Ten Questions for Jerry Brown

SACRAMENTO, CA - OCTOBER 27: California Governor Jerry Brown announces his public employee pension reform plan October 27, 2011 at the State Capitol in Sacramento, California. Gov. Brown proposed 12 major reforms for state and local pension systems that he claims would end abuses and reduce taypayer costs by billions of dollars. (Photo by Max Whittaker/Getty Images)

Tomorrow, Jerry Brown will deliver his 15th and final State of the State Address. It’s too bad California legislators can’t ask questions like our counterparts in the United Kingdom, who query their head of government during “Prime Minister’s Questions.” If we could, here are 10 questions I’d ask Governor Brown:

1.)     You recently chided Congress, “It’s never good to have one party vote one way, and the other party vote 100 percent the other way. That’s dividing America at a time when we need unity.” Does this mean you’ll no longer sign legislation that is supported by only one party in the Assembly, as you did with the Gas Tax and 20 other bills last year?

2.)     For children living in poverty, California is the worst place in America to get an education, ranking near the bottom for every academic performance measure. Your education plan has added almost $30 billion in yearly spending, yet our schools have if anything gotten worse at educating poor children. How do you explain this?

3.)     Shortly after taking office, you called reforming the much-abused California Environmental Quality Act “the Lord’s work.” Yet no CEQA reform has happened during your tenure even as the cost of housing has soared to the point that 1 out of 3 Californians is “seriously considering” leaving the state because of it. With less than one year left in your term, when is the Lord’s work going to begin?

4.)     While campaigning for Governor, you promised you would not raise taxes without voter approval. Yet last year you signed a $52 billion tax increase without giving voters a say – and now, you’re opposing an effort by voters to undo that tax hike. How should ordinary Californians respond when elected officials break their promises?

5.)     In California, the cost of building a mile of road is triple what it is in other states. One reason, according to the nonpartisan Legislative Analyst, is that Caltrans is overstaffed by 3,500 positions. Yet you are proposing 400 new positions in this year’s budget. Why not learn from other states that build better and cheaper roads before making Californians pay higher taxes?

6.)     Under your watch, California’s unfunded pension liability has grown by over 100 billion, with public employees generally receiving greater benefits than workers in the private sector. You clearly recognize this as a problem, having just filed a commendable opening brief in what could be a landmark state supreme court case. So why did you allow this problem, which threatens vital services and future generations, to get so much worse?

7.)     You claim California is prosperous because it is the world’s “6th largest economy.” Yet adjusting for cost of living and population size, our economy actually ranks 37 out of 50 states in the country. Which statistic do you think more accurately reflects the well-being of ordinary Californians?

8.)     Since you became Governor, the State Budget has grown from $129 billion to $191 billion. What evidence can you point to that this new spending has improved the quality of life for ordinary Californians? Feel free to cite, for example, health outcomes, student achievement, housing affordability, infrastructure quality, workforce participation, poverty rates, family stability, or any other metric.

9.)     The projected cost of High Speed Rail now exceeds $67 billion, with new delays and cost overruns reported almost monthly. And many are doubting the bullet train will have any useful purpose. In the words of Elon Musk, “The train in question would be both slower, more expensive to operate and less safe by two orders of magnitude than flying, so why would anyone use it?” Why would anyone?

10.)     You recently accused others of “ripping the country apart” through partisan actions. Yet in the last few months you’ve called your political opponents “mafia thugs,” “political terrorists,” and “evil in the extreme.” Is this rhetoric bringing the country together?

Assemblyman Kevin Kiley represents the 6th Assembly District, which includes parts of El Dorado, Placer, and Sacramento counties.

This blog post was originally published by Fox and Hounds Daily

California, Poverty Capital — Why are so many people poor in the Golden State?

PovertyCalifornia — not Mississippi, New Mexico, or West Virginia — has the highest poverty rate in the United States. According to the Census Bureau’s Supplemental Poverty Measure — which accounts for the cost of housing, food, utilities, and clothing, and which includes noncash government assistance as a form of income — nearly one out of four Californians is poor. Given robust job growth in the state and the prosperity generated by several industries, especially the supercharged tech sector, the question arises as to why California has so many poor people, especially when the state’s per-capita GDP increased roughly twice as much as the U.S. average over the five years ending in 2016 (12.5 percent, compared with 6.27 percent).

