Potent combination

opportunity-center.jpgThere’s no denying that our economic situation is tough, and not getting much better.

You may have seen the heartbreaking piece this weekend about the future of poverty in America and some of its root causes. The statistics were grim, even for someone accustomed to looking at grim data on a daily basis.

Here are a few nuggets:

  • Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out.
  • Poverty will remain above the pre-recession level of 12.5 percent for many more years. Several predicted that peak poverty levels — 15 percent to 16 percent — will last at least until 2014, due to expiring unemployment benefits, a jobless rate persistently above 6 percent and weak wage growth.
  • Suburban poverty, already at a record level of 11.8 percent, will increase again in 2011.

AP took an interesting approach to this work, by surveying more than a dozen data wonks who work in this area every day, and asked them for their forecast.

The bottom line?

The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest since 1965.

While the numbers are stark, the stories are even worse. A 20-something disabled vet who can’t find work, a middle-aged plumber who has been out of work for two years – these are the new faces of poverty in American. Not welfare queens, not lazy folks looking for a handout – these are your neighbors, your friends, or even your family.

"The issues aren't just with public benefits. We have some deep problems in the economy," said Peter Edelman, director of the Georgetown Center on Poverty, Inequality and Public Policy. "I'm reluctant to say that we've gone back to where we were in the 1960s. The programs we enacted make a big difference. The problem is that the tidal wave of low-wage jobs is dragging us down and the wage problem is not going to go away anytime soon," Edelman said.

Indeed, systemic problems in our economy are one thing, but boneheaded “solutions” are quite another. Take, for example, proportion tax reductions.

Proportional reductions, otherwise known as “across-the-board” cuts, sound like a fair idea – everyone gets their taxes cut, but at the same percentage. Sounds like a fair deal for everyone involved, right?

Not really. According to a new report released this week, across-the-board cuts would provide the biggest gains at the top of the income bracket, and lowest for those at the bottom.

While one might assume that such uniform, across-the-board cuts benefit all taxpayers equally, the reality is that they disproportionately benefit higher-income people, raising their after-tax incomes by much larger percentages than less-affluent people.  They also can be extremely costly, thereby placing an added load on other potential contributors to deficit reduction. 

Just take a look at this graph, showing the distrubution of cuts over different income brackets:


The combination of a bad economy and bone-headed tax policy can, and will, be catastrophic if it is allowed to move forward, as leaders in the House propose. Several policymakers, including Governor Mitt Romney and House Budget Committee Chairman Paul Ryan (R-WI), have proposed cutting all marginal income tax rates by the same percentage. Any guesses as to why?

Because it sounds fair, but isn’t. Tricky, isn’t it? As Edward Langley said, “What this country needs are more unemployed politicians”. Sounds like solid tax policy to me as well.