Supply-Side Social Insurance Simply Doesn’t Work

Supply-Side Social Insurance Simply Doesn’t Work

David Brooks’ claim that “the federal government spent nearly $14,000 per poor person” in 2013 and his claim that “over the last 30 years the poverty rate has scarcely changed” have both been thoroughly debunked. The responses show very clearly that spending is nowhere near as large as Brooks claims, and that using a measure of poverty that overcomes some of the problems with the standard measure shows a decline in the poverty rate, though the decline has been slower than we’d prefer.

But we shouldn’t just care about how social programs affect the rate of change in poverty over time, the impact on the level of poverty is also important. The Center for Budget and Policy Priorities (CBPP) has shown, for example, that the Earned Income Tax Credit and the Child tax Credit “lifted 9.4 million people out of poverty in 2013 -- more than any other federal program besides Social Security -- and made 22 million others less poor.” In addition, “These working-family tax credits lifted 5 million children out of poverty, more than any other program.”

Related: Social Safety Net Lifted 39 Million Out of Poverty in 2013

And that’s just two programs. To take another example, food stamps lifted 4 million people out of poverty in 2012, and the total across all programs would be even larger – an estimated total of 41 million in 2012. When coupled with the evidence that social insurance programs only have a negligible impact on the willingness of recipients to work, it’s very clear that claims from conservatives that these programs are a “poverty trap” are off the mark. These are valuable programs that have a substantial impact on poverty, and far fewer side effects on work incentives than advocates for smaller government generally admit. 

Even if the number had been calculated correctly, it would overstate the true cost of social insurance programs due to the failure to consider “dynamic effects.” That is, these programs don’t just provide income to struggling households in times of need, income that can have a valuable stimulative effect during economic downturns; social insurance programs are also an investment in our future.

Going back to food stamps as an example, research from Hoynes, Schanzenbach and Almond, "Long Run Impacts of Childhood Access to the Safety Net," finds that “access to food stamps in childhood leads to a significant reduction in the incidence of "metabolic syndrome" (obesity, high blood pressure, and diabetes) and, for women, an increase in economic self-sufficiency” due to higher high school graduation rates and an increased likelihood of finding work and avoiding poverty. 

As Jared Bernstein notes, other programs also improve future economic outcomes. For example, “one careful study found that children in low-income families that received an additional $3,000 of annual income (in 2005 dollars) between the children’s prenatal year and fifth birthday earned an average of 17 percent more and worked 135 hours more annually as adults…. Other rigorous studies found similar results relating income support to higher test scores in reading and math, which are themselves correlated with better employment and earnings later in life.”

Related: Why Social Insurance Is a Necessary Part of Capitalism

These are not isolated examples. Research on social safety net programs consistently finds that investment in programs such as Head Start, Pell grants, healthcare, and so on improves future economic outcomes. These programs reduce enrollment in social services reducing outlays, and increase work and tax receipts all of which reduce the true cost of these programs. 

For example, with respect to healthcare, “The government will recoup 56 cents of each dollar spent on childhood Medicaid by the time these children reach age 60. This return on investment does not take into account other benefits that accrue directly to the children, including estimated decreases in mortality and increases in college attendance.”

Supply-siders focus on the capital stock as a key to economic growth, and many of the policies they advocate – tax cuts to encourage savings, investment tax credits, and so on – are designed to encourage investment that enhances the capital stock and leads to higher economic growth.

Related: GOP Looks at Medicaid and Food Stamps for Overhaul

They forget something else that’s important. The capital stock can be divided into three parts, privately owned physical capital, government owned physical capital (i.e. public capital or infrastructure), and human capital. It is not enough to simply focus on the private physical capital as supply-siders typically do, public capital and human capital must also be part of our growth strategy. 

Unfortunately, those who claim to be supply-siders have been a key reason why we have underinvested in our infrastructure for the past few decades, and they have also failed to recognize the human capital building aspects of social insurance programs, particularly for children. Yes, those on the political right do sometimes mention education as a means of solving social problems such as rising inequality and a disappearing middle class, but this is often to forestall other measures they oppose such as tax increases, or increased spending on social insurance that aids working class households.

When it comes time to actually support more spending on education for the disadvantaged, Head Start, Pell grants, etc., those on the political right invariably vote for reductions to offset tax cuts for the wealthy rather than for an investment in our future.

You’d almost think that all the supply-side rhetoric is really a cover for tax cuts for wealthy constituents rather than a reflection of true concern about our children and our economic future.

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