Across the Great Divide

Four Years Ago

I wondered what I was blogging about on leap day exactly four years ago, when I posted just about every day.

It wasn't about homelessness.

The Five-Minute Argument or the Full Half Hour?

So, far Craig Westover and I seem to be doing better than the fellows in the Argument Clinic.

We started our conversation with this story about social services providers continuing to work through the government shutdown, and then we discussed his "first lesson" here and the second regarding the private sector/government relationships here.

Though we may continue hammering away in the comment sections of those posts, it's time to move onto the third lesson, which Craig formulated this way:

A third lesson is one shouldn’t put all one’s economic eggs in the state basket. It’s also another reason “tax the rich” doesn’t work.

Williams was in a financial bind because all (most) of her revenue came from the state. In her case, the problem was a state shutdown; in the future, it might be a recession that reduces the income of the “rich,” which significantly reduces state revenue from taxes. The problem with highly progressive taxation is in dollar terms a relatively few people are supporting everyone else. They take a hit, and the ripple effect is disastrous.

The solution for Williams is multiple revenue sources, which implies a market solution.

Craig, you'll get no argument from me about the "all-in-one basket" caution, but your explanation of it betrays you once again peering from the fat end of the telescope.

The clients at All About Kids daycare are indeed subsidized, but we don't know how much of Williams' revenue came from the state. The story says, "All of her clients are low-income and struggle just to pay their $2 to $24 sliding fee." Sounds like multiple revenue sources to me.

This is one reason I picked the story to discuss. The subsidy is supplemented with client funds based on their ability to pay — sort of a progressive scheme, just like the income tax. As their circumstances improve, they pay more.

Perhaps this model could be employed more widely. Not simply, as in the case of health care vouchers, as a way to throw people out of public plans, but as a client-centered, outcome-based approach to helping people at the margins Republicans seem none too interested in.

You argue Williams' problem came from being too dependent on the government payments. I'd argue her revenue shortfall came her choosing to serve a segment of the population that is disproportionately affected by policies that favor your favorite constituency.

The shutdown occurred because the representatives of wealthy Minnesotans didn't want them to pay higher taxes, and guess who paid the price? A recession definitely affects the income of the wealthy and lowers government revenues, but it affects the low-income clients Williams serves even more.

Well-to-do taxpayers have lots of options that don't affect their lifestyles one whit. They can lay off workers, book losses against future tax bills, draw from savings or take capital gains. And the progressive income tax rates on high earners, remember, are historically quite low.

Last year, with the "help" of some tax losses, our combined effective state and federal income tax rate was 13.1%, although our household income put us right on the cusp of the top ten percent of earners in the state. We aren't hurting, and I'd be surprised those making substantially more are, either.

The Private Sector Makes Government Possible.

If you're just joining us, Craig Westover and I started our conversation with this story about social services providers continuing to work through the government shudown, and then we discussed his "first lesson" here.

His original response to my post continued:

The second lesson is about economics and my statement “Government cannot do anything for anybody until it first takes the resources from the private sector that produces the wealth that makes compassion possible.”

Roxanne Williams is able to provide the service she does – even at her own expense – because there are millions of people going to work everyday to produce products and deliver services (and pay taxes) that ultimately provide her the resources (not just money) that make her service possible. These people go to work for their own reasons and not to help low-income parents find daycare.

Yet one of the consequences of their action is Roxanne Williams can provide daycare. Without their effort producing wealth, Roxanne Williams can’t provide daycare.

And my response here starts a second thread in the discussion:

No argument from me, Craig. The nature of government is to fund its activities through taxes. Some of us consider it a duty to pay taxes; some consider taxes theft; and most of us do what we can to keep our personal taxes as low as possible.

Also agreed, we go to work for our own reasons — and for the most part, we are not thinking about others all that much. Even when I show up as a volunteer with preschool children in a homeless shelter, I am not working purely for the children in the room that day. If I did not feel personally rewarded by my efforts, I would do something else.

So far, we're in reasonable alignment with each other. Hooray for everyone who goes to work every day to provide services, create wealth and pay taxes!

