The Effective Replacement For The Welfare State

Federal welfare programs were created in order to improve the well-being of the general public. These can range from providing healthcare, food stamps, housing subsidies, and more, for the general public. Unfortunately, as the renowned economist Thomas Sowell once stated, “Nothing is easier than to have good intentions but, without an understanding of how an economy works, good intentions can lead to disastrous consequences for a whole nation.” Leftists often concur that freedom from coercion is a beneficiary, but then advocate for government coercion to enforce equity, not seeing that this is a logical fallacy. An example of this is the use of social programs, which have been largely ineffective at fighting racial inequity, and at handling most of society’s problems in general. Since the start of the 21st century, women’s participation in the labor force has only declined, and African-Americans are the only demographic whose real wages have decreased since then. Despite the creation of new government programs and the expansion of existing ones, society has not progressed as much as one would think.

What economists want often doesn’t become reality. There simply aren’t enough economists to bring about a substantial influence on politics — politicians find economists that will listen to them, seldom one who will tell them right from wrong. For example, most economists understand and denounce the use of price controls. An example of this as government policy is rent control, which epitomizes a boondoggle by seeming to help poorer populations, when in reality they work to their detriment. Rent Control in New York City has notoriously deteriorated the quality of housing, as evidently shown in a study done by the National Multifamily Housing Council, depicting that landlords were significantly less likely to be up to date on maintaining and servicing apartments with Rent Control in place. Rent controls have also led to the hoarding of property by the wealthy (such as Ed Koch keeping his $475 rent controlled apartment and Congressman Charles Rangel holding on to 4 apartments of his own), the widespread use of Black Markets in order to make a fair deal, worsening housing shortages, and more. However, these problematic policies still occur because politicians prioritize optics, rather than genuinely helping the people. Social programs are exactly that; a cheap gimmick designed to look good while not actually helping constituents, and I’d like to go into further detail on a few of them.

In 2019, 38 million individuals participated in the Supplemental Nutrition Assistance Program (SNAP/food stamps). Food stamps help many Americans put food on the table for themselves and their families. Unfortunately, SNAP serves to be a liability more than a beneficiary. SNAP forces individuals to spend a specific amount of money on a certain amount of palpable items under said plan, forcing people to be dependent, and become tethered by, government restrictions. The government’s blanket plan often isn’t what’s best for each family, and because SNAP is carried out by each individual state, not everyone receives adequate benefits, depending on each state’s rules. The cost of food (and purchasing power parity) varies on a state-to-state basis, and each family (depending on age and nutrient requirements) needs different amounts and types of food. Each family deserves the right to make decisions for themselves, as they obviously understand their needs better than the government. The U.S. Department of Agriculture funds these food stamps across the country. 80% of their budget goes towards the Food and Nutrition service, which mainly comprises SNAP. In a time when our National Debt is an astronomical 27.4 trillion and growing, government spending must be rationed. 

I would like to scrutinize something Milton Friedman championed: the Negative Income Tax (NIT). In simple terms, NIT gives tax credit to those below a certain income, in lieu of them paying taxes. Ideally, it would replace Temporary Assistance for Needy Families, SNAP, Supplemental Security Income, and the Housing Support Program. This would lead to a net positive revenue gain for the government due to the removal of hefty administrative costs. The tax credit received would be determined by two factors; the individuals income, and the income cutoff of the Negative Income Tax. The most commonly proposed Negative Income Tax structure would have a 50% phaseout rate, with a starting income cutoff of $30,000. This would mean someone who makes $15,080 annually shall receive an extra $7,460 from the IRS. Negative Income Tax is a beautiful compromise of a structure that doesn’t leave the poor to dry, but still allows them freedom with their money.

 Just 2 years ago, the government gave $22 billion in Agricultural subsidies. For a dying industry, this is unacceptable. Although the Trump administration’s protectionism worsened the situation for farmers, these subsidies have been given on a yearly basis. Considering a very large part of the subsidized agriculture is thrown out, we must stop bailing out these farmers. While it’s unfortunate that, without said subsidies, these farmers will go out of business, the government is not meant to coddle and give handouts to dying industries. The agricultural sector of individual farmers is no longer as in demand as it once was. We are wasting the time of millions of farmers, and the money of all taxpayers, on bailing out these farmers whose crops are wasted anyways. Luckily, the other benefit of a Negative Income Tax is that it would allow farmers to move away from their inefficient farming ways and move into another sector of employment, or pursue higher education. The constant flow of cash can serve as a fund to keep basic necessities on the table, while allowing individuals to either go back to school or find work elsewhere. This allows people to take more risks and pursue what they really want. The Negative Income Tax can be an effective replacement for most government expenditures, such as the aforementioned programs like the Supplemental Nutrition Assistance Program (SNAP), Temporary Assistance for Needy Families (TANF), Agricultural Subsidies, and a myriad of other programs that make up almost $1.1 trillion dollars of our yearly federal budget. The fruitful Earned Income Tax Credit (EITC) works in a very similar way to Negative Income Tax. EITC offers families with children tax credit, which is used to fund for childcare. The EITC’s most effective consequence is that it incentivizes people to join the workforce. For each additional dollar earned, a worker’s EITC is increased, hence motivating people to not only work, but strive for growth within their professions. Something similar can be used with Negative Income Taxes. Those in the workforce can be given a small bonus, and those who have seen job growth, through promotion and/or raises can be given another bonus in tax credit.  Negative Income Tax also gives individuals the freedom of choice in many other regards. The Earned Income Tax Credit brought almost 6 million people out of poverty in just 2018, and there’s no reason Negative Income Tax cannot reap greater benefits due to its larger scale. The best way for families to maximize their standards of living, is by doing so themselves, with their own budget in mind. 

When people have more money in their hands (due to NIT) they will spend more money. This directs traffic to local business and grocery stores, which will lead to competition amongst themselves. Increased competition will lead companies to cater to their consumers in the best way possible, which only leads to an improvement of quality. For example, when businesses are competing with each other, one company will always try to undercut the others’ prices in hopes of making the profits back in increased customers. This then brings the general economics principle that the price which one producer is willing to assign to any good/service becomes the price that other producers are forced to assign for that same good/service. Competition between companies only benefits the people and is one of the many developments of the NIT. Furthermore, NIT would allow families to pay for higher education and necessary tutoring, which would significantly lessen the education divide between economic classes. One way families can use this is through using the funds to send their kids to private school. In fact, students of color have seen steep increases in graduation rates and test scores after joining private school. African-American students who transferred to a Private School scored 6.6% higher on reading and math tests in comparison to African-American students that stay in Public Schools. This is also why in a poll done by the Federation for Children, 66% of African-American families now support School Choice.