04/10/2017

23 Ways Big Government Is Hurting The Poor

Daren Bakst, Foundation for Economic Education

Advocates for big government often equate expanding government with concern for the poor. But reality speaks to the contrary: Expanding government often has very harmful effects on the poor.

This reality is precisely what is addressed in a forthcoming special report from The Heritage Foundation, “Big Government Policies That Hurt the Poor and How to Address Them.”

Rather than looking at welfare policy—a usual focus of analysts when discussing policies that impact the poor—the report focuses on economic policy, including regulation.

The authors identify 23 policies and provide concrete solutions that would allow those struggling financially to have more opportunities and a higher standard of living. As indicated in the report, these policies are just the tip of the iceberg.

The authors found three recurring themes that marked the policies they identified:

1. Cronyism

A significant number of the policies are classic examples of cronyism. It’s quite illuminating how government policies supposedly designed to protect allegedly vulnerable workers or consumers wind up, in reality, helping dominant producers or politically favored special interests.

2. Disproportionate Impact on the Poor Through Artificially High Prices

Many of the policies identified drive up consumer prices, such as for food and energy. This disproportionately hurts the poor because a greater share of their incomes go to meeting basic needs, as compared to households at higher income levels (see the chart below).

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In Search Of History

The Reagan Tax Cuts Worked

Thanks to "bracket creep," the inflation of the 1970s pushed millions of taxpayers into higher tax brackets even though their inflation-adjusted incomes were not rising. To help offset this tax increase and also to improve incentives to work, save, and invest, President Reagan proposed sweeping tax rate reductions during the 1980s. What happened? Total tax revenues climbed by 99.4 percent during the 1980s, and the results are even more impressive when looking at what happened to personal income tax revenues. Once the economy received an unambiguous tax cut in January 1983, income tax revenues climbed dramatically, increasing by more than 54 percent by 1989 (28 percent after adjusting for inflation).

 

-- Daniel J. Mitchell,

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  • Unemployment:
    FreeMarket Central BLS: 4.07%
    FreeMarket Central Shadow Stats: 21.7%
  • Inflation:
    FreeMarket Central March Year-to-Year: 2.21% (CPI-U*)
    FreeMarket Central Shadow Stats: 9.9%

*[cpi-u is the Bureau of Labor Statistics inflation rate for all urban consumers]

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