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Grassley: Reflections on the War on Poverty

This news story was published on January 28, 2014.
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Reflections on the War on Poverty Delivered Monday, January 27, 2014 by Senator Chuck Grassley –

Senator Charles Grassley

Senator Charles Grassley

January 8, 2014, marked the 50th anniversary of President Johnson’s call for a War on Poverty. This anniversary provides a time to reflect on and re-evaluate its twin aims of poverty relief and economic opportunity.

The goal of poverty relief is to ensure that even those who might find themselves in tough times have sufficient assistance to meet their basic human needs while lifting themselves out of abject poverty. In other words, we’ve got to make sure people have a roof over their head and food on their table.

The goal of economic opportunity is to ensure the lower rungs on the economic ladder are strong enough to support a climb out of poverty. Economic opportunity is another term for the American Dream — that through hard work, you can improve not just your own lot in life, but that of your children and your children’s children.

If you judge the War on Poverty according to the first aim, a good case can be made that we have been successful. Looking at the official poverty level that is based on income prior to many transfer payments, little has changed from 1964. However, consumption-based studies show the poor are much better off today than they were decades ago. A study available from the National Bureau of Economic Research that looks at consumption rather than income shows over a 26 percent decline in poverty since 1960.

There is little doubt that programs from Social Security to food stamps, from Medicaid to heating assistance, have helped increase the standard of living for those at or below the poverty level. However, economic growth and the general decline in the cost of technology has also been a great source of poverty reduction.

While providing relief from poverty is an admirable goal, the American Dream has always been about opportunity. As President Johnson said in his state of the union address 50 years ago, the goal of the War on Poverty “is not only to relieve the symptom of poverty, but to cure it and, above all, to prevent it.”

It is this goal of the War on Poverty that has largely fallen flat. As I referenced earlier, the official poverty level has changed little in the 50-year fight on poverty, despite spending trillions of dollars on anti-poverty measures. In 1964, around 19% lived in poverty. Today, according to the most recent census data, that number stands only slightly lower at 15%.

America is a land of opportunity. In America we have no caste system. Laws and social norms do not relegate any individual or group to a lower social status. It can be tough, but individuals can and do climb their way to the top. Sometimes this process can take generations, but it has always been a source of pride that the next generation is better off and has more opportunity than the one that came before.

Indeed there is considerable upward mobility in our economy. A 2007 Treasury study on income mobility found that between 1996 and 2005, around half of those taxpayers who found themselves in the bottom quintile in 1996 moved to a higher income group by 2005.

And how about the very top of the income distribution my colleagues on the other side of the aisle are fixated on?

Contrary to what some may claim, those at the top are not all the same year after year. The Treasury study found that of those taxpayers who were in the top one hundredth of one percent in 1996, only 25 percent remained in that group in 2005.

While there is upward mobility in America, there is always room for improvement. And, there certainly are those who feel trapped in a cycle of poverty.

Unfortunately, too often programs meant to help the less fortunate can act as an anchor preventing Americans from climbing up the ladder of success. I have no doubt that the vast majority of those living at or below the poverty line are hard working.

Our programs do not act as an anchor because of the poor themselves, but because too often programs meant to help actually punish success. Too often those who are seeking to escape generations of poverty feel as if the harder they work, the further behind they get.

The landmark welfare reform legislation Congress passed in 1996 sought to lift the anchor off the backs of the poor. It sought to increase opportunity by incentivizing individuals to work.

The welfare reform law was meant to reward personal responsibility and a strong work ethic rather than punish these traits so essential to success.

The landmark law established work requirements, requiring individuals to work when job ready or within two years after coming on assistance. To receive funding, states must require a minimum amount of work participation hours by families receiving assistance. This meets one of TANF’s — Temporary Assistance for Needy Families — primary goals: to end the dependence of needy parents on government benefits by promoting job preparation.

In the years that followed, those who argued dire consequences would result, particularly for single mothers, were proven wrong. Following the enactment of welfare reform there was a precipitous decline in welfare caseloads and usage. At the same time the single mother labor force participation rose and their incomes rose.

Unfortunately, President Obama has persistently implemented policies that erode these statutory regulations, thereby discouraging personal responsibility and a strong work ethic. On July 12, 2012, the administration issued “guidance” to states about the TANF program. This guidance explained how states can now seek “waivers” of work requirements for welfare recipients for the first time since the TANF program was created in the 1996 welfare reform law.

The 1996 welfare reform helped families to enjoy the dignity of self-sufficiency. It reduced poverty. Instead of pushing families out of poverty, the President’s policies trap Americans in soul-crushing government dependency.

