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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Oren Cass’s New Poverty-Fighting Strategy



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The new National Review features an article by Oren Cass, domestic-policy director of Mitt Romney’s 2012 presidential campaign, on anti-poverty policy. Cass starts with the observation that work incentives for less-skilled Americans have deteriorated for a variety of reasons, some of which stem from structural economic shifts and some of which stem from policy choices:

Wages for low-skilled and entry-level positions have stagnated, while many of the positions that would have afforded a middle-class lifestyle have vanished entirely. At the same time, the safety net has grown to encompass an ever wider panoply of benefits that have become ever more expensive as health-care and education costs have exploded. This system of benefits, obviously requiring careful design and management, has neither. Countless programs are delivered through an alphabet soup of agencies, leaving no holistic anti-poverty approach and no one accountable for measuring or maintaining a meaningful income gap.

The results are as predictable as they are depressing. Labor-force participation is at a 35-year low overall, and an all-time low for men. (If participation were as high as it was before the recession, today’s unemployment rate would be above 11 percent.) There are 2 million fewer Americans working than there were before the recession but 2 million more Americans receiving disability payments. The number of food-stamp recipients has climbed by more than 25 percent since the recession ended, and more than 100 million Americans now receive some form of food assistance each year. The War on Poverty is in its 50th year, and yet the poverty rate today is as high as any previously recorded—and 30 percent higher than it was in the 1970s.

Cass’s core insight is that to move less-skilled Americans towards self-sufficiency, we need to make low-wage work more attractive relative to non-work than it is at present. To achieve this goal, he calls for the creation of “two separate sets of low-income programs—a state-administered safety net for those who are not working and a direct federal wage subsidy for those who are.”

First, he proposes the consolidation of federal anti-poverty spending into the “Flex Fund,” which form the bulwark of the state-administered safety net:

The Flex Fund sounds like a block grant, but it is not the type of program-by-program block grant typically proposed as a pretext for capping the growth of costs. To the contrary, the funding formula would be pegged to the size of the population in need and would grow at the same rate as the poverty threshold itself—a figure that already factors in growth in cost of living for the relevant household. But with the dividing lines between programs erased, states would have genuine and complete flexibility over resource allocation as opposed to the faux flexibility of applying for waiver after waiver or delivering the federal Section 8 housing-voucher program “however you want.”

Why should the states have control? First, because states are already largely responsible for implementing individual programs and delivering benefits. For all the reasons that, as the federal government realizes, states can best perform those tasks, so too can they best structure the programs and allocate funds across them. States have different populations, different economic circumstances, and different political preferences, making the state a unit better suited to establish these types of policies. State policymakers and administrators are also attuned to the real-life challenges of implementing policy in a way that their Washington counterparts never will be.

Second, and relatedly, good policymaking requires a decision-maker to have control. As a practical matter, substantive reforms cannot occur today because no one has the power to implement them. Combining funding streams creates an initial point of control, while devolving that control to the state level consolidates the full range of spending and implementation authorities. As a matter of institutional design, that consolidation also increases the likelihood of constructive reform by increasing accountability and eliminating unfunded mandates from above or efforts to game the system from below.

And then he calls for an adjustment of benefit types designed to improve the relative position of working poor households:

An adjustment in benefit types offers the best opportunity to incentivize work without slashing benefits or increasing spending. Two families—one whose head of household works, one whose head of household does not—may both need $3,000 worth of nutritional support. But if the non-working household receives the $3,000 in food stamps while the working household receives it as cash via a wage subsidy, the latter might feel substantially better off. While the Affordable Care Act draws an arbitrary line, providing Medicaid to those below 138 percent of the poverty line and a subsidy for private insurance to those above 138 percent of the poverty line, the benefit could instead be provided as Medicaid for those who do not work and, for those who do work, as additional cash provided via wage subsidy.

These types of reforms would only produce further complexity given today’s policy structure, but substitute a Flex Fund and they become more straightforward. For example, more than 40 percent of food-stamp recipients live in households with earned income. If $50 billion, equivalent to 40 percent of what is spent today on USDA nutrition programs, were shifted out of the Flex Fund and into a doubling of a still-federal EITC, there would be no change in anti-poverty spending, but for working households a greater share would come in the form of a subsidized wage instead of an in-kind benefit.

Taking a similar approach in other benefit categories could continue to expand the EITC dramatically. Reforming the credit itself to make it a direct-to-the-worker wage subsidy would further clarify its incentives and amplify its impact. The infrastructure for such a subsidy already exists, of course—it is called the payroll tax, which reduces the take-home pay of every worker, on every dollar earned in every paycheck, up to a specified income level. The wage subsidy would function as a reverse payroll tax, increasing the effective wage associated with a given job in a predictable and transparent way. The effect in many ways would mirror a substantial increase in the minimum wage. But whereas a price control would tend to decrease the size of the labor force, a subsidy would tend to increase it. And whereas higher wages paid by employers tend to increase prices for consumers—affecting most the lower-income population the policy is intended to help—a subsidy-supported higher wage is funded disproportionately by the higher-income tax base.

Cass would be the first to acknowledge that his approach isn’t perfect. He makes a strong case for having the federal government finance a state-administered safety net, but giving states real flexibility also means giving the states room to make real mistakes. Yet his model cleverly gives policymakers a way to better the lives of low-wage workers without necessarily increasing spending—people value freedom, and Cass’s expanded EITC gives those who work substantially more economic autonomy than those who don’t.

I hope that Cass’s article finds a wide audience. I’d be eager to read responses from people who’ve thought seriously about anti-poverty policy. I find Cass’s approach extremely attractive because it draws on the idea of conditional reciprocity. Those who can’t or won’t work will always be with us, and we have collectively decided to provide for them. Yet those who choose to work, even at great personal sacrifice and in face of a deteriorating labor market position, ought to be afforded more autonomy, as they are doing their part to achieve economic self-sufficiency. 



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