A comparison of welfare for the poor, rich, and corporations
Welfare for the poor
The word has such negative connotations. In the popular imagination, the typical welfare recipient is too lazy to hold down a job, addicted to drugs, and gaming the system to avoid work. Such indolence sucks up an increasingly large share of the federal budget.
Actually, it is impossible to game welfare in the long term. "Welfare" refers to the government program "Temporary Assistance to Needy Families," or TANF. Recipients are only allowed 60 months of benefits. These 60 months cannot be consecutive. A recipient cannot receive benefits for more than 24 months in a row. If TANF recipients are lazy and gaming the system, they certainly cannot make a career out of it. Sooner or later, they will need to get off TANF. Each state determines its own eligibility requirements, but all states legally must require that all beneficiaries participate in some work or job training--usually, this is set at 30 hours per week. That TANF recipients are sitting idly by collecting benefits is simply false--they legally have to be working or receiving job training in order to receive benefits. Recipients are regularly kicked off TANF for not following TANF rules, including work requirements. Additionally, TANF is simply not a strain on the federal budget, or a driver of budget deficits. TANF takes up less than 1% of the federal budget, far less than corporate welfare or welfare for the rich (considered below). TANF costs have been decreasing slowly, not increasing significantly. It seems ridiculous to focus so much attention on targeting TANF for cuts when it accounts for such a tiny sliver of the budget.
Additionally, if the average recipient was lazy, we would expect to see recipients take however many months of benefits they are eligible for (this varies by state and other factors), then find a job. But this is precisely what we do not see. Families either leave permanently or receive benefits (TANF and others) in on-again-off-again cycles. Recipients cycle in and out of receiving benefits as their ability to find work waxes and wanes. Low skill, low income workers cannot always find stable employment, and, when they cannot, they accept benefits to get by. When they can work, they work. When they cannot find work, they accept TANF benefits.
It is often assumed that people who need help, get help, and the rest are leeching off the system. This could not be further from the truth. For example, in 2001, the most recent year for which data are available, just 16% of children eligible for child care benefits actually received them. Leave aside the fact that the eligibility for child care assistance comes nowhere near covering the families who cannot afford child care; an enormous 86% of eligible children did not receive benefits. This is not unusual. Money for antipoverty programs is always allocated without first assessing need. The end result is chronically and enormously under-funded programs.
So welfare recipients are not gaming the system and are not sucking up a huge portion of the budget. What of the other charges in the popular imagination? Are TANF recipients too lazy to hold down a job?
Once again, TANF recipients cannot legally receive benefits without engaging in some work or job training activities (generally, 30 hours per week is expected). But TANF recipients tend to have lived very troubled lives. Among female participants in a welfare-to-work program in New Jersey, 22% had been raped, 55% had suffered domestic abuse, and 20% had been sexually molested as a child. These are disgusting statistics, and it is no wonder that many TANF recipients' lives are a mess. TANF recipients are far more likely to have a physical disability that prevents them from working:
Remember, the bars representing "All Adults" include senior citizens or others receiving Social Security benefits.
The insistence that people on welfare are lazy and need to get a job does not really hold up for disabled people who cannot work. Additionally, in 1990, up to 22% of female welfare recipients could not work because they were responsible for caring for a disabled or chronically ill family member (though these women would have been receiving TANF's predecessor, AFDC). More recent data (from 2005) shows that welfare recipients are much more likely to have disabled family members than the general population:
Remember, the bars representing "All Adults" include senior citizens or others receiving Social Security benefits. Put together--the likelihood that a TANF recipient has a disability or a family member with disability--is far greater than the general population:
Remember, the bars representing "All Adults" include senior citizens or others receiving Social Security benefits. For more about how disability is measured, follow the link to the study. For those with disabilities, TANF recipients are more likely to be working despite their disability than the general population:
Remember, the bars representing "All Adults" include senior citizens or others receiving Social Security benefits.