It’s not as if California policymakers have neglected to wage war on poverty. Sacramento and local governments have spent massive amounts in the cause, for decades now. Myriad state and municipal benefit programs overlap with one another; in some cases, individuals with incomes 200 percent above the poverty line receive benefits, according to the California Policy Center. California state and local governments spent nearly $958 billion from 1992 through 2015 on public welfare programs, including cash-assistance payments, vendor payments, and “other public welfare,” according to the U.S. Census Bureau. Unfortunately, California, with 12 percent of the American population, is home today to roughly one in three of the nation’s welfare recipients. The generous spending, then, has not only failed to decrease poverty; it actually seems to have made it worse.

In the late 1980s and early 1990s, some states — principally Wisconsin, Michigan, and Virginia — initiated welfare reform, as did the federal government under President Bill Clinton and the Republican Congress. The common thread of the reformed welfare programs was strong work requirements placed on aid recipients. These overhauls were widely recognized as a big success, as welfare rolls plummeted and millions of former aid recipients entered the workforce. The state and local bureaucracies that implement California’s antipoverty programs, however, have resisted pro-work reforms. In fact, California recipients of state aid receive a disproportionately large share of it in no-strings-attached cash disbursements. It’s as if welfare reform passed California by, leaving a dependency trap in place. Immigrants are falling into it: 55 percent of immigrant families in the state get some kind of means-tested benefits, compared with just 30 percent of natives, according to City Journal contributing editor Kay S. Hymowitz.

Self-interest in the social-services community may be at work here. If California’s poverty rate should ever be substantially reduced by getting the typical welfare client back into the workforce, many bureaucrats could lose their jobs. As economist William A. Niskanen explained back in 1971, public agencies seek to maximize their budgets, through which they acquire increased power, status, comfort, and job security. In order to keep growing its budget, and hence its power, a welfare bureaucracy has an incentive to expand its “customer” base—to ensure that the welfare rolls remain full and, ideally, growing. With 883,000 full-time-equivalent state and local employees in 2014, according to Governing, California has an enormous bureaucracy—a unionized, public-sector workforce that exercises tremendous power through voting and lobbying. Many work in social services.

Further contributing to the poverty problem is California’s housing crisis. Californians spent more than one-third of their incomes on housing in 2014, the third-highest rate in the country. A shortage of housing has driven prices ever higher, far above income increases. And that shortage is a direct outgrowth of misguided policies. “Counties and local governments have imposed restrictive land-use regulations that drove up the price of land and dwellings,” explains analyst Wendell Cox. “Middle income households have been forced to accept lower standards of living while the less fortunate have been driven into poverty by the high cost of housing.” The California Environmental Quality Act (CEQA), passed in 1971, is one example; it can add $1 million to the cost of completing a housing development, says Todd Williams, an Oakland attorney who chairs the Wendel Rosen Black & Dean land-use group. CEQA costs have been known to shut down entire home-building projects. CEQA reform would help increase housing supply, but there’s no real movement to change the law.

Extensive environmental regulations aimed at reducing carbon-dioxide emissions make energy more expensive, also hurting the poor. On some estimates, California energy costs are as much as 50 percent higher than the national average. Jonathan A. Lesser of Continental Economics, author of a 2015 Manhattan Institute study, “Less Carbon, Higher Prices,” found that “in 2012, nearly 1 million California households faced ‘energy poverty’—defined as energy expenditures exceeding 10 percent of household income. In certain California counties, the rate of energy poverty was as high as 15 percent of all households.” A Pacific Research Institute study by Wayne Winegarden found that the rate could exceed 17 percent of median income in some areas. “The impacts on the poorest households are not only the largest,” states Winegarden. “They are clearly unaffordable.”

