Paul Ryan

Obama's Plan to Help the Poor is to Make Government Bigger. Paul Ryan's Plan is to Make It Better.

Both want to expand the Earned Income Tax Credit (EITC). But Ryan's plan would reform the system rather than grow it.

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Whitehouse.gov

Of all the proposals offered by the White House in this year's extended State of the Union related activities, the one to which I'm most sympathetic was not mentioned by name in the speech.

It's an expansion of the Earned Income Tax Credit (EITC)—a tax credit for the working poor that was put in place in 1975 and expanded several times in the 1980s and 1990s.

Obama proposed expanding the program in a White House document released over the weekend that described an array of tax hikes and other changes, and his State of the Union address mentioned briefly that his budget would lower "the taxes of working families and putting thousands of dollars back into their pockets each year." But it hasn't been a major focus of discussion.

It is, however, a major budget item. The EITC is the third-largest federal assistance program for people with low incomes, and it is a kind of conditional variant on Milton Friedman's idea of a negative income tax: Workers at the low end of the income spectrum get a refundable credit tied to income earned with work; because it's fully refundable, it means that workers get the full credit even if the amount exceeds their tax liability.

There are serious concerns with the EITC: Notably, it has a 24 percent improper payment rate, which is unusually high even for a major federal program. The spending controls, to the extent that they exist, are clearly flawed. But even still, it's widely regarded as an effective way of moving people into the workforce and thus increasing their incomes, moving millions of children out of poverty and into the lower middle class each year. It's also a much better way of targeting genuinely needy low-income individuals than increases in the minimum wage.

For those who believe that tax rates affect behavior, this won't come as a surprise; the EITC offers a major tax incentive for people at the bottom end of the income spectrum to work, and in that sense is substantively different from many other assistance programs that simply offer a benefit.

Obama's support for expanding the EITC isn't new—he published a lengthy proposal for expanding it last year. But even still, it's at least a little odd that the president didn't stress this idea even more. Not only is it exactly the sort of "middle class economics" policy that he spent this year's State of the Union touting, it's also one of the few places where he might be able to find common ground with Republicans in Congress.

Ronald Reagan enthusiastically expanded it in 1986, calling it "the best antipoverty, the best pro-family, the best job creation measure to come out of Congress." And more recently, Rep. Paul Ryan (R-Wisc.), one of the GOP's most powerful domestic policy agenda-setters in Congress, has called for further expansion of the credit as part of the suite of anti-poverty policies he put forth last year.

Unsurprisingly, Obama's proposal and Ryan's differ, especially in their funding mechanisms. Comparing the two proposals is instructive.

In some sense they mirror each other. Neither were built with the expectation that they quickly would become legislative reality. Both are paid for with funding mechanisms that members of the other party are likely to oppose. Obama would expand the credit with new tax revenue, while Ryan would pay for his expansion by cancelling several other programs, including Social Service Block Grants, the Economic Development Administration, and the federal Fresh Fruits and Vegetables program.

But even this brief comparison reveals the major difference between the two proposals: Obama wants to make federal aid programs bigger; Ryan wants to make them better.

Indeed, Ryan's proposal sets the expansion of the EITC in the broader context of reforming the safety net and helping the poor (there's even a criminal justice component), and it addresses a number of concerns about the EITC while offering a variety of ideas to make it more effective and streamlined.

A common complaint on the left, for example, is that qualifying for the EITC is unnecessarily complicated—an extensive paperwork hassle that poses an even bigger burden on the folks who need the credit the most. Ryan's plan notes this, agrees, and then suggests simplifying delivery of the EITC by putting it directly onto paychecks. That, in theory, should bolster the link between work and the credit, making it more effective. Ryan's plan also argues that reducing the complexity of the qualification process would reduce fraud and other improper payments, and proposes sharing savings generated by reducing bad payments with beneficiaries—meaning that boosters of the EITC would have an incentive to reduce payment error.

In addition, Ryan's plan gives states more flexibility to implement various poverty programs, setting up a kind of contest system where states can innovate and compete to best deliver aid.

To be sure, there are problems with Ryan's poverty plan, of which the EITC is just one part: It calls for an army of nannying case-workers charged with guiding beneficiaries through a life plan, and it is probably too optimistic about what efficiency improvements can be achieved in government programs.

But it is an actual reform plan, designed to improve the overall performance of government aid by shifting resources away from bureaucratic boondoggles and into a program that has demonstrated its effectiveness while simultaneously exploring ways to address that program's existing problems.

Obama's plan, in contrast, is little more than an expansion designed to grow the program without regard to its problems or how it meshes with the rest of the government's aid programs. Its implicit definition of a better program is simply one that spends and does more.

