It’s a Trap! How Paul Ryan Is Misleading You About Poverty.

Commentary about business and finance.
March 5 2014 4:38 PM

It’s a Trap!

Paul Ryan’s theory of poverty is tricksy—and wrong.

House Budget Committee Chairman Paul Ryan (R-WI) questions Congressional Budget Office Director Douglas Elmendorf.
House Budget Committee Chairman Paul Ryan at a hearing on Capitol Hill on Feb. 5, 2014, in Washington.

Photo by Chip Somodevilla/Getty Images

A little kernel of truth can be a very dangerous thing.

Jordan Weissmann Jordan Weissmann

Jordan Weissmann is Slate's senior business and economics correspondent.

This week, the House Budget Committee, led by Republican ideas man Paul Ryan, published a 204-page report cataloging just about every conservative complaint about the federal government’s anti-poverty efforts. (Mercifully, though, no food-stamp recipients were maligned for buying seafood.) The report’s grand, familiar theory is that the American welfare state has grown too sprawling and complex, and when combined, its overlapping programs discourage the needy from working.

“There are nearly 100 programs at the federal level that are meant to help, but they have actually created a poverty trap,” Ryan told the Washington Post.

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Some of the academics cited in Ryan’s report have complained that their work was misquoted or ripped out of context. (For instance, it ignores data about the first two years of President Lyndon Johnson’s war on poverty, which happened to be its most successful.) But in a very narrow sense, Ryan’s big idea is sort of, kind of correct. Because poor families lose government benefits as they climb up the income ladder, there are some select circumstances where it can stop making sense for them to work harder or longer hours. Earning an extra $1,000 by pulling extra shifts at McDonald’s might not be worth it, for instance, if it means saying goodbye to your Medicaid coverage.

It’s the sort of dilemma that policy types sometimes call a “poverty trap” or “welfare trap.” A 2012 report by the Congressional Budget Office, which Ryan cites, found that after taxes and benefit cuts, single parents living just above the poverty line would take home less than 20 cents of each additional dollar they made in wages above their current income, assuming they took full advantage of the programs available to them. At that point, many mothers and fathers might decide they’re better off spending more time parenting than working.

Marginal Tax Rates for a Hypothetical Single Parent With One Child, by Earnings

140304_$BOX_1_TaxNTransf

Courtesy of the Congressional Budget Office

There’s Ryan’s amuse bouche of fact. But he’s using it as the enticement to a large and harmful fiction—that by giving the poor incentives not to work, we’re turning the entire “safety net into a hammock,” as he’s put it.

It’s true that poverty traps are out there. They just don’t snare that many families. The same CBO report Ryan cites estimates that, after taxes and lost benefits, the median household living around the poverty line still takes home roughly 70 cents of each additional dollar it earns, not unlike many middle-class families. Relatively few people reach a point where it’s no longer worth it to pull extra time on the job. 

140304_$BOX_2_MargTax

Courtesy of the Congressional Budget Office

The hammock theory truly begins to fall apart once you look at the relatively short periods of time the poor actually remain poor. Americans tend to think of poverty as a chronic condition—the financial equivalent of acute and crippling arthritis. But it’s largely more like a broken bone: something many of us suffer and most recuperate from. Mark Rank, a professor of social work at Washington University in St. Louis, and his collaborators have found that between the ages of 25 and 60, almost 40 percent of Americans will spend a year living under the poverty line, but only 11.6 percent spend five years or more of their adult lives impoverished. Likewise, Rank finds that 45 percent take advantage of the safety net at some point, but only 16.4 percent do so for more than five years. 

140304_$BOX_3_CommonPoverty

Courtesy of the Atlantic

Since the 1960s, Rank says, poverty has become a more common experience, thanks to a boom-bust economy and the ubiquity of low-paying jobs that leave many families living at its edge. But typically, poverty is still a short-lived experience. “The grip of poverty is not as strong as some people think,” Rank told me in a recent interview. If the safety net is a hammock, relatively few are napping in it.

Still, Rank’s data looks backward—what about the future? Is it possible that the growth of the safety net under Obamacare could lull us into a lethargic new world? 

Of course, the CBO did recently conclude that health care reform would lead a number of Americans to cut their work hours—but it didn’t specify how many will do so simply because they’ll be able to find affordable insurance through the Obamacare exchanges. It also helps to have some global perspective on this issue, which Paul Krugman offers up in his own post on Ryan’s poverty hokum. As Krugman notes, countries with larger welfare states tend to have more income mobility, not less. If you’re born poor in Sweden or Canada, you’re far more likely to end up middle class than if you’re born in the United States, which cuts against the idea that generous government programs enshrine poverty.*

140304_$BOX_4_GatsbyCurve

Courtesy of Miles Corak

Ryan is right that the government should try to fix the perverse work incentives that the welfare state creates for a fraction of poor families. But his report is meant to lay the intellectual groundwork for an overhaul that would more likely result in the same sorts of draconian cuts contained in his previous budgets, all in the name of aiding the needy. If anybody is setting a trap, it’s Paul Ryan.

Update, March 5, 2014: This article has been updated to clarify that although France does have more economic mobility overall (as shown in the fourth graph), it’s not clear that the poor are more likely to enter the middle class than they are in the United States the way that they are in Sweden or Canada. (Return.)

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