Policies to Help Address Income Inequality

This is an article I wrote that originally appeared on PolicyMic. It was part of a debate about Income Inequality in this country.  You can read the other side of the debate here.

With the recent news that the poverty numbers in this country have risen, combined with earlier reports of a widening wealth gap, it is clear that we have an issue with income inequality in this country.

Some will argue that the income inequality is overstated. Others will say that policies designed to minimize the inequality do the exact opposite and negatively impact the poor. However, the real problem is a lack of both financial literacy and the right policies. While income inequality is a product of our system and will always be here, if we couple financial literacy with good policy, then the impact of this inequality can be minimized and have a positive impact on the poor.

The widening wealth gap and the poverty numbers are enough evidence to show that income inequality in this county is not overstated. I want to focus on the policies that are designed to minimize their impact. I will admit that every policy may not be a good thing, while others are debatable. For example, I don’t think the government should be in the business of supplying cell phones, and policies like the minimum wage are debatable.

The Earned Income Tax Credit (EITC) is a refundable tax credit for low-income families that was enacted in 1975. In a nutshell, this is a program that is designed to incentivize work. It accomplishes this by decreasing the tax burden on wages and also serving as an income supplement through the refundable portion.

Recent numbers show that this program pumped nearly $59 billion back into the economy through low-income families. Even with the poverty numbers rising, the numbers would beeven worse without the EITC. This program is further enhanced by 23 states that have varying state versions of the credit, meant to increase the positive impact on low-income families.

While this program has been proven to help people stay above the poverty line, it also shows a glaring weakness in the system. Simply providing an incentive to work through refundable tax credits is not enough. A glaring problem in this country is the lack of financial literacy. The lack of literacy can also be felt in our housing crisis. Families looking to purchase homes compensated for their lack of financial wherewithal by trusting brokers to help them wade the waters. These brokers were focused on their bottom line and not on educating the borrower. This led to loan steering into sub-prime mortgages, because once the loan closed, the broker was off the hook.

An increased investment in financial literacy would have not only helped in avoiding the sub prime crisis, it would also help make successful programs like the EITC even better. The credit maxes out at $5,666, and for a low-wage worker, that is more than they bring home in several months. With little emphasis on financial literacy, it is unrealistic for us to expect every dollar to be spent wisely. However, with a greater emphasis on financial education, families could learn how to better utilize these dollars to minimize the impact of their lack of income.

In North Carolina, the state version of the EITC came under attack during the budget debates. However, even Republican house members had a hard time advocating for the elimination of the refundable portion of the credit, because they had to admit it was an incentive to work. Even those that think eliminating the wage floor and paying lower wages to increase employment would benefit from a program like this as an additional incentive for people to accept these lower wage jobs. I am still not advocating for eliminating the minimum wage but instead want to show the versatility of good policy designed to help the poor.

One thing that all sides of this debate can agree on is that there is income inequality in this country. Even if one side will not admit it, the wealth and poverty numbers support the fact that this inequality is real and not overstated. The fact is that income inequality will always be here and is a product of the capitalistic nature of our society. Even with some questionable programs out there, policies are needed to help limit the impact of the earning disparities that exist.

The EITC is an example of good policy that helps disprove the theory that policies designed to minimize the impact of wealth disparity hurt the poor. When we incorporate financial literacy with programs like the EITC, we won’t eliminate income inequality, but we can help to minimize the impact on low-income workers.


Would a Lower or No Minimum Wage Help the Poor?

Over the labor day weekend, I was involved in a spirited debate about whether or not it was good for the poor to lower or eliminate the minimum wage.  It all started after reading an article on PolicyMic called: Teenage Labor Isn’t Worth the Minimum Wage.  The premise of the article is about teenage labor being worth less than the MW and therefore MW policy is bad.

The real fun started in the comment section.  I would encourage everyone to read the article and the comments.  The comments ranged from agreement to attacking unions to disagreement.  Most of the debate was less about the article and more about whether a lower or elimination of the MW was good for the poor.  The arguments for this focused on the MW causing increased unemployment for poor and unskilled workers, because if their skill level was not worth the MW then you won’t get a job. Therefore this bad policy is bad for poor people.  Instead companies should be able to set the market and not have an imposed wage floor.  By paying a lower wage more people can be employed, thus more people are helped.

My argument focused on with no wage floor what separates us from other countries with no floor and families living on pennies a day.  I understand the issue of lower wages can increase employment, but at what cost?  Minimum wage is already not enough to support a family, how can a lower wage be a true benefit.  What good is having everyone employed, but only making $2/hr if they still can’t afford housing, food, clothes, and transportation?  Increasing poverty to increase employment is not a positive gain in my book.  The cost of food and clothes won’t go down, neither will transportation.  The cost of housing could go down, but with lower housing costs comes lower housing standards.

I am interested in what other people think about this.  I know what my friends on PolicyMic think.  While I did not agree with everyone, I respect their thoughts on the issue.  I also think they make some valid points about employment, but I can’t agree with increasing employment while increasing poverty.

Let me know what you think on the issue.

The Climate is Ripe for Riots

This is a post written by me that was originally posted on www.policymic.com.

In early August, right after the debt ceiling debacle, the big news story was the riots in London.  Peaceful protests of a questionable shooting of a father of four quickly turned into a violent affair. While Tottenham is a diverse section of the city, there is a history of racial tension and police distrust, and this shooting pushed those emotions over the edge.

Having a black president in the U.S. shows some progress, but racial tension and distrust between minorities and whites still exists in America. The addition of the worsening economic outlook only adds to this tension, making it more a matter of when, not if, something similar to the London riots can happen here.

We don’t need to go through a history lesson of the racial history in this country. We have our own examples of riots (Rodney King) and questionable police shootings (Sean Bell) that have only fed into the tension and distrust. People thought with the election of black president that race relations would improve. Instead, we have seen a rise in the ranks of white supremacy groups, and both the general public and political leaders believe that race relations have gotten worse. The idea that the 2008 election has pushed us into a post-racial society is simply a false attempt at hiding the real issues.

The economic outlook of minorities does not help the situation. While we have always had a wealth gap in this country, a recent study showed that it has gotten worse during this recession. This has only continued the belief in poor minority communities that the system is against them, but also feeds into the frustration of middle class minorities impacted by the foreclosure crisis. A bad economic outlook is enough to push anyone over the edge and the unemployment numbers for minorities only makes it worse.

When you combine both the direction of race relations and the economic outlook for minorities in this country, things do not look good. Despite the presence of a black president, the atmosphere is ripe for a London-style race riot. The tension is simmering below the surface and just like in London only waiting to boil over.