You are not a lazy slacker leeching off the American taxpayer if you cannot work because your disabled family member requires constant care and supervision. While this is not the full story of why people accept welfare, a surprising number of TANF recipients and their families have serious issues with disability.
Even the most hardened free market conservative is likely to argue that people who have family members with or themselves have chronic health or disability problems deserve TANF benefits. Indeed, PRWORA, the law that established TANF (or, more accurately, replaced AFDC with TANF), allows for exceptions to work and time limit rules--that is, people who are in a truly desperate situation can collect benefits without working, going through job training, and without the 24 consecutive/60 month total limits. These exceptions are designed for an individual who, for example, must care for a severely disabled family member for 60 or more hours per week and cannot afford in-home or nursing home care. But the hardened free market conservatives among us like to justify slashing TANF benefits based on stereotypes, and our hypothetical individual who must care for a severely disabled family member usually gets swept up as well. For example, one of the hallmarks of TANF is the concept of least eligibility. Least eligibility holds that TANF benefits must be less generous than the lowest-paying available job--otherwise people would have no incentive to work. But our downtrodden individual who has to care for a disabled family member is also subject to least eligibility. Does this person really deserve to live in abject poverty, unable to work but receiving benefits that are less than minimum wage--simply because a family member happens to have a serious disability? An in-home care worker doing the same work would earn more than minimum wage, after all. We need to be careful that truly desperate individuals are not swept up in our welfare "reforms."
And what if it is not as easy as we assume for TANF recipients to find work? A study on 753 single mothers receiving TANF in "an urban Michigan county" is illustrative. It did not find the welfare stereotype among these women. Because the study was limited to mothers in urban Michigan, it is not necessarily representative of the entire population of TANF recipients. But the results give more than ample reason to doubt welfare recipient stereotypes.
Serious mental illness was a significant problem. 35% of subjects met the criteria for at least one of five DSM-II-R diagnoses. 25% met the criteria for major depression. To be frank, if a wealthy woman exhibited symptoms of major depression, she would be hospitalized in a psychiatric hospital. Obviously, these women were left to their own devices. Seven percent met the criteria for generalized anxiety disorder. A shocking 15% met the criteria for post-traumatic stress disorder (PTSD), and a full 29% would have met criteria for PTSD at some point in their life. Symptoms of PTSD include: nightmares, memory problems, trouble concentrating, difficulty maintaining close relationships, irritability or anger, overwhelming guilt or shame, self-destructive behavior, trouble sleeping, being easily startled or frightened, and hearing or seeing things that are not there. Clearly, finding work with such severe mental health issues is no easy task. Imagine being nervous interviewing for a job and having the symptoms of major depression.
A full half of the participants did not have access to transportation. When it comes to transportation, low-income neighborhoods get squeezed from three directions. First, TANF recipients generally cannot afford cars. That would be fine if they could walk or take the bus, but they generally cannot. The second major problem is that low-income neighborhoods do not have very many jobs within walking distance. If jobs were plentiful, people would want to move into the neighborhood and the cost of rent would get bargained up (supply and demand). Low-income families cannot afford to live in neighborhoods with high rent, and are consistently forced live in neighborhoods with lower rent and thus, fewer jobs. Third, low-income neighborhoods generally do not have access to public transportation. Again, if a neighborhood had convenient access to public transportation, people would want to live in the neighborhood, rent would get bargained up, and the poor people would be forced to move out. The long and the short is that many in poverty (1) do not always have access to cars, (2) do not live within walking distance to work, and (3) do not have access to public transportation. With such significant limits on transportation, accepting a job becomes extraordinarily difficult. But, without a job, the poor cannot afford to solve their transportation problems by moving or purchasing a car. What many TANF recipients need is not a handout, but improved public transportation.
Conservatives usually point to marriage as the best anti-poverty program. However, in this study, marital status had no affect on the ability to find work, even after taking other factors into account.