Looking to help poor and low-income residents, California lawmakers recently passed a measure raising the minimum wage from $10 an hour to $15 an hour by 2022—but a higher minimum wage will do nothing for the 60 percent of Californians who live in poverty and don’t have jobs, and studies suggest that it will likely cause many who do have jobs to lose them. A Harvard study found evidence that “higher minimum wages increase overall exit rates for restaurants” in the Bay Area, where more than a dozen cities and counties, including San Francisco, have changed their minimum-wage ordinances in the last five years. “Estimates suggest that a one-dollar increase in the minimum wage leads to a 14 percent increase in the likelihood of exit for a 3.5-star restaurant (which is the median rating),” the report says. These restaurants are a significant source of employment for low-skilled and entry-level workers.

Apparently content with futile poverty policies, Sacramento lawmakers can turn their attention to what historian Victor Davis Hanson aptly describes as a fixation on “remaking the world.” The political class wants to build a costly and needless high-speed rail system; talks of secession from a United States presided over by Donald Trump; hired former attorney general Eric Holder to “resist” Trump’s agenda; enacted the first state-level cap-and-trade regime; established California as a “sanctuary state” for illegal immigrants; banned plastic bags, threatening the jobs of thousands of workers involved in their manufacture; and is consumed by its dedication to “California values.” All this only reinforces the rest of America’s perception of an out-of-touch Left Coast, to the disservice of millions of Californians whose values are more traditional, including many of the state’s poor residents.

California’s de facto status as a one-party state lies at the heart of its poverty problem. With a permanent majority in the state senate and the assembly, a prolonged dominance in the executive branch, and a weak opposition, California Democrats have long been free to indulge blue-state ideology while paying little or no political price. The state’s poverty problem is unlikely to improve while policymakers remain unwilling to unleash the engines of economic prosperity that drove California to its golden years.

California’s soaring poverty rates tied to its fiscal irresponsibility

homelessThe U.S. Census Bureau’s latest statistics, released this month, find that California’s poverty rate remains the highest in the nation, despite dipping ever so slightly. The reason is no surprise: It’s tied largely to the state’s unusually high cost of living.

Yet despite Democratic lawmakers’ oft-stated concern about rising income inequality, they spent the recently concluded legislative session imposing taxes, fees and new regulations that will drive up the costs of everything from transportation to housing.

In other words, they’ve been creating the poverty and inequality problem they say they’re here to solve. The burden of their failure falls most heavily on those Californians who earn the least. The new government programs they will fund with the additional tax revenue will benefit only a small number of poor people and very often at the expense of other poor people.

Under the official federal poverty measure, California’s percentage of residents living below the poverty threshold is 14.5 percent, which is nearly a percentage point above the national average. But using the bureau’s more relevant “Supplemental Poverty Measure,” which accounts for public assistance payments and the state’s sky-high housing costs, California’s poverty rate is a shocking 20.4 percent, well above the national average of 13. 9 percent.

California increasingly is becoming a state of haves and have-nots. The homeownership rates hover around 54 percent, lower than every state except New York. The cost of groceries, transportation and utilities are well above the national average, with California’s health-care costs being the only major cost-of-living area that’s around the national average.

To make matters worse, California’s troubled financial situation – mainly the unfunded debts the state has accumulated to pay for pension and medical care promises made to government employees – imposes an additional burden on taxpayers. That means higher taxes and an eroded quality of public services, as local governments struggle to balance their budgets.

The state’s distressing finances have achieved for us a kind of fame. A new study from “Truth in Accounting” ranked California near the bottom – 43rd in the nation – for its fiscal state of affairs. The group gave California a financial grade of F because of its “staggering debt burden of $255.1 billion.” That leaves “an unbelievable $21,600 for every California taxpayer,” compared to an average debt of $9,900 per taxpayer nationwide, the group reported.

The Truth in Accounting report only looks at state liabilities. California Policy Center, for instance, found that California’s total state and local debt may be closer to $1.3 trillion, which puts the total per-taxpayer burden above $100,000.

Obviously, state officials are not about to send a $21,600 bill to every taxpayer. As Truth in Accounting explains, state officials use a variety of accounting tricks to hide the size of the debt: They inflate revenue assumptions in the pension funds (the higher the expected rate of return on investments, the lower the stated pension debt). They count borrowed money as income. They understate the true cost of government. They delay payments of bills to the next fiscal year, to mask the size of the current debt.

