Prior to the pandemic, poverty rates in the US were near historic lows, whether you measured poverty by people’s income or their expenditures. Black and Hispanic children made the greatest progress, with the poverty rate for these children dropping by half since 1970. What may come as a surprise is that poverty declined even further during the first few months after the coronavirus pandemic took hold in the US, primarily due to Congress’s expansion of unemployment insurance benefits and the “stimulus” checks sent to most American households.
Despite this, commentators have described the safety net for low-income families as inadequate to address the current economic crisis. This belief might stem from the tragic, and visible, impacts that COVID-19 has had on low-income communities. Not only have low-income people been hardest hit by employment losses, they have also been more likely to contract COVID-19 and to suffer from a fatal case of this disease.
How do we reconcile such progress
on poverty in the US with the obvious hardship experienced by so many at the
bottom end of the income scale in recent months? On one hand, the federal
government sends billions of dollars in aid to low-income households each year
to help them meet their food, housing, and other basic needs. But while these
aid programs are successful in reducing material hardship, they also discourage
employment, reducing the chance that a low-income person can work their way up
the economic ladder and enjoy the protection of economic security. While we
should be happy that the current safety net has reduced the number of
households in poverty, we shouldn’t take too much comfort knowing that it also
deprives many low-income people of the employment opportunities they need to
build a more prosperous life.
The best example of this dynamic is how the safety net discourages employment by “taxing” away increased earnings and then assisting people in poverty by doling out government-provided benefits. A team of economists recently found that:
“One in four low-wage workers face lifetime marginal net tax rates above 70 percent, effectively locking them into poverty. Over half face remaining lifetime marginal net tax rates above 45 percent. The richest 1 percent also face a high median lifetime marginal tax rate – roughly 50 percent.”
The situation is especially problematic for working parents who receive government help for childcare. A 2019 government study found that a low-income working mother would only be able to take home $1,300 from a $5,000 annual pay raise because the extra pay would cause her to lose childcare assistance.
When I worked for New York City’s social services department, I frequently heard from people who were receiving government benefits that they didn’t want to get a job or a pay raise if it meant they wouldn’t be much better off financially. It is no wonder that four in 10 people in poverty believe that welfare benefits encourage people to stay poor (according to a 2016 AEI/LA Times survey), and only 8 percent feel the government has had a big impact on reducing poverty.
Yet congressional Democrats want to use the pandemic as an excuse to expand safety net programs even more, and Democrat-led states are using it to justify a lawsuit aimed at weakening existing work incentives for benefit recipients. Speaker Nancy Pelosi requested a 15 percent increase to the maximum SNAP benefit (formerly Food Stamps), even though Congress already passed legislation to increase benefits by an average of 40 percent in the fallout of the pandemic. Research shows that SNAP decreases employment, and expanding it will make these work disincentives worse.
Additionally, 19 states and Washington DC sued the Trump administration’s Department of Agriculture earlier this year to prevent them from strengthening SNAP work requirements for childless adults after the pandemic ends. Not only does this treat low-income people as incapable of work, but it also goes against what they want for themselves. In the AEI/LA Times survey, 87 percent of adults, including 81 percent of people in poverty, supported work or job training expectations in return for government benefits.
Progressive lawmakers will use this pandemic to try to expand government programs and further undermine work for low-income people in the process. But mindlessly expanding safety net programs in the wake of COVID-19 reinforces a broken approach that weakens the connection between government supports and work, impeding economic mobility for our country’s most vulnerable residents. Instead, we need to redesign government programs to reduce steep “taxes” on low-income families as they earn more from work, and enact policies that expect work in exchange for benefits.