How to Cut the Poverty Rate in Half (It's Easy)

In the United States, we are generally told that poverty is a deeply complicated problem whose solution requires dozens of reforms on issues as diverse as public schooling, job training, and marriage.

But it’s not true. High rates of poverty can, as a policy matter, be solved with trivial ease. How? By simply giving the poor money.  

Last month, the Census reported that 46.5 million Americans, or 15 percent of the population, lived under the poverty line in 2012. While that number sounds disturbingly high, the total amount of money by which they are in poverty is smaller than you’d think. In 2012, those 46.5 million impoverished Americans were, collectively, $175 billion dollars below the poverty line. That figure is equivalent to 1.08 percent of the country’s GDP, one-quarter of the country’s $700 billion military budget, and exactly what we spend on Social Security disability benefits. Finding an optimal way to get $175 billion to these 46.5 million people is all that stands in the way of a country with an official poverty rate of zero.

We already do quite a bit to reduce poverty, both officially and unofficially. On the official side of the ledger, Social Security is the biggest factor, having dramatically reduced the rates of elderly poverty since the benefit levels began shooting up in the 1960s. Beyond Social Security, programs like Supplemental Security Insurance, disability insurance, veteran’s benefits, Temporary Assistance for Needy Families, and unemployment insurance also pump up the incomes of poor people. Without these programs, the official poverty rate would be much higher than 15 percent.

On the unofficial side of the ledger—programs not counted as income for poverty purposes—we have things like SNAP (food stamps), Section 8 housing vouchers, the Earned Income Tax Credit, and the Child Tax Credit, among others. Had it been counted as income, SNAP alone would have reduced the ranks of officially impoverished by 4 million people last year. Although we don’t have the numbers yet for last year, the Earned Income Tax Credit and Child Tax Credit pulled 9.4 million people out of poverty in 2011, according to the Census’ supplemental poverty measurement.

So we know generally how to bring folks out of poverty. We have a long list of successful programs that already do so. The question still before us is can we do more?

How hard would it be, for instance, to cut official poverty in half?

Using the dataset from the latest Census poverty report, I determined that if we cut a $2,920 check to every single American—adults, children, and retirees—we could cut official poverty in half. Economists consider this sort of across-the-board payment a “universal basic income.” You can think of it as Social Security for all, not just the elderly. 

The upside of giving everybody about $3,000 is that it’s a very easy policy to run and a surefire way to cut poverty in half. But it's a large program: it would require about $907 billion in 2012, or 5.6 percent of the nation’s GDP. (In a real implementation, we might exclude the more than 45 million Americans receiving OASI Social Security benefits from a basic income, bringing the cost down substantially.)

Could we afford it? Sure. For starters, we could raises taxes, first on the rich, who would pay more in new taxes than they would receive in basic income, and then on lower-middle class and poor families, who would come out ahead. There is also plenty of room to cut tax expenditures on homeowners, personal retirement accounts, capital gains exclusions at death, and exclusions on annuity investment returns. This submerged welfare state for the affluent costs hundreds of billions of dollars each year. There is also the matter of the $700 billion military budget, which could take some trimming.

The point is: this could be done.

It is important to stress that this idea is not as exotic as it might seem. Multiple movements are already afoot across Europe to put in place a basic income for both the entire European Union and in particular countries. Activists in Switzerland recently collected over 100,000 signatures to put the matter of a basic income before Swiss voters in a coming election.

The idea also attracts an interesting assortment of political support. Those backing the concept of a basic income have spanned the entire spectrum from left-wing redistributionists like Martin Luther King, Jr. to conservative icons like F.A. Hayek, Milton Friedman, and Charles Murray.

The appeal of such a program is immense. You get a check from the government every month no matter how much you make or how much you work. Maybe that will convince a few Americans work isn't worth it anymore—but the vast majority who will probably continue to work won't have to worry about losing their check as they move up the income ladder. That security might not just keep people out of poverty. It might let workers demand better wages and working conditions, because they know they always have something to fall back on. In other words, it could level the playing field for the bottom 99 percent.

That said, if we wanted a more modest, targeted approach, the country could always just double down on existing anti-poverty programs, for instance by better funding the earned income tax credit. 

Ultimately, the only thing standing in the way of dramatic poverty reduction and dramatic inequality reduction is, as always, politics. Whether through the basic income or expanding existing anti-poverty programs, the mechanics of how to cut poverty are not complicated. The issue is that neither the Democrats nor the Republicans seem remotely interested in a project like this or anything similar. While their reluctance makes alleviating poverty politically hard, that is not the same thing as saying it is technically difficult. Despite what you often hear, massive poverty reduction is not, in fact, much of a head scratcher.