The “Financial State of the States” report found it even more troubling that “state government officials continue to obscure large amounts of retirement debt on their balance sheets, despite new rules to increase financial transparency.” And while California has reported much of its pension debt, “the state continues to hide most of its retiree health care debt,” with a total hidden debt of $65.9 billion.

But as unfunded liabilities mount, officials will have to find ways to pay for the growing debt. “Gov. Brown needs to come up with this money through increased taxes, or slash promised benefits to teachers, police officers, firefighters, and other public servants,” according to the group. In California, the courts have greatly limited public employee pension funds’ ability to reduce benefits, even going forward. That means Californians can expect the usual response: pressure for new taxes and fees at every level of government and cutbacks in promised services.

These debt levels aren’t inevitable. Nine states have surpluses as high as $38,200 per taxpayer, after all of their debts are paid. Several others have a relatively modest amount of debt per capita. But California and eight other states are financial sinkholes.

California is known for its progressive tax rates, meaning that the wealthiest people here pay the bulk of the state’s income taxes. Gov. Jerry Brown often warns during his budget presentations that the state’s reliance on capital gains tax receipts makes the general fund vulnerable to recession. If the economy dips, revenues fall precipitously, thus leading to large deficits. He cautions the Legislature against approving permanent spending programs that can’t be sustained if the economy goes south.

Despite such progressivism, the poorest Californians are not off the hook. The governor this year signed a large increase in the gasoline tax, averaging 12 cents a gallon. He also signed an extension of the state’s cap-and-trade system, which imposes new costs on manufacturers and refiners to force them to reduce their carbon emissions. The program’s extension is predicted to add as much as 63 cents on a gallon of gasoline by 2021, according to the well-respected Legislative Analyst’s Office.

These are “regressive” taxes that fall heavily on the poor.

California also has high sales and use taxes. The standard sales-tax rate is 7.25 percent. Many cities have local add-ons that increase those taxes to as much as 10.25 percent on most purchases, which is among the highest in the nation. These, too, are regressive taxes that boost the cost of living for everyone, but harm the poor most because they eat up a larger proportional share of their budgets.

Fiscal problems also hit poor people the hardest. Some of the state’s poorest cities (Stockton, Vallejo, Richmond and San Bernardino) have struggled under burdensome pension debts. When Stockton went bankrupt, for instance, local officials responded by increasing sales taxes as part of their “work-out plan.” High-paid public employees had their full salaries and pensions protected, while low-wage residents had to pay more in sales taxes.

But the biggest poverty problem involves housing costs. Even the state Legislature has recognized the degree to which soaring housing costs have become a statewide “crisis.” Yet the housing package that passed in the waning hours of the legislative session is likely to exacerbate the “cost of living” problem.

One measure (Senate Bill 2) increases fees on many real-estate transactions. Another will put a $3 billion housing bond on the November 2018 ballot. If voters approve, Senate Bill 3 will create new pressure on the state budget. The one measure (Senate Bill 35) that seeks to streamline the approval process for housing projects also includes a union-backed prevailing-wage requirement that could add significantly to the cost of building these projects. What one hand giveth, the other taketh away.

So, California legislators continue to drive up the cost of housing and transportation, which are the main drivers of the state’s depressingly high rates of poverty and income inequality. They ignore the bone-crushing debt levels that create constant pressure for higher taxes and that obliterate the public services upon which the poorest residents are most dependent. These actions speak far louder than their constant blather about helping the poor.

Steven Greenhut is contributing editor for the California Policy Center. He is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

This article was originally published by the California Policy Center

California’s poverty rate remains nation’s highest

As reported by the Sacramento Bee:

One in five Californians lives in poverty, the highest rate in the country, according to new data from the U.S. Census Bureau.

The “Supplemental Poverty Measure,” factors in cost of living and shows a stubbornly high share of Golden State residents in poverty even as the national rate has dropped slightly.