Similar to other studies, TANF recipients in this study had higher rates of physical (approximately double) and health problems (three to five times) that limited their ability to work, compared to the general population. They also had higher rates of having a child with physical, behavioral, or learning problems compared to the general population. Consistent with findings outlined above, they had higher rates of having a disabled family member that required care. How can someone accept a job if they must stay home to care for a disabled loved one that requires extensive care?
Child care was also a serious problem. "More than two-fifths of the respondents report that in the last year, they either lost or quit a job or were unable to take a job because of problems with child care or care of other family members." Most entry-level, low-wage, or low-skill jobs do not have flexible hours. It is argued that welfare recipients should be willing to take any job, no matter the conditions or hours. But how can a welfare recipient accept any job if doing so means that young children will be left at home alone? This ties in with transportation problems--imagine a TANF recipient with children somehow finds a job with shifts only during school hours, but the bus ride between work and home is two hours long, with transfers. It would be impossible for her to take this job and be home to take care of her children before and after school. She cannot take this job. Even if we assume that TANF recipients could somehow meet their transportation needs, how can they be expected to take a job if it means leaving toddlers at home without supervision?
The study noted that:
About 15 percent of the women reported being severely physically abused by a husband or partner in the last year. This rate is four to five times higher than rates found in national surveys (Straus and Gelles, 1986; 1990; and Plichta, 1996), but similar to rates reported in other studies of welfare recipients (Raphael, 1995).
As backwards as this might sound, physically abusive males often do not want their female partners to work. Abusive men rely on financial dependence of the woman they are abusing; the 85% of women who return to an abusive relationship often do so because of financial dependence. An abusive man knows that a financially independent girlfriend or wife will leave him, so he may react violently if she tries to get a job. Securing or keeping a job would be extraordinarily difficult if doing so means regular physical violence and threats of serious physical harm. The data seem to support this assessment; women who are physically abused spend more time on welfare, are more likely to return to welfare after leaving, and may be more likely turn to welfare in the first place. Obviously, women in such a situation need more help than a welfare check each month. While it is hard to measure, up to a third of women on TANF are experiencing domestic violence, and up to two thirds of women on TANF have experienced domestic violence at some point in their life.
Racism was clearly a problem. A 2003 study in Milwaukee sent white and black males to employers with identical resumes (except for race and criminal record), and trained them to behave the same during the application process (none of the subjects actually had criminal records). As expected, white men without criminal records were more likely to get called back for an interview than white men with criminal records; the same was true for black men. But white men with criminal records were more likely to get called back for an interview than black men without criminal records. And, there is no reason to believe that employers in Milwaukee are any more or less racist than employers elsewhere in the United States. For those without a criminal record, whites were 240% (not a typo) more likely to be called back for an interview than blacks:
Remember, all of the men applying for the jobs had identical resumes and were trained to behave the same during the application process.
Back to the study on urban Michigan mothers receiving TANF. The authors explain their theory:
Lack of a high school diploma by itself does not constitute a rigid barrier to employment, but an employer might be less willing to hire a high school dropout who also has few work skills, transportation problems and is depressed.
The message of the authors is that TANF recipients generally have very serious problems, and a lot of them. The authors grouped barriers to employment into categories. For example, all mental health problems--such as major depression, PTSD, and generalized anxiety disorder--were grouped. Having one (or more) of these mental health conditions meant having a single "barrier" to employment. Other barriers included lack of access to transportation, violent partners, child care needs, caregiving responsibilities for a disabled relative, etc. Michigan requires recipients of TANF to try to find work for at least 20 hours per week. Here is a graph of who was able to do so, according to number of barriers to employment:
Not surprisingly, nearly all women without any barriers to employment were able to find work. In all likelihood, these women were either unlucky, made a few recent mistakes, or were recently divorced homemakers. They probably would have found jobs relatively quickly, even without help.
