Posts Tagged ‘Welfare State’

When I wrote earlier this year about “Europe’s suicidal welfare state,” it wasn’t so that I could make points about excessive spending and demographic decline.

Yes, those are very important issues. But I was focusing instead on the fact that Europe’s welfare states have a masochistic habit of giving handouts to terrorists.

So I wasn’t surprised to learn that some of the dirtbags who launched the recent terror attacks in Paris have been sponging off taxpayers.

Here are some excerpts from a story in the U.K.-based Daily Mail.

The former wife of Paris bomber Ibrahim Abdeslam has broken her silence to say he was a jobless layabout… Speaking from her home in Moleenbeek, Brussels, Niama, 36, said: ‘…He often slept during the day...Despite his diploma as an electrician, he found no job,’… Money was tight for the couple. ‘We lived on unemployment benefit which was only €1,000 a month between us so we worried a lot about money.’

By the way, money wasn’t “tight for the couple.” The handouts they got from the Belgian taxpayers gave them an income higher than the world average. And I’m guessing that the unemployment benefit wasn’t the only bit of mooching they did given the destructive lavishness of European welfare systems.

Ibrahim wasn’t the only terrorist with a snout in the public trough.

Here are some details from a story in the American Spectator.

Before he blew himself up outside a French soccer stadium, Bilal Hadfi lived in state-subsidized housing. …Open wallets as much as open borders doom Europe. Harboring shiftless populations alienated from the surrounding culture by religion asks for trouble. Give them blank checks and watch them fill up the blank spaces of indolence with destruction. …They pay back the dole with gunfire.

These are just two of the terrorists, but I’m guessing we’ll soon learn that others also were mooching off taxpayers.

And I can’t help but wonder whether the self-loathing that presumably occurs among some welfare recipients actually contributes to radicalism.

By the way, the Moocher Hall of Fame has a special section for deadbeats who want to kill taxpayers. Members of this Terror Section of the MHoF include:

* Abdul from Australia is an esteemed member of the Hall of Fame’s terror wing, having received 19 years of welfare while plotting to kill the people who were paying for his life of leisure.

* Keeping with that theme, let’s also recognize Anjem, who got elected to the Hall of Fame for collecting about $40,000-per year in handouts while spewing hate and recruiting other “fanatics to copy him by going on benefits.”

* The Tsarnaev brothers are most infamous for the Boston Marathon bombing, but let’s also revile them for being scroungers who thought it was okay to live off the work of others.

* Jihadi John, the ISIS dirtbag who is infamous for beheading innocent people, grew up with a family that sponged off British taxpayers for two decades.

P.S. In a truly spectacular example of government incompetence, a British jihadist actually was employed in law enforcement, ostensibly to fight against Islamic extremism!

P.P.S. American readers shouldn’t get too smug about the stupidity of our terrorism-subsidizing cousins on the other side of the Atlantic. We also have self-destructive policies that subsidize terrorism.

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Three years ago, I shared a chart about the fiscal burden of the welfare state, calling it the picture that says a thousand word.

It’s astounding, after all, that taxpayers spend so much money on means-tested programs and get such miserable results.

Indeed, if we took all the money spent on various welfare programs and added it up, it would amount to $60,000 for every poor household.

Yet the handouts for poor people generally (but not always) are way below that level, so where does all the money go?

Well, this eye-popping flowchart (click to enlarge) from the House Ways & Means Committee is one way of answering that question. As you can see, there are dozens of programs spread across several agencies and departments.

In other words, a huge chunk of anti-poverty spending gets absorbed by a bloated, jumbled, and overlapping bureaucracy (and this doesn’t even count the various bureaucracies in each state that also administer all these welfare programs).

This is akin to a spider web of dependency. No wonder people get trapped in poverty.

Fortunately, we have a very simple solution to this mess. Just get the federal government out of the business of redistributing income. We already got very good results by reforming one welfare program in the 1990s. So let’s build on that success.

P.S. Leftists generally will oppose good reforms, both because of their ideological belief in redistribution and also because overpaid bureaucrats (who would have to find honest work if we had real change) are a major part of their coalition. But there are some honest statists who admit the current system hurts poor people.

