JOHN HOOD: The Way to Fight Poverty Is to Cut Taxes
Perhaps I'm just a sucker for cheeky libertarian argumentation, but I really enjoyed a recent policy report from the Goldwater Institute in Arizona on the question of how best to win the war on poverty.
Matthew Ladner, a political scientist and the institute's vice president for research, wrote the piece. It looked at changes in poverty, childhood poverty, and per-capita income from 1990 to 2000, comparing the performance of big-government states -- those with more-generous state programs and higher state taxes to finance them -- to that of small-government states.
Ladner found that while the poverty rate of the median state dropped by 10 percent during the 1990s, the variation was significant. Minnesota, Mississippi, Iowa, Colorado, and Michigan posted declines of 20 percent or greater. On the other hand, California, Connecticut, the District of Columbia, Rhode Island, and Hawaii actually had increases in poverty rates of 14 percent or more.
It turns out that states with larger, more-expensive governments had worse records on poverty during the 1990s than did states with smaller, less-expensive governments. Some would greet this finding with puzzlement, assuming that more government spending equals greater progress. But that's because they have a simplistic view.
They don't recognize the extent to which promoting economic growth is critical to lifting families out of poverty, and the extent to which high taxes retard rather than accelerate growth. And they refuse to recognize the reality that chronic poverty is usually the result of a set of unfortunate personal decisions, often made when individuals are young and short-sighted, that cannot simply be unmade later with the help of government programs.
As NPR commentator and author Juan Williams pointed out at a recent John Locke Foundation event in Charlotte, poverty is strongly associated with education, marital status, and work. For those Americans who complete high school, obtain meaningful work experience, and wait until marriage to have children, the poverty rate is minuscule. For those who drop out of school, fail to establish a solid footing in the workforce, and have children out of wedlock, the poverty rate is substantial.
Successfully combating poverty consists of maximizing economic growth, and thus opportunity, while discouraging young people from making these life-altering choices. Government spending is often inimical to accomplishing the former and of limited value in accomplishing the latter, though certainly good schools are a plus (and are not necessarily found in high-spending states).
But what about Lyndon Johnson's celebrated War on Poverty? The evidence for its efficacy is paltry. Poverty rates fell dramatically before the passage of Great Society, and not as much afterwards.
In 1948, the poverty rate was 30 percent. By 1966, it had fallen to half of that. The trend continued downward to 11 percent in the late 1970s, but then rose back to 15 percent in the 1980s before declining again to 12 percent by 2000.
Did the new programs transfer wealth to poor families, thus elevating their annual incomes? Yes. Did they transform the lives of poor people so they could permanently lift themselves into the middle class? Not much.
When President Bill Clinton and the Republican Congress enacted welfare reform in 1996, left-wing critics predicted throngs of the newly destitute clogging our streets. What actually happened were reductions in welfare caseloads and poverty.
Judging by the data in Ladner's report, the performance of North Carolina during the 1990s was lackluster. That's par for the course. Our state is about average in taxes and spending nationwide, and our declines in poverty and childhood poverty were both a little below the national median. But compared with our neighboring states, North Carolina has relatively large and expensive government, and our poverty reduction during the period (-5.4 percent) was lower than in Virginia (-5.9 percent), South Carolina (-8.4 percent), Georgia (-11.6 percent), and Tennessee (-14 percent).
There were other factors in play, including immigration and economic change, though Ladner did a good job of disposing of them as sufficient explanations. "High taxes and wasteful spending destroy wealth and hurt the poor," he wrote.
Cue the footage of progressive heads exploding.
John Hood is president of the John Locke Foundation and publisher of CarolinaJournal.com.
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