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The Lazy Non-Poor People Below the "Poverty" Line Who Get Welfare, and the Hard-Working Poor Above it Who Get Taxed

There are plenty of people below the poverty line who aren't really poor, and some people above the poverty line who are indeed quite poor. The poverty line is a very arbitrary measure seemingly designed to justify lots of spending on welfare and social services for "disadvantaged" people who aren't really poor, spending that generates jobs for government employees (and government-subsidized non-profits) who provide welfare and handouts.

Robert Rector of the Heritage Foundation explains how many people below the poverty line aren't really poor at all:










I am a lawyer, but I actually live worse than many so-called "poor" people collecting government welfare due to their being below the poverty line. As Rector notes, among the substantial fraction of people below the poverty line who own their own home, the average home is "a three-bedroom house with one-and-a-half baths, a garage, and a porch or patio."  I have a two-bedroom house with no garage and no porch or patio. (I live in a high-living-cost area -- metropolitan Washington, D.C., where well-paid government contractors and federal employees are able to bid up the cost of housing -- with the result that I cannot afford a larger house. My little two-bedroom house is assessed at $570,000, and a larger house would cost more.) But because I live in a high-cost area, I am paid a salary that is above average for the American worker, meaning that I am treated as being "rich" by the Obama administration for purposes of things like phasing out the child-tax credit I would otherwise receive for my daughter if my income were lower.

Some people who are suffering economically, and who have very little net income, are treated as not being poor for purposes of the federal poverty line. Many financial and legal obligations are not factored into the government's definition of income, which is what matters for purposes of the poverty line and most welfare benefits. For example, child support payments are not tax deductible, so if you are ordered to pay most of your income in child support, leaving you with little money to buy food, you are not deemed to be poor or below the poverty line. This often happens to people who were ordered to pay large amounts of child support based on the fact that they used to have a well-paying job, but no longer do. Child support is supposed to be based on your income under state child-support guidelines. But in practice, state child support agencies typically refuse to reduce child-support obligations when people lose their jobs or experience reduced income due to a recession. The Urban Institute found that only 4 percent of non-custodial parents managed to obtain reductions in their monthly payments. A recent news story described how family-court judges are now jailing fathers who faithfully paid all of their child support as long as they were employed, but then became temporarily unable to make their payments due to the loss of their job in the recession.

As MSNBC noted, you can end up

behind bars if you . . . are behind on your child-support payments. Thousands of so-called “deadbeat” parents are jailed each year in the U.S. after failing to pay court-ordered child support . . .But in what might seem like an un-American plot twist from a Charles Dickens’ novel, advocates for the poor say, some parents are wrongly being locked away without any regard for their ability to pay. . .Randy Miller, a 39-year-old Iraqi war vet, found himself in that situation in November, when a judge in Floyd County, Ga., sent him to jail for violating a court order to pay child support. He said he was stunned when the judge rebuffed his argument that he had made regular payments for more than a decade before losing his job in July 2009 and had recently resumed working. “I felt that with my payment history and that I had just started working, maybe I would be able to convince the judge to give me another month and a half to start making the payments again,” he told “… But that didn’t sit too well with him because he went ahead and decided to lock me up.” Miller . . . spent three months in jail before being released.

In Virginia, whose child-support guidelines are likely to increase soon to grossly-excessive levels, the state courts regularly impute imaginary income to non-custodial parents for purposes of calculating (and increasing) their child-support obligations. If you quit your salaried job to start a small business and it succeeds, making you rich, the courts will increase your child support to reflect your actual increased income. But if your small business fails, they will reproach you for "gambling" with your family's future, and base your monthly child-support obligations not on your current actual income (which is lower because you can't go back to your old job), but instead based on your past income from the old job that you no longer have. This is called "imputed income," and it discourages divorced parents from starting small businesses, reducing the size of Virginia's economy. It could be summarized as "heads I win, tails you lose," and it has been criticized by experienced family lawyers like Richard Crouch.

Impoverished investors also get fleeced despite being poor under the current definition of "poverty." Some types of financial losses are not factored into taxable income. A person who experienced catastrophic capital losses is partly out of luck, since only $3,000 in net capital losses can be deducted annually on your tax return (by contrast, there is no limit to the amount of capital gains that can be taxed, and capital gains taxes can be imposed even if the entire capital "gain" is the result of inflation, and is essentially an accounting fiction, meaning that the investor really made no money at all). Remember that the next time someone tells you that the tax code discriminates in favor of people whose income is from capital gains. In reality, the tax code discriminates against capital gains except when the economy is growing and inflation is low, since capital gains taxes are levied on increases in asset value that are the product of inflation, rather than actually increases in value. America's capital gains tax rates, which Obama wants to raise, are already higher than in Canada and much of Europe, and much higher than in Germany and Japan. Even countries with higher tax rates than the U.S. sometimes actually tax less than the U.S. does, because they allow taxpayers to avoid capital gains taxes based on inflationary gains, unlike the U.S.

People treated as "poor" by government welfare programs often get more money in food stamps than many taxpayers (like me) actually spend on food. A record 45.8 million people are now on food stamps, including some millionaires who are treated as "poor" because although they have lots of assets, they have little monthly cash income (or because their income is tax-exempt). The $800 billion stimulus package largely repealed welfare reform, and resulted in changes in some state laws that made it easier for lazy people to collect welfare.