Biden’s child poverty alleviation is not real

Among the Biden administration’s favorite claims is that it has cut child poverty in half. That’s right, the $1.9 trillion American Rescue Plan increased the amount of child tax credits and prepayments for those who qualify, putting the money in the hands of more poor Americans. But the size of the government check isn’t as important as what you can buy with it. Double your income is worthless if everything you have to buy is suddenly twice as expensive.

Advances for child poverty alleviation have been eroded, in whole or in part, by higher prices caused by President Biden’s triple policy of increased demand, limited supply, and monetary policy. suitable currency. The result is a 6.8% rise in the consumer price index this year that is unlikely to slow down, especially since 40% of the core CPI is in accommodation, which includes rents and rent equivalents by owners. . This measure lags behind housing prices, which are booming. The 9.6% increase in producer prices will eventually pass on to consumers.

For most people, the rise in prices has swallowed up the extra income from the expanded child tax credit. The expanded child tax credit raised incomes by nearly 7% for the average family with two children at the $28,000 poverty level assumed by research that backs Mr. Biden’s claims. Some families with young children have achieved larger profits. This increase is combined with price increases to the same extent, so that real income increases are anywhere from non-existent to modest for near-poor families. About 10% of children in very poor families who did not qualify for the pre-Biden child tax credit received the larger credits, but many children are too far away from the poverty line to be able to escape poverty, so does not change the poverty rate.

The White House claims that cutting the child poverty rate in half is based on projections by Columbia University sociologists, who ignored the standard and well-known effects of poverty reduction programs on the promotion of employment. Economists of the University of Chicago guess around 1.5 million parents will leave the workforce due to the proliferation of welfare programs and thus the reduction of child poverty will be much muted.

Prepayments of the extended child tax credit begin in July 2021, so there’s evidence to gauge what really happened. Using real income data and child tax credit data, the Chicago team found that child poverty did not decrease, even before considering the drop in real income due to abuse. growth has accelerated since July. The Columbia team sticks to the claims made by their simulation analysis even though actual earnings data is available.

You don’t cut poverty by increasing dependence on government. You do that by making them autonomous. This is exactly what happened under President Trump before Covid hit, when both poverty and welfare were in decline. The Trump administration’s strategy is not to provide the people with government grants but to get the government out of the way. Reducing regulation and cutting taxes allows for a business-friendly environment to be developed, which in turn increases the demand for labor.

The growing economy increases the demand for workers, increasing both employment and wages. Under Mr Trump, three-quarters of new hires are outsiders, and those on the lowest wages have seen the fastest real wage growth of any income group. any. Poverty rates worldwide, including among African Americans and Hispanics, have reached historic lows. This leads to lower inequality in both income and wealth, an achievement that would have been celebrated by progressives had it not been for Mr. Trump’s follow-up.

Contrary to Biden’s vision, under Trump, poverty is reduced as dependence on government is reduced. The number of people claiming unemployment insurance as a percentage of the population was the lowest on record in 2019. Similarly, Medicaid numbers fell — because of income increases, not eligibility constraints. Additionally, more than six million Americans have left the food stamp program as their self-sufficiency increased.

The best way to reduce poverty is to create a labor-friendly business environment. Then companies will raise wages and take on more workers. It is a welfare scheme that creates value for both consumers and producers as opposed to a government transfer that destroys value through taxation. If he really wants to help the Americans most in need, Mr. Biden should end the obvious war on capital, because it’s always been an underground war against workers.

Mr. Philipson is an economist at the University of Chicago. He is a member of the President’s Council of Economic Advisers, 2017-20 and its Acting Chairman, 2019-20.

Main Street: “Inflation is like alcoholism,” says economist Milton Friedman. “In both cases… the good impact comes first, the bad impact comes later.” Could there be a lesson here for Joe Biden? Image: Bettmann Archive / Getty Images Composite: Mark Kelly

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