Likewise, women with only a single barrier were quite likely to find work, though not as likely as those without barriers. But as the women got more and more barriers, they became significantly less and less likely to be able to find work. What these women need is not a handout, but help in many different areas. Of course, this would be too expensive for Congress to vote for or a president to sign into law, but we should not pretend that we do not know how to solve America's poverty problems.
Each state sets up its own TANF program differently. Nevertheless, there is an overwhelming emphasis on job training or GED (high school graduate equivalency diploma) certification. Indeed, these are serious barriers to employment, but for most TANF recipients that have trouble finding work, job training or a high school (equivalency) diploma are either not problems or are one of many problems. TANF recipients generally have layers of problems, multi-faceted barriers to employment, and have lived very difficult lives. Their problems cannot be easily solved, and certainly cannot be solved by a welfare handout each month.
TANF is obviously designed for people with no barriers to employment. In this regard, it is a successful program. Those without disability, chronic illness, mental health issues, abusive partners, young children, transportation problems, or disabled family members are able to quickly find jobs. But so many TANF recipients do have barriers to employment, and TANF has failed them. TANF is simply not designed for the people that it primarily serves--those who do have disability, chronic illness, mental health issues, abusive partners, young children, transportation problems, or disabled family members. Generally, people without barriers are able to get jobs and get out of poverty. People with barriers tend to be--as usual--a lot less fortunate. Once again, we should stop pretending that we do not know the solution to America's poverty problems, because we do. We need to offer more and different areas of assistance to TANF recipients.
Finally, remember that this study was done in 1997, when the economy was doing very well. Currently, it is much harder to find work. As of October 2011, there are four job seekers for every job opening; in 2009, there were seven job seekers for every job opening. Who would want to hire a TANF recipient with so many problems when there are so many others looking for work? (More recent and nationally representative data on barrier theory is available here but it is more general and not nearly as detailed).
Finally, drug abuse and drug use were not significantly higher than the general population. Only 3.3% of subjects in the Michigan study had drug dependence issues--slightly higher than the national average, but nowhere near enough to justify the stereotype of TANF recipients as having chronic drug problems. A more representative sample has been studied for excessive alcohol use. TANF recipients, nationwide, are less likely to have problems with alcohol use than the general population, probably because people with alcohol or other drug problems are so efficiently kicked off welfare programs:
If you have never heard a story about an alcoholic who drinks his own vomit because he has no more booze money and there is alcohol in his vomit, you should. Or, if you have never heard a story about a drug addict that pawns everything he has for drug money, then engages in criminal activity for more drug money despite never having committed a crime previously, you should. It should be obvious that when a drug addict or alcoholic goes without food in order to spend more on drugs or alcohol, their addiction is no longer a personal vice, but a very serious health problem. They are no longer in control. They are no longer themselves. They need treatment, and should not be abandoned to their own personal hell.
It is important to recall, once again, that recipients are regularly kicked off TANF because they do not follow TANF rules, especially work requirements. This fact alone destroys the welfare stereotype, but, as discussed above, families either leave permanently or receive benefits in on-again-off-again cycles. Recipients cycle in and out of receiving benefits as their ability to find work waxes and wanes. Low skill, low income workers cannot always find stable employment, and, when they cannot, they accept benefits to get by. When they can work, they work. When they cannot find work, they accept TANF benefits.
As we have seen, a large portion of TANF recipients have very serious problems that are out of their control--problems with health or disability, having a disabled family member that requires hours of care, child care needs, and serious transportation issues, for example.