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I periodically make comparisons of the United States and Europe that are not very flattering for our cousins across the Atlantic.

Though this isn’t because of any animus toward Europe. Indeed, I always enjoy my visits. And some of America’s best (albeit eroding) features, such as rule of law and dignity of the individual, are a cultural inheritance from that continent.

Nor am I trying to overstate America’s competitiveness, which actually has eroded considerably during this century.

Instead, I’m simply trying to make the narrow point that too much government is already causing serious problems in Europe, and I’m worried those problems are spreading to the United States.

Yet some of our statist friends, most notably Senator Bernie Sanders, think America should deliberately choose to be more like Europe.

They have this halcyon vision that the average European is more prosperous and they exclaim that this is proof that a big welfare state is benign. Or perhaps even beneficial.

So it was with great interest that I read a new article by Ryan McMaken of the Mises Institute. He takes a data-driven look at the America-v-Europe economic debate.

The battle over the assumed success of European socialism continues. Many European countries like Sweden have gained a reputation as being very wealthy in spite of their highly regulated and taxed economies. From there, many assume that the rest of Europe is more or less similar, even if slightly poorer. But if we look more closely at the data, a very different picture emerges.

Actually, I have a minor disagreement with the above passage.

Countries like Sweden and Denmark are highly taxed, but it’s not true that they’re highly regulated.

Or, to be more accurate, there almost surely is too much regulation in those nations, but since we’re discussing the relative economic performance of the United States and Europe, the relevant point is that there’s less government intervention in certain European countries (particularly Nordic nations) than there is in the United States.

The only reason that they generally lag behind the United States in the overall rankings is that they have very bad fiscal policy and that more than offsets the advantage they generally have over America in other categories.

But I’m digressing.

Let’s focus on the main point of the article, which is an effort to produce a neutral comparison of living standards in European nations and American states.

…if one is going to draw broad conclusions about poverty among various countries, GDP numbers are arguably not the best metric. For one, GDP per capita can be skewed upward by a small number of ultra-rich persons.  …I thought it might be helpful to use data that relies on median income data instead, so as to better account for inequalities in income and to get a better picture of what the median resident’s purchasing power.

McMaken uses OECD data to calculate relative levels of median income.

The nationwide median income for the US is in red. To the left of the red column are other OECD countries, and to the right of the red bar are individual US states. These national-level comparisons take into account taxes, and include social benefits (e.g., “welfare” and state-subsidized health care) as income. Purchasing power is adjusted to take differences in the cost of living in different countries into account. Since Sweden is held up as a sort of promised land by American socialists, let’s compare it first. We find that, if it were to join the US as a state, Sweden would be poorer than all but 12 states, with a median income of $27,167.

And here’s the chart he described (click to enlarge). Remember, this is a look at the income of the median (rather than mean) household, so the numbers are not distorted by the presence of people like Bill Gates.

Here’s some additional analysis based on his number-crunching.

With the exception of Luxembourg ($38,502), Norway ($35,528), and Switzerland ($35,083), all countries shown would fail to rank as high-income states were they to become part of the United States. In fact, most would fare worse than Mississippi, the poorest state. For example, Mississippi has a higher median income ($23,017) than 18 countries measured here. The Czech Republic, Estonia, Greece, Hungary, Ireland, Italy, Japan, Korea, Poland, Portugal, Slovenia, Spain, and the United Kingdom all have median income levels below $23,000 and are thus below every single US state. …Germany, Europe’s economic powerhouse, has a median income ($25,528) level below all but 9 US states.

We could stop at this point and declare that the United States was more economically prosperous than all European nations other that oil-rich Norway and the twin financial centers of Switzerland and Luxembourg.

This doesn’t bode well for Bernie Sanders’ claim that America should be more like Sweden and Denmark.

But McMaken expands upon his analysis and explains that the above numbers actually are too generous to Europeans.