Under the methodology, an estimated 20.4 percent of Californians lived below the poverty line in a three-year average of 2014, 2015 and 2016. That is virtually unchanged from the 20.6 percent average for 2013, 2014 and 2015, according to Tuesday’s release.

Nationwide, 14.7 percent of people lived in poverty under the supplemental measure during the latest three-year average. That is down slightly from 15.1 percent for the previous three years.

Click here to read the full article

California has the nation’s highest poverty rate

California’s job and economic growth has outpaced much of the nation in recent years. That growth, however, has not eliminated one of the state’s biggest challenges: poverty.

This week, State Assembly Republican Leader Chad Mayes called poverty California’s No. 1 priority during a forum of legislative leaders in Sacramento.

Mayes, who represents parts of San Bernardino and Riverside counties, claimed the state’s poverty rate is higher than any state in the nation when considering factors such as cost-of-living.

“If you look at the official poverty measure in California, we’re about average with the rest of the country,” Mayes said. “But if you use the supplemental poverty measure, we are in the lead. We have the highest poverty rate in the nation — higher than New Mexico, higher than any of the southern states, Louisiana, Alabama, higher than Idaho.”

We decided to fact-check whether the report Mayes cited really shows that California has the highest poverty rate in the nation.

Our research

From 2013 to 2015, California had America’s 17th-highest poverty rate, 15 percent, according to the U.S. Census Bureau’s Official Poverty Measure. That measure uses income levels to determine poverty, but does not consider differences in cost-of-living among states. It lists the official poverty threshold for a two-adult, two-child family at $24,036 in 2015.

During the same period, California had the highest poverty rate, 20.6 percent, according to the census’ Supplemental Poverty Measure. That study does account for cost-of-living, including taxes, housing and medical costs, and is considered by researchers a more accurate reflection of poverty. For a two-adult, two-child family in California, the poverty threshold was an average of $30,000, depending on the region in the state, according to a 2014 analysis by Public Policy Institute of California.

Looking at state poverty rates, the second highest is Florida’s 19 percent, followed by New York’s and Louisiana’s shared 17.9 percent rate. The national average is 15.1 percent using the supplemental measure.

“I think Assemblymember Mayes’ comments are accurate,” said Chris Hoene, executive director of the left-leaning California Budget Policy Center, which has closely studied poverty in the state.

Hoene said the high poverty rate in the supplemental report is driven by California’s stratospheric housing costs. He added that use of the supplemental measure has gained wide acceptance among researchers.

“I think in most quarters, that’s not disputed,” he said.

Marybeth Mattingly, a researcher at the Stanford Center on Poverty and Inequality added by email: “Basically, yes, this statement is (sadly) accurate.”

Caroline Danielson, who studies poverty at the Public Policy Institute of California, noted that when considering the margin of error in the supplemental poverty report, California and Florida are closer than one might assume. California’s estimate has a margin of error of ± 0.8 percent while Florida’s had a margin of ± 1.1 percent.

“California’s rate is essentially the same as Florida’s,” she said. “California, we might say, is in the top two.”

Several researchers noted that California’s poverty rate has declined in recent years: “But they haven’t moved as much as you would hope,” Hoene said.

Our ruling

State Assembly Republican Leader Chad Mayes said recently that California has “the highest poverty rate in the nation” when considering the U.S. Census Bureau’s Supplemental Poverty Measure.

Data from that report, and researchers who study poverty, support Mayes’ statement. The state’s 20.6 percent poverty rate is higher than any other, though Florida’s 19 percent rate is close, especially when considering the margin of error.

The supplemental report is considered by experts the best state-by-state measure of poverty, because it takes into account geographic differences in cost-of-living, not just income levels.

In his statement, Mayes cited the specific report that backs his claim, and added the context that another report, one that doesn’t account for cost-of-living, shows California’s poverty closer to the national average.

Given this clarity and context, we rate Mayes’ statement True.

This article was originally published by Politifact.com

More Bay Area residents struggling than poverty statistics indicate

As reported by the San Jose Mercury News:

Close to 30 percent of the Bay Area’s residents aren’t able to make ends meet as they contend with high housing costs, suggesting poverty is more widespread in the region than official reports indicate, according to a study published Wednesday.

