Under Construction: Taxes & Spending’s impact on Poverty

The previous post hits most of the points that I wanted to bring up concerning the impact of government spending & tax policies on poverty, but there were some that didn’t make it into the final draft. I wanted to post them here, both to explain my reasoning and to ask if any readers had suggestions or data sources that I could cite.

The cost of complexity

One of the points that I wanted to find data for, but couldn’t, was on the question of how much time and money is spent on helping those on welfare navigate the welfare system. What I’m looking for are dollar amounts spent on community organizations and other assistance agencies, plus spending by low-income people hiring others to help them get access to welfare, and money & time given by charities. Also, is government money going to this kind of thing counted as welfare spending? If it is, then it’s effectively money that is being spent on the system, rather than on the people the system is supposed to be helping.

Precise numbers aren’t really necessary, though they’d be handy. What I’m interested in, really, is how many zeros are on the number, whether we’re talking tens of millions, hundreds of millions, billions, tens of billions, or over a hundred billion.

This would seem like a natural talking point for conservatives who are concerned about the multiplicity of welfare programs and the associated government waste, but I wasn’t able to find any mention of such a number, or even of a vague degree of that number. Perhaps I’m mistaken about how much of a role is played in helping the poor deal with government programs? Poor people who need help filing for Earned Income Tax Credits spend billions of dollars on tax preparation; one would think that there is be a market in helping them with other welfare programs, too, but where are the numbers?

A loss of mobility

Another factor for which I couldn’t find hard numbers was the degree to which welfare programs pin people in place, keeping them from moving for fear of losing access to subsidies. The utter lack of research (that I could find) on this subject made me a bit leery of including it in the post, but after a bit more digging I found a series of articles by Lori Sanders and others of the libertarian think tank R Street (Moving to Work is the one I think best sums up their position on this subject).

While they make the same points that I wanted to (in their diagnosis, at least), their articles also lacked hard data on this, so it’s by no means a proven fact. Still, given their supporting arguments, I’ve decided to insert two new paragraphs into the last post:

Another way in which the complexity of the welfare system harms those who depend on it is by keeping them rooted in place, unwilling – or unable – to move elsewhere in pursuit of a better life for fear of losing access to their benefits. As an article by the libertarian think tank R Street put it, “[e]very program requires its own enrollment and qualification process, so every new program created, even if it is effective on its own terms, presents an additional barrier to geographic mobility.” Most subsidies are linked to an address, with considerable time and red tape needed to change it; many vary by which state you reside in, making inter-state relocation risky for those dependent on, say, Medicaid; and the simple fact that local (city or county) welfare systems each require a new registration means that moving even short distances can become a serious endeavor if you’re dependent on welfare for survival. 
There is, unfortunately, little hard data on how much “in-place” or “place-dependent” welfare systems in the US reduce the geographic mobility of those who depend on them. One can point to the significant correlation between the increase in inequality in the US and the decrease in the geographic mobility of Americans, but this does not prove causality. Nevertheless, there is sufficient anecdotal evidence that this could be a very real component of why poor families remain poor: they cannot afford the risk of moving to greener pastures in pursuit of good jobs, because by doing so they would risk losing access to welfare and falling even further behind financially.

Impacts on Charity

Finally, there’s a question that I was hesitant to address, and that is the ways in which – and the degree to which – the welfare state has impacted the administration and structure of charities and community organizations in the US, making them orient more towards funneling government money into poor communities and less on actually helping the poor directly. The scale of the American welfare state has to have had some impact on how charities operate, and given the amount of money going to welfare payments there have to be a number of incentive structures that are having negative impacts on poor communities.

Charities and community organizations have always been much more flexible in dealing with people in need than government agencies and programs. They’re critical parts of the system that supports low-income families and communities, and government programs can’t really substitute for them.  The question that I have is “how much have they become mere extensions of the welfare state, rather than being independent agents able to fill in when they see needs that the welfare state isn’t meeting?” I don’t have a clear answer to that, but it’s something worth thinking about. I would welcome pointers if you know of a serious discussion on the topic.


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