forms, losing valuable time they could have spent working. In many cases, these programs discourage work because they are granted without requiring anything in return or are suspended if the recipient exceeds a certain income level. This generates the need for complex and costly state machinery to supervise these programs, frequently resulting in a form of control for many authoritarian governments. But above all, they do not respect or dignify their beneficiaries, making them feel dependent on the state. Most of these people do not want to be given things for free, they simply want their work to allow them to sustain the standard of living that was taken from them.
The most effective known program for tackling poverty without undermining the freedom and dignity of individuals, while also being easily implemented, is the EITC (Earned Income Tax Credit). It is a federal government program in the United States that supplements the earnings of low-income workers through fiscal credit. It was first implemented in 1975 by President Gerald Ford, then expanded by President Ronald Reagan, and further developed by President Bill Clinton. It is very simple: up until a certain income, for every dollar a worker earns, the state pays them an additional sum. It operates like a negative-rate income tax. This framework issues payments that range from $529 to $6,667 annually. It is a simple, effective, easily enforceable program.
For many specialists, it is the most effective program in fighting poverty given that it promotes work and grants higher sums to parents of small children. This translates into better living conditions and future prospects for the children of these families. Some countries like the UK have implemented similar programs but none on such a massive scale. According to an analysis by the Center on Budget and Policy Priorities, this program complements the income of 28 million Americans and lifts 5.6 million out of poverty, including 3 million children. The EITC reduces the level of poverty of another 16.5 million people, including 6.1 million children. (13)
Some studies show that this program pays for itself thanks to the long-term benefits it generates. The state saves billions of dollars in uncollected taxes and social aid for eligible workers, in addition to further savings by improving the prospects for their children. (14) Not only is it effective in terms of human dignity, but it also saves taxpayers money and promotes economic growth.
The second group includes workers who, though they may not be poor, have experienced stagnant income for several years and can no longer preserve the middle-class standard of living they used to enjoy. This group has been abandoned by the state. The minimum threshold for income tax eligibility could be increased and if that were not enough, some of these workers could be included in EITC. This would be a good way to reduce the massive levels of income disparity without generating distortions in the economy. The middle class spends most of its income on consumption, so the positive impact on the economy would be immediate.
This program could be implemented in several countries. In addition to being easily enforceable and effective, it can easily be expanded during periods of economic hardship. In a world where technological change will only further widen the income gap, these types of programs will start to become more relevant.
It is important in designing these programs that they not to lose their focus on individual human dignity. In my opinion, there should only be three welfare plans. The EITC, which helps those who do work but do not earn a sufficient income; an unemployment subsidy for those who are unemployed but want to work; and a disability pension to help people who unfortunately cannot work due to their physical condition. Anything else is state control and feeds a complex state technocracy.
HOME SWEET HOME
California, with its sunshine, organic food, massive tech companies, the Golden Gate Bridge, Hollywood, and so much more, is the most populated state with the largest economy in the United States. It is the state that has contributed most momentum to the American and global economies in past decades thanks to major technological advances achieved by its tech companies. It is also the most liberal state, with progressive laws and a population deeply committed to addressing climate change. However, not all is like the movies. It is also the state with the largest population under the poverty line in the United States, and one many choose –or are often forced– to emigrate from.
Since 2011, the US Census Bureau began to publish the Supplemental Poverty Measure (SPM), a poverty index that accounts for other factors related to the cost of living in each state such as the cost of housing, gas, food, payments from the state, and medical expenses, among others.
What is interesting about this indicator is that when poverty rates are measured through the traditional index, which only takes into account family incomes, not the cost of living in each state, Louisiana and Mississippi appear as the states with the highest poverty rates in the country, standing at 19.8%. (15) However, when we take the SPM indicator, which accounts for the cost of living in each state, the state with the second-highest poverty rate in the country is California, with 18.1% of its population below the poverty line. This is mainly due to the high cost of housing, which greatly reduces the middle and lower classes’ available income, many of whom spend more than half of their income on rent. Other relevant factors in California are the high cost of gas and electricity due to bad planning and new environmental regulations. According to the traditional measurement, California has a 12.5% poverty rate, but the relevant figure is the one provided by the alternative index. (16)
Buying a house in the United States is more expensive than ever before. In 1970, the average price of real estate measured in current US dollars was $50,222, in early 2020 that number was $327,000, almost five times more. (17) During that same period, the average family income grew by 37%. (18) It is no coincidence that the two states with the lowest poverty rates according to the SPM are Iowa (6.7%) and Kansas (7.8%), whose properties are among the cheapest in the US (43 and 44 ranked nationally).
The high real estate prices on the West and Northeast Coasts are driving significant migration to states such as Arizona, Idaho, Colorado, Texas, North Carolina, South Carolina, and Florida. (19) Homeownership is a middle-class symbol, and people’s inability to access housing speaks to a system that is not working properly.
In cities like San Francisco, Los Angeles, Paris, London, Moscow, Milan, Lisbon, Munich, and Rome, you need more than 15 years’ worth of average income to buy an average piece of property. Hong Kong sits at the top of the Asian ranking, with 47 yearly incomes needed to buy a piece of property. In Latin America, Buenos Aires tops the list with 26 years, followed closely by Bogota with 25 years of income needed to buy a home. (20)
The cost of housing is central to the issue of inequality because it is what those who earn the least spend the majority of their income on. It is also one of the main complaints of young people, and a crucial matter in the Pandemial Uprising. Homeownership plays a central role in the social order of many countries, tipping voters toward center and center-right parties and away from left-wing ideologies. In France, where the net average salary is 2,000 euros per month, the cost of a 30-year mortgage to purchase a 300,000 euro, 40-square-meter apartment is 1,183 euros. If we add in the cost of power, gas, water and property taxes (which add up to an additional 300 euros per month), this person is left with 517 euros a month to spend on groceries, transport, and any other expenses, which is clearly not enough. (21) This person has two alternatives: get married quick (assuming they will not get a divorce) to split the mortgage or rent a small apartment for 600 to 800 euros a month. In an unstable job market where freelancers are gaining increasing relevance, few people can commit to a 30-year mortgage for such large amounts.
The housing market is like any other. If there is demand but no supply, prices go up. Too many urban regulations prevent the construction of several floors and maintain single-family zoning districts. Also, in many states like California, environmental impact-related permits can delay new constructions for several months or even years. According to estimations by The Economist, the rate of construction of new homes in the United States is half of what it was in 1960. (22)
After
