Eliminating Poverty in the U.S. Would Be Very Easy — if Not for Politics

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Image by Nick Fewings, courtesy of Unsplash

By Brett Pelham

Being rich can’t buy happiness. But being poor sure can buy misery. Psychologists and economists agree that this is true because the connection between wealth and well-being is curvilinear. A person making $2,000 per month is usually much happier than a person making $1,000 per month. But a person making $12,000 per month is not usually much happier than a person making $11,000 per month. To a very poor person, a thousand-dollar monthly raise is life-changing. To an upper-middle class person, the same boost in income is a remodeled kitchen. This means that to increase national happiness, we should greatly increase the income of the very poor. A guaranteed minimum U.S. income — not unlike the universal basic income you may have heard about from Andrew Yang — would do exactly this.

Many have argued that simply giving money to the very poor would remove the usual incentive to work. A recent study in Finland attempted to test this idea — by giving about $640 per month (for two years) to Finns who had long been unemployed. The hope was that this would increase employment. This did not happen. For this reason, the Finnish study has been widely panned as a failure. But the modest Finnish income treatment did increase two things — the happiness and the physical health of those who received it. And though it did not increase employment, it also did not decrease it.

Further, most critics of the Finnish income study have conveniently ignored the fact that, to receive this stipend, many recipients had to give back other government benefits that were part of the Finnish social safety net. Some recipients actually lost net income. Others realized only tiny gains. Only a minority saw a meaningful increase in net income. That’s too bad because if this study had been done properly, it probably would have told a very different story. Consider a natural experiment with Native American Indian families conducted by Duke University’s E. Jane Costello and colleagues. This research team found that a modest $4,000 annual increase in family income reduced the number of Indian middle schoolers who got into trouble in school. It also reduced rates of clinical depression and anxiety disorders. More than a decade later, more of these children had graduated high school, fewer had become teenage parents, and fewer had become addicted to alcohol or drugs.

In this study, unlike the Finnish study, each Indian family experienced modest but real increases in family income. It is worth adding that this income supplement only yielded clear benefits when it lifted families above the poverty line. Some kids lived in families who were so poor that they remained poor — even after the benefit. These kids experienced little benefit. The U.S. poverty line is not arbitrary.

Notice that this study — together with the curvilinear association between wealth and well-being — suggests that people who currently have different incomes need different income supplements. My analyses of poverty suggest that, in most parts of the United States, it would take a guaranteed annual tax-free income of about $30,000 to be free from poverty. So, whereas a family with no income would receive a full $30,000 annual supplement, a family earning $12,000 per year would receive an $18,000 supplement. But I’d like to see this go a little further — so that all American families earning below the median U.S. income would stop paying personal income tax. This proposal has many virtues, from ending poverty and growing the economy to improving America’s poorest schools. Martin Daly’s research strongly suggests that it would also reduce U.S. murder rates. For example, both across the globe and across U.S. states and Canadian provinces, Daly has found that in places where the income gap between the rich and the poor is larger, murder rates are higher.

“Yes,” you may be thinking “and this proposal would bankrupt the U.S. government.” But it wouldn’t. As it turns out, the bottom 50% of American wage earners (those who’d benefit under this plan) pay just 3% of the total annual income tax paid to the IRS. So, this plan would not be America’s fiscal undoing. My calculations suggest that the cost of this proposal would be about $350 billion dollars per year, which is 10% of the total of $3.5 trillion in taxes the IRS says it collected in 2019.

To get that extra 10% in tax revenue, we’d need to do two things. First, we’d have to increase specialty taxes, such as business and estate taxes, by 10%. Businesses that now pay 21% in taxes after the massive 2017 tax cuts would begin to pay 23.1% instead. The top 1% of individual U.S. earners would pick up the rest. This is possible because the richest 1% of Americans now pay 37% of all U.S. income taxes.

That’s right. Requiring the wealthiest 1% of Americans to pay about 30% more in taxes than they are currently paying would cover the rest of this radical proposal. This would mean a 35% top income tax rate rather than the current 27% rate. That’s a substantial tax increase on the very rich. But the poorest of the top 1% of U.S. earners earn more than $700,000 per year. This is how easy it would be — in principle — to end U.S. poverty. I should clarify that this proposal is not a replacement for any other piece of the fragile U.S. social safety net. If we give with one hand and take with another, that won’t really eliminate poverty.

Of course, the fact that this proposal would be easy to fund does not mean it would be easy to enact. It is very hard to overstate the power of extremely wealthy lobbyists. For example, a bill supporting a guaranteed minimum income would surely have little chance in a Republican-controlled Senate. But Senates change, as do Presidents. That being said, many economists would urge us to begin with careful experiments on a guaranteed minimum income — scaling things up to the U.S. population only if studies yielded the expected promises. If the 99% of Americans who are not ultra-rich wish to end poverty, we will have to experiment with novel ideas. One such idea, the guaranteed minimum income, seems to have tremendous promise. The question is whether we can overcome barriers such as voter cynicism and gerrymandering — and elect politicians who have the courage and the compassion to make it happen.

For Further Reading

Costello, E. J., Egger, H. L., & Angold, A. (2004). Developmental Epidemiology of Anxiety Disorders. In T. H. Ollendick & J. S. March (Eds.), Phobic and anxiety disorders in children and adolescents: A clinician’s guide to effective psychosocial and pharmacological interventions (p. 61–91). Oxford University Press. https://doi.org/10.1093/med:psych/9780195135947.003.0003

Brett Pelham is a social psychologist who studies identity, gender, health, and social inequality.

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