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Why America Should Turn Entitlements into Incentives

Entitlement programs such as welfare and food stamps disincentivize citizens from being productive members of society. Meaningful entitlement reform requires a re-routing of government funding to invest in Americans, the American dream, and a viable path to economic improvement.

America’s entitlement programs have done minimal to improve the poverty rate and actually create poverty traps. When entitlements are discounted from income resources, the poverty rate skyrockets, which means welfare programs are becoming a long-term necessity instead of a temporary leg up during hard times. Programs leading to dependency instead of self-sufficiency discourage Americans from believing in their ability to cultivate a quality of life they can be proud of. Re-routing entitlement funds to invest in the American dream of liberty and independence – self-sufficiency – will bring Americans out of poverty and, ideally, keep them there.

Poverty and Public Assistance

The Supplemental Poverty Measure (SPM), a joint publication by the Census Bureau and the Bureau of Labor Statistics, reported that the poverty rate for incomes that include SNAP benefits, tax credits, school lunch assistance, and housing assistance was 13.9% in 2017. This is higher than the official 2017 poverty rate of 12.3%.

Per this report, if the Earned Income Tax credit was removed from income resources, then the SPM poverty rate would be 16.5%.  This shows that social programs help raise Americans out of poverty. In fact, Social Security was the most important anti-poverty program, moving 27 million individuals out of poverty. Refundable tax credits moved 8.3 million people out of poverty.

So, what’s the problem? Social programs are moving people out of poverty and have contributed to a three-consecutive year decline in the poverty rate. The problem is, these programs are moving Americans out of poverty and into dependence on the government, not independence and self-sufficiency.

The Path to Mediocrity 

Individuals who have received unemployment or any form of temporary assistance have seen first-hand the disconnect between government job assistance and acquiring gainful employment in the real world. Technology and educational materials are outdated, in-office job search requirements may actually prevent job seekers from maximizing their time, Department of Labor job listings are grossly limited with little to no jobs that match one’s skills, or worse, the job list only contains positions that are low-paying, part-time jobs doing menial work. The program is set up to keep recipients at a low level of society, which perpetuates poverty and the need to continue receiving government benefits.

Think about it: if the system keeps Americans in low-paying, menial jobs unrelated to their higher valued skillset (filling jobs for the sake of filling jobs), then recipients of public assistance benefits will have to continue relying on the system, thus propagating the illusion that public assistance is the answer to poverty in America.

Furthermore, welfare programs often disincentivize workers from being productive members of society. Henry Hazlitt illustrated this effect well in his book Economics in One Lesson:

“If the relief is $106 a week, for example, workers offered a wage of $2.75 an hour, or $110 a week, are in fact, as they see it, being asked to work for only $4 a week -- for they can get the rest without doing anything.”

In 2013, The Cato Institute published a report stating that welfare paid more than minimum wage in 35 states, with 13 states paying more than $15 an hour. If a system pays more than minimum wage in public assistance benefits, and job seeking resources and requirements are concentrated in government facilities, just for the jobs list to be populated with low-paying, minimum wage jobs that may or may not give a recipient gainful employment, then the trap for ongoing dependence on government benefits is set. Government goes on to receive praise for raising people out of poverty when it’s a trap to keep people dependent on government to begin with.

Restoring American Morale

What Americans need are clear paths to gainful employment, skills training and access to apprenticeships for career changes, and practical assistance in starting new businesses. Meaningful reform will reroute money to invest in America, not just tax and spend. Over time, money will be saved, the budget better managed, and Americans get back to self-sufficiency.

For example, in New York State, Temporary Assistance for Needy Families (TANF) and Supplemental Nutrition Assistance Program (SNAP) benefits can be claimed for up to 60 months (5 years). Using the Cato Institute’s 2013 report, total welfare benefits in New York total $38,004 per year per person. Full term welfare benefits pay one person $190,020 over five years (Approx. $109 billion total for all NY  state recipients).

Say the state of New York reduces the length of time to claim benefits to two years ($76,008 payout for sustenance), invests $10,000 in a skills training or entrepreneurship program, allocates $10,000 to job placement resources or a small business grant, and apportions $5,000 into financial literacy training. That’s a total of $101,008 invested in getting one American through the dark days and back to work at a higher level within two years, saving the state of New York and the federal government $89,012. Multiplied by the 572,720 welfare recipients in 2016, that’s total savings of approximately $51 billion in the same five-year period.

What about the short-term increase in spending to make this investment? How does government ensure those costs are covered, especially in the beginning? That’s where a tax the wealthy would want to pay comes in. Implementing a temporary Venture Capitalist (VC) tax set to operate more like a business investment than a government expenditure would offset some of the initial costs. The VC tax would specifically fund skills and entrepreneurship training, financial literacy courses, job placement, and business grants. Once a class graduates, corporations or business owners who pay this tax would receive a report on new talent ready for hiring and new businesses ready for investing.

Welfare recipients who opt for entrepreneurship training and a business grant would be partnered with a SCORE mentor from the Small Business Association (SBA) to see them through their first 6 months to one year of business. Upon successful launch of the new business, VC tax payers would receive a report on the specifics of the business, earning potential, opportunities, etc. Then, VC tax payers would be able to put in a formal offer to acquire the business, invest further for equity partnership, or another mutually beneficial offer that ensures a return on investment. Once all offers come in, the SCORE mentor will help the entrepreneur make the best decision and send the new business owner on his or her way.

Final Thoughts

Life happens, and people need help getting from point A to point B. That’s why social programs are important. However, able-bodied Americans shouldn’t be encouraged to depend on government entitlements over the long term. It discourages citizen morale, erodes human dignity, and proves to be inefficient. Meaningful reform that puts Americans back to work and on the path to self-sufficiency cannot be done by government alone. There must be a healthy, mutually beneficial partnership with industry and the nation’s top earners to ensure the big picture is kept in mind when it comes to policy and America’s place in an ever more global society. American welfare policy shouldn’t demoralize Americans and make them dependent on an overinflated government; welfare policy should help Americans help themselves and encourage independence.