Why Paul Ryan Shouldn't Team Up With Barack Obama To Fight Poverty

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It's perhaps hard to imagine President Obama and House Speaker Ryan agreeing on much of anything involving the economy. Ryan is a conservative who tends toward solutions aimed at reducing the government's role in our lives, while Obama unabashedly wears his American-style liberal leanings on his sleeve. Yet it turns out they agree on one way to fight poverty in the United States.

As the Wall Street Journal recently explained it, "Both want to expand a poverty-fighting tool some analysts say could draw millions of Americans into the workforce." Obama and Ryan want to expand the number of workers eligible for the Earned Income Tax Credit. More specifically, "both support a plan to increase the earned income tax credit, or EITC, to include childless workers."

As the Journal puts it, the EITC at present "is structured to encourage work and help parents, acting as a wage subsidy for the lowest-income workers because it increases with income - to a point." Obama and Ryan would like to boost the credit even more as a way of encouraging more work over welfare, plus in bringing childless workers into the equation, the thought there is to expand the range of people encouraged to work through subsidies built into the tax code.

At first glance, what's bringing Obama and Ryan together is appealing. The idea behind the EITC is the stimulation of work over dependency on government transfer payments that often don't require toil. But it's the very notion that work needs to allegedly be encouraged that should have sober minds wondering about the tax credit itself. Figure the poorest people around the world would give anything for the right to live in the United States, and by extension the opportunity to work in the U.S. As evidenced by the desire of the world's poorest to erase their poverty in the United States, opportunity here is already abundant. Work in the U.S. plainly doesn't need to be spurred by tax subsidies.

That said, implicit in the thinking behind the EITC is a happy assertion from Ryan and Obama that taxes are a price, or a penalty levied on work. That's good that Ryan has seemingly forced this admission from Obama, but the EITC basically means many low-income workers will be relieved even more from the burden that is taxation; that, or they'll get a check from the government in return for working above and beyond their paychecks. This reads as problematic. While low-income workers are surely burdened the most by high taxes foisted on the rich (there are no companies, and no jobs without investment, and the rich by far have the most in the way of funds to invest), it's not a good thing when large swaths of the population are allowed to avoid some forms of direct taxation through tax-code engineering. To paraphrase Ronald Reagan, "taxes should hurt." Everyone should intimately know the burden that is government.

To the above, some EITC proponents will surely reply in seemingly Reagan-esque or Jack Kemp fashion that incentives matter. The EITC is meant to reduce the cost of work so that more people will choose it over handouts. They'll add that a less generous EITC, or better yet a phasing out of the work subsidy would make work more expensive for the poorest. If so, some might migrate back to handouts over work itself. Also, the idea behind an expanded EITC is to increase the amount of income that is subsidized through credits with an eye on inspiring even more work.

All of this sounds correct (and perhaps noble) initially, but given a second pass it reads as very condescending. Do members of the political class really think so little of low-income workers? And then thinking again about how the world's poorest annually risk their lives to get to the U.S., those lucky enough to live here need tax credits to cure their supposed indolence?

Contemplating the U.S.'s right wing more specifically, they generally look askance at attempts by the left to create victims. But in this case, some on the right would say that the poorest in the U.S. would be victimized by abolition of a tax credit thanks to those same low-income workers perhaps choosing the dole over actual exertion. Do Americans really need a tax-giveaway as an incentive to go to work? Seemingly the pride that comes with effort should be enough of an incentive to get up each day. It's safe to say there are lots of programs that politicians could create in order to pay Americans a good wage for nothing, but those who would accept such an offer would be miserable.

And then let's not forget that right or wrong (it's wrong), achievement is already penalized in the United States. As individuals we all know this to the extent that our earnings increase in concert with our work experience. Higher earnings come with a higher tax bill. Despite this wrongheaded penalty levied on progress and achievement, it's not as though Americans stop working despite the tax code penalizing their advancement. The point of all this is that the rewards that come with success are sufficient such that we pursue them despite the obnoxious tax bill. By the previous logic the economic rewards that result from an emergence from poverty are surely appealing enough as to not require a tax subsidy.

Of greatest importance is the simple truth that any attempts by the political class to beat poverty as a rule amount to a mis-diagnosis of the alleged problem. Indeed, while it may not sound politically correct, the U.S. won the war on poverty way back in the 18th century. And the "war" wasn't even close. We know the latter is true based on the purest market signal of all: where those who are poor migrate to. The fact that the world's poorest once again would give anything to live in the United States is a signal that the U.S. doesn't have a poverty problem; rather the U.S. is where poverty is cured. In tinkering with the tax code Obama and Ryan would have us believe that they can legislate away what is all-too-often more an effect of bad decisions than most would like to admit.

So while Speaker Ryan should be lauded for his voter outreach efforts that bring to mind his late mentor in Kemp (the Buffalo congressman most famously talked up urban enterprise zones), the good of his efforts to expand the conservative tent requires debate. The reality is that the U.S. itself is one big zone of opportunity. In that case let's remove the governmental barriers to production without regard to an individual's economic status, as opposed to lightly insulting low-income workers with pats on the head meant to encourage that which shouldn't require any encouragement.


John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). He's the author of Who Needs the Fed? (Encounter Books, 2016), along with Popular Economics (Regnery, 2015).  His next book, set for release in May of 2018, is titled The End of Work (Regnery).  It chronicles the exciting explosion of remunerative jobs that don't feel at all like work.  

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