Why hurting the poor will hurt the economy

https://www.washingtonpost.com/opinions/the-anti-poverty-programs-congress-wants-to-cut-are-crucial-to-the-economy/2017/03/10/5359b7e0-0509-11e7-b1e9-a05d3c21f7cf_story.html?utm_term=.3864e65f8159

By Robert E. Rubin
March 10, 2017

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Anti-poverty programs such as Medicaid, the Supplemental Nutrition Assistance Program (SNAP, often called food stamps) and other safety-net programs designed to assist low-income Americans are not only social and moral imperatives — they serve critically important economic purposes.

To start, these are vital public investments with high rates of return. They improve productivity and reduce social costs caused by crime, malnutrition and poor health. For adults, Medicaid and SNAP better enable effective participation in the workforce.

Roughly 20 percent of U.S. children live in poverty. In the wealthiest country in the world, that’s not just a moral outrage — it’s a serious detriment to our economic future. For low-income children, Medicaid and SNAP are investments that significantly improve outcomes later in life. For example, one study found that children who received SNAP were less likely to experience stunted growth, heart disease and obesity as adults — and had graduation rates that were 18 percentage points higher. We need to do more, not less, to help these children — by providing early family intervention, better schools and housing, safer neighborhoods and much else.

What’s more, these programs serve as “automatic stabilizers” during an economic downturn: In a weak economy, as more people lose income and become eligible for federal benefits, the programs expand, putting more money in more people’s pockets. People then spend that money, increasing demand and helping the economy recover.

All this adds up to a clear but underappreciated reality: Anti-poverty programs are an economic imperative. And yet their future is in jeopardy.

The majorities in Congress have advocated capping or “block granting” federal spending on Medicaid and SNAP — and the Trump administration is also expected to pursue a budget that restructures them. Over time, the effect would be major cuts to these programs. The more immediate effect would be to eliminate the programs’ ability to automatically adjust to meet increased need, whether from a weakened economy, natural disaster or public-health crises such as the opioid epidemic. Low-income programs that depend on annual appropriations are also at risk if the president and Congress follow through on plans to bring domestic spending to historically low levels.

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But significant cuts to top personal income-tax rates or to capital gains taxes, or the elimination of the estate tax, would disproportionately benefit those at the top, while providing little or no gains for workers or the broader economy. Such rate reductions, on both the personal and corporate side, would also increase fiscal deficits, even after reasonable adjustments for projected economic growth, if unpaid for. There will be tremendous pressure to offset those deficits by cutting anti-poverty programs.

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But significant cuts to top personal income-tax rates or to capital gains taxes, or the elimination of the estate tax, would disproportionately benefit those at the top, while providing little or no gains for workers or the broader economy. Such rate reductions, on both the personal and corporate side, would also increase fiscal deficits, even after reasonable adjustments for projected economic growth, if unpaid for. There will be tremendous pressure to offset those deficits by cutting anti-poverty programs.