The Ongoing War on Poverty: 21st Century Realities and Solutions

Now 50 years ago, in the 1964 State of the Union address, President Lyndon B. Johnson declared that, “The richest nation on Earth can afford to win [the war on poverty]. We cannot afford to lose it”. That year the Economic Opportunity Act was passed. The War on Poverty began and in the decade that followed, poverty rates in the U.S. dropped from 17.3 percent to 11.1 percent.

The Economic Opportunity Act and the initiatives that followed initially did an excellent job of reducing the percentage of Americans in poverty. Additionally, there is no doubt that today’s poverty rates would be higher without the on-going aid provided by many of these programs.

However, even with the program’s initial success and continued implementation, the number of Americans falling into poverty trended upwards after 1975. Given U.S. population growth since that time and the fact that welfare benefits began to decline post 1975, the increase in the number of people living in poverty, although inexcusable, shouldn’t be a surprise if you do the math.

While the number of Americans falling into poverty steadily increased over the following decades, the poverty rate itself oscillated between 11 percent and 15.2 percent. That is until U.S. Census data released in 2012 revealed that the poverty rate had hit a new high, 16 percent or nearly 50 million people.

Today we are well beyond pre-1964 poverty numbers and we are creeping up to pre-1964 poverty rates. Nearly 50 million of our fellow citizens are in poverty and roughly 3.16 million Americans are living on less than $2 per day prior to government aid, a number that has doubled since 1996.

While poverty numbers in America are increasing, there is another number that is on the rise, the total percentage of National income that the wealthiest members of our society take home. Consider for a moment that the top 1% of American households have increased their share of the total, National income pie from 11.3 percent of total U.S. annual income in 1979 to 20.9 percent by 2007. To put this into perspective, if the 1979 income tax rate and distribution model were implemented today, then we would have an additional $1.3 trillion to divide among every man, woman and child not in the top 1 percent of income earners. That’s roughly an additional $4,180 per year for each person in the U.S. That’s enough to get our 3.16 million fellow Americans out of extreme poverty, to increase middle and lower class wages, add more jobs to the economy, and score a decisive victory in one of the battlefronts in the ongoing War on Poverty.

In a Nation of so much wealth there is absolutely no reason that anyone should fall into a cycle of poverty. Many of these individuals were once members of the lower and middle classes. They were people with homes, families, jobs, lives, and stories. They were our neighbors. They were our friends. They are our fellow citizens.

So what can we do about it?

This is often the trickiest question to answer because it is the most divisive. I’m a big believer in solutions that simultaneously eliminate waste and reap the maximum benefit for all people. Such a solution should reconcile the need for pragmatism with our desire to provide opportunity to all. It should yield something greater than the sum of its parts. The goal should be to eliminate poverty while reducing government bureaucracy, waste, and cost.

So why don’t we implement a system that does just that?

Such a solution exists and we could implement it now. It’s called the Basic Income and it’s gaining a lot of credence among serious economists and politicians around the world. The Basic Income is a salary that is indexed to the economy and is paid on a frequent basis (for instance monthly or weekly) to every citizen without any restrictions. It is granted without respect to income, wealth or employment status, meaning that everyone, from the person that is living on $2 per day all the way up to Bill Gates, would receive the Basic Income on a regular basis.

So why would this system be optimal?

The Basic Income is a system of social security that functionally eliminates poverty by guaranteeing everyone a livable salary. Because everyone receives the basic income, it would remove the need for a complex, welfare bureaucracy. We could eliminate the need for the current system of welfare administration and along with it: welfare cycle traps (which is the disincentive to earn more money for fear of losing welfare benefits), monitoring beneficiaries, waste and fraud.  It creates a more equal starting point from which small business owners, entrepreneurs, and others can strive for more.  It creates a jumping off point for revving up the next great tech startup, organic farm business or ground-breaking medical research company. And because it supports and encourages business there is more opportunity for more people to succeed.

How would we pay for it?

The U.S. Government’s spending at the federal, state, and local government levels on Welfare, Medicare, Medicaid, and Social Security Retirement (not including spending on Education and Defense) is projected to be $3 Trillion in 2014. If we were to replace all this spending with a Basic Income for all 265 million adult, U.S. citizens, we could provide $11,300 per citizen in basic income without any additional taxes. To put this into context, the Federal poverty level for 2014 is set at $11,670 for a household size of 1 and $23,850 for a family of four in total yearly income.

Obviously, we can do even better so here are a few more ideas…

Since all existing income-based or means-tested welfare would be eliminated, we would immediately save on costs associated with bureaucracy, administration, waste, and fraud.

We could also adjust the current progressive tax system to get rid of the cap on the top marginal tax bracket. For example, in 2013 the top marginal tax rate of 39.6% applied to: individuals making $400,000 or more, to married couples filing jointly making $450,000 or more, and to head of households making $425,000 or more. Adding another bracket or two, for instance a $700,000 to $999,999 at 41% and a $1,000,000+ at 43%, would greatly help to fund a Basic income for all citizens.

We could increase the tax rate on capital gains: A popular case could be made to the American public for increasing taxes on capital gains. We could do this fairly by mimicking our progressive income tax, instead of flatly raising rates across the board. This would ensure that Americans of retirement age could collect a livable income from their retirement funds without being heavy handed by an unfairly high rate. At the same time, a progressive capital gains tax would ensure that millionaires and billionaires making windfall profits, mostly through capital gains, would pay at a higher rate commensurate with their profit margins. This would help to ameliorate the wealth and income gap in America.

Since it would slowly replace social security and other programs, we could reallocate the tax revenue towards this program.

Finally, a tax on high-end consumption and high-speed financial transactions (aka fast-algorithmic stock market trading) are also two of the leading methods proposed by many economists in order fund a basic income in perpetuity.

So who supports it?

A surprising number of economists and thought leaders with various political proclivities support the Universal Basic Income. Renowned right-leaning economists Friedrich Hayek and Milton Friedman as well as famed Keynesian economists such as James Tobin, Paul Samuelson, Paul Krugman, and Robert Reich all support forms of the Universal Basic Income.

So what are we waiting for?