The report by JobTrain, a Menlo Park-based nonprofit organization, estimated that 29.2 percent of Bay Area residents, or roughly 1.45 million people, are not self-sufficient. Self-sufficiency, the study’s authors said, is defined as having a stable place to live and being able to cover the basics for survival.

JobTrain hopes its report, “The Broken Pathway: Uncovering the Economic Inequality in the Bay Area,” will highlight the challenges facing many residents of the nine-county region.

“The problem is much larger than the number of people who are living in poverty in the Bay Area,” said Nora Sobolov, president of JobTrain. “The poverty rate and the unemployment rate don’t tell the full story.”

Stephen Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy, agrees that the challenges are …

Click here to read the full article

Can Senate Republicans Make CA More Affordable?

jean-fuller-15Senate Republicans packaged their best policy proposals on Tuesday, a series of bills aimed at helping veterans, seniors, homeowners and renters as well as parents and students.

Jean Fuller, the Senate Republican leader, pointed to California’s high rents, high poverty rate and high tax burden as ills helped by these bills — a “first step” in helping make the Golden State more affordable.

Fuller cited damning stats: CNBC ranked California the 5th most expensive state to live in the country in 2015, average monthly rent is 50 percent higher here than in the rest of the country40 percent of Californians are living at or near the poverty line and Californians have one of the highest tax burdens in the country.

And earlier this month, the American Legislative Exchange Council gave California one of the worst economic outlooks in the country.

“Senate Republicans united around a very positive agenda that gives voice to Californians being left behind by their own Capitol,” the Bakersfield Republican said.

“There is no question that California has become a very expensive place to live,” Fuller added.

Fuller did not explain how the proposals would be paid for (nor did her office provide an estimate of how much the package would cost). Instead, Fuller said the government should focus on the “most disabled” and the “most vulnerable populations” as a top priority, adding that state revenues have increased steadily over the last few years.

“If the priorities are carefully weighed, I think we do have enough money, especially when we’ve had extra resources come in in the last couple of years,” Fuller said.

Package of Bills

The 11 bills center on tax breaks and proposals focused on encouraging access to work, education and homeownership.

Access to work: One bill restores MediCal coverage for one free pair of eyeglasses every other year for those who fail the DMV vision test. Another bill provides $100 standard allowance for CalWORKs welfare-to-work participants, as well as an allowance for education costs.

Education: One bill provides a tax deduction for college expenses, while another creates a sales and use tax holiday for school supply purchases. A third bill would create a tax deduction for education savings accounts.

Homeownership: There’s a renters tax credit, a bill to eliminate property tax inflation for senior and disabled veterans, and one that would do that same for senior citizens. There’s two proposals giving a property tax exemption for disabled veterans. And there’s a proposal to encourage a homeownership savings accounts that would help first-time homebuyers with a down payment.

Navigating the Senate

Unveiling an agenda at a press conference, however, is far easier than carrying the bills through the Legislature for a Republican caucus with virtually no power. They face a Sisyphean task of getting the bills through a Democratically-controlled Legislature, where they are a mere seat away from irrelevancy — below the dreaded one-third threshold.

According to Bill Whalen, a research fellow at the Hoover Institution at Stanford University, Republicans in the Legislature face three legislative options. The first is to have an idea embraced by Democrats, which could carry the bill to the governor’s desk. The other two are either the bill is dead on arrival or it gets a hearing and then fizzles out.

“There’s three outcomes, two of which are negative,” said Whalen, who served as chief speechwriter and director of public affairs for former Republican Gov. Pete Wilson.

After voters amended the Constitution in 2010 to require only majority approval of the state budget (as opposed to two-thirds), Republicans lost a yearly opportunity to leverage legislation as their numbers in both chambers are only slightly above one-third.

“For a few weeks anyway, Republicans had a lot of relevance in the process,” Whalen said, adding that now Republicans’ leverage is now mostly reserved for Constitutional amendments.