We’ve already accounted for cost of living at the national level (using PPP data), but the US is so much larger than all  other countries compared here, we really need to consider the regional cost of living in the United States. Were we to calculate real incomes based on the cost of living in each state, we’d find that real purchasing power is even higher in many of the lower-income states than we see above. Using the BEA’s regional price parity index, we can take now account for the different cost of living in different states.

And he produces a new graph, once again featuring the United States average in red, with other developed nations to the left and numbers for various states to the right.

McMaken gives some added context to these new adjusted-for-cost-of-living numbers.

…there’s less variation in the median income levels among the US states. That makes sense because many states with low median incomes also have a very low cost of living. …This has had the effect of giving us a more realistic view of the purchasing power of the median household in US states. It is also more helpful in comparing individual states to OECD members, many of which have much higher costs of living than places like the American south and midwest.  Now that we recognize how inexpensive it is to live in places like Tennessee, Florida, and Kentucky, we find that residents in those states now have higher median incomes than Sweden (a place that’s 30% more expensive than the US) and most other OECD countries measured.

And here’s the most powerful data from his article.

Once purchasing power among the US states is taken into account, we find that Sweden’s median income ($27,167) is higher than only six states… We find something similar when we look at Germany, but in Germany’s case, every single US state shows a higher median income than Germany. …None of this analysis should really surprise us.

In other words, even when we limit the comparison to Europe’s more successful welfare states, the United States does better.

Not because America is a hyper-free market jurisdiction like Hong Kong or Singapore. Instead, the U.S. does better simply because European nations deviate even further from the right recipe for prosperity.

I commented on some of these issues in this interview with Dana Loesch of Blaze TV, specifically noting that living standards in Denmark and Sweden are below American levels.

I also recycled my assertion that Bernie Sanders isn’t even a real socialist, at least if we’re relying on the technical economic definition of having the government own the means of production.

P.S. In typically blunt yet analytically rigorous fashion, Thomas Sowell identifies where Obama belongs on the economic spectrum.

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Whenever there’s a discussion of the Nordic nations, I feel conflicted.

I don’t like the punitively high tax rates and socially destructive levels of redistribution in nations such as Denmark, but I also admire the very laissez-faire policies those countries have when it comes to regulation, trade, and property rights.

Indeed, on those latter issues, it’s worth noting that Nordic nations are more free market-oriented than the United States according to the experts at the Fraser Institute who put together Economic Freedom of the World.

Take the example of Sweden. That country has robust school choice and a partially privatized social security system.

Moreover, Nordic nations in general have lower business tax burdens and investment tax burdens than the United States. And Denmark and Sweden have both taken some modest steps to restrain government spending, so even in the realm of fiscal policy you can find some admirable developments.

But these countries need more than “modest steps” since the burden of government spending is still enormous. And excessive social-welfare expenditures are a major problem since such outlays depress labor force participation and encourage dependency.

I mention all these good and bad features of Nordic nations because Senator Bernie Sanders has suggested, as part of his presidential campaign, that the United States should become more like Sweden and Denmark.

If I got to pick and choose which policies we copied, I would agree.

But since Senator Sanders almost surely wants us to copy their fiscal policies (and presumably has no idea that those countries are pro-free market in other areas), I feel compelled to explain that he’s wrong.

And the good news is that other people are producing the evidence, which makes my job easy. Nima Sanandaji is a Swedish economist who just wrote a very illuminating article on this topic for the Cayman Financial Review.

He starts by noting how statists embrace the Nordic Model.

Denmark, Finland, Norway and Sweden have high-tax social democratic systems that for long have been admired by the left. …The high regard comes as no surprise. Nordic societies are uniquely successful. Not only are they characterised by high living standards, but also by other attractive features such as low crime rates, long life expectations, high degrees of social cohesion and relatively even income distributions. …This is often seen as proof that a ”third way” policy between socialism and capitalism works well, and that other societies can reach the same favourable social outcomes simply by expanding the size of government.

But Nima explains that Nordic nations became rich when they had free markets and small government.

The best that can be said about the Nordic welfare state is that the damage is somewhat contained because of cultural norms.