That definition lends itself to a remarkably simplistic theory of government, in which programs that don't work need more funding to work better, and programs that do work need more funding to expand upon their success. It's this basic outlook that has resulted in a bloated federal government overrun with ineffective aid programs that are exceedingly difficult to cut.

Ryan's proposal offers a counter-theory, which is that programs should be tested and held accountable, expanded and tweaked if they work, but pruned if they don't. His plan isn't perfect, but it starts from the right assumption—that when it comes to improving government programs, more isn't necessarily better, but that, well, better is. 

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  1. Reduce the government–spending, regulation, staffing, etc. to 20% of what it is now. That’s just for starters.

    1. That’s just to simplify things to the point that you can actually plan out a way to make the serious cuts.

      1. Right, just cleaning things up a bit so we can get serious about cutting back government.

  2. But even still, it’s widely regarded as an effective way of moving people into the workforce and thus increasing their incomes, moving millions of children out of poverty and into the lower middle class each year.

    …by taking money away from other people, running it through the IRS and sending it to the EITC recipients. Nothing wrong with that!!!!!

    1. There is a lot wrong with the EITC, but the it is better than most other welfare programs. How about a policy trade? End the Federal minimum wage for an expansion of the EITC?

    2. Gotta love those Republicans, shrinking government by expanding it.

  3. Those who rob Peter to pay Paul can always count on the support of Paul.

  4. It also incentives you to have more kids since it is directly related to the size of your household.

    That couldn’t possibly have any consequences like poor to low-income people having more kids then they can afford.

    1. I think low-income people have more kids than they can afford because they are terrible at managing their lives. Even if we took away all welfare, they’d still be having more kids than they can afford.

      1. Being low-income makes managing your life relatively more difficult, wouldn’t you say?

        1. Yes, but one shouldn’t place a greater burden on that level of income in that circumstance.

        2. Most poor people did not suddenly become poor after having children.

          1. No, but being poor + having more children =/= becoming less poor.

            1. I agree. I was responding to Tony’s inane implication.

              1. The inane implication that poverty might be a cause of family instability rather than the effect of moral depravity? You people are such fucking busybody christofascist nannies.

                1. Who said anything about moral depravity? We’re talking about people being terrible at managing a household budget and planning for their futures.

                  Once again, you seem to be projecting, Tony.

                  1. Which is more difficult the less money you have…

                2. Yeah, and wet streets cause rain.

                  Causes come before effects, dummy.

                  1. And you guys are obsessed with the holier-than-thou assumption that poverty is caused by moral dysfunction. Of course that doesn’t explain poor children, but you just pretend they don’t exist right?

                    1. The only person assigning morality to anything here is you.

                      And of course we acknowledge poor children, who do you think works in out unregulated, pollution factories?

                    2. Not bad morals- bad judgement

                      If you have kids as a teenager, you and the children will be poor.

                      If you never learn to read, you will be poor.

                      If you spend years in jail, you will be poor.

                      If you graduate high school, stay out of jail, and don’t have kids before you are married, the odds of being poor are practically nil.

                    3. And the kids should be forced to pay the consequences of their parents’ bad judgment because…?

                    4. Because it is impossible to cure poverty by handing out money.

                      You get more of what you reward and less of what you don’t.

                    5. What are you talking about? It cures poverty in the simplest way imaginable (poverty being defined as not having money).

                      You are making obnoxious moral proclamations even if you don’t realize it. Poor people got there because of their bad choices (something you don’t want to “reward”). But that’s clearly not the case with children and the unlucky. So, fuck ’em? Because something like feudalism is the best possible system we can come up with?

                    6. Yeah, and what happens when they spend all the money you gave them? Many lottery winners and pro-athletes have gone bankrupt despite having millions.

                      The War on Poverty has cost trillions and there is no end in sight.

                      For poor children, the best thing to do is to encourage them to do well in school instead of glorify their victimhood.

                    7. So instead of government doing what governments do–moving resources around to protect the interests of its people–you want government lecturing at people and telling them to buck up and act more morally upstanding. I’m always the only libertarian in the room!

                    8. Have you invented some way that kids aren’t forced to pay the consequences of their parents’ bad judgment? So long as the government isn’t taking kids away from their parents, then kids suffer all kinds of consequences from their parents choices (good and bad). Parents make choices about what age to have kids, where to live, how to discipline, what school the kids attend, what food to they eat, etc. that all have significant consequences for the kids. Giving the parents some money doesn’t make the parents have good judgment.

                    9. Don’t you know, all your kids are belong to us?

                      /Melissa Harris-Perry

                    10. A safety net is meant to blunt the consequences of whatever causes poverty. You guys love to assume it’s always poor choices, but even if it were that’s no reason not to protect children to the degree we can.

            2. No, but being poor + having more children =/= becoming less poor.

              Well, yeah, if you keep them.

              But healthy babies can bring some decent bank on the market. Five figures, no prob.

