Progressive Taxes Could Put a Dent in Poverty

By Samuelson, Robert J. | American Banker, January 30, 1985 | Go to article overview

Progressive Taxes Could Put a Dent in Poverty


Samuelson, Robert J., American Banker


It's time to dust off an old idea and give it a new try: progressive taxation. This is the notion that the poor should pay less of their income in taxes than the rich. Startling though it seems, that's not the way it is now. The tax burden for the working poor is about as much as everyone else's. They deserve a break. It may be the only way to end the current political stalemate between liberals and conservatives over poverty.

As things now stand, poverty is slipping from the national agenda, because a problem that in the heyday of the "war on poverty" had seemed manageable now seems insoluble. This entrenched pessimism is as foolish as the 1960s heady optimism. In our economy, income inequality is inevitable, because workers' earnings reflect their skills and some workers will always receive low wages. But economic growth and wise government policies can still lift living standards for those at the bottom.

The main obstacle is not the cost (which is modest) but the self-serving rationalizations of both liberals and conservatives that justify doing nothing. Liberals feel virtuous by self-righteously denouncing every welfare cut of the Reagan administration. Conservatives profess their concern for the poor, but argue that overgenerous welfare programs have created self-defeating programs have created self-defeating dependency. Each side enjoys the pleasures of its rhetoric too much to suggest anything new. Women and Blacks

I'm not arguing that the current poverty debate is entirely fraudulent. In contrast to the 1960s, we now know how little we know. Consider the "feminization of poverty." In 1960, about a quarter of all people living below the government's poverty line were in families headed by a single woman. By 1983, this was nearly half.

Why?

Some commentators blame welfare, which made it easier for single women to survive independently. Others say the increase reflects higher divorce rates and the tendency for female-headed families to be poorer.

Sociologist William Julius Wilson of the University of Chicago suggests that, for blacks at least, the reason lies in adult black men's declining job prospects. Between 1950 and 1980, the proportion of black men in the job market (either employed or looking for a job) dropped from four-fifths to two-thirds. So, Mr. Wilson argues, black women face a shrinking pool of economically attractive potential husbands.

But why have black men done so badly? Neither Mr. Wilson nor anyone else has a good answer.

But ignorance need not immobolize us. The simplest way to help low-income workers is to cut their taxes. The case is more compelling than ever, as a new study by economist Joseph Pechman of the Brookings Institution shows. Between 1966 and 1985, the tax bite -- including all federal, state, and local taxes -- on the poorest tenth of Americans rose from 16.8% to 21.9%. By contrast, the wealthiest Americans pay an average 25.3%. Pleasing Both Sides

Regardless of the causes of persisting poverty, lower taxes will help. They ought to satisfy liberals by making the working poor a little wealthier. If conservatives are right about welfare's destructive effects, lower taxes will make work more attractive compared with welfare. This should draw people back into the labor market and strengthen family stability. …

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Progressive Taxes Could Put a Dent in Poverty
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