Let The Poor Save

Asset tests for programs aimed at helping low-income people have a certain obvious logic to them. The idea is to target assistance to the genuinely needy. But as Rourke O'Brien points out they also create some terrible incentives: "Yet, while policymakers created an asset test to keep hypothetical, unemployed trust fund brats from collecting government checks, these rules are sending a dangerous message to low-income families: Do not save."

Of course, the real issue here is a larger one of political context. Much of America's public assistance policy is driven by a deep, lurking fear that someone, somewhere may be getting benefits he or she doesn't deserve. An alternative way of doing business would be to design policy in a way that's best suited to the genuine needs of the genuinely needy. That would mean making it relatively easy for people to obtain the benefits for which they're eligible, and relatively generous about phase-outs and wealth-tests so that the provided benefits can be a stepping-stone to greater prosperity rather than a ceiling. But relaxed, generous policies like that really do leave the door open to some measure of fraud and conservatives have succeeded in elevating the evasion of this fraud to an absurdly high level. Thus, there's tons of emphasis on trying to detect EITC fraud even though the amount of money involved here is minor compared to tax evasion by the wealthy, but the damage done to an otherwise successful program aimed at making work pay is severe.

At any rate, Rourke's op-ed is aimed at building support for a John Conyers bill aimed specifically at this asset test business, and it seems like a worthy proposal to me.

Comments

[T]here's tons of emphasis on trying to detect EITC fraud even though the amount of money involved here is minor compared to tax evasion by the wealthy, but the damage done to an otherwise successful program aimed at making work pay is severe.

Wouldn't it make sense for Democrats to place a lot more emphasis on rooting out tax evasion and fraud by the wealthy? It seem like the idea of blanket tax increases on the wealthy, for whatever reason, never gets done. Bringing an end to fraud and abuse might be much more difficult for Republicans to oppose.

Posted by southpaw | September 19, 2007 11:15 AM

And who decides whether you meet the criteria for these programs? The conservative's second most hated enemy: government bureaucrats. Every time conservatives add an additional layer of restrictions on who get food stamps or Medicaid or whatever, it means hiring more government bureaucrats. This would be ironic if Alanis and the terrorists hadn't killed irony.

Posted by monkey.dave | September 19, 2007 11:23 AM

you don't mean this:

"conservatives have succeeded in elevating the
evasion of this fraud to an absurdly high level"

you mean something like this:

"conservatives have succeeded in elevating the
[concern directed towards/value placed upon/hysterical importance attached to]
evasion of this fraud to an absurdly high level"

it's not like conservatives have done much to actually reduce fraud. they've just increased the hysteria about it.

Posted by kid bitzer | September 19, 2007 11:27 AM

But relaxed, generous policies like that really do leave the door open to some measure of fraud and conservatives have succeeded in elevating the evasion of this fraud to an absurdly high level.

This phenomenon transcends politics. It's, for example, part of what's broken about our health-care system ... there are periodic bouts of such hysteria regarding "un-necessary procedures" and frank fraud that businesses, eager to squeeze out extra profit, will cut their noses off to spite their faces in tracking down "un-necessary" expendatures, especially health insurance companies.

So much for rationality of the marketplace, eh?

Posted by DAS | September 19, 2007 11:31 AM

A reasonable policy would be to savings as the EITC is to income: subsidize it and then phase out. It's weird that welfare reform only touched income, and not wealth. You would think that this would get support from the Hamilton Project people, worried as they are about Retirement Security and whatnot.

Posted by Isaac | September 19, 2007 11:34 AM

This is ridiculous.

Look, most of the asset tests were put in programs designed by Democrats, passed by Democrats, and administered by Democrats for generations. The idea that they were some Republican idea is pretty far from the truth. The suggestion that the political context matters may be more fruitful, but, again, Matt's explanation is wrong. How about this one (familiar to MY readers): Democrats designed these programs with asset tests because they're terrified that poor folks might someday not be poor. If they're no longer poor, they wouldn't depend on the Democrats any more and they might vote the wrong way.

The reference to EITC fraud is bizarre. The design of the program hasn't changed, despite the fact that, at least as of a few years ago, almost a third of the dollars expended were lost to fraud. Instead, the IRS has taken some pretty minor steps to crack down on fraud. What damage has been done to the program? None.

Posted by Thomas | September 19, 2007 11:43 AM

Thomas, I tend to find it implausible that all these bills were passed without contributions during "mark up" from Republicans.

Many Republican congressmen will, no doubt, find it quite stunning that they contributed nothing whatsoever to the legal books between the years of 1957 and 1981.

These sorts of triggers were put in place in the bills to attract support from Republican co-sponsors as well as to blunt any demagogic potential from opponents (who did so, anyway).

Posted by Tyro | September 19, 2007 12:06 PM

Matthew: "Much of America's public assistance policy is driven by a deep, lurking fear that someone, somewhere may be getting benefits he or she doesn't deserve. "

Only for poor people; giving government money to rich people is generally handled on a far more open-handed basis.

A better statement is that: 'right-winger's attitudes are that some poor, black/hispanic single mother might be getting money which should go to more deserving-as-defined-by-right-wingers people'.

Posted by Barry | September 19, 2007 12:12 PM

The design of the program hasn't changed, despite the fact that, at least as of a few years ago, almost a third of the dollars expended were lost to fraud.

Please cite a source for this interesting assertion.

Posted by James Gary | September 19, 2007 12:36 PM

Matt ~ absolutely terrific post. I never really thought of it from the standpoint that fraud evasion seems to be the main point when designing these programs versus actually helping people.

The problem of course is that the wealthy dress well, speal well, and are difficult in a consumeristic society such as America to demonize, because we all consciously or subconsciously crave to be wealthy. Demonizing a welfare queen, with bad hair, hungover and unbathed children sells.

