There is a better way to cut poverty
Yesterday MPR News asked, “Minnesota bets on the child tax credit to cut poverty. Will it work?” To answer that, let’s revisit a post I wrote in March about poverty.
As I wrote,
During the pandemic, low-income Americans saw massive job losses. This led to income loss and a hike in the poverty rate. But in response to the pandemic, the U.S. government made numerous payments to people.
These included stimulus checks, expanded child tax credit payments, and expanded unemployment benefits. So despite these job losses, poverty as measured by the Supplemental Poverty Measure (SPM) — which might be a better representation of poverty, as it accounts for other things that are left out of the official poverty measure, like government assistance, geographic differences, and household size — actually fell.
On the surface, this is good news; however, there are downsides.
For one, to afford all this spending, Congress passed three stimulus bills all totaling about $5 trillion to keep Americans and the economy afloat. All the massive spending undertaken by the federal government (plus other factors) has significantly raised inflation, inflicting pain on American households, pain that we are still experiencing today. Not to mention that this spending was financed through borrowing, putting the U.S. on track for a debt crisis, which is likely to unravel in the years to come.
Moreover, despite this massive spending, poverty did not fall to zero. Poverty reduction was also temporary. Ending COVID-19 assistance programs has ended with it the progress that the country made in reducing poverty. This is because these payments, like existing welfare programs, were not necessarily intended to get people out (and stay out) of poverty. They existed only to help the poor afford necessities while they faced a difficult time.
There is only one true solution
Minnesota’s child tax credit, much like payments made during the pandemic, comes at a very high cost to taxpayers and to Minnesota’s economy. And while it might reduce poverty, any progress made would likely only be temporary without continuous spending. This is not to say that tackling poverty is pointless. On the contrary, reducing poverty is one of the most important undertakings for the Minnesota government. Just that the only efficient and sustainable way a government can cut poverty is by growing the economy.
According to data from the Federal Reserve Survey of Consumers, between 2016 and 2019, median incomes grew 5 percent as the economy grew at 2.5 percent per year, on average. During the same period, unemployment fell. Result? Poverty fell to record lows, without the government having to spend trillions of dollars on assistance programs and payments.
A growing economy creates more jobs. This gives people the opportunity to earn income and climb up the economic ladder. Sadly, a lot of the policies enacted in the 2023 legislature are likely to harm Minnesota’s economy rather than help it grow.