Is it Unfair to Exclude the Poor from Government Subsidies?

Advocates for many social policies—health care insurance, asset development for the poor, charitable deductions for those currently ineligible, child care subsidies, and countless others—often base their arguments on distributional grounds. Typically, lower-income households cannot avail themselves of these benefits or subsidies, and advocates deride the unfairness of it all.

We must be very careful when framing the issue this way. True, many incentives apply disproportionately and inappropriately to higher-income individuals. However, extending these incentives to those with lower incomes does not, by itself, create better policy or even increase fairness.

Put simply, if Congress grants additional incentives to low- and moderate-income households, it decides simultaneously to distribute more to them and to distribute it through a particular subsidy or incentive—and, in the case of incentives, that the benefit should go only to those who opt to use it. Each of these choices, not just any one of them, must be justified in its own right.

Take health insurance under the Affordable Care Act. This legislation offers some lower-income households subsidies of nearly $20,000 and some middle-income households subsidies of $10,000. These households must, however, use this subsidy to buy health insurance, not more education or food or transportation. Those who don’t buy health insurance get none of this subsidy, even if they are poor.

Another aspect of this legislation imposes a minimum burden on many employers who do not purchase health insurance of $2,000 per full-time worker. That’s equivalent to increasing the minimum wage by about $1.25 an hour for someone who works 1,600 hours a year. But, the mandate is to pay the government that money or give employees health insurance.  The mandate cannot be met by bumping up the employee’s cash earnings by an equivalent amount.

In effect, we must distinguish between the distribution of benefits or taxes and their allocation or efficiency. Even if we conclude that it would be fairer to give more benefits to those with lower incomes, it does not follow that any benefit they receive is the best use of that money. If a housing ownership subsidy, a housing rental subsidy, and handing out money have the same overall distributional consequence and cost, we still need to decide which, if any, of these options is most effective use of that money.

To give another example, over many years Congress increased the standard deduction in the tax system in order to help lower- and middle-income taxpayers. The standard deduction was higher than what most households would get if they itemized available deductions—in 2013, a $12,200 standard deduction for a couple is far more valuable than $6,000 in mortgage interest and charitable deductions. Increasing the standard deduction increased progressivity, even while it reduced the share of homeownership and charitable deduction benefits received by those with lower incomes. One can hardly say these increases were “unfair.”

Proposals to provide various benefits or incentives to lower-income households, as opposed to simply giving them more money or providing other benefits, must rest on some grounds other than progressivity. Some work and saving policies that give a “hand up” rather than a “hand out” might provide better incentives for work and saving, with side benefits to the rest of society. More asset-development incentives at lower income levels might create more democratic ownership of wealth, enhance retirement security more optimally, or grant extra benefits to society when homeowners take better care of their living quarters than renters. Requirements to spend subsidies on health insurance may reduce the number of people able to game the system by seeking free care when they get sick and avoid any contribution to the cost of their health care. Many of these choices are not easily assessed quantitatively, but they are primarily efficiency arguments, not fairness arguments.

At the same time, we still want to look at the distribution of any benefit to see just who receives it and how any program allocates its monies. For instance, if homeownership creates positive gains for society, might it not be better to spend the same amount of money to encourage homeownership among all income classes than to spend disproportionate amounts on those buying second homes or McMansions? Looking at distributional results helps us make such judgments by assessing the actual rather than intended impact of the policy.

13 Comments on “Is it Unfair to Exclude the Poor from Government Subsidies?”

  1. My favorite subsidy is the child tax credit, which should go from $1000 to $6000 and be paid with wages, rather than through refund anticipation loans. This will give us more children – with middle class incomes – (especially if states match the amount in their tax systems).

    As for the health insurance credit, it is meant to give the same level of usable tax benefit that one normally finds by working for a large company. Indeed, that is all this effort really does, with some other nice reforms. Single payer would be much preferable and is being done in at least one state.

  2. The high end brands that this store features are
    Opium, b: Kind, Quicksilver, Inglot, Provogue,
    Nine West, Park Avenue, Qup Accessories, Mango, Giordano,
    Queue Up, M- Square, Aldo, Polar, Replay, Ferrari and Just
    For Kids. Below are the most impressive fashion styles of Hollywood little princesses.
    Gap’s recent back to school collection for boys includes traditional
    band shirts, boasting The Rolling Stones, Run DMC, The
    Grateful Dead, Pink Floyd and The Who.

  3. I used to be suggested this web site through my cousin. I am now not certain whether this submit is written by
    means of him as no one else know such unique about my trouble.

    You are amazing! Thank you!

  4. click here says:

    When some one searches for his essential thing, so he/she
    desires to be available that in detail, thus that thing is
    maintained over here.

  5. Neil Morris says:

    geen uitbetaling unibet
    grote uitbetaling unibet
    uitbetaling unibet hoe lang
    unibet uitbetaling hoe lang hoogste uitbetaling unibet

  6. You can certainly see your enthusiasm in the work you write.
    The arena hopes for more passionate writers such as you who are not
    afraid to mention how they believe. Always follow your heart.

  7. I savour, result in I discovered just what I was looking for.
    You have ended my four day long hunt! God Bless you man. Have a nice day.

  8. My programmer is trying to persuade me to move to .net from PHP.

    I have always disliked the idea because of the costs. But he’s tryiong none the less.
    I’ve been using Movable-type on numerous websites for about a year and am nervous about switching to another platform.
    I have heard great things about Is there a way I can import all my wordpress
    posts into it? Any help would be really appreciated!

  9. I read this piece of writing completely regarding the difference of latest and
    earlier technologies, it’s awesome article.

  10. No matter if some one searches for his essential thing, thus he/she wishes to
    be available that in detail, thus that thing is maintained over here.

  11. our website says:

    Thanks for sharing your thoughts about money today.

  12. It’s not my first time to pay a quick visit this web
    site, i am browsing this website dailly and get
    good information from here everyday.

Leave a Reply

Your email address will not be published. Required fields are marked *