Let's End Means-Tested Benefits

The Democratic establishment gets votes from the poor by locking them into poverty and government dependency.  But to win elections, they must also appeal to the middle class.  That didn’t work out very well in the 2014 midterm elections.  The Democratic Party lost the middle class, many state legislatures, and the U.S. Senate.  Now they are scrambling.

In his 2015 State of the Union speech, President Obama highlighted what he called “middle-class economics.”  But in order to appeal to the middle class, he denigrated those who sit at home, enjoying benefits without contributing.  For example, he asked: 

[W]ill we commit ourselves to an economy that generates rising incomes and chances for everyone who makes the effort?

Then more of the same when he said:

Tonight, together, let's do more to restore the link between hard work and growing opportunity for every American. 

And yet more of the same when he said:

We don't just want everyone to share in America's success – we want everyone to contribute to our success.

Was Obama intentionally denigrating the many poor people who make no effort?  Would he favor bills that would end the means-tested work-discouraging system built by Washington Democrats over the last several decades?

Perhaps the clearest presentation of these disincentives appeared in a slide from a July 2012 presentation by then-Pennsylvania secretary of public welfare Gary D. Anderson.  It shows that poor people are often better off when they do not work.  Here is one of the graphs that he presented:

Click to enlarge.

Partly as a result of these disincentives, young Americans are leaving the workforce in droves.  Since President Obama took office, the labor force participation rate has declined from about 66% to about 63%.  Since marriage to an individual earning a modest income can also lead a family to fall off a welfare cliff, these incentives surely contribute to the decline in the marriage rate.

The Republicans in Congress should push to end these means-tested disincentives against work and savings.  Every means-tested benefit could be expanded to include everyone, but at a lower level of benefits.

For example, President Obama’s proposal to make community college free could be easily paid for by eliminating a disastrous means-tested program – one that has discouraged middle class savings and contributed to inflation in college tuition.  Currently, Pell Grants pay only partial tuition, and only at expensive colleges. Why not take out the means-testing, and use the funds to pay up to a certain tuition amount, no matter what college is attended?

All of Obama’s other proposals seemed to be designed to take away job opportunities: 

  1. Minimum Wage He would raise the minimum wage, which would make first jobs less available to young people, especially young poor people.
  2. Immigration.  He has been legalizing unskilled illegal immigrants so that they can more easily take jobs away from unskilled Americans.  According to a December 2014 report from the Center for Immigration Studies, all of the net job gains since 2007 have gone to legal and illegal immigrants.
  3. Paid Sick Leave.  He would require that employers give everyone free sick leave, which, like Obamacare, would raise payroll costs and reduce wages.
  4. Wealth Tax.  Echoing Thomas Picketty (Capital in the Twenty-First Century), Obama proposed, “And let's close the loopholes that lead to inequality by allowing the top one percent to avoid paying taxes on their accumulated wealth.”  Obama’s first step would be to apply capital gains taxes to inherited capital.  This would force families to sell their inheritances, including corporate stock, family businesses, and family farms.  A much better treatment would tax capital gains only when corporate stock or businesses are sold.
  5. Free Trade Agreements.  He endorsed giving himself "fast track" authority to negotiate free-trade agreements with trade cheaters, including Japan, Malaysia, and Vietnam.  Like the earlier agreements with trade-cheating China, Mexico, and South Korea, these agreements would give away our manufacturing jobs, producing net losses for the U.S. economy.
  6. Keystone Pipeline.  Obama promised to veto the Keystone Pipeline, which would take Canadian oil to U.S. refineries.  Canada has a free trade agreement with the United States and doesn’t cheat.  When Canadian exports to the United States go up, its imports from the United States go up, and both countries benefit.

Republicans should fight all the above proposals, and expose them as the job- and wage-killers that they are.  At the same time, the Republican Party should go on the offensive.  The reforms that were sponsored by Republicans during the Clinton administration and signed by President Clinton could be used as a basis.

The Republican Congress should make the Democrats fish or cut bait.  Republicans should seek to pass bills that would end the means-testing that discourages savings and effort, replacing such programs with programs designed to make it worthwhile to work.

The Richmans co-authored the 2014 book Balanced Trade: Ending the Unbearable Costs of America’s Trade Deficits, published by Lexington Books, and the 2008 book Trading Away Our Future, published by Ideal Taxes Association..