This stands in ugly contrast to the phenomenon of corporate welfare. According to a 2011 report from Citizens for Tax Justice, for the tax years of 2008 to 2010--just three years--the United States government gave away $223 billion in corporate welfare. It is argued that the United States has the highest corporate tax rate in the world at 35%--and this is true on paper--but this distinction is entirely meaningless as corporations have become so effective at avoiding paying their taxes. Here is their chart of corporations that paid no taxes or received a net tax benefit (corporate welfare) over that three year period:
In this list are fantastically profitable corporations. Verizon Communications, for example, made a staggering $33 billion in profits over the last three years, yet American taxpayers gave them a $950 million gift. What politician could possibly decide that a company with $33 billion in profits needs to be supported by a no-strings-attached bonus of $950 million? Despite these enormous profits and handsome gift paid for by American taxpayers, Verizon demanded that its union take pay cuts, preferring instead to pay executives.
While middle class families were dutifully paying taxes at a 30% rate, numerous corporations had double-digit negative tax rates. For example, instead of paying 35% taxes like they are supposed to, General Electric essentially taxed the government at 45%. Rather than paying 35% of their profits to the government, the government paid General Electric 45% of their total profits.
Here is a larger chart exposing how well corporations did in the years where they paid no taxes:
Do you recall a year where you made huge amounts of money and then claimed that American taxpayers owed you money?
Finally, CTJ provided a chart of the 25 greediest corporations over the three year period (note that this is a chart of total subsidies, not tax liability, as the two above charts are):
Wells Fargo again jumps out, with $17 billion dollars in subsidies. Goldman Sachs netted $3 billion in subsidies, despite cheating investors and almost destroying the world economy.
Handouts of taxpayer money to fantastically profitable companies cannot be justified, especially when we are concerned with budget deficits. Corporate welfare is far more expensive than welfare for the poor. Why is corporate welfare so seldom targeted by conservative budget hawks?
A criticism of this report might be that this study is not useful, since it measures extremely unusual and unrepresentative tax years. After all, 2008 to 2010 span a large section of the Great Recession. Unfortunately for us, this was not a temporary trend. In 2011, corporate taxes reached historic lows--corporate taxes were even lower than they were in 2008, 2009, or 2010.
Unfortunately, this is not the only type of corporate welfare permitted by our government:
Can the observation that Ireland, Bermuda and Luxembourg are three of the five jurisdictions where the US corporate sector earned the most profits reflect anything other than rampant tax sheltering? Anyone who doubts this should ponder the fact that in 2007, US corporate profits in Bermuda totalled 646 per cent of Bermuda’s GDP.
Welfare for the Rich
Let's start with a thought experiment. Imagine that you are a hard-working American in need of health insurance. It's a tad expensive, so the government steps in and hands you a check for several thousand dollars to buy health insurance. You buy health insurance with some of your own money plus the money the government gave you to buy health insurance. Then you pay your taxes.
You just accepted a handout, didn't you?
Now, imagine that you are the same hard-working American, still in need of health insurance. But, instead of writing you a check for several thousand dollars to buy health insurance, they instead allow you to pay several thousand dollars less in taxes, provided you use the money saved to buy health insurance.
You just accepted a handout, didn't you?
This is a simplified version of American health care subsidies. In the real world, instead of you getting the tax benefit for purchasing health insurance, your employer does, but the result is the same. If you have employer-sponsored health care, your health insurance is heavily subsidized. Your "private insurance" is not private, but heavily reliant on government support. According to the conservative Cato Institute, these enormous subsidies cost an astounding $147 billion per year. This is a $147 billion handout to everyone who gets employer sponsored health care, probably including you. How does it feel to accept welfare?
"Private" health insurance is not private. It is heavily subsidized by the government. Unless you are very wealthy, you probably could not afford unsubsidized health insurance. As the Cato study points out, unsubsidized health insurance is twice as expensive as subsidized health insurance and of substantially lower quality. Would you really be interested in paying your own way? Or would you prefer to live on the government dole? (Actually, as the Cato study notes, employers do not generally "cash out" employees who do not accept health benefits, so the cost would be closer to quadroupling, not doubling). The "private" health care market is a complete failure, but that is not the point here. The point is that the government spends far more on welfare for the rich than welfare for the poor.
