Beware the Wrong Lessons from Poverty and Income Data

Sep 21, 2011Jeff Madrick

The young are sinking into poverty faster than the elderly because the social safety net is working and the economy isn't.

The poverty data released by the Census Bureau last week may well be the straw that broke the camel's back -- the camel being those deliberately blind people who can't seem to acknowledge that most Americans are doing poorly. Average Americans should not be the ones who have to shoulder the burden of balancing the budget, even if it needed balancing soon.

The poverty rate is now as high as it was during the war on poverty of the 1960s -- about 15 percent. The Census also revealed that median household income went nowhere under George W. Bush and is now down to its lowest level since 1997, essentially before the Clinton boom.

Even more deplorable, the young in America have been hit hardest. Economists at Northeastern University have been showing for years how low wages are for those in their twenties, if they can find a job at all. Now they calculate that 37 percent of young families with children live in poverty -- more than one in three. It was one in five when Bush came to office.

But the reason I am writing this is not merely that it gives the "New Obama" some fuel -- that is, the Obama who now insists on raising taxes and has resisted some of the worst ideas for cutting Social Security and Medicare, like raising the eligibility age. What concerns me is that some in the media are highlighting the fact that the elderly have taken a far smaller hit than the rest. Is this going to be the new argument for reducing Social Security and Medicare benefits?

The truth is much the opposite: These findings are an argument for a stronger safety net. The reason the elderly are not doing as poorly is precisely because of Social Security, Medicare, and Medicaid. The reason the other groups are losing ground is that the economy has failed to create jobs for more than 10 years and didn't do that well in the preceding 20 years. Are taxpayers spending too much on the old and not enough on the young? Some will start saying so, and many have long said so. Of course, if you include education -- financed mostly by state and local taxes -- we already spend considerably more on the young than on Social Security and Medicare.

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A New York Times piece on the Census data made a point of noting that incomes for the elderly did not fall nearly as much as for everyone else, and that those retiring now are the richest generation ever. Another rationale for cutting Social Security benefits? Monique Morrissey of the Economic Policy Institute quickly responded that the reason elderly incomes have held up is that, thanks to benefits like Social Security, they depend less on the economy than those who are still working. But are they doing fine, as one might conclude from reading the Times? Of course not. Their average income is about half that of working people.

So let's not use these data to claim justifcation for cutting back social programs for the elderly. They show that the safety net is doing what it is supposed to do, which is to protect people from the ravages of a damaged economy. What we should be doing is expanding the safety net and getting the economy to start producing good old-fashioned American-style wage gains again.

Can we afford new social programs for the young? Of course we can. We are among the lowest taxed of rich nations. But won't raising taxes destroy the "job creators?" I have a sense this remarkable distortion is at last losing its damaging and ill-deserved credibility. George W. Bush lowered taxes in 2001 and 2003, and what did it produce? Slower GDP growth and fewer new jobs during the recovery and expansion (even before the 8 million lost jobs of the Great Recession starting in 2007) than in any comparable period in post-World War II history. Quite a record.

So when someone blathers on about job creators and job destroyers, keep in mind those facts. Tax hikes on the rich will not kill jobs because the rich have so much money to spend, and they will keep on doing so. So do corporations with some $2 trillion in cash. Tax cuts will provide short-term stimulus, but they will not help long-term growth. Meanwhile, those Obama tax increases could provide the financing for much-needed public investment and an expanded safety net as well.

First, we need to get the economy back on track. But down the road, we can easily afford what we need by raising taxes.

Roosevelt Institute Senior Fellow Jeff Madrick is the author of Age of Greed.

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