To his credit, House Budget Committee Chairman Paul Ryan (R-Wis.) is trying to start a conversation about poverty. The test of his seriousness will be whether he ends up talking about spending. On March 3 he issued a lengthy study evaluating the U.S. welfare state that was refreshingly free of the hyperbolic rhetoric that marked his 2011 Path to Prosperity budget (that’s the one that claimed the U.S. was “on the brink of bankruptcy”).
For Ryan, federal antipoverty programs suffer from two main defects. The normative problem is that many programs “penalize families for getting ahead.” Financial aid is withdrawn, sometimes abruptly, as family income rises. “The complex web of federal programs and sudden drop-off in benefits create extraordinarily high effective marginal tax rates,” the report notes, “which reduce the incentive to work.” Practically speaking, there is a confusing maze of programs with too little evaluation of effectiveness.
Ryan’s critique, though sound at times, is overly harsh. In the mid-1990s, welfare reform was effective at moving poor, unemployed Americans into the workforce, in part by imposing a limit on benefits. Unfortunately, when the economy soured after the financial crisis, many of the welfare-to-work graduates ended up receiving other government subsidies. It is far from clear what strategies will work in the new economy, which features drastically higher unemployment, significantly lower growth, and greater challenges from technology than the economy of 1996. Ryan is a strong supporter of the earned-income tax credit, a proven success that provides about $60 billion in cash assistance to working families. And he duly notes the program’s stinginess toward single workers without children.
Ryan paints the past five decades of fighting poverty as a lost era. He’s mostly wrong, though it would be a mistake to call the welfare state an unmitigated success. The trick is to figure out what policies can jump-start a chronically weak labor market and create opportunity for mobility and advancement in a stratified economy. Ryan’s input could help move the debate forward.