If one studies Nordic history and society in depth, however, it quickly becomes evident that the simplistic analysis is flawed. …High levels of trust, strong work ethic, civic participation, social cohesion, individual responsibility and family values are long-standing features of Nordic society that pre-date the welfare state. These deeper social institutions explain why Sweden, Denmark and Norway could so quickly grow from impoverished nations to wealthy ones as industrialisation and the market economy were introduced in the late 19th century. …The same norms explain why large welfare systems could be implemented in the mid-20th century. Strong work ethics and high levels of trust made it possible to levy high taxes and offer generous benefits with limited risk of abuse and undesirable incentive effects. It is important to stress that the direction of causality seems to be from cultures with strong social capital towards welfare states that have not had serious adverse consequences, and not the other way around.

Dr. Sanandaji then hypothesizes that we can learn a lot by comparing Americans of Nordic descent with those that didn’t emigrate.

…the Nordic success culture is maintained when people from this region move abroad. …The American descendants of Nordic migrants live in a very different policy environment compared with the residents of the Nordic countries. The former live in an environment with less welfare, lower taxes and (in general) freer markets. Interestingly, the social and economic success of Nordic-Americans is on a par with or even better than their cousins in the Nordic countries. …Close to 12 million Americans have Nordic (Scandinavian) origins.

And he produces some dramatic data.

Simply said, people of Nordic descent do very well in America, where the fiscal burden is lower than it is back in Scandinavia.

According to the 2010 US Census, the median household income in the United States is $51,914. This can be compared with a median household income of $61,920 for Danish Americans, $59,379 for Finish-Americans, $60,935 for Norwegian Americans and $61,549 for Swedish Americans. There is also a group identifying themselves simply as “Scandinavian Americans” in the US Census. The median household income for this group is even higher at $66,219.

But here’s the most remarkable information from his article. Nordic-Americans are far more productive than their cousins back home.

Danish Americans have a contribution to GDP per capita 37 per cent higher than Danes still living in Denmark; Swedish Americans contribute 39 per cent more to GDP per capita than Swedes living in Sweden; and Finnish Americans contribute 47 per cent more than Finns living in Finland. …there is prima facie evidence that the decedents of Nordic people who move to the U.S. are significantly better off than those who stay at home.

Here’s the infographic Nima sent with his article.

Wow, this is game, set, match, as far as I’m concerned.

Nima produced similar data a few years ago looking just as Swedes.

But this new data makes it clear that we’re not just looking at a one-nation phenomenon. The lesson is clear. Nordic people manage to be somewhat productive in high-tax, big-government nations.

But if they reside in a medium-tax country with a medium-sized government, they are highly productive (so just imagine what they could achieve in Hong Kong or Singapore!).

And Nima also points out that there is less poverty among Scandinavians in America than there is among Scandinavians in Scandinavia.

Nordic descendants in the U.S. today have half the poverty rate of the average of Americans – a consistent finding for decades. In other words, Nordic Americans have lower poverty rates than Nordic citizens.

So here’s the lesson that will be a nightmare for Bernie Sanders. It turns out that his role models actually teach us that big government makes people less prosperous.

…in the long run, the large welfare states have eroded incentives, and ultimately the social norms that bounded Nordic societies together. The U.S. system, with greater emphasis on personal responsibility, is more in line with the traditional Nordic system that allowed for the culture of success to develop in the first place. Thus, we should not be surprised that Nordic Americans have both higher living standard and lower poverty than their cousins in the Nordic welfare states.

To summarize, the recipe for prosperity is free markets (which you find in Scandinavia) and small government (which is absent in those countries).

But Senator Sanders wants to copy the bad parts of Nordic nations while ignoring the good parts. For those who care about real-world evidence, Dr. Sanandaji’s data suggests we should take the opposite approach.

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Some issues never seem to get resolved. One would think, for instance, that leftists would be more cautious about pushing for a bigger welfare state given the fiscal crisis in Europe.

But we have folks like Bernie Sanders openly arguing we should be more like nations such as Denmark and Sweden.

