It’s about consumption security not income inequality

The Republican Party has taken the bait from the progressive narrative on income inequality and, according to a post in The New York Times, its potential candidates for the GOP nomination for president have rumblings apparently in line with the position taken by America’s upper crust.  For example, the usual buzz terms, such as tax cuts and reduced regulations have been used by Senator Ted Cruz, Republican of Texas, and neither he, Jeb Bush, or his fellow senator Marco Rubio of Florida believe that government intervention is the best approach to resolving the problem.

This position appears out of line with a significant portion of Americans, even their fellow Republicans.  According to the Times, 69% of Americans believe that the U.S. government should take initiatives to close the gap while approximately half of Republicans feel this way as well.

The wealthy don’t share the rest of America’s sentiments.  While a significant portion of the wealthy consider the ga to be a problem, only 13% of the wealthy, according to the Times, believe that government should be taking any action.  This sentiment holds even as the wealth gap is at its widest in years. According to a survey conducted by the Pew Research Center, median net worth for upper-income families is 6.6 times that of middle-income families and 70 times that of lower-income families.

Although the Democrat Party has been sounding the charge for the barbarians to storm the walls of the wealthy, the Party’s all but crowned nominee, Hillary Clinton, has not exactly been a chalkboard of specifics and statistics on the issue.  Mrs. Clinton has been vague when it comes to policy proposals, probably because she may not want to alienate potential donors with whom she now shares more in common with than we ordinary folks.

One problem I see is how both Republicans and Democrats conflate the issues of “wealth gap” and “income inequality.”  They are not the same.  In theory an individual can make $36,000 a year and have a $200,000 in assets while a person making $80,000 a year may have negative wealth.  Should government risk putting together a policy package that provides. say, tax cuts, expanded earned income credits,  Medicaid, and an increased minimum wage that flows in part to a consumer that has moderate or even low-income from wages but has assets that can generate additional passive income?  To me such a policy would only aggravate the problem, assuming a problem even exist.

Yes, wealth has been moving more to those with capital versus those without but in a capitalist, market economy that is the norm, not a shocker.  I also don’t think that low and moderate income Americans are losing too much sleep over what Mitt Romney or Warren Buffet rake in from their investment income.  What Americans are concerned about is consumption security; the ability to buy food, clothing, transportation, and electricity so that they have a safe and stable life for their families.  If there is to be any effective public policy in the poverty space, this realistic focus should be the starting point and selling point.  I’ll get to why I say selling point in a minute.

First, let me propose this.  To abate consumption security while providing a platform upon which the poor can begin building wealth, the U.S. should abandon its social welfare program and replace it with an annual consumption voucher for the working poor.  Along with a Medicaid/Medicare program financed in part by the working poor via premiums, the working poor will be able to supplement the income they receive from their current jobs, using this supplement to not only consume but to build wealth.

Such a program should meet the needs of the political elite to reduce budgets while providing the commercial elite with additional revenues and wealth derived from additional consumption of goods and services.

Just how much would a voucher program cost?  According to the U.S. Bureau of Labor Statistics, there are approximately 5.6 million working poor families in the United States.  At $30,000 per working poor family, the total bill for this voucher program would be approximately $165 billion a year.  This is considerably less than the $370 billion a year spent on safety net programs such as food stamps, refundable portions of the earned income tax credit, in-kind assistance transfers, and other direct cash payment programs.

We may ask aren’t we doing this now, but under a voucher program, we directly address a market problem.  Consumers living in poverty who are willing but not able to make purchases to address the most basic of needs would get a direct cash infusion and make their own consumption choices.  They wouldn’t need the hand holding of numerous government agencies and why should they.  The working poor are already demonstrating responsibility by getting to a job that contributes toward taking care of their families.  Rather than bringing additional and onerous rules to bear on the working poor, streamlining the requirements for aid by offering a once a year cash payment reduces the stigma on the poor while making the state administratively efficient.

The selling point here is that given the reduction in administrative costs, taxes need not increase.  That should soothe the fears of the wealthy.  In addition, communities within which $30,000 of direct spending is made available should enjoy the multiplier or ripple effect such spending creates.

This is not a new idea, providing the poor with vouchers, but what would be new would be for the GOP to aggressively push this alternative to the current welfare state and educate the voting public on its benefits.

About Alton Drew

Alton Drew brings a straight forward and insightful brand of political market intelligence. Alton Drew graduated from the Florida State University with a Bachelor of Science in economics and political science (1984); a Master of Public Administration (1993); and a Juris Doctor (1999). You can also follow Alton Drew on Twitter @altondrew.
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2 Responses to It’s about consumption security not income inequality

  1. Stanford says:

    What’s the difference between a basic income and what you are proposing ?

  2. kenski2013 says:

    So this is like “welfare to work”, where recipients are required to work to receive this voucher benefit? It seems like a good idea. The poverty line for a family of four is around $23,000 per year, so add $30,000 in voucher money and that’s a reasonable income. I assume the benefits would be tax free (the wages, of course, are taxed per existing tax law).

    Considering that we presently have a Congress that wants to cut SNAP (food stamps), proposing this would really stir it up. After all, the poor, you know, are poor because they are unworthy, while the rich are rich because they are God’s favored/chosen people. LOL. (This is NOT a reference to Jews, by the way.)

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