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 Richmans' Trade and Taxes Blog

Let's end means-tested benefits
Howard Richman, 1/22/2015

In his 2015 State of the Union speech, President Obama proposed programs to assist people who work. In fact, 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 leaving out the many poor people who make no effort? Does this emphasis imply that he would favor bills that would end the means-tested work-discouraging system built by Washington 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. Here is one of the graphs that he presented:

If both parties agree with the idea that work should be encouraged and collecting benefits without working should be discouraged, then a bipartisan agreement is possible. The Republicans in Congress should push to take down as many of the disincentives against work as possible. Any programs kept should be expanded to include everyone, but at a lower level of benefits.

Alternatively, every one of these programs could be eliminated and replaced with a weekly credit to every citizen's debit card, a certain amount for each adult and a certain amount for each child. Then let families decide what they choose to spend their money on. Any money that they earn in addition would be theirs to keep, subject only to a flat FairTax or value-added tax of about 23% to 25%, which would be sufficient to fund the federal government with no other taxes.

If President Obama is serious that work should be rewarded, there is potential here for a wonderful national compromise. I doubt, however, that he is serious. All of his other proposals seem 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. Illegal Immigration. He has been legalizing unskilled illegal immigrants so that they can more easily take jobs away from unskilled Americans.
3. Paid Sick Leave. He would require that employers give everyone paid sick leave, which, like Obamacare, would raise payroll costs and reduce wages.
4. Wealth Tax. Such a tax would take away capital and incentives from those who employ and innovate.
5. Free Trade Agreements. He endorsed giving himself "fast track" authority to negotiate free-trade agreements with trade cheaters, including Japan and Vietnam. Like the earlier agreements with China, Mexico and South Korea that were negotiated by President Clinton and himself, these agreements would give away our manufacturing jobs.

It is possible, however, that President Obama only favors the above five items, because he doesn't understand that they are job killers. Perhaps, he really is in favor of effort, as he says. If so, the Republican Congress should take him up on that possibility. There could be substantial agreement in Washington for ending the many means-tested programs that discourage effort.