While welfare reform made strides, too often those working hard to get a leg up feel as if they are only treading water. In November 2012, the Congressional Budget Office (CBO) released a report looking at the effective marginal tax rate of low and moderate income workers – that is, how much extra tax or reduction in government benefits is imposed on an American worker when he or she earns an additional dollar of income.

According to CBO, in 2013 the average marginal effective tax rate faced by a low-to moderate income worker was 32%. Keep in mind that this is just the average. Many workers experience marginal effective rates far exceeding the top statutory rate of 39.6% paid by the wealthiest Americans.

For an example, an economist with the Urban Institute calculated the marginal effective tax rate of a single parent with two children under various scenarios. One scenario examined what would happen if the household’s income rose from $10,000 to $40,000.

Perhaps a single mother was able to increase her skills and earning potential by taking classes at night at a local community college.

If this single mother had been receiving all the benefits she was eligible for, she would face a marginal effective tax rate of 80% as a reward for trying to make a better life for her children. That’s a far higher marginal tax rate than most on the left even propose for the much-derided top 1%.

It is difficult to blame an individual in this situation who becomes disgruntled and gives up. It is us here in Government who have tilted the scales against low-income Americans trying to realize the American Dream. In order to alleviate this disincentive, there must be better coordination between benefits and how they are phased out.

Instead of reducing this disincentive to work, in recent years we have actually made it worse. The premium tax credit and cost sharing subsidies that were enacted as part of the Affordable Care Act will increase marginal tax rates by an average of 12 percentage points.

Moreover, according to an analysis by the Joint Committee on Taxation, when the premium tax credit is fully in effect, some workers could experience “infinite marginal tax rates.”

Some of you may wonder, what is an infinite marginal tax rate? To put this in more understandable language, this means some workers could actually face marginal effective rates exceeding 100%.

For a worker in this situation, it means that if they decide to put in a few more hours at work or get a second job to earn extra cash, they could actually end up worse off financially. This is an absurd result that tells people don’t work hard, don’t try to advance your situation, because if you do, we are just going to take it all.

Harvard economics professor and a former Chief White House economist, Greg Mankiw, recently opined on this result saying, “it is hard to believe that the law is so badly written as to have this feature.” Well professor, believe it or not, the President and the majority party did enact this law with this feature. And they did so with the full knowledge of the JCT analysis which I had made public.

Often I hear my colleagues on the other side come to the floor to pound the table about income inequality. There are a number of studies that examine income inequality. There is great variation among these studies on how income inequality is measured and the degree to which it has increased over the years.

However, all these studies do point to some degree of increasing inequality over the last several decades. This has occurred during both Republican and Democratic Administrations. It has also been occurring across most other developed countries.

My colleagues on the other side of the aisle often cite income inequality to justify whatever Democratic policy agenda is up at the time. Whether it’s taxing the rich, raising the minimum wage, or extending unemployment benefits, they cite income inequality to justify their aims.

However, these policies either fail to address the root causes of inequality or are nothing more than a temporary band-aid. Income inequality is a symptom of much larger structural problems, not the disease itself. Raising taxes might be successful at generating revenue to fund greater wealth transfer payments. But it does nothing to rectify what caused the inequality in the first place.

Soak the rich policies do not create greater opportunity for low income individuals. In fact because of their negative effects on economic growth and capital formation, they can reduce opportunity for all Americans. Our country has historically been a land of opportunity. Whether such policies are well intended or cynical political opportunism, they are not worth trading away our nation’s legacy of opportunity.

You do not have to take my word for the anti-growth effects of increasing taxes. Research by Christina Romer, President Obama’s former chief economist, found that a tax increase of 1% of GDP reduces economic growth by as much as 3%. According to this study, tax increases have such a substantial effect on economic growth because of the “powerful negative effect of tax increases on investment.”

In effect, what those who pursue wealth-destroying redistributionist policies are really saying – to quote Margaret Thatcher — is that they “would rather that the poor were poorer, provided that the rich were less rich.”

That may reduce economic inequality, but at the expense of making us all worse off. Our goal must be to create wealth and opportunity for all Americans.

I reject the notion that in order to improve the lot of one individual someone else must be made worse off. The leadership of other side has become fixated on redistributing the existing economic pie. I believe the better policy is to increase the size of the pie. When this occurs, no one is made better off at the expense of anyone else. This is best achieved through pro-growth policies aimed at growing the economic pie, not by taking from some and giving to others.

Similarly, increasing the minimum wage or extending emergency unemployment benefits also fail to address long-term causes of inequality. These proposals are well-intended, and I myself have supported both under the right circumstances, but neither strike at the heart of income inequality.

