Lecture 6: Thinking about poverty- how do we understand this? Flashcards
Budget Update
The Tax Cut and Jobs Acts
•Difference between deficit projections from last class
•Recall the 3 models, ranged from .4 - ~6 trillion revenue decreases over time.
Now that the Act is law, projections from the Congressional Budge Office (CBO) are
•>1.4 trillion over a decade
•Difference is between proposals and what Congress sent to the Oval and was signed into law.
The estimates are that - $1 trillion are due to business tax cuts; $300 billion in individual tax cuts and $200 billion from the repeal of the Estate Tax
•The corporate tax rate was reduced from 35% to 20%
•The Tax Policy Center estimates that some 11,310 individuals dying in 2017 will leave estates large enough to require filing an estate tax return
•Estates with a gross value under $5.49 million need not file this return in 2017.
•After allowing for deductions and credits, 5,460 estates will owe tax. Over two-thirds of these taxable estates will come from the top 10 percent of income earners and close to one-fourth will come from the top 1 percent alone.
News to “pay attention to”: How does the Tax Cut and Jobs Act work with the Budget Control Act of 2011?
This act had automatic cuts in both defense and discretionary funding through 2023, and is law. It was amended and renamed the Bipartisan Budget Act of 2015.
Resources for understanding the Tax Cut and Jobs Act
IRP Webinar
•The Tax Cuts and Jobs Act and Its Implication for Low-Income Households.
What can we know from what we observe?
We have implicit assumptions about why folks are in the predicament they are in.
policymakers implicit and explicit assumptions are expressed in policy so –
•It really matters what the origins of a problem are assumed to be.
•We get the policy our assumptions support.
Human capital theory
Human capital refers to the skills, education, health, and training of individuals.
•The term capital is used because these skills or education are an integral part of us that is long-lasting, and can be applied in the labor market.
It is believed that increasing human capital increases productivity in the labor market and thus increases earnings.
Let’s leave aside macro-economic changes in the economy – regional dips, changes in one segment of the labor market and think about the implications of human capital theory on poverty.
How the Human capital theory works
If we theorize a labor market that works freely, the question of poverty is one of a lack of human capital skills.
•We then think about job training, higher levels of education, technical training for growing segments of the economy, etc.
This is sensible – we have all more or less, believed this to be a reasonable approach to improving earnings – learn more, increase your skills.
What does the data tell us?
This intuition about education increasing earnings is supported by looking at large national data. Census data shows us that average earnings for those with less education is lower than those with more education.
At the same time, however, we also know that there are some other unmeasured factors affecting income b/c when we control for education levels we still find racial differentials in earnings.
•This means that education does not explain differences in earnings by race. Suggesting that there are issues besides education that explain why White, non-Hispanic workers earn more than both black and Hispanic workers in the same job with the same education
So – we know two things so far:
•human capital makes a difference for earnings
•human capital is not the whole story because controlling for levels and quality of education, years of experiences, as well as job sector, we still observe earnings differences by race and gender
Human capital in the form of increased education and on-the-job training do not equalize earnings between like workers
Workers with higher levels of education and training, on average, earn more than their peers with less education and training.
Human capital theory makes several assumptions…
skills gained through education and training can alter the wages individuals receive
•Research articles will often refer to this as “returns to education”
•If the returns to education vary by characteristics like race or gender; one would say that X group has a lower or higher return to education
•Put more concretely, every additional year of schooling would be associated with an X increase in earnings.
keep in mind, a skilled worker can always enter the labor market for less skilled work
the supply of skilled labor is generally less than the supply of unskilled labor, so we can expect higher wages for these workers
[Human capital theory] Exceptions to consider
There are a number of exceptions to this reasoning that can and do occur.
•When unskilled work is off-putting, dangerous, or unsatisfying, the supply of these unskilled workers will likely be reduced and higher wages may be necessary to command an adequate work force.
• Likewise, when controls prevent entry into less-skilled jobs, wages again may be higher than those of skilled workers.
•Finally, when the supply of skilled workers is high relative to the demand for a particular occupation – wages may not be significantly (if at all) higher for highly educated workers.
These exceptions aside, we typically assume that skilled workers will receive a positive return on the investments that they make in their human capital.
The role of time
Now, when you think about investments in human capital (education, training) you must also think about getting a return on your investment. •Let’s say the average age of the class upon graduation will be 21. Assuming an average life-expectancy of about 77 years (give or take years depending on race and gender) – you can all expect about 56 years to recoup this investment in education in the labor market. •If you return to school later in life, your 40’s or 50’s, you have less time to recoup your investment.
Culture of poverty
The term “culture of poverty” was introduced by anthropologist Oscar Lewis, most prominently in his 1966 book, La Vida: A Puerto Rican Family in the Culture of Poverty, San Juan and New York.
Lewis notes: “by the time slum children are aged six or seven, they have usually absorbed the basic values and attitudes of their subculture and are not psychologically geared to take full advantage of the changing conditions or increased opportunities that may occur in their lifetime”
Policy analysts and others read accounts of the culture of poverty as evidence that the behaviors of the poor were crude, present-oriented, irresponsible and self-indulgent. Most importantly, these values and behaviors are transmitted from generation to generation in an unending “cycle of poverty”.
The poor were poor because they perpetually misbehaved.
•These behaviors are both a mark of poverty and the reason that the poor were chained to poverty, generation after generation.
Between the 1960s and the present - this interpretation of the culture of poverty became a cornerstone of politics and debate around poverty though the term “culture of poverty” is not as regularly used.
Poverty, behavior and policy
It follows then – that it is futile and wasteful to mount public policy initiatives to ameliorate the lives of the poor because the culture of poor people themselves mandates endemic and enduring poverty.
On the contrary, culture of poverty theorists argue that public policy should have a punitive thrust in order to break or change these “culture of poverty” behaviors.
Banefield on policy
“So long as the city contains a sizable lower class, nothing basic can be done about its most serious problems. Good jobs may be offered to all, but some will remain chronically unemployed. Slums may be demolished, but if the housing that replaces them is occupied by the lower class it will shortly be turned into new slums. Welfare payments may be doubled or tripled and a negative income tax instituted, but some persons will continue to live in squalor and misery. New schools may be built, new curricula devised, and the teacher-pupil ratio cut in half, but if the children who attend these schools come from lower-class homes, they will be turned into blackboard jungles, and those who graduate or drop out from them will, in most cases, be functionally illiterate. The streets may be filled with armies of policemen, but violent crime and civil disorder will decrease very little. If, however, the lower class were to disappear–if, say, its members were overnight to acquire the attitudes, motivations, and habits of the working class–the most serious and intractable problems of the city would all disappear with it.”(p. 210 - 211)
Modern behaviorists…
George Gilder is an example of a modern behaviorist along with Charles Murray and Larry Meade
•Your Schiller reading references Gilder and Murray in the “Big Brother” section under Causes and Cures.
Gilder clearly embraces the idea that levying taxes for programs is destructive:
•He notes, “[w]hatever the outcome of these developments, an effort to take income from the rich, thus diminishing their investment, and to give it to the poor, thus reducing their work incentives, is sure to cut American productivity, limit job opportunities, and perpetuate poverty.”•So – programs are bad for the poor and the rich
Conceptions of purpose
Marmor, Marshaw and Harvey suggest
•To properly understand the nature of the welfare state and its’ programs, it is important to understand various actors conceptions of purpose
Behaviorist
Residualist
Social Insurance
Egalitarian Populist
