'The very poor' can climb out of poverty but only if we let them

The fact that millions of fellow citizens are trapped in poverty is on our minds, and not only because of a Mitt Romney remark. A UW panel proposed a few remedies.

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Machinist training program at Shoreline Community College

The fact that millions of fellow citizens are trapped in poverty is on our minds, and not only because of a Mitt Romney remark. A UW panel proposed a few remedies.

Poverty is on the national radar screen again. In the wake of the recession, Occupy Wall Street, and the latest U.S. Census numbers, Americans are paying a new kind of attention to reports that the proportion of Americans in deep poverty is the largest in 35 years and that holes in the safety net are gaping wide.

The recognition has extended to such consequences of class differences as the trap of permanent poverty in America’s small towns and the decline of family-wage blue-collar jobs everywhere. While the race gap has begun to close, the class gap has widened, especially in the educational success of rich and poor students. Newspapers across the country are pondering (e.g., here, here, here, and here) Charles Murray’s new book, Coming Apart, on the dire straits of the white working class.

In the past we believed that we live in a nation of opportunity, but statistics today yield a different picture. In America, compared to other wealthy nations, economic status is more likely to be inherited instead of earned. The country's economic policies may not have been designed to ensure that some classes of people get to cultivate their personal potential while the capabilities of others get stunted. But some policies have had that effect, and have helped stall upward mobility among the non-affluent. 

A panel of Evans School faculty at the UW earlier this month, discussing "The Changing Face of American Poverty," reviewed some ways in which the nation’s economic structure depresses opportunity for poor and working-class Americans while the wealthy receive an ongoing systematic boost. One nice thing about public policies (compared to, say, the law of gravity or the value of pi) is that they can be changed. Panelists suggested policy revisions that could begin providing poor families with some of the tools they need for climbing out of poverty.

Evans School professor of public affairs Robert D. Plotnick kicked off the discussion with a broad overview of statistics showing that children and the working poor have made “essentially no progress” since the 1960s, despite President Lyndon B. Johnson's declaration of a "war on poverty" 50 years ago. During that time demographic factors, such as the increased number of single-parent families, have played a part in deepening the downslides of an up-and-down economy, said Plotnick.

But “human capital policies” such as head start programs, and training to develop the job skills of adults, have been perennially underfunded by national and local governments, Plotnick said, hardening financial disadvantage.

Marcia Meyers, a professor of social work and public affairs, followed up with this question: If to achieve economic security all adults must be employed, who will care for the children? “We are an employment-forcing society,” she said, but there's no guaranteed public care until kids are old enough to go to school.

Relatives can't care for the children of working parents today because “grandmothers are working, too,” said Meyers. Even where they are available, relatives untrained in child development make professional day care centers preferable for providing the richer learning environments and literacy experiences kids need to get a good start but which poor kids tend not to get at home. Unfortunately, child care centers affordable for low-income families are statistically inferior to the excellent options available for children of high earners, she said.

Childhood environments that fail to develop young emotional and intellectual capacities equip children all too well for lifelong poverty. So as a work support policy (not only for the sake of poor families but for child care providers, among the worst-paid employees in the nation), Meyers recommended a public system of child care as universally available as is public schooling. “Why just start at age 6, when the first five years are the critical ones?” Other wealthy countries have high-quality publicly regulated systems that acknowledge the care of children to be a collective social responsibility, she said.

Rachel Garshick Kleit, an associate professor of public affairs, pointed out that since the 1980s federal support to create affordable housing has declined so drastically that people living at or near the poverty level must pay more than half their income on housing. This “means not paying for something else,” she said. In Seattle there are 16,000 affordable housing units available for 50,000 low-income renters, said Kleit. Although nonprofit organizations have provided more low-income housing during the past two decades, “so many affordable units are lost every year we don't get ahead,” she said.

During the same period, federal support rose for people who already own homes, in the form of policies like tax exemptions for mortgage interest. “Today we spend $220 billion on homeownership, and only $60 billion on affordable housing,” said Kleit.

Finally, associate professor  of public affairs Marieka M. Klawitter argued that incentives for and assistance with building financial assets should be provided to the working poor. “People who have assets are more likely to participate in neighborhood and civic life, more likely to plan for the future, to have a buffer to prevent utilities cuts or food insecurity,” she said. Klawitter outlined a number of different asset-building initiatives funded through collaborations between private and public sectors today, some of which include financial training and case management.