So sure, we are losing BILLIONS in Iraq in unaccounted funds, but America is more concerned about someone stealing a few thousand in EITC benifits.

Posted by Brad | September 19, 2007 12:44 PM

Hell yeah. The worst thing the about poverty programs is if they trap people in a local maximum. Let them build assets. Sure some are going to piss it all away on, uh, food, but if some dude making $21,000/year can save a few extra dollars that might be the difference to allow him to get ahead, or from crashing if he loses his job.

Posted by Chris | September 19, 2007 12:48 PM

Nicholas Thompson, "Tax Laxity":

"In order to save the program [EITC] from GOP attacks--they claimed it was a fraud-prone welfare program--Bill Clinton had to strike a deal that would lead to intensive auditing of recipients.Today [Apr. 2004], EITC applicants are eight times as likely to face audits as people earning $100,000 or more, even though the maximum amount of money that someone can get from the EITC is about $4,000 in a year."

It's also made clear that the cut in top-end enforcement was a response to William Roth's bogus 1998 hearing.

Posted by Matt Weiner | September 19, 2007 1:01 PM

Barry, it's a class thing. Your average person thinks it's low-rent and ghetto to defraud the welfare system, and is vehemently against that. However, when some large-scale white-collar crime or dirty deal is struck to make money off of government contracts, many people will think to themselves, "AWESOME! I gotta get me some of that!"

Posted by Tyro | September 19, 2007 1:16 PM

restricting benefits isn't always motivated by some notion that the beneficiaries aren't "deserving." Sometimes it's a bad idea to give people money for not working, whether or not they're deserving. It disincentivizes work, which has bad consequences for neighborhoods, the economy, and society in general.

Posted by too many steves | September 19, 2007 1:36 PM

"Wouldn't it make sense for Democrats to place a lot more emphasis on rooting out tax evasion and fraud by the wealthy?"

Gee, where do you think the *Democrats* all get their money as well?...

Posted by RKU | September 19, 2007 1:42 PM

Sometimes it's a bad idea to give people money for not working, whether or not they're deserving. It disincentivizes work, which has bad consequences for neighborhoods, the economy, and society in general.

The 19th-century assertions are coming thick and fast on this thread. OK, Too Many Steves--please provide for discussion one specific example of where giving people money for not working has-- in and of itself--led to "bad consequences for society in general."

Posted by James Gary | September 19, 2007 1:46 PM

Well, the welfare reform of the '90s, which involved reducing the disincentives to work, seemed to have good effects. Of course, it didn't happen "in and of itself," because in the real world, nothing that complicated has a single cause.

Posted by too many steves | September 19, 2007 2:06 PM

The conservative argument of disincentivising work fits neatly into a conservative ideology that insists we not use government to help people. That's why it's such a common refrain. But there is a partial truth elided by it broader falsehoods. Americans believe in the idea of a worthy poor, people who are poor but only temporarily - those who've fallen on hard times but through hard work and intelligence can rediscover success. And Americans have no qualms about giving these people some support during tough times. But there are lots of people who don't fit that mold, people who were born poor and will likely die poor. People who don't have the education or the health or the drive to better their circumstances. Americans are way more ambivalent about helping these people. And as much as I'm a bleeding heart liberal who can't stand the idea that we've got 600,000 homeless people while 6.6 million people own two houses, I also understand how lots of ordinary people don't want part of their paycheck taken out and given to somebody who won't (for whatever reason) use it to get ahead.

Like Matt said, the talk about fraud is a bunch of bull. But, liberals will need to be more convincing if they want Americans to support anti-poverty programs.

Posted by Mavis Beacon | September 19, 2007 3:08 PM

Of course, the 'deep, lurking fear that someone, somewhere may be getting benefits he or she doesn't deserve' evaporates when we are talking about persons already enjoying immense wealth, as such persons are in a position to determine what the country as a whole will or will not fear.

At any rate, given that the American savings rate for 2005 was negative 0.5 percent, it seems perfectly idiotic to worry that subsidies to the poorest Americans will discourage them from saving.

A cynic will suspect that the pretended concern with the morals of the poor is actually a fear that the state might someday reduce subsidies to the rich.

Posted by RLaing | September 19, 2007 3:13 PM

Disincentivising work... as in cutting the inheritance tax? You know, with a smaller inheritance incentives to work would be larger.

At least judging from gossip columns, rich heirs suffer from addiction problems, unstable families etc.

Posted by piotr | September 19, 2007 3:38 PM

One of the most interesting developments in economics is the Dynamic Mirlees approach to income insurance which strongly requires restrictions on how much the poor can save to implement. The reason for this is that they are afraid that certain elements of the poor will build up relatively large savings and then quit their job. These results have published quite well.

Posted by Hector Calvo | September 19, 2007 6:28 PM

Re: But there are lots of people who don't fit that mold, people who were born poor and will likely die poor. People who don't have the education or the health or the drive to better their circumstances.

With people who are physically disabled I think you will find that most Americans, even many on the Right, are OK with helping them out. With mental disabilities, and especially addictions, that support drops off a good deal. Many people think we ought just institutionalize such people, out of sight and out of mind, and that would solve the problem.

Posted by JonF | September 19, 2007 8:59 PM

The 19th-century assertions are coming thick and fast on this thread. OK, Too Many Steves--please provide for discussion one specific example of where giving people money for not working has-- in and of itself--led to "bad consequences for society in general."

Black illegitimacy shooting up to 70% soon after the Great Society was passed? Or by "specific" do you mean that I have to actually go out and interview hundreds of single mothers and find out whether or not being paid for not marrying and not working had anyhting to do with their having chldren out of wedlock?

Posted by Glaivester | September 20, 2007 2:43 AM