30 Million Non-Poor Americans Have Been Mislaid
By David Henderson
Because, today, we are no longer counting those who are in poverty after we’ve helped them. Today we are counting the number who are in poverty before we’ve helped them.
Tim Worstall explains the weird way in which the federal government counts people who are poor: it doesn’t include in their income many of the benefits it gives them to take them out of poverty. If those benefits were included, many millions of people now officially counted as poor would not be so counted.
I made a similar point in a policy report for the National Center for Policy Analysis in 2008. Here’s what I wrote:
The second policy, increasing the Earned Income Tax Credit (EITC) by raising the upper end of the income range over which people qualify, could have a similar effect to increasing marginal tax rates. Those at the new upper end would likely cut their work hours — and, therefore, their pay — to get the marginal subsidy for not working. Assuming this effect were not enough to cause a noticeable effect on wage rates, before-tax incomes of the newly qualifying EITC recipients would fall. Of course, they would be better off in income terms, but if the measure of income does not include the tax credit, measured inequality would increase. Just as in the case of increases in marginal tax rates, one can imagine advocates of an EITC increase calling for further increases on the grounds that the previous increases were not large enough.
See here for my whole study.
HT to Tyler Cowen.