To give some credit to the Vermont Senator, he’s at least smart enough to pick Scandinavian nations that compensate for the damaging impact of high taxes and excessive spending by being very market-oriented in all other respects.

Though I suspect he’d be horrified to know that he’s basically endorsing a laissez-faire approach to policies such as trade and regulation.

But let’s set aside the quirky candidacy of Bernie Sanders and focus on whether the United States, as a general rule, should be more like Europe.

To be sure, this is a very imprecise way to look at the issue since “Europe” includes very market-oriented countries such as Switzerland and the United Kingdom (both of which rank above the United States for overall economic freedom) as well as very statist nations such as Italy, France, and Greece.

But if you take the average of European nations, there’s no question that the continent would be further to the left than America on the statism spectrum.

So we should be able to learn some lessons by making general comparisons.

Let’s go to the other side of the world to get some insight on this issue. Oliver Hartwich is an economist with the New Zealand Initiative, and he looks at the negative consequences of the welfare state in his new publication, Why Europe Failed. He starts by sharing the grim data on how the burden of government spending has increased.

Government spending as a percentage of GDP increased dramatically across Europe all through the 20th century (Table 1). …Since the immediate post-World War II and reconstruction era, government spending has increased to unprecedented levels. The most extreme case is France where the state now accounts for well over half of the economy. …These spending rises have not been driven by the core areas of government spending of law and order, defence and certain public goods. …these European countries spent almost 30% of GDP on welfare alone, which is more than the total of government spending before World War II.

And here’s the Table he referenced.

Very similar to the data I shared back in 2013 for the simple reason that we’re both citing the superb work of Vito Tanzi.

Oliver adds some analysis, noting that Europe’s voters have sold themselves into dependency.

Bread and circuses – or panem et circenses in the Latin original – were the means of bribing the masses in ancient Rome. Modern Europe is witnessing a similar phenomenon. …Unfortunately, it is often overlooked that government can only bribe the people with their own money. …Buying European citizens’ loyalty for their mixed economy welfare states has effectively enslaved them.

He then shares lessons for New Zealand, but they’re also lessons for the United States.

…we have to make sure we do not repeat Europe’s mistakes. …be watchful of the rise of the welfare state. In Europe, the welfare state was a means of buying political power. Of course, the bribed electorate always paid for its own bribes. However, the arrangement worked for as long as new spending commitments could be financed through higher taxes, more debt, or indeed a combination of both. As government spending has now reached around 50% of GDP, and as the debt load stands at worrying levels, the European welfare state model has reached its limits. … we have the luxury of being three or four decades behind Europe’s demography curve. But this does not have to mean that we will be experiencing Europe’s problems 30 or 40 years later. It should mean that we have 30 or 40 years of finding ways to prevent a European replay by finding different answers to the challenges facing Europe today.

Here’s a short video of Hartwich discussing his work and its implications.

Now let’s look at another source of information. And we’ll actually deal with an argument being peddled by Bernie Sanders.

In an article for the Mises Institute, Ryan McMaken looks at the assertion that the United States has the highest poverty rate in the developed world.

Bernie Sanders claimed that the United States has the highest rate of childhood poverty. …UNICEF…is probably the source of Sanders’s factoid… Sanders probably doesn’t even know what he means by “major country”.

Though maybe the OECD is the source of Senator Sanders’ data. After all, as Ryan explains, some organizations are completely dishonest in that their supposed poverty data actually measures income distribution rather than poverty.

We get much more insight, though, once we have a look at what UNICEF means by “poverty rate.” In this case, UNICEF (and many other organizations) measure the poverty rate as a percentage of the national median household income. …The problem here, of course, is that…the median income in the US is much higher than the median income in much of Europe. So, even someone who earns under 60% of the median income in the US will, in many cases, have higher income than someone who earns the median income in, say, Portugal.

McMaken then crunches the data to see what actually happens if you compare the poverty level of income in the United States to overall income in other industrialized nations.

So what’s the bottom line from this data?

The answer is that it’s better to be a “poor” person in the United States than an average person in many European nations.