  5. One very key difference between the two proposals is that Obama wants to help poor people and working families whereas Ryan wants to kill minorities and oppress women.

    1. Hey, did you go to Upstairs Salon Writing School, too?

      1. It’ll become part of my apparently mandatory “Confessions of an Ex-Libertarian” essay.

        1. You still have a Hotmail account. Why do you still have a Hotmail account? I’m actually curious what the experience is like now? Is it the same as in 1999 or have they kept up with the times?

          1. It’s definitely improved. I’ve kept it because I’ve seen no particular reason to change it.

  6. “Reforming” is a meaningless buzzword. And Ryan’s plan is chock full of other meaningless buzzwords. It comes down to choosing between ineffective paternalistic government programs and actual liberty. And Ryan appears to have made his choice.

  7. That picture of Paul Ryan with Obama is one of the saddest ever. His facial expression looks like his mom just told him that his dad hasn’t been at the store for the past 30 years.

    1. To me it looks like Ryan is thinking: “I have absolutely no respect for this man that I’m looking at right now, but it would be poor form to laugh in his face.”

  8. If conservatives are serious about maintaining the safety net they would propose the simplest version of it, a guaranteed basic income for example. Eliminate the bureaucracy and just hand out the cash. It is not just problematic that Paul Ryan wants to stick government’s nose into poor people’s personal lives, it’s absurd and hypocritical. It indicates that he and his party are still obsessed with making sure that people are living by their moral standards (which is somewhat less Christian and more Ayn Rand) before they’re concerned with a working safety net.

    1. I’m so glad Team Other doesn’t want to stick their nose into my personal life.

      1. Have you made your Shared Responsibility Payment, comrade?

    2. Derp da derp da tiddly terp.

      1. Let’s see if I can bait a bunch of “libertarians” into defending Republican politicians oh wait that easy.

        1. Tony, calling you an idiot is not the same as defending Republican politicians. It is, in fact, possible for you to be an idiot and for Republican politicians to be wrong AT THE SAME TIME!

          1. When you’re an unprincipled hack like Tony, all you see is TEAMS.

        2. Guaranteed Basic Income is fucking retarded. Paul Ryan and the GOP are fucking retarded. These are not mutually exclusive, but then, you already knew that.

          Oh, and calling you on retarded shit like “guaranteed basic income” is NOT defense of republicans.

          Jesus christ you’re a tired troll.

          1. I wasn’t advocating it, I was suggesting that Paul Ryan should. You are pissing your panties because I criticized a Republican, and it’s hardly the first time, so don’t try to sell me on your above-the-fray bullshit.

            1. Honestly, I didn’t make it past your idiotic advocation (not sure what you’d call criticizing someone for not doing x) of the guaranteed income.

              If I’m “pissing my panties” about anything it was that. (Nice effeminatization by the way, glad to see you’re a misogynist on top of everything else.)

    3. I kind of, sort of agree with Tony (a little) here. Not his pointless potshot at Ayn Rand, but the part about handing out cash. Bureaucracy is expensive. Direct payments to everyone would be marginally less expensive. And it would remove some of the broken incentives that currently mire certain people in perpetual poverty.

      We’d be much better off removing welfare altogether, of course, but that ain’t going to happen anytime soon.

    4. What a surprise you have no idea what Ayn Rand advocated.

    5. Tony, could you provide any numbers in support of the feasibility of a guaranteed basic income including:
      1) What is the target income?
      2) How many people age 18 and up currently make less than the target income?
      3) How much would paying qualified people the guaranteed basic income in the first year?

      I’m assuming the guaranteed basic income would be paid to all people regardless of their current state of employment, or their ability to work if they are unemployed. This isn’t a criticism, just setting the stage for an appropriate response.

      I don’t think a guaranteed basic income is a viable solution because of its cost, and potential to disincentive productive work. You and I will disagree on the nature of productive work so let’s just stick to defining rough year-one costs of the program.

      1. I’m not Tony, but…

        I was assuming we would wipe out all welfare programs currently going and use the sum of their funding as our cash payout baseline. Then you give everyone who makes under a certain amount (1/2 median income, say) one (1) share. Everyone who makes between 1/2 median income and, say, median income gets a linearly decreasing fractional share. Then you divide the baseline funding by the shares and hand it out in monthly payments. So if there are 320 million americans you’d end up with 80 million getting a full share and 80 million getting a fractional share. Total number of shares would be 120 million. Value of a share would be the funding baseline divided by 120 million.

        Anybody know how much we spend on welfare?

        (Also, I don’t really advocate this plan.)

        1. Actually I’m dumb. I didn’t mean “1/2 median”, I meant “25th percentile”. Those two things have different meanings, but I’m sure you get my drift.

