What Portion of Our Collective Wealth Are We Willing to Invest So That People Can Succeed?


May 15, 2015

This post was originally published by The Huffington Post on May 14, 2015. 
Obama Gtown summit on overcoming poverty

That is the question President Obama posed at a Georgetown University Catholic-Evangelical Summit on Overcoming Poverty on May 12.  It was a fascinating discussion – not least because it was a discussion, with the President exchanging views with two scholars and replying to questions by moderator E.J. Dionne of the Washington Post. The President acknowledged the growing awareness of inequality and poverty. He challenged us to see that over decades, we have been disinvesting in shared institutions – notably education – that lift people out of poverty. He agreed with the premise of one of the panelists, Robert Putnam, whose new book Our Kids describes the “withdrawing from the commons” occurring across the nation. Where in decades past affluent, working class and poor children might all have attended the same public school, all able to participate in school sports and music programs, today’s communities are far more segregated by class as well as race. The well-off are less likely to send their children to a public school, and fewer have the equalizing experience of sports teams and band because strapped school districts now charge hefty fees to participating students that shut out struggling families.

The President recognized that the idyllic “commons” Putnam depicts in the small community where he grew up in the 1950s was not the experience of many back then. Racial barriers created separate and unequal schools and denied access to libraries, recreation, affordable housing and much more. Affluent suburbs then and now invested more in their schools than poor communities could. But it remains true that public investments affording real opportunities for young people of modest means have been seriously eroded.

One example that has personal significance for me:  public higher education.  My parents could not afford to send me to a private college. I was able to go to public universities as an undergraduate and then graduate student. As young marrieds, my husband and I were graduate students in California’s public universities, helped further by federal grants and a cheap student apartment at U.C. San Diego. We emerged with graduate degrees and no burden of student debt. I know how fortunate we were, and how much difference it made it our lives. Students today have it much tougher, and far too many without family resources are unable to get the education we received. This loss didn’t just happen – in California and in many other states, voters chose tax cuts over investments in our future.

The panel was intended to show that despite disagreements over the means to alleviate poverty, conservatives as well as progressives can be committed to this goal. Arthur Brooks, president of the American Enterprise Institute, made the case for free enterprise’s role in bringing people out of poverty. In the broadest sense, of course that is true – private sector jobs are the primary engine of economic growth and opportunity. But the President made compelling arguments that the “free” market is now “turbo-charged” to exacerbate inequality. Disparate advantages from concentrated wealth and education widen economic gaps. And public decisions, such as tax breaks at the top, make inequality worse.

Brooks seemed ready to support some public investments, and made it a key principle that poor people must not be thought of as “the other.” They are people, he said, not “liabilities to manage.” That was welcome. But the prospect of agreement receded in a discussion about taxes. President Obama elicited a sharp collective intake of breath in the hall when he pointed out that income for the top 25 hedge fund managers well exceeded the combined annual salaries of every kindergarten teacher in the nation in 2014 (CHN also previously noted that those fund managers made more than double the combined salaries of those teachers in 2013). He observed that those fund managers could afford to pay higher taxes. They don’t need the tax loophole that lets them pay a 20 percent tax rate instead of the 39 percent others with similarly high incomes pay. Brooks retorted that hedge fund manager and corporate jet tax breaks were “show issues.” The real issue, he said, is middle class entitlements. Well – that is simply wrong. The President’s example of hedge fund managers paying a lower tax rate is a subset of a bigger issue – the lower tax rate paid on unearned income (capital gains and dividends). If unearned income were taxed at the same rate as earnings, that alone would generate more than $600 billion over the next decade. That’s real money, and could pay for a lot of education, prevent a lot of homelessness and hunger, and provide a lot of child care – all of which make people ready for work. Even just eliminating the hedge fund managers’ loophole (actually called “carried interest”) would bring in $17 billion over 10 years. Sure – that’s a small fraction of all the tax breaks. But it would pay for the Administration’s proposal to expand home visiting programs for newborns, an approach backed by strong evidence that it improves outcomes for children in low-income families. Eventual changes needed to strengthen Social Security and Medicare should in no way prevent investments in education, nutrition, child care, etc. For one thing, the greater productivity of a better-educated workforce will help to pay future benefits. Beyond that, some of the reforms that make the most sense would ask those with high incomes to pay more, say, by lifting the cap on earnings subject to the Social Security tax.

There is a wealth of evidence that anti-poverty programs like SNAP (formerly food stamps), low-income tax credits, pre-school, Medicaid, and housing assistance really make a difference in helping children to rise out of poverty. These programs improve child health and increase work and earnings. New research tracking impacts over decades confirms the value of these programs, and more accurate counting of income and expenses among the poor shows that SNAP alone lifted more than 10 million people out of poverty in 2012. And yet the budget outline just passed by Congress would make massive cuts in these programs. The President is right to reject that stunted vision and to insist that Congress stop the cuts and start investing.

Budget and Appropriations
child poverty
Child Tax Credit
Early Childhood Education
Earned Income Tax Credit
Education and Youth Policy
Housing and Homelessness
Income Support
overcoming poverty
Poverty and Income
Social Security
Social Services
tax policy