Then you say: "Without their effort producing wealth, Roxanne Williams can’t provide daycare." Roxanne Williams, though, is a private contractor. She happens to serve a low-income segment of the market, which receives some subsidy.

So perhaps you meant, without others producing wealth, her poor clients couldn't afford daycare.

Many years ago I interviewed a man who was instrumental in the massive urban renewal effort that erased the Washington Avenue skid row in Minneapolis. What happened to all those people who lived and worked there, I asked.

They just went away, he said, as if that were a satisfactory answer.

That seems to be subtext of what small government advocates call "reform."

You punted my last attempt at this question, but it matters to progressives: "What happens to these low-income families and children if the government gets out of the daycare subsidy business?"

 

Shelter Report: Funding Welfare with Your Hard-Earned Dollars.

One of the boys, "K," was outside the shelter when I arrived this morning. I asked if he was coming to school, and he said no. I told him I'd miss him and hoped to see him next Thursday.

When I got up to the room, I learned he'd been put on a behavior plan, which is an escalating set of sanctions that are imposed when a kid starts to act out and is not cooperative in class.

In the week since my last volunteer day, K had stopped minding teachers and was fighting with other kids. He just wouldn't stop the bad behavior. When that sort of thing happens, the parents get involved. Today, his parents would have to come in the class each hour to check on him. They decided to just keep him with them instead.

(We had another boy, "E," whose mother had to come in once this morning. He was very subdued this morning and didn't participate in activities, but improved as the day went on. When his mom showed up, he was doing pretty well.)

There's more to the story. When I talked to K last week, he said his dad was away at work, and he missed him. It sounded like work was out of town.

Sometime early in the week, the dad came back home, and K wanted to be with him. It's possible the behavior problems were his strategy for getting sent home (in the shelter), so he could be with his dad. Being kicked out of class was actually a benefit in his eyes. In any case, he was with his dad out front when we were on the playground. I asked if I could talk to him, and the dad brought him over. I told K I was glad his dad was home, but He needed to start making better choices about how to act. I really hoped he could be in class, because I missed having him and he needed to be in school. The dad was supportive.

A girl, "A," was having her last day. Her parents have found housing and are moving into their new home.

A's mother lost her job and hasn't worked since A was born. Her dad lost his job, and then they lost their house. They went from middle class family with a sweet, well-adjusted daughter to living in a shelter.

I'm sorry I wasn't around when both parents got jobs last week. It was a huge, emotional day for them. Maybe it's good I wasn't around, because it makes me tear up just to hear how excited they were to be back on track with their lives.

That's what this place does for people — gives them a little stability until they can do for themselves. I guess you could call it welfare, but it's nothing like the welfare the MNGOP wants you to imagine — and to stop funding with your hard-earned dollars.

But Half of Americans Don't Pay Taxes...

For 14 other mid-blowing facts about wealth in America, see this. (h/t Hal Davis)

Remembering the Moral Case for Action on Education.

Reader Hal Davis forwarded me this column from a Hartford newspaper. Colin McEnroe is writing about a Connecticut court case, but he's also writing about every poor school child in the country.

I've decided that Sheff v. O'Neill is not really a legal case and that none of  [the] settlements or proposed forms of redress will ever work, unless we change.  It's a moral case. It makes a moral argument. The problem is that we don't listen to moral arguments anymore, so you've got to dress them up as lawsuits.

The thing that broke down worst of all was us -- the people with hope and resources -- and our supposed Judeo-Christian values. Those values are unambiguous about what we're supposed be be doing for others who are poor, who are sick, who are helpless.  We can do it through our churches or through Boys' and Girls'  Clubs or Big Brothers Big Sisters or through some other mentoring or intervention. But we're supposed to do it. Those values are supposed to be the spine of this country.      

But if we lived them -- even just a little -- there would have been no compelling case to make in Sheff v. O'Neill, because each of use [sic] would have identified those children as our moral responsibility, a long time ago.

School choice doesn't quite get at the kids McEnroe cites, mired in "experiential poverty," who "have never been to a movie theater or ridden a pony" or spoken to someone who has noticed their unique gifts.