One initiative matches a person's savings toward a goal — buying a car, or a computer for schoolwork — in a locked account so that funds can't be withdrawn until the goal is reached. Another opens child savings accounts with a gift deposit of, say, $500 when a baby is born, which can be used only for the child's education or eventual retirement. A third would be prize-linked savings accounts, which give people a chance at winning a lottery-style cash prize every time they make a deposit that stays in the account for a certain number of months. Still others are Bank On initiatives, in which banks charge poor people low, transparent fees and require low minimum deposits to encourage savings while providing a less costly check-cashing option than payday loan shops.

Behavioral economics teaches that “we all need a push,” said Klawitter. “We need to have locked-in mortgages. Our employers take money out [of our paychecks] for our retirement.” So for poor people “we need to both fund [asset-building intiatives] and provide incentives.” The federal government finances asset-building for middle- and upper-class families, for example with tax deductions on home mortgage interest. But these advantages “don't reach down to the lowest” income levels.

Mitt Romney said “the very poor” don’t concern him because they’re protected by a social safety net. Of course some poor individuals will need social services due to temporary or permanent disabilities. But if the Evans School panelists were right, the critical fact Romney and many others fail to understand is this: What the great majority of poor people really need are equalized opportunities to use their talents to build productive lives.

Panel members weren’t arguing that the system has deliberately been stacked against the poor; they merely pointed to one of many ways in which it’s skewed toward the rich. The Earned Income Tax Credit (EITC), while helpful to eligible low-income families that know about it, hardly impacts the public coffers when compared to the Byzantine abundance of loopholes and tax benefits legally extended to Americans with a great deal of money.

You can sample a few of these in one law firm's summary of financial breaks through which the federal government loses streams of potential revenue as a consequence of keeping the tax rate for the Romney family billionaires under 11 per cent. While we don't see the tax returns of most rich people, we do see Romney's, and with it some aspects of the tax code that function to benefit the wealthy.

For instance, there's the Intentionally Defective Grantor Trust (IDGT), an arcane legal gimmick by means of which the wealthy build their assets with the blessings of a government that keeps the curiously named device alive and kicking. By creating IDGTs for their children, Mitt and Ann Romney protected themselves from having to pay taxes not only on the original millions placed in trust but also on any interest from those millions.

There are also foreign tax credits, and there are taxes evaded by means of laundering profits through one's own private foundations, while middle- and working-class earners dutifully pay taxes on most earnings and on savings account interest. Then there's “carried interest” income of the kind Romney receives from Bain Capital. Carried interest is taxed at the low capital gains rate instead of at higher income tax rates and is also exempt from Medicare taxes.

Private equity firms like Bain are supported in other lucrative ways by the present system. For example, Bain is allowed to deduct the enormous sums that it borrows, ostensibly to rescue the companies it buys out but actually often paid to its managers and investors in the form of fat fees and dividends. Later, when a bought-out company goes under, Bain and other private equity firms unload on the backs of taxpayers the burden of covering the company's employee pensions. (A short piece called “Private Inequity,” by James Surowiecki, argues for eliminating the carried-interest loophole and putting a cap on how much corporate debt should be tax-deductible.)

As some members of the UW panel gently suggested, government financing of more opportunities like job training, universal public child care, affordable housing, and asset-building for the poor may make better sense (especially to those of us who deplore policies that might vaguely sound like handouts) when we remember opportunities and even wealth that national and local governments routinely hand out to the rich. Some conservatives agree. New York Times columnist David Brooks, critiquing (Feb. 14) economic theories about why the American social fabric is deteriorating, said that the government needs to help people rebuild their communities, or risk seeing social disorder magnified from generation to generation.

Of course there's no harm in using one's personal wealth to rise in the world and multiply opportunities for one's children. But when the system tilts opportunities so far toward the rich and powerful that the game feels rigged — as in Ian Frazier's gripping New Yorker story of what happened to workers in the factories acquired in leveraged buyouts of Stella d'Oro cookies in the Bronx and Archway & Mother's cookies in Ashland, Oregon — people at a serious financial disadvantage may find it hard to develop a felt stake in society.

And citizens with nothing left to lose make life for all of us less liveable, whether what bothers us is social chaos, neglected kids, and ragged people wandering the streets, or simply unfairness.



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