching up” is a good idea when Europeans have much lower living standards.

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