Liberals have been taking a drubbing lately for making moral arguments instead of economic ones or Constitutionally principled ones.

McEnroe's piece calls us to remember the moral case for our communities and our governments.

Yielding to the Senator from the Great State of the Poor.

In a Washington Post op/ed, Annie Lowrey muses about how the U.S. Senate might be reconfigured to represent voters according to interests other than which state they live in. After all, we're already geographically represented in Washington by Congressional District. 

What if senators were elected on a different basis? The possibilities beg for a graphical rendering.

Imagine a chamber in which senators were elected by different income brackets -- with two senators representing the poorest 2 percent of the electorate, two senators representing the richest 2 percent and so on.

Based on Census Bureau data, five senators would represent Americans earning between $100,000 and $1 million individually per year, with a single senator working on behalf of the millionaires (technically, it would be two-tenths of a senator). Eight senators would represent Americans with no income. Sixteen would represent Americans who make less than $10,000 a year, an amount well below the federal poverty line for families. The bulk of the senators would work on behalf of the middle class, with 34 representing Americans making $30,000 to $80,000 per year.

Lowery never goes so far as to propose a change. But think about it. Beyond the current imbalance of Wyoming and New York having equal clout in the senate, there are plenty of people living in places where they might feel they aren't represented by their elected officials.

I live in the 5th Congressional District of Minnesota, so I'm reasonably well-represented by Keith Ellison, Al Franken and Amy Klobuchar. But conservative blogger Mitch Berg on the other side of the metro could reasonably argue he has no representation in Washington.

He could move north or south and find Michele Bachmann or John Kline, but why should he have to? Who, besides our Founders, say our interests today are so bound up in our state of residence?

Would we be any better off under an electoral system that apportioned representation according to age, income, race or employment status?

The questions are provocative, but other than posing how the balance might shift under other schemes, Lowery doesn't dig into what the differences might make in real elections or the functionality of the Hill.

Who Benefits from Bachmann's Health Care "Freedom of Choice"?

Minnesota Rep. Michele Bachmann has announced her "bipartisan legislation, H.R. 502, the Health Care Freedom of Choice Act," which

would make medical expenses, including health care premiums, 100% tax-deductible for all individuals.  Under current law, health insurance is tax-free for those who receive it through their employers.  My bill would give this same tax benefit to people who buy their own health insurance or pay for medical care “out-of-pocket.”  This would give all Americans the freedom to purchase the health plan of their choice, to pick their preferred doctors and to make their own medical decisions. 

In the buildup to her rollout, the decidedly non-bipartisan Bachmann said, “We are rejecting politics as usual in Washington D.C. in dealing with this health care issue.”

Apparently, proposing tax cuts as the solution to all that ails us is not politics as usual.

I haven't read the bill, but let's examine her description 100% tax deductibility as giving people freedom to purchase the health plan of their choice.

The context.

The average American family with employer-subsidized health care coverage (earning about $50,000 in household income) pays out about $7,000 per year in its share of premiums and out-of-pocket costs. Employer contributions average nearly $10,000.

The current federal tax system already allows deductibility of medical expenses. You can deduct the amount of your medical and dental expenses that is more than 7.5% of your AGI [Adjusted Gross Income]. For example, if your AGI is $35,000, 7.5% is $2,625. If your family of four paid medical expenses of $7,000, you could deduct $4,375. Filing as the head of the household, you would pay $3,996 in federal income taxes.

So who really benefits from the Bachmann proposal?

The poor? No. They don't save enough to afford insurance.

Taking the example above, the Bachmann bill would lower the family tax bill by $393 — or about 10 percent. That's about enough to pay for one month's premium on a moderately high deductible insurance policy in Minnesota for that family of four.

Claiming higher levels of expenses does not yield any larger relative savings under the Bachmann plan, because the only difference is the tax that's applied to the family's first $2,625 in expenses under the current system.

The real question for lower income households is whether they can come up with the money at all. They are less likely to be covered by employer plans, and they also have less income available to pay regular premiums and out-of-pocket costs. A tax deduction doesn't help the cash flow for people living paycheck to paycheck.