      2. It doesn’t cost anything (using “cost” as distinct from disincentive to work or economic output, which you’ve stipulated). Government would simply be shifting around the distribution of resources. If this is a cost, then so is a tax cut (money government doesn’t have to spend on something else). The only actual cost associated with a basic income program would be administrative, and I think we can both agree that this could be less than the patchwork welfare system we have (Social Security, a partial version of this idea, is very efficient). Otherwise it’s just redistributing income to make the overall distribution more equal.

        The other potential cost is, as you’ve noted, the loss of economic output by a disincentive to work. And that would be a factor in determining how much of a basic income to have. You want to provide enough so that people don’t fall into destitution for being out of a job, but not so much that you discourage work to an extent that it is harmful to economic output (depending on what we decide is harmful).

        1. Government would simply be shifting around the distribution of resources. If this is a cost, then so is a tax cut (money government doesn’t have to spend on something else).

          A tax cut is leaving money where it is, which is kind of the opposition of shifting resources around.

          The EITC is not a tax cut. It takes tax money from one person, and shifts it to another.

          1. A tax cut is a decision by government to take money that would otherwise have built a road or paid retirement income to an old person and distribute it to a rich person as income. It’s a positive policy choice no different in principle from the choice to spend it on something else. It is the job of all governments to take taxes and redistribute them toward projects other than keeping money where it is, which is not a very useful project if that money is serving the purpose of supplying excess luxury to people simply because they already have lots of it. Unless you’re an anarchist, this is the way things are. Government decides the distribution of resources. It can (and should) decide to let the market do a good bulk of that work via its own mechanisms. But there is no reason taxing and spending on roads is any different from taxing and spending on welfare or even tax cuts. Tax cuts are not the one sacred government policy, unless you live by some sort of religious code that demands tribute be paid to the very wealthy at maximum levels for all time.

            1. Shorter Tony:

              Not taking is giving!

            2. Hahahahahahahahahahahahaha

              Tony: Bringing the stupid like nobody else.

            3. I really wonder what it takes to get this warped view of the world.

              1. Did I blow your mind bro?

                It is infantile how you guys approach the world. Wealth just naturally follows goodness around, and government interferes with that sublime natural process. Yeaaah.

                1. Ahh, yes, Tony rushing back to the thread 6 fucking hours later to show the world just how clever he is.

                  Your current handler is a fucking useless stupid cunt.

        2. You failed to answer three very specific questions I posed to you, and I have clarified question 3:
          1) What is the target income?
          2) How many people age 18 and up currently make less than the target income?
          3) How much would paying qualified people the guaranteed basic income [cost in terms of dollars given to recipients] in the first year?

          I try to engage with you in a meaningful way, and not assume you are just a nuisance. However, saying “It doesn’t cost anything (using “cost” as distinct from disincentive to work or economic output, which you’ve stipulated). Government would simply be shifting around the distribution of resources.” is pitiful for someone who claims, vociferously and frequently, to want honest discussion.

          This would be like saying I have $10 to buy a meal at the grocery store, but I swing through Taco Bell instead. Since the money was going to be spent on a meal anyway, there was no cost. One can make this argument, but it is disingenuous as the meaning and intent of my questions were quite clear.

          Either you can provide some figures to answer my questions, or you cannot. I suspect the latter. To be honest with you Tony, I don’t know why I bothered since, as usual, you lived down to my expectations.

          1. I don’t know what the specific figures are and that isn’t really relevant. I said it should be enough to keep people from destitution but not so much that it discourages work on a scale that seriously harms economic output.

            Putting the bracketed bit in changes your question entirely. Now you’re asking how much is transferred, not what it costs (which is, really, almost nothing–changing the distribution of income doesn’t cost government anything except for administration).

            1. Specific numbers are absolutely relevant. You are making the claim there is no cost because money is being shifted around. Unless you know how much money would be needed to pay all people a guaranteed basic income you cannot possibly know there is no additional cost. Which leads me to the following questions:
              1) What is the target income?
              2) How many people age 18 and up currently make less than the target income?
              3) How much would paying qualified people the guaranteed basic income cost in terms of dollars given to recipients in the first year?

  9. The argument for raising the minimum wage seems to be that a head of household worker making minimum wage (let’s say $15,000 per year) cannot get by on minimum wage. Can any of you tax accountants tell
    us what the EITC would be for such an individual? Obviously, with the credit, the person is receiving more than minimum wage already.

    1. It depends on the number of kids and if you’re married filing jointly.

      For married filing jointly with two kids, with $15k in income, you’re looking at a credit of $5,372. Effective income = $20k. This is about equal to you making $10.40 an hour.

      But, if your spouse worked and also earned $15k, then your credit drops to $4,537. Effective income = $34k

      1. So, min. wage is already above the $10.10 that OGL is seeking “for those who have a family to support.”

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