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“Rich man, poor man, beggar man, thief”

From the poem “Rich Man, Poor Man” by Josephine Preston Peabody

The phrase “rich man, poor man” iconic for many, likely evokes two images: the typical predatory “fat cat” and the threadbare street urchin. Do those traditional images apply today? A recent article, “Soaking the Rich: Why Warren Buffett is All Wet“, addressed the “rich man” half of the pair. Debate on just what constitutes “rich” has been fairly constant since the 2008 Presidential election. Opinions do vary. In this article, the “poor man” part of the duo is the focus.

Just what is the definition of “poor” in American today? This is a very relevant and timely question in light of the budget deficits we’ve been running at both the federal and state levels of government. A large portion of government spending is “mandatory,” represented by the stacks of pennies on the left in the visualization below.

Most “mandatory” spending consists of entitlement payments. Entitlement programs are:

“The kind of government program that provides individuals with personal financial benefits (or sometimes special government-provided goods or services) to which an indefinite (but usually rather large) number of potential beneficiaries have a legal right (enforceable in court, if necessary) whenever they meet eligibility conditions that are specified by the standing law that authorizes the program. The beneficiaries of entitlement programs are normally individual citizens or residents, but sometimes organizations such as business corporations, local governments, or even political parties may have similar special “entitlements” under certain programs. The most important examples of entitlement programs at the federal level in the United States would include Social Security, Medicare, and Medicaid, most Veterans’ Administration programs, federal employee and military retirement plans, unemployment compensation, food stamps, and agricultural price support programs.”

The visualization clearly shows that a little over half of the President’s proposed budget for 2010 consisted of this type of spending. [And, please note, because beneficiaries have a legally enforceable right to receive entitlement payments so long as they meet the eligibility conditions defined by law, these expenditures cannot be reduced or cut entirely unless Congress amends the law to change those eligibility conditions or repeals the law to do away with the program. So, the chance of reducing the number of pennies stacked on the left side of the visualization is, in practical terms, less than zero.]

Although it is true that in order to receive entitlement payments beneficiaries must meet certain eligibility requirements, only that portion of entitlement programs designed to assist the poor have eligibility requirements based on income and/or financial resources. There are currently more than eighty (80) such means-tested entitlement programs providing cash and/or non-cash aid to individuals in the United States. The largest of these is the Medicaid program, but others include SNAP (formerly known as Food Stamps), TANF (formerly known as Aid to Families with Dependent Children), federal housing assistance, and Supplemental Security Income, to name only a few.

The government bureaucrats that administer most means-tested entitlement programs qualify a person’s eligibility for benefits based on that person’s annual household income compared to federal poverty guidelines. Federal poverty guidelines are modified on at least an annual basis. The most current ones were adopted in August of this year and are as follows:

In considering these guidelines, it’s important to understand that only 4% of of total government welfare spending is considered when determining if someone meets them. In other words, the dollar value of Medicaid benefits, food stamps, federal housing assistance, and even government aid paid to a person in cash is not typically counted as “income” for the purposes of determining whether that person qualifies as poor under the federal poverty guidelines. A single person can earn up to $10,830 per year in addition to the cash value of all the government benefits he receives and still be identified as “poor.” As a result of defining poverty in this manner, total means-tested welfare spending in fiscal year 2008 amounted to around $16,800 for each poor person, defined as at or below 100% the federal poverty guidelines, in this country.

Having gone to all the trouble to calculate these guidelines, and having specifically excluded the cash value of so many government welfare payments from the calculations, you’d think the federal government would use them, as written, to determine means-tested entitlement benefits. But, no, that would make too much sense. Instead, the government routinely chooses to cast an even wider, deeper “safety net” by awarding benefits to persons who, in some instances, make substantially more money than these federal guidelines say constitutes poverty.