…a person at 60% of median  income in the US still has a larger income than the median household in Chile, Czech Rep., Greece, Hungary, Portugal, and several others. And the poverty income in the US is very close to matching the median income in Italy, Japan, Spain, and the UK.

In other words, Bernie Sanders is wrong, UNICEF is wrong, and the OECD is wrong.

Poverty in the United States is not high.

Indeed, experts who have looked at actual measures of deprivation have concluded that the real poverty rate in the United States is relatively low. Even when compared with the more market-oriented countries in Northern Europe.

Last but not least, let’s look at one more Europe-America comparison, just in case the aforementioned data wasn’t sufficiently compelling. Check out this map showing how many young adults still live with their parents (h/t: Paul Kirby).

As pointed out above, Europe is not monolithic. The Northern European economies lean more toward free markets than the Southern European economies, so this map presumably captures some of that difference (though I imagine culture plays a role as well).

But for purposes of today’s analysis, our message is more basic. Simply stated, the United States should not be more like Europe. Instead, we should seek to be more like Hong Kong and Singapore.

Assuming, of course, that the goal is to have policies that promote prosperity.

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Federal government redistribution programs don’t work.

We’ve ignored the lessons of history about the dangers of government intervention, so is it any mystery that we now have millions of people mired in dependency.

Yet some people in Washington want to double down on failure.

Chris Edwards of the Cato Institute, joined by Veronique de Rugy of the Mercatus Center, are understandably distressed that so many politicians – on both sides of the aisle – want to expand the amount of money being redistributed by the federal government. In a new Tax and Budget Bulletin, they make a very compelling case that the so-called earned income tax credit should be abolished rather than expanded.

Here’s the big picture.

…the earned income tax credit (EITC)…is a huge program. In 2015 it will provide an estimated $69 billion in benefits to 28 million recipients. The EITC is the largest federal cash transfer program for low-income households. …While the EITC is administered through the tax code, it is primarily a spending program. The EITC is “refundable,” meaning that individuals who pay no income taxes are nonetheless eligible to receive a payment from the U.S. Treasury. Of the $69 billion in benefits this year, about 88 percent, or $60 billion, is spending.

Now let’s look at some of the details. As is so often the case with government programs, the EITC started small but then quickly expanded.

In the early 1970s, policymakers considered ways to combat the anti-work effects of the growing welfare state. But rather than reining in the welfare state, they decided to expand it in 1975 by enacting the EITC. The credit was aimed at reviving work incentives… Initially, it was a 10- percent wage credit with a maximum value of $400… The EITC is a much larger program today than in 1975. It has credit rates up to 45 percent and a maximum credit of $6,242 in 2015. … expansions in 1986, 1990, 1993, and 2009 greatly increased the costs. …The EITC has increasingly become a spending program over time. The refundable portion of benefits has risen from 70 percent in 1990 to about 88 percent today.

Here’s a chart from their study showing both the growing number of dependents and the growing burden on taxpayers.

I have to imagine that this makes the EITC the fastest-growing redistribution program in Washington.

Chris and Veronique then list some of the reasons why the EITC is a harmful form of income redistribution.

First, it drives down wages, which hurts low-skilled workers who can’t get EITC payments while also providing undeserved subsidies for employers.

One side effect of the EITC is that, to the extent it works by pushing down market wages, it ends up hurting low earners who receive no EITC or a small EITC— mainly childless workers. The labor-supply effect of the EITC also means that the program acts partly as a subsidy to businesses that hire lower-skilled workers because they are able to pay reduced market wages.

Second, while supporters correctly argue that the EITC encourages poor people to enter the labor force (the handouts are tied to earning money), they conveniently overlook the fact that the program penalizes people who want to work more hours and climb the economic ladder.

…people have an incentive to reduce hours worked in both the flat and phase-out ranges of the credit. As it turns out, about three-quarters of people taking the EITC are in those two ranges where the work incentives are negative. …Consider a single parent with two children, as in Figure 2. She would have a disincentive to increase her work effort in the large income range from $13,870 all the way to $44,454.

