LTC Bullet: The New Fallacy of Impoverishment
Friday, June 29, 2018
LTC Comment: Government should declare success in the War on Poverty and eliminate policies that discourage personal responsibility and work, after the ***news.***
*** GC AND AIM JOIN INTEGRITY
American Independent Marketing and
GoldenCare are now part of
Integrity Marketing. The announcements came on
February 6 in AIM’s case and on
May 8 for GC. Lenny Anderson (GC) and John Wane (AIM) and their
companies have been pioneers and leaders in long-term care insurance for
over four decades. Both men cited succession planning, the ability to stay
involved, and the ongoing success of the companies they founded as reasons
for the move. Check out this
video press release for a more personal insight on the decision. We
congratulate these two great men of the private LTC insurance business and
wish them, their companies and Integrity Marketing every success going
forward. By the way, GC and AIM were the organizing sponsors of the Center
for LTC Reform’s 2008 “Long-Term
Care Consciousness Tour” and they continue to support our LTC
financing policy research and advocacy generously. ***
LTC BULLET: THE NEW FALLACY OF IMPOVERISHMENT
LTC Comment: In 1990, the Gerontologist published my article “The Fallacy of Impoverishment” explaining how middle class and affluent people take advantage of Medicaid long-term care benefits intended for the needy. In 2005, I updated that research in a “Policy Analysis” for the Cato Institute titled “Aging America’s Achilles’ Heel: Medicaid Long-Term Care.” My work shows how people do not have to be poor to get public welfare. Now Cato has published a new “Policy Analysis” that proves most of the poor … well … aren’t.
Whoa, say what? We’ve whipped poverty? How can that be? For answers, check out “Reassessing the Facts about Inequality, Poverty, and Redistribution” by John F. Early, published in April by the Cato Institute. Or read this summary by Phil Gramm and Robert B. Ekelund, Jr. in the June 24 Wall Street Journal: “How Income Equality Helped Trump: Working Americans sense that taxes and transfers now leave them little better off than those who work less.” What follows are snippets from the Cato piece to give you the gist followed by our comments. Footnotes are omitted.
Cato: “Improved estimates of poverty show that only about 2 percent of today’s population lives in poverty, well below the 11 percent to 15 percent that has been reported during the past five decades.” (p. 1)
LTC Comment: How can that be?
Cato: “By design, the official estimates of income inequality and poverty omit significant government transfer payments to low-income households; they also ignore taxes paid by households.” (p. 2)
LTC Comment: Interesting, how about some examples?
Cato: “The inequality debate is most frequently framed in terms of the differences in money income as measured by the Current Population Survey (CPS) from the U.S. Census Bureau.” (p. 2) [but] “Census money income estimates explicitly exclude the following:
LTC Comment: So, when analysts report the percentage of people living in poverty and levels of inequality they’re leaving out cash and in-kind benefits provided by all those government programs? Wouldn’t that make people look a lot poorer than they really are?
Cato: “The net result is that although the lowest income group has only 2.2 percent of earned income, it receives 8.3 percent of spendable income available for consumption and savings. … Beneficiaries in the lowest income quintile during their working years receive 10 times more benefits per dollar contributed than those in the top two quintiles.” (pps. 5-6)
LTC Comment: Wait a minute. Wouldn’t this effect be counterbalanced by the taxes poor people have to pay, especially sales and payroll taxes?
Cato: “Official income statistics make no adjustments for taxes paid.” (p. 4)
LTC Comment: If that’s true, doesn’t it make higher income people look richer than they are? Leaving out government benefit transfers and taxes would make the poor look poorer and the affluent look wealthier. Right?
Cato: “The net effect is that pretax data overstate the true income of upper-income households by as much as 50 percent, and missing transfers understate the true income of lower-income households by a factor of two or more.” (p. 4)
LTC Comment: It sounds like all the anguishing we hear about poverty and inequality in the USA is vastly overstated.
Cato: “If the government were to raise taxes on the wealthy tomorrow and transfer all the additional money to the lowest income groups through a larger EITC [earned income tax credit], the official metrics of inequality would not budge by a single cipher because neither the new taxes taken from the top nor the additional income transfers given to the bottom would be used in the calculations.” (p. 4)
LTC Comment: What’s the bottom line?
Cato: “The net result was that the average spendable income for the highest income group was only three times higher than that for the lowest group.
LTC Comment: What does this really mean for the middle class?
Cato: “On average, households with $63,136 in earned market income get to keep it all. They pay taxes averaging approximately $17,000 per year, but on average they also get an equal amount of government transfers.” (p. 10)
LTC Comment: So, you’re saying we’ve practically eliminated poverty, as only 2% remain genuinely impoverished, and the middle class is getting back in benefits as good as it gives in taxes. Who’s picking up the tab?
Cato: “The top 47.5 percent of households were taxed to do the following:
LTC Comment: But surely widespread hunger and homelessness belie your rosy statistics.
Cato: “Other independent data confirm that only small numbers of Americans live in conditions that would normally be considered poverty. These data show that families classified as poor have lifestyles that would usually be considered middle class. For example:
“These metrics are consistent with the improved measures that show about 2 percent poverty prevalence. (p. 20)
LTC Comment: I spent 1968-70 in the Peace Corps in Venezuela and I correspond with friends suffering there now. I know what poverty is. That isn’t it.
Cato: “More than 50 years after the United States declared the War on Poverty, poverty is almost entirely gone. … Public policy debate should begin with the realization that only about 2 percent of the population—not 13.5 percent—live in poverty.” (p. 21)
Closing LTC Comment: Well, there you have it. Poverty is gone for all intents and purposes. We spend one trillion dollars a year to erase it. But that’s not the only cost.
We “[t]ransfer enough money to the bottom 52.5 percent of households, to give them average spendable incomes close to the median income.” (p. 10)
Re-read that last sentence and then ask yourself:
One last quote from the Cato report:
During the 15 years before President Johnson's announcement of the War on Poverty, the measured poverty rate had fallen from 34.8 percent to 19.0 percent. Two years after Johnson's speech and before most of the new programs were fully implemented, the rate had dropped to 14.7 percent, well within the range that would prevail for the next 48 years. (p. 15)
One last question: By eliminating the economic consequences of laziness, irresponsibility and poor behavior, did we punish producers, reward indolence, create dissension, polarize our politics, handicap the economy and make everyone’s life less rewarding?
The Cato “Policy Analysis” does not draw those conclusions, but it definitely provides ample evidence to support them.