This article was originally published by CalWatchdog.com

Helping The Poor By Hurting Them

Minimum WageIt appears that a $15 minimum wage will become law in California. Almost invariably, the rationale offered by proponents includes the assertion that it will help “the poor.” But, as labor economist Mark Wilson put it, “evidence from a large number of academic studies suggests that minimum wage increases don’t reduce poverty levels.
Beyond the host of logical and empirical issues involved in deciding whether a minimum wage bump will provide more income to “the poor” as a group, there is another ethical issue that never seems to get discussed. Even if low-income households did gain current income as a group in statistical studies, only individuals bear actual benefits or costs, and such wage mandates redistribute wealth away from many low-income individuals in the name of helping “the poor.” As a consequence, much of the desired help for the poor will actually come from others who are poor.
How can a requirement to pay low-skilled workers more harm low-income individuals? Some lose jobs. Others lose work hours. Further, for those who keep their jobs and hours, on-the-job training and fringe benefits will fall, and required effort will rise, to offset hiked wages. And higher current wages are often less valuable than what is given up, particularly on-the-job training that enables people to learn, and therefore earn, their way out of poverty. That is why labor force participation rates fall and quit rates rise when the minimum wage rises (an effect that will be heightened by the large magnitude of the current proposed hike), which is the opposite of what would happen if all workers who kept their jobs benefitted from higher mandated wages.Higher minimum wages will not only disadvantage the least skilled compared to automation and outsourcing possibilities, their increased cost will also force them to compete with more skilled labor. That explains why unions are the biggest backers of such measures — their members will gain from an increased demand for their services regardless of whether the poor gain or lose. But those with more limited skills will suffer from the undermining of their one big competitive advantage — a lower price. And those with the fewest skills, least education, and job experience will face the greatest employment losses now, as well as having rungs to advancement removed from their potential career ladders. These effects will be further magnified by the fact that employers pay far more than the minimum wage to those workers, through added costs for the employer half of Social Security and Medicare taxes, unemployment insurance taxes, worker’s compensation premiums, etc.

With a higher minimum wage, some of those low-income workers lucky enough to already have job experience and a work history will keep their jobs. Many others will simply find themselves to be unemployable. The main consequence will not be that the poor gain, but that some low-income households benefit at the expense of other low-income households.

Minimum wage hikes thus illustrate a very serious, though all-but-ignored issue. Even if poor people in the aggregate end up with higher incomes (a position far from established), it only means that one subset’s increased earnings will be at least somewhat greater that another likely to be even poorer subset’s decreased earnings, greatly harming many of them. And such government-imposed harm cannot be justified by the intent to help the poor.

Gary M. Galles is a professor of economics at Pepperdine University and research fellow with the Independent Institute. His books include Lines of Liberty (2016), Faulty Premises, Faulty Policies (2014), and Apostle of Peace (2013).

Real Solution for Poverty is Economic Growth, Not Welfare State

PovertyIncome inequality is taking center stage as a high profile issue in both national and California politics this year.

An op-ed in Friday’s Washington Post by billionaire industrialist Charles Koch gained attention when he wrote there was one issue he agreed with Democratic Socialist and presidential candidate Bernie Sanders. (Sanders) “believes that we have a two-tiered society that increasingly dooms millions of our fellow citizens to lives of poverty and hopelessness… I agree with him.”

The reference to the agreed upon “two-tired society” caught my attention because of a speech the late congressman and Housing and Urban Development Secretary, Jack Kemp, gave to the Heritage Foundation over a quarter century ago. Kemp was addressing the argument put forth by former New York governor Mario Cuomo that America had created a society of two static classes– the rich and the poor. Kemp argued, rather, that America was divided into two economies.

“One economy – our mainstream economy – is democratic capitalist, market-oriented, entrepreneurial, and incentivized for working families whether in labor or management. … The irony is that the second economy was set up not out of malevolence, but out of a desire to help the poor, alleviate suffering, and provide a basic social safety net. But while the intentions were noble, the results led to a counterproductive economy. Instead of independence, it led to dependency.”

Government solutions to address poverty have been offered since President Lyndon Johnson declared his War on Poverty. Yet, over 50 years after the War on Poverty began — and with about $22 trillion spent — the poverty rate is about the same.