The middle class? They'd see a modest benefit.

The Bachmann proposal would result in an additional $562 in tax savings over the current system — worth a little more than one month's premium for a Medica HSA plan. 

The top earners? You won't be surprised.

1. The top 10 percent of earners — at least those who are employed — are generally covered by health insurance. (In 2006, only 8.5% of those earning $75k+ were uninsured, sompared to 21.1% of those earning $25-50k.)

2. The higher the income, the more likely the insured has a Cadillac plan as part of an executive compensation package.

3. Once you reach top 5 percent of earners or so, your own medical expenses cease being deductible under current tax law. For example, at $200,000 AGI, only your expenses above $15,000 would qualify for deduction.

Someone earning $100,000 and paying the average $7,000 for medical expenses would not be able to deduct any of it. Under Bachmann's bill, they could deduct it all, worth $1,680 in tax savings.

The bottom line?

Wealthier tax payers, who are more likely to be well-covered, do better under the tax portion of the Bachmann plan.

A tax-deduction scheme favors those who pay more taxes. Look at it this way. Someone earning $500,000 who had $35,000 in medical expenses could deduct them all and save $12,250 in taxes. Someone earning $35,000 with the same medical costs would simply be bankrupt.

A tax deduction for all also means less revenue, and less revenue means program cuts. No doubt "Health Care Freedom of Choice" would be used to justify cutting public health care expenditures, which primarily benefit low-income people. 

Some choice.

A People's Car? Why Not. But for $2,500?

King Banaian responds to my Tata Nano post.

His point about the poor in America benefiting from a cheap but new car is worth considering. Cars are an important mode of transportation for working poor who aren't well-served by the disconnects between low-income housing and jobs. (See also the Growth & Justice paper on this topic [PDF].)

But as far as I'm concerned, this wonder car for the U.S. market exists on paper in King's demand curve and in the promotions of Tata.

I see no evidence that the company thinks it should be able to sell the car for $2,500 in the U.S. Note that all the statements about price lump together regulatory requirements and model upgrades for the market. Tata likely doesn't want to reveal where its own costs are for competitive reasons.

UPDATE:

King is correct about some of the pitfalls of cheap used car ownership, but he missed one advantage these have over this Tata Love Bug. When the poor lose their marginal jobs to overseas labor, they still have a vehicle large enough to haul their possessions to a cheaper apartment — or to sleep in.

Try that with your heaterless Nano.

Low Taxes or High, More are Living Cashless.

On the heels of the flawed "taxes and happiness" correlation that Mitch Berg celebrates, this comparison of states shows that both high-tax and low-tax states have a growing number of residents living on food stamps and not much else. [Chart: New York Times]

Minnesota's population of food stamp recipients who lived in households with no other cash income grew by 87% between 2007 and 2009. That tied us with Utah for fourth highest increase among the 30 states reporting data. New Jersey, which is dead worst on the Tax Foundation's state tax rankings, had the smallest increase among reporting states.

Far worse were the once go-go job creators of conservative fantasy, Nevada and Florida, which also lead the nation in mortgage foreclosures — indicating that the so-called low-tax jobs boom was more likely the product of the housing bubble.

Food stamps are easier to get than other forms of assistance, such as unemployment, general assistance and emergency aid. The feds pay the whole bill, so the growth may indicate cash-strapped states are relying on this help more as their programs are maxed out.

Of course, this evidence doesn't sway the true believers, who see a brother and sister trying to get by on $300 a month between them as just two more on the slippery slope of the safety-net-to-hammock scale heading to permanent government dependency.

“This is craziness,” said Representative John Linder, a Georgia Republican who is the ranking minority member of a House panel on welfare policy. “We’re at risk of creating an entire class of people, a subset of people, just comfortable getting by living off the government.”

Mr. Linder added: “You don’t improve the economy by paying people to sit around and not work. You improve the economy by lowering taxes” so small businesses will create more jobs.

Linder doesn't say what kind of  businessman magic spins lower taxes into jobs that lift people out of poverty, but it obviously isn't working any better in low-tax Nevada and Florida than it is in Minnesota and New York.