Editor’s note: This is the second of two columns by Eric Schansberg. The first part appeared in Friday’s paper.
Our War on Drugs naturally leads to Prohibition-style violence and gangs, especially in inner cities. The artificially high profits are a temptation for teens to work in that sector.
Sentencing guidelines allow children to engage in crimes with the promise that their records will be expunged when they become adults. Combined with poverty, the prevalence of single-parent households, and less-than-optimal education, the current drug policy provides a wide road from school to prison.
If one tries to get a legal job, we have many laws that make it more expensive to hire workers. In particular, when productivity is low, artificial increases in compensation can make it prohibitively expensive to hire less-skilled workers.
From workers’ compensation to the Affordable Care Act, the flip side of trying to help workers is making them more expensive and less employable.
The most famous of these interventions is the minimum wage — where we try to help heads of households who need a “living wage” by making millions of workers more expensive to hire. Even with the policy’s benefits, the costs are troubling, and the policy is clearly not well-targeted.
Other laws serve to lock-out workers directly. For example, taxicab medallions erect artificial barriers to entry into a profession that would be ideal for many low-skilled workers. Occupational licensing makes it more difficult to get into dozens of professions — for example, hair stylists and working on nails.
If you’re fortunate enough to get a job, many of the working poor get to pay local and state income taxes. In 2013, the National Center for Children in Poverty reports that 16 states impose income taxes on workers at and below the poverty line. In 2011, the Center for Budget and Policy Priorities reported that 24 states imposed income taxes on workers within 125 percent of the poverty line.
The federal government won’t make you pay income taxes if you’re poor (unless you’re a one-person household). But they’ll nail you with payroll (Federal Insurance Contributions Act or FICA) taxes on income to finance entitlement programs for retirees: 15.3 percent of every dollar earned — no deductions, no exemptions, no credits. If you’re at the poverty line, you lose about $3,000 per year to FICA.
Government redistribution is often used to “reverse Robin Hood” — taking money from those with less income to redistribute to those with more income. Two huge examples:
First, the federal government subsidizes the purchase of health insurance through employers. This policy causes the bulk of our problems in health insurance and health care, but that’s a topic for another day.
Here, the problem is that the subsidy is pricey (more than $250 billion per year; $3,250 from the average family of four). And it is regressive, disproportionately helping those with more income. Second, the home mortgage interest deduction is also regressive and pricey (another $130 billion — $1,700 per family).
What about spending your legal take-home pay? Unfortunately, there are a range of policies that drive up the price of food (farm policy), clothing (trade protectionism), shelter (regulations in housing) and health care (dozens of policies).
When you retire, you can hope to receive Social Security and Medicare from people who are then paying their FICA taxes. Well, Medicare is OK, but they’re reducing it now — and will cut it much more in the future. And the rate of return on Social Security now averages 0 percent — and is less for the poor and disadvantaged minorities (since they die earlier than average).
Beyond the grave, estate taxes are famous for taxing the same money for a second or third time at death. But for more marginal people, Social Security is their nest egg. In addition to its anemic low rate-of-return, Social Security is only a stream of income, not an asset that can be passed along to descendants — quite a death tax on those with lower incomes.
From before the cradle to beyond the grave, government imposes huge costs on people, even the most marginal in our society.
Eric Schansberg, an adjunct scholar of the Indiana Policy Review Foundation, is a professor of economics at Indiana University Southeast. Send comments to [email protected].