Welfare for the rich does not stop with employer-sponsored health care. There is a huge buffet of welfare for the rich, costing a whopping $1.2 trillion in 2010. By comparison, TANF costs $17 billion annually, or about 1% of what welfare for the rich costs. While some of this $1.2 trillion in welfare for the rich does benefit the poor and middle class, about 70% goes to the richest 20% of Americans and about 10% goes to the poorest 40% of Americans. This injustice is very striking visually:
Over $100 billion is spent each year on mortgage tax deductions. Briefly, because of the mortgage tax deduction, a mortgage can be paid for with pre-tax dollars, while rent must be paid for with post-tax dollars. Assume your neighbor pays 10% in taxes and has a mortgage that costs $100 per month. Each month, he will pay exactly that--$100.
But the situation is different for rent because a renter must pay with post-tax dollars. Assume that you pay $100 in rent each month. It is the same cost per month as your neighbor, but you also had to pay taxes on that $100. Assuming you have the same 10% tax rate as your neighbor, you needed to earn $111.11 in order to pay rent (because 10% of $111.11 is 11.11, leaving you with $100 after taxes). While your neighbor paid for his housing with $100 dollars, you had to pay $111.11. (This is a simplification because mortgages are usually more expensive than renting, but the principle--that home owners get a handout from the government each month that renters do not--holds)
Who owns their own home and pays a mortgage? Rich people. Who cannot afford to buy a home and has to pay rent? Poor people. This is the definition of welfare for the rich, and the numbers bear it out. Note that the richer you are, the more likely you are to accept this handout:
And, the richer you are, the more this tax break benefits you:
Should the top 1%--making in excess an average of $1.3 million per year--really be getting their mansions subsidized?
The mortgage tax deduction cannot be said to encourage home ownership. More Canadian families (69%) are home owners than American families (67.2%)--and Canada offers no tax incentive to own homes. If home ownership really is a worthwhile goal, there are clearly ways to attain it without giving trillions in dollars of handouts to people who don't need them. In any case, it needs to be acknowledged that our government spends far more on housing assistance for the rich than on housing assistance for the poor.
No matter how the numbers are run, the mortgage tax deduction is a handout for the rich. This program is supposedly aimed at helping the lower and middle classes buy a house, but the money is disproportionately given to the rich (subsidizing mansions):
And this pattern--programs supposedly to help ordinary people--wind up getting used disproportionately by the rich. Subsidizing retirement savings (through 401k's, for example) is another $150 billion per year handout. Who has a 401(k)? Rich people. Who does not have a 401(k)? Poor people. Welfare for the rich, yet again.
The debate over welfare is so ugly because cutting welfare for the poor (who need it) is so popular, while cutting welfare for the rich is never on the table. Remember, welfare for the rich cost $1.2 trillion in 2010, dwarfing welfare for the poor:
(graph found here)
Food stamps, TANF, and housing vouchers for the poor--put together--cost less than 10% of welfare for the rich (unemployment benefits are paid out to all unemployed workers, whether rich or poor). And, remember, the $1.2 trillion figure does not include corporate welfare. Also, food stamps are an unusually effective program, extremely efficient with extremely low levels of fraud and waste.
Rich people are way more likely to go to college than poor people. Yet tax expenditures for student debt costs the government $23 billion each year--this amount would theoretically be enough to offer free, universal college education. Obviously, "private" schools are not actually private, since they are so heavily subsidized by, and would not exist without, government assistance.
It is important to remember that these deductions are--basically--hidden. It is easy to look up how big the budget for Housing and Urban Development is, but not so easy to find information on how expensive the mortgage tax deduction is:
If Americans who either rent or own their homes outright were asked to accept a tax increase of $150 billion in order to subsidize the mortgage payments of their indebted friends, it seems unlikely they would find that appealing. The same goes for asking Americans who don’t get health insurance through their work to spend $100 billion or so annually subsidizing the benefits for those who do. Of course, that’s exactly what’s happening right now, but it’s hidden in the tax code, so most Americans don’t know it and can’t protest it.