Here’s a table from the report. The last column shows the “phase-out rate,” which is akin to a marginal tax rate on workers as they seek to earn more income. Keep in mind that these workers, depending on their incomes, will also be paying the payroll tax and the income tax.

So it’s easy to see why poor people face very high marginal tax rates that discourage them from additional productive effort.

Third, the EITC is riddled with fraud.

The EITC error rate has been more than 20 percent since at least the 1980s. The Internal Revenue Service reports that the EITC error and fraud rate in 2014 was 27 percent, which amounted to $18 billion in overpayments.

Though I guess we shouldn’t be surprised. There’s lots of Medicare fraud, Medicaid fraud, Food Stamps fraud,  and disability fraud, so this just seems to be an inevitable additional cost when governments spend money.

Fourth, the EITC is absurdly complex (like other parts of the tax code).

The EITC is a particularly complex credit. Benefits change as income rises, with four phase-in rates and three phase-out rates. It is adjusted by filing status and number of children. The rules regarding child eligibility are complex due to issues such as separation and divorce. There are rules and calculations regarding earned income, investment income, and adjusted gross income. …For individuals, the IRS guidebook for the EITC (Publication 596) is 37 pages long. But the rules are so complicated that more than two-thirds of all tax returns claiming the EITC are done by paid preparers.

Fifth, like all other forms of government spending, it’s important to calculate the economic burden that is imposed when resources are taken from the productive sector of the economy and transferred to government.

The process of extracting taxes damages the economy because it causes people to reduce their productive activities, such as working and investing. The harm from the behavioral responses to higher taxes is called “deadweight losses.” For the federal income tax, studies have found, on average, that the deadweight loss of raising taxes by a dollar is roughly 30 to 50 cents. … expanding the EITC—or any other federal spending program—would ultimately mean higher taxes, and thus more tax distortions and higher deadweight losses.

So what’s the bottom line?

Well, since great minds think alike, you won’t be surprised to see that Chris and Veronique also want to get the federal government out of the redistribution racket.

The EITC should not be expanded. Indeed, the best long-term solution would be to end the EITC, while also cutting other welfare programs… The credit creates a modest increase in workforce participation by single mothers, but that benefit is outweighed by the work disincentives during the phase-out range, billions of dollars of errors and fraud, substantial paperwork costs, and the damage caused by the higher taxes needed to fund the program.


As I’ve repeatedly explained, redistribution programs are bad news for both poor people and taxpayers.

Yet our statist friends want to make the current system worse, with proposals for a government-guaranteed income. And they’re willing to lie to advance their agenda.

P.S. Click here for a video that explains why free markets are better than redistribution if you really want to help the less fortunate.

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It’s no exaggeration to say that a nation’s long-run vitality and prosperity are correlated with the spirit of independence and self-reliance among its people.

Simply stated, if too many people thinks it’s okay to ride in the wagon of government dependency, that a troubling sign that social or cultural capital has eroded.

Government policy obviously plays a role, both because politicians create various redistribution programs and also because they can set rules that help determine whether there is any stigma for relying on taxpayers.

Some lawmakers even think recipients should be publicly identified, in part to weed out fraudsters and also to discourage dependency. Here are some passages from a story in the Washington Post.

If you receive government assistance in the state of Maine, Lewiston Mayor Robert Macdonald thinks the public has a right to know about it. …Macdonald said a bill will be submitted during Maine’s next legislative session “asking that a Web site be created containing the names, addresses, length of time on assistance and the benefits being collected by every individual on the dole.” He added: “After all, the public has a right to know how its money is being spent.” …Macdonald told the Portland Press Herald that …“I hope this makes people think twice about applying for welfare.” …Publicly posting personal information, he said, could encourage people to go after those “gaming the system.”

Needless to say, this approach causes great consternation for some folks on the left.

Here’s some of what Dana Milbank wrote in his Washington Post column.