While there are many contributing factors, much of the research points to the widening wage gap between skilled and unskilled labor. If we are to address income inequality, the primary focus must be on ensuring individuals have the skills necessary to compete in the 21st century economy.

One way to accomplish this is through greater competition in education through increased school choice. We should also further expand on efforts made in 1996 to incentivize individuals to work and ensure those who want to work can gain the skills that are necessary in today’s economy.

So there are certainly things that we can do to help reduce poverty and promote opportunity. However, just throwing more and more money at existing programs is not the answer. According to a Congressional Research service report, Federal spending on low-income assistance programs as a percent of federal outlays has more than doubled since the 1970s.

No amount of money will change the tried and true formula for escaping poverty. Namely, graduate high school, wait until marriage to have children, and find a job and keep it for at least a year. While even those who follow this formula can fall on tough times, statistically it is rare that they will find themselves poor for a sustained period of time.

We should be sure that our laws and programs encourage rather than discourage these three keys to success. One place to start is to take a look at reducing or eliminating the marriage penalty that can arise in both our tax laws and benefit programs.

The war on poverty will not be won as long as the value of marriage diminishes.

You cannot disagree with the facts: Children in single-parent households will face more challenges and are more likely to be poor.

Some economists say that children raised in single-parent homes are four times more likely to be living in poverty. According to census data, in 2012 just 6.3% of families headed by married couples are poor. In contrast, 31% of those in a single mother household are poor.

Today, more children are born out of wedlock. More marriages are dissolving. Families are not as strong as they could or should be. We have a social problem that cannot be cured with more government spending.

The war on poverty must be solved, in part, by encouraging and nurturing healthy families.

Of course, there is no magic cure all for poverty. In fact, that’s the point. The notion that experts in Washington can wage a successful war on poverty with spending programs as weapons was never realistic. We’re dealing with real people with real lives trying to realize their dreams, not pieces on a chess board that we can move around as we wish.

Our goal should be to tear down the barriers to economic opportunity and get out of the way. When we discover that well-intentioned programs designed to help the poor are actually trapping them in generational poverty, we need to have the courage to chart a new course.

The American Dream is not to be dependent on others for bare subsistence, but to have the opportunity to get ahead through your own hard work and perseverance. All Americans deserve the self-respect that comes from earning your own success in life.

Millions of immigrants have flocked to our shores because America offered greater economic opportunity than any other nation. We are at risk of losing part of what has made our society unique. We should seize the opportunity of this anniversary to re-evaluate our approach to ending poverty and get back to what has historically worked for generations of Americans, economic opportunity.  

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6 Responses to Grassley: Reflections on the War on Poverty

  1. Avatar

    Fact Czech Reply Report comment

    January 28, 2014 at 5:30 pm

    What a phenomenal hypocrite.

    For Three Generations Grassley Farms took farm subsidy monies amounting to literally Millions, the purpose of which, in part was to feed hungry Americans.

    Look up the records on line and explain why Uncle Chuck talks out of both sides of his mouth. Now he bad mouths the war on poverty when he, his son and grandkids have profited handsomely. Its time for this good old boy to take a walk.

    • Avatar

      BCN Reply Report comment

      January 28, 2014 at 5:57 pm

      Being a hypocrite is worse than lying and Chuck Grassley is definitely a hypocrite.

      Senator Grassley has received $327,246 in farm subsidies since 1995.

      Grassley and his son Robin Grassley collected $28,784 in 2012. That brings the family’s total farm subsidies in the past 16 years to more than $975,000.

      Grassley has been sucking off the public tit for so long, he just thinks nothing of it.

      • Avatar

        Annie Reply Report comment

        January 28, 2014 at 8:48 pm

        I’m wondering if he broke any laws. If not, maybe the laws ought to be changed. Everyone that is offered something free, takes it no matter what party they are in.

        • Avatar

          50 MILES SOUTH Reply Report comment

          January 28, 2014 at 10:18 pm

          When you profit from a bill you work on, or vote for, It should be considered a conflict of interest. This one family and other large farmers in butler county, has milked the system far more than possibly the rest of butler county poorer people. And yet you people ( not necessarily Annie) complain because people hard on their luck get a handout.

  2. Avatar

    Watchdog Reply Report comment

    January 28, 2014 at 5:09 pm

    Bottom line, the last 5 years has created more poverty and less opportunity.

    President Obama has shattered the American Dream!

    Obama’s Progressive Agenda is a sham.

    • Avatar

      Anonymous Reply Report comment

      January 29, 2014 at 6:23 am

      Oh, yes and 2008 was a golden age.