A Response to Paul Ryan: Expand the EITC, Do Not Block Grant Anything

In Paul Ryan's plan today, there are only two things that are specifically about reducing poverty. The rest is just a grab bag of whatever, some good, some bad. The two things are: 1) expanded Earned Income Tax Credit for single, childless workers, 2) the Opportunity Grant program.


The expanded EITC for single, childless workers would amount to a doubling of that program. For those unaware, the way the EITC works is that as your market income goes up, so too does the amount of the EITC you can claim, up until a point, and then it comes back down, until it phases out altogether. On a graph, it looks like a triangle.

Paul Ryan intends to basically double all of the variables of the EITC for single, childless workers. The phase-in rate (the amount by which each additional dollar of market income increases the EITC benefit) will double from 7.65% to 15.3%. The same is true of the phase-out rate. The maximum benefit will also double from $503 to $1,005.

This a modest improvement, and I'd prefer to taper it slower than a 15.3% phase-out rate, but it's good. Let's do that.

2. Opportunity Grant Program

The second part of the proposal is not good. When you read it in the pdf, it starts out as a simple block grant proposal wherein the federal government gives money that would go into established benefit programs to states to do what they like. Of course, block grants are not plans to fix poverty; they are delegations. And they are not good delegations, especially not if you live in parts of the country that hate poor people enough to deprive them: see the Medicaid expansion debacle.

But it's not exactly a simple block grant proposal. Ryan justifies it with the usual rhetoric, as if it is one: this will help states experiment and meet local needs and so on. Yet, the grant comes with extraordinary levels of specificity about how the states can go about it.

2a. Work Requirements

It requires able-bodied recipients to work. No state can experiment in a way that doesn't require this, for some reason. We've been down the work-requirement road before, and its one-size-fits-all approach is obviously not sensitive to the variety of human lives. When workfare came to NYC, some had to choose between staying in community college and eating, for instance. New mothers unable to afford child care would be forced to "hustle backwards" by taking work that cost them more to go to (in child care costs) than it actually paid. And so on. The Big Government doesn't know why people aren't working and when it tries to force them all to in a one-size-fits-all bludgeon, it ruins lives.

2b. Life Contracts

It also requires these odd life contracts wherein poor people have to spell out some plan to boost their market incomes. Those familiar with the cognitive bandwidth issues of being poor know that more bureaucratic paperwork and dealing with case managers harms the poor. The entire premise of the idea is also confused, as it springs from Paul Ryan's total misunderstanding of the nature of American poverty. Poverty here is almost entirely situational and episodic. In the last SIPP longitudinal survey, 31.6% of people were found to have been in episodic poverty at one point or another during the three years. Only 3.5% were in it all 3 years.

We don't need life contracts to get people who are currently poor to boost their market incomes in the future. They already do that. We don't have a problem of people sitting in market poverty endlessly, despite the fevered dreams of conservatives. We have material insecurity problems that are derivative of our capitalist economic system.

For instance, young children and young workers find themselves heavily in poverty because many entry-level jobs don't pay much. Those same people find themselves out of poverty years later because of promotions and raises. Others hit spells of unemployment (especially the young), are disabled, elderly, and so on.

My own calculations of the 2012 ASEC found that the officially poor are: 35% children, 8% elderly, 9% disabled, 8% student, 18% working, and 21% everyone else (may not sum to 100 because of rounding). The adult, able-bodied, non-student poor who lack personal market income (some have family members who are working, just not them) comprise 3% of the population. And, as I explained in my point above, this is just for one year. Everything we know about longitudinal surveys shows that these 3% will find themselves into market jobs at some point later, even without the silly life contract.

2c. Life Contract Could Work Well For Others

Because it is unnecessary and is just another sap on cognitive bandwidth (something in short supply with those struggling materially), we shouldn't have this mandatory life contract thing. However, it occurs to me that the life contract could work well for other populations. For instance, I think the federal government could block grant the amount of money spent on the Mortgage Interest Tax Deduction each year to the states, allowing the state to work with the rich people dependent upon it, which would include getting the rich people to sign a life contract detailing how they are going to ween themselves off of it. The same could be done for the capital gains exclusions for home sales, the retirement savings benefits, health care tax exclusions, and all of the rest of the welfare state for the rich.

Let them life contract.

3. Conclusion

What's sad about Ryan and really the conservative take on these things more generally is that it is clear they honestly don't understand poverty. And I don't mean that in the squishy sentimental way. I mean they really are not good with the figures and tend to construct their policies based upon weird stereotypes of the poor rather than poverty as it actually exists. Around half of all people spend at least one year in poverty and people move in and out of it very frequently. Market capitalism is an extremely volatile system that unemploys people constantly, fails to address the specific distributive needs of parents and young workers (who are generally the same people), and so on.

Market institutions are not stable enough to create a patterned distribution of market income that ensures everyone has enough disposable income to be above poverty. Education doesn't fix it: Finland has one of the best educational systems in the world, but higher market income poverty than the US. Exhortations don't fix it. It is a constant feature of market capitalist systems.

The cause of poverty is singular: lack of disposable income. And its solution is singular as well: more disposable income. You can target disposable income boosts to help particular people get through the rough patches when the market fails them, as it often does for so many people. Or you can target them more broadly, increasing the social wage, to smooth over material insecurity more systematically (e.g. the Child Allowance). But if your goal is to somehow get the market to shoot out the national income in a way such that everyone gets what they need, you will fail. The market is not designed to meet people's particular income needs and it won't ever.