John Locke Update / Research Brief

Earning Trust on Poverty

posted on in Fiscal Insight, Spending & Taxes
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Have you ever wondered why people are not convinced by your arguments to get government out of the business of trying to fix a problem because its interventions only cause more problems? Some of it may be that smaller government sounds like a reflexive answer, particularly when some question whether conservatives and libertarians as a group actually care about the poor.

Consider the Earned Income Tax Credit (EITC). It provided an average $2,395 in tax credits to 28.5 million families in 2014 at a cost of $68 billion. The tax credit has broad support as an effective way to help people out of poverty through work. Economic theory and statistical simulations suggest economic output and employment are lower as a result of the tax credit’s incentives to limit paid work.

A Cato Institute paper against the federal EITC, however, noted, “While there is strong theoretical support that the EITC will reduce hours worked, there is not strong empirical evidence. The negative work effects are hard to see in the data.” The tax credit has had mixed effects at the federal level. It likely increased the willingness of single mothers with multiple children to enter the workforce and helps married couples maintain their income during economic downturns, but it is susceptible to fraud and mistakes, with the result that 39 percent of all IRS audits are of EITC filers. Adding a North Carolina EITC makes less sense today that it did a decade ago.

Making arguments based on theories, models, and simulations that do not show up in the data is a challenge in many policy discussions beyond the EITC. It becomes even more difficult when the proposed solution that has scant empirical grounding matches the assumed preference of the reformer who also cannot point to personal experience with the flawed system or the proposed reform.

We have all been advised that “nobody will care what you know until they know that you care.” When then-Treasurer Gina Raimondo went around Rhode Island warning town hall meetings that libraries would close if the state did not address its pension problem, nobody thought she was using pension debt as an excuse to close libraries. When conservatives make the same warning, it seems like the latest excuse to do what they would do anyway.

Michele Margolis and Michael Sances, who wrote a paper in 2012 that gained instant notoriety with the finding that conservatives and liberals give equally, revised their conclusions to acknowledge that religious affiliation is more important than ideology in predicting charitable giving and that Republicans are more religious. The religiously inclined give to their churches, of which only a portion goes to help the poor, and even then can still run into the same problems government programs face. People who work in charities may be religious, but they are rarely advocates of small government.

Theories, training, and technical knowledge do not translate into ability or practical expertise. If you need help with an app on your phone, do you go to your neighbor who went to NC State and is now a programmer for SAS or do you go to your 15-year-old daughter whose phone is basically an appendage to her hand? For the longest time, people over 25 couldn’t figure out how to use Snapchat, though it was intuitive to anyone younger. When you were a child, how often did your parents ask you to program the VCR because they couldn’t get figure out how to get it to stop blinking 12:00?

Advocates for limited government need to dedicate more time and money creating viable alternatives to government programs. Some have done this with charter schools and low-cost private schools. Whether poverty or education or Snapchat, we demonstrate ability and interest by our actions. More than telling others that government programs are not the answer to poverty, how do you show that there is a better way?

As Senior Fellow, Joe examines fiscal and tax policy. He previously headed the North Carolina Government Efficiency and Reform initiative within the Office of State Budget and Management, which led to changes in automotive fleet management, natural and… ...

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