Rick Brattin, a young Republican state representative in Missouri, has…introduced House Bill 813, making it illegal for food-stamp recipients to use their benefits “to purchase cookies, chips, energy drinks, soft drinks, seafood, or steak.” …This is less about public policy than about demeaning public-benefit recipients. The surf-and-turf bill is one of a flurry of new legislative proposals at the state and local level to dehumanize and even criminalize the poor.

I admit it’s paternalistic, but if taxpayers are paying for someone else’s food, then shouldn’t they have the right to insist that recipients don’t buy junk food?

My view, of course, is that the federal government shouldn’t be in the business of redistributing income, but that’s an issue we discussed a few days ago.

Milbank also is upset that some lawmakers don’t want welfare benefits spent on frivolous things.

…the Kansas legislature passed House Bill 2258, punishing the poor by limiting their cash withdrawals of welfare benefits to $25 per day and forbidding them to use their benefits “in any retail liquor store, casino, gaming establishment, jewelry store, tattoo parlor, massage parlor, body piercing parlor, spa, nail salon, lingerie shop, tobacco paraphernalia store, vapor cigarette store, psychic or fortune telling business, bail bond company, video arcade, movie theater, swimming pool, cruise ship, theme park, dog or horse racing facility, pari-mutuel facility, or sexually oriented business . . . or in any business or retail establishment where minors under age 18 are not permitted.” …another state that prohibits welfare funds for cruise ships is true-blue Massachusetts.

Again, I have to ask why it’s unreasonable for taxpayers to put limits on how welfare funds are spent?

Setting aside my desire to get Washington out of the business of maintaining a welfare state, shouldn’t the people paying the bills have some right to decide whether they want recipients going to massage parlors and casinos?

Let’s now look at a very real-world example of how our friends on the left are trying to make dependency easier and more respectable.

They now want to make it easier and less discomforting for folks to get food stamps. Here are some excerpts from a story in the Daily Caller.

A report from the U.S. Department of Agriculture (USDA) looked at whether it should get rid of in-person interviews for those who apply to receive benefits under the Supplemental Nutrition Assistance Program (SNAP), which is commonly known as food stamps. …the USDA with the Food and Nutrition Service (FNS) conducted a limited real-world test to see if the in-person interviews are needed.

The report looks at test cases in Utah and Oregon to gauge the impact on “client and worker outcomes,” but obviously didn’t consider the impact on taxpayers.

The report says that the increase of participants from 17 million in 2000 to nearly 47 million recipients in 2014 is one reason why the application process should be made easier and less costly, but others have argued that more relaxed entry requirements into the program are the very reason it has expanded so much.

The latter group is correct. If people can sign up for freebies over the phone, with very weak verification procedures, then it should go without saying that the burden on taxpayers will grow even faster.

And for purposes of our discussion today, this proposal would make it even easier for people to become dependents. The government already has turned food stamps into a welfare-state version of a debit card, which means that recipients feel less conspicuous about relying on taxpayers. Now they wouldn’t even have to visit a food stamp office when first signing up for the system!

The bottom line is that it will be very healthy for our nation if most people feel reluctant and/or embarrassed to become wards of the state.

Fortunately, there are some folks who already have this self-reliant streak. Here’s a blurb from some analysis by Angela Rachidi for the American Enterprise Institute.

…research shows that a sizeable number of eligible people do not participate in SNAP because they do not want government assistance. According to a 2003 USDA report on the subject, 27% of eligible non-participants indicated that they would not enroll in the program even if they were assured they were eligible. The report cited the desire to feel independent as the primary driver in not wanting benefits.

Thank goodness there are still a non-trivial number of Americans who don’t want to mooch off taxpayers.

By the way, you may be shocked to learn that the people of California are the least likely to sign up for food stamps.

Too bad the folks in Maine, Oregon, Vermont, and Washington don’t have the same spirit of self reliance.

Heck, Vermont’s already famous for having the top spot in the Moocher Index.

P.S. While Dana Milbank apparently thinks there shouldn’t be any restrictions on food stamps, most taxpayers probably won’t be pleased to see these examples of their money being misspent.

Then Mr. Milbank can start investigating other examples of fraud, starting with Medicaid and the disability program.

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