The issues of poverty and income inequality are expected to take a prominent place in this election year. As soon as Gov. Brown released his latest budget, advocates for more money for poverty programs started complaining and campaigning to expand poverty programs. An initiative has been filed to raise and spend more money on poverty issues.

The real solution for poverty and income inequality is economic growth. That was the message Kemp was offering a quarter-century ago and it is still the best answer today.

An essay by Professor John Cochrane at Stanford’s Hoover Institution lays out the powerful argument for promoting strong economic growth.

Cochrane shows the power of economic growth on individuals by demonstrating when the United States enjoyed 3.5 percent economic growth from 1950 to 2000, an individual’s income rose from $16,000 to $50,000 (measured in 2009 dollars.) Had the economy grown at 2 percent – about the growth rate the country has experienced since 2000 — the individual’s income would be $23,000, not $50,000. Quite a difference.

Economic growth not only provides hope for relieving poverty but also is the key to fortifying the sagging middle class.

While Cochrane’s numbers are national in scope, California policymakers must focus on ways to improve growth in one of the largest economies in the world. With the loss of manufacturing jobs, California’s middle class is in jeopardy. With one third of Californians relying on Medi-Cal and the state’s cost-of-living adjusted poverty level the highest in the nation, enhancements to poverty programs is not a long-term answer. The sooner pro-growth policies are put in place, the quicker people can climb out of poverty and boost the middle class.

This is not to say that government cannot have a role in helping the poor.

California recently joined about half the states in providing an Earned Income Tax Credit. An effort is being made to encourage those eligible to file their tax forms and secure the credit. The Earned Income Tax Credit is a positive program to encourage workers to stick with employment as they work on raising their standard of living.

In fact, in that aforementioned speech by Jack Kemp, he included the Earned Income Tax Credit as one part of the solution for lifting people out of poverty.

Kemp’s goal was to reestablish the link between effort and reward.

He said of the poor in his Heritage Foundation speech: “They don’t want lectures on income redistribution and capitalist exploitation, they want income and capitalism.

“They don’t want more government promises and egalitarian welfare schemes, they want to live in neighborhoods free from crime and drug abuse, with good jobs and opportunities to own property and homes; they want quality education so that they and their children can live better lives. They want what we all want – a chance to develop their talent, potential, and possibilities.”

Yet, in Sacramento we hear too much about the need for more and larger poverty programs and too little about encouraging and developing economic growth and incentivizing the link between effort and reward. Shortsighted solutions will not solve the deepening crisis of income inequality.

Developing strong models for economic growth would enhance other quality of life aspects that Californians expect. As Prof. Cochrane notes in his essay, “Only wealthy countries can afford environmental protection and advanced health care.”

The way to increase the wealth for all, to fortify the middle class, and to help take people out of poverty is to promote ideas for economic growth and good jobs. People will have the opportunity to rise — something across the ideological divide that all agree is the goal.

Originally published by Fox and Hounds Daily

Poverty plan offers a wealth of bad ideas

As reported by the San Diego Union-Tribune:

— As legislators return to the Capitol in January, there’s little question the issue of poverty will be high on the agenda. Legislative Democrats have been dismayed that the governor held the line on new social-welfare spending last session and are eager to step up public funding for new and existing programs. And news reports suggest a major new anti-poverty initiative, backed by some charitable organizations, already is garnering serious donations.

Expect poverty to be “big” this year. Even legislative Republicans haven’t resisted too much. They’ve generally been OK with new spending proposals – provided they’re funded without raising taxes. We’ll have to wait and see any specifics from legislators, but we already know the details of the so-called “Lifting Children and Families Out of Poverty Act.” It’s likely to spark a spirited debate during the November 2016 election season given the size of the tax increase it would impose on property owners.

That initiative is one of several possible tax-hike intiatives on the ballot, and proponents appear ready to start collecting signatures. It would impose what supporters call “a sensible and fair surcharge on properties with values of over $3 million” that keeps “all Proposition 13 property tax protections against reassessments … in place.”

The resulting cash flow – between …

Click here to read the full article