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The War on Poverty

The War on Poverty

An opinion piece in the October 11 Wall Street Journal entitled “Government Can’t Rescue the Poor” authored by Phil Gramm and John F. Early traced the effectiveness of the so-called War on Poverty from its inception in the mid-1960s to the current day.

Messrs Gramm and Early state that in the 20 years prior to 1966, without the massive spending that was soon to follow the poverty rate dropped from more than 32 percent to less than 15.

The authors point out that since 1966, the first year with a significant increase in anti-poverty spending, the rate of poverty has been virtually unchanged, according to the Census Bureau.

The Census Bureau classifies as poor everyone in families whose incomes are lower than the
the established thresholds for their respective family size and composition.

The Census Bureau has said that in 2016 nearly 13 percent of Americans lived in poverty.

Gramm and Early also note that it is not possible to reconcile this rate, which has remained virtually unchanged over the last 50 years, with the fact that government-transfer payments to lower income families have risen steadily.

According to the authors’ research, from 1965 to 2016 the value of transfer payments in real dollars targeted to low-income families has increased from about 3,000 to 34,000 dollars.

Gramm and Early conclude that even given the magnitude of this increase, the numbers fail to reflect the true growth in transfer payments to low-income families since they exclude Medicare and Social Security which help subsidize low-Income retirees in the bottom quintile of earners.

They postulate that the lowest quintile of earners can receive as much as 10 times the lifetime benefits received by the top fifth of earners.

The stasis in the poverty rate according to the authors is due to the fact that since the start of the War on Poverty the Census Bureau has not counted transfer payments as income. The Bureau measures poverty using what it refers to as “money income”

Money income includes earned income and payments like Social Security and unemployment insurance which a person receives as a result of having been employed. Excluded in the calculation are transfer payments like SNAP (formerly known as food stamps), Medicaid, CHIP (The Children’s Health Insurance Program) and nearly 90 other means-tested federal payments and most state means-tested assistance programs.

Gramm and Early opine that these uncounted transfer-payments amount to some 1.5 trillion. And that  if the government were to count them as income, the true poverty rate today would be below 3 percent.

The 3 percent rate would drop even further if the Census Bureau included as income the estimated 500 billion in private charitable donations given to the poorest Americans.

Gramm and Early write that system of transfer-payments has failed to accomplish the goal of the War on Poverty as stated by the president who launched the War, Lyndon Johnson. President Johnson’s goal was to allow America’s poorest citizens “to develop and use their capacities”

It is impossible to say that this goal has been realized when 85 percent of the disposable income of the poorest Americans comes from transfer-payments, according to the authors.