If you did not know you were accepting welfare for the rich, you are not alone:
Keep in mind two things. First, it is not that only the rich benefit from welfare for the rich. It is that the rich benefit disproportionately from welfare for the rich--as we saw above, 70% of welfare for the rich actually does go to the rich, even though the programs were designed to help the poor and middle class. Second, so many people attack welfare for the poor, even though welfare for the rich is so much more expensive. The argument is not that the government should never subsidize college loans or retirement savings, per se. But to claim that you do not benefit from any government program when you accept government handouts (like employer-sponsored health insurance, for example), is hypocrisy. The rich tisk-tisk the poor for accepting welfare for the poor--like food stamps and TANF--while they help themselves to far more generous--and far more expensive--government handouts.
Charities are not a safety net
It is often argued that charities can take the place of government in social assistance, and that charities are more effective than the government anyway.
But this is simply untrue. 70% of Catholic Charities' budget comes from the federal government; for Jewish Federations that number 76%; World Vision (an Evangelical charity that serves 100 million people worldwide), 23%; for the Knights of Columbus, 20%; and Lutheran Social Services of Michigan estimates that 2% of its budget is from donations from churches and individuals, with the remaining 98% coming from government grants and contracts.
Take away government support and these charities would become small shadows of their former selves. They are--essentially--public entities (National Public Radio, by comparison, only gets 6% of its budget from the government). Take away government support, and these charities would collapse. Do you really think people would be generous enough to support these charities if the government did not?
Do 47% of Americans pay zero taxes?
Absolutely not. 46% of Americans did not have any federal income tax liability, but this is not the full story. Everyone with a job pays payroll taxes, the federal taxes that pay for Social Security, Medicare, and Unemployment Insurance. Everyone who drives pays state and federal gas taxes. People without federal income tax liabilities can have state or local income tax liabilities. And anyone who buys anything is subject to sales taxes.
But among the 47% of Americans who do not have federal income tax liability, almost half are retired. That's right--retirees do not pay federal income taxes because they do not have income--because they are retired. The rest are so poor that they do not earn enough money to actually have a federal income tax liability (some are also students, living on student loans, not earning enough have a federal income tax liability).
Actually, a big reason why so many people do not have an income tax liability is because of the Earned Income Tax Credit, which is actually a really good program. Basically, the EITC is a refundable tax credit for working families with children. Ronald Reagan once called it “the best anti-poverty, the best pro-family, the best job-creation measure to come out of Congress.” And, it works. The majority of people receiving the EITC in a given year only receive it for one or two years total, and then go on to pay hundreds of billions of dollars in taxes. Basically, the program helps poor families get ahead. With the breathing room the EITC gives them, they are able to climb the pay ladder, quickly earning enough so that they no longer qualify for the EITC. The EITC in the long run results in more taxes being paid.
Eliminating this program would greatly increase the number of people with federal income tax liabilities. Do we really want to axe this program?
With all this evidence, it seems that those who argue for lower taxes do not really mean it. It is ok for the rich to avoid paying taxes, but not for the poor to do the same. The real crime is not the people who are so poor that the federal government has decided that they should not pay taxes. The real crimes are (1) that we have so many poor people and (2) the CEO's who pay less in taxes than their secretaries:
Who is a better tax dodger? The top 1% or poor people?
Should we have a flat tax (also known as "fair tax")?
Much attention gets focused on federal taxes. But we pay many taxes, not just federal. We also pay state, local, payroll, sales, and other taxes. If we could combine every tax that everyone pays into one "effective tax," what would it look like? Would the rich pay at a higher rate than the poor?
Actually, everyone pays at almost the exact same rate. We already have a flat tax:
Basically, we all have the same tax burden, whether we are rich or poor. Making federal taxes flat or "fair" would actually make the poor pay a higher tax rate than the rich. That might not be very fair.