The new health reform law is a very good example. Under that law, the states are required to extend Medicaid coverage to persons who make up to 138% of the federal poverty guidelines. In addition, people who make between 139% and 400% of the federal poverty guidelines will be eligible to receive payments, from public tax dollars, to subsidize their purchase of private health insurance. The table below shows these percentages in terms of the annual income beneficiaries of these entitlement payments can earn and still qualify:

In light of the fact that the median income of Nebraskans, according to U.S. Census data, is in the neighborhood of $60,000 per year, the 400% of poverty guidelines provision would qualify many Nebraskans who earn substantially more than the state’s median income to receive public assistance. As a matter of fact, if Nebraska’s Governor and his wife had three children under the age of 26, his salary ($105,000 per year) would come close to qualifying him for federal assistance in paying for private health insurance. Something is very wrong with this picture.

And the practice of using multipliers of the federal poverty guidelines to determine eligibility for entitlement benefits does not end there. Benefits under the federal SCHIPS program that extends health coverage to “needy” children are extended to families making up to 200% of the federal poverty guidelines. The State of Nebraska extends Medicaid coverage to pregnant women making up to 185% of the federal poverty level.

In fact, on average, government welfare spending amounts to around $7,000 per year for each individual who is poor or who has an income below 200 percent of the poverty level. This comes to $28,000 per year for each lower-income family of four. Around one-third of the U.S. population falls within this income range (i.e., 200% of the federal poverty guidelines or $44,100 per year for a family of four).

Americans do not begrudge public assistance to the truly needy. But, they DO object to providing public assistance to those who are financially capable of fending for themselves, or they WOULD object to doing so if they realized just how far up the income “food chain” a number entitlement payments actually go.

Do people base some of their most important life choices on the income-based eligibility guidelines utilized by these programs? You bet. A case in point formerly http://www.cbsnews.com/stories/2010/11/23/national/main7083182.shtml?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed:+CBSNewsPCAnswer+(PC+Answer:+CBSNews.com): A young bride, paralyzed from the chest down when one of her bridesmaids pushed her into a swimming pool just prior to her wedding, recently postponed her marriage plans because she discovered she would no longer meet Medicaid income requirements as a married person. The reluctant bride and her fiance plan to live together without the benefit of marriage instead. Although she’s reticent to name the bridesmaid who pushed her or, apparently, to take legal action to hold that person accountable for her negligent action, the young bride IS comfortable relying upon her fellow citizens to cover her medical bills for the indefinite future — all while living in a “household” which no longer technically qualifies for that assistance.

The net effect of social welfare programs is to displace personal responsibility and its alternative, private charity, in favor of making the government the payer of first resort. By failing to consistently apply a single standard to determine eligibility and by excluding the cash value of government assistance payments when calculating income for the purpose of defining poverty levels, we end up providing assistance, not only for the clearly “needy,” but also for an increasingly larger group of people who, although certainly not “rich,” are capable of standing on their own two feet given the proper motivation to do so. Entitlement programs crafted in the manner described herein rob them of that motivation and, in the process, take their liberty as well. No man who depends upon others for his subsistence can ever be truly free.

Make no mistake, I believe I am my brother’s keeper. But Christian charity is appropriately extended only to those who cannot support themselves. If any would not work, neither should he eat, at least, not at the public expense. To do otherwise is to reward slothfulness and consume what is meant to encourage the industrious and to support the sick and afflicted (i.e., the truly needy). In other words, all men are my brothers. It is no burden for me to carry the lame among them. But those hitchhikers we picked up a while back? They’re getting heavier by the mile . . . and, as the song says, it’s a long, long road.

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References:

The source for the budget visualization, above is a YouTube video from the keeper of the channel 10,000Pennies and companion website Political Math. There are many such videos available and interesting reads on the site, which we highly recommend.

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Here’s an excellent letter to the editor of the Lincoln Journal Star on the subject of the proper relationship between personal responsibility, private charity, and civil government. It’s heartening to know that there are still a few hardy souls out there who still “get it.” Kudos to Chris Collins of Davey, Nebraska.