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Is Government Welfare Only Good for the Rich?

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Message Seymour Patterson

Among the American professional political class, the perception of welfare subsidies for the affluent and the poor seems to be based on a bizarre dichotomy. Some members of Congress would put billions of additional government welfare dollars into the coffers of too-big-to-fail Wall Street corporations and banks. At the same time, they would reduce by billions the welfare dollars going to the poor. Interestingly, this dichotomy is not tied to party affiliation. Each party seems to think it a badge of honor to reduce welfare subsidies to the poor. Though they seemed contrary to his "liberal" reputation, President Clinton's welfare cuts were a cause for celebration. And, oddly, sometimes the very people who are harmed by the cuts praise the skewed welfare distribution policies that produced them. When you think about it, such people would seem to have a pretty peculiar mental malady.

Some Americans appear eager to increase welfare inequality in the U.S. for dubious theoretical reasons. One of the most vacuous is the notion that the wealthy are possessed of inherent goodness, while the poor are devoid of virtue. Another argument for welfare inequality is that the affluent need disproportionate wealth in order to fund commercial investments. To that end, many congresspersons advocate cuts in top marginal tax rates, assuming that this will release the creative juices of the wealthy and liberate their pent-up investment inclinations. Some of the lawmakers are so convinced of the need for such a policy that they aren't above shutting down the government to achieve their legislative goals. Yet, these very same congresspersons don't want to raise the minimum wage, extend unemployment benefits, or even expand Medicaid (some red-state governors adamantly refuse to do so) as part of the Obamacare effort to make health care accessible to every American. A successful outcome for this program would greatly benefit people who are down on their luck--namely, the poor.

Americans, generally, tend to see the affluent in a favorable light. Maybe this is why we loved the popular TV series Dallas (1978-91), and had a love-hate connection to its dysfunctional, but opulent, fictional family headed by J. R. Ewing. We like rich people, because we correlate their success with all things good--hard work, good character, honesty, wisdom, and patriotism (even when many corporations don't hesitate for more than a heartbeat to move their companies off-shore for higher profits).

Some wealthy people hide their money in the Cayman Islands or in secret Swiss bank accounts to avoid paying U.S. taxes. We don't punish them for these misdeeds. Instead, though we don't necessarily celebrate their behavior, we rationalize it as a search for greater profitability, accepting it as the driving force of a capitalist society and necessary to keep shareholders happy. Even in cases of corporate criminality, we tend to show not even a flicker of outrage. When Bank of America was recently fined $17 billion for illegal practices in mortgage-lending and financial disclosures, the public response was in large part simply amusement over how insignificant a punishment the fine represented.

The response is quite different, however, when it comes to the poor. Accolades are few, because the poor are commonly perceived as cheats, or as lazy, dependent, and lacking in mental competence. Strangely, many Americans believe that government welfare to the poor encourages dependence and bad behavior, but that welfare for the rich encourages industry and good behavior. Perhaps it is true at some level that the effects of welfare subsidies are different for the wealthy and the poor. One can easily agree with members of Congress and many ordinary Americans that giving a wealthy person some extra dollars isn't likely to change his or her buying behavior: the essentials of life will already have been comfortably covered by existing income, and one can, figuratively or literally, buy just so many Bentleys, Rolls Royces, and yachts at any level of income. One can also agree that, if you give a poor man some extra dollars, he will probably spend them immediately--but it will generally be on food, clothing, rent, or other necessities of life. The different ways rich and poor spend their gifted extra dollars have nothing to do with innate goodness or badness; rather, they have everything to do with income inequality.

In considering the effects of welfare distribution, it should be noted that giving corporations subsidies (or tax breaks) to keep their operations in the U.S. doesn't seem to work very well. Corporations go abroad to avoid paying U.S. corporate taxes, which are among the highest among industrialized countries at 39 percent. Corporations also have lobbyists, lawyers, and accountants who help them legally circumvent tax liabilities or reduce them. This propensity of corporations to conceal profits and avoid taxes suggests to me a strategy for keeping them at home: namely, raise the corporate tax rates! I grant that this notion seems counterintuitive. Yet, if a rich person has to pay higher taxes at home, he (or she) can avoid them by increasing investments in the company's domestic operations and paying workers more. The problem is that the tax bite on the rich is currently too low--below fifty percent--to achieve this outcome. Instead, it incentivizes the perverse, lustful pursuit of personal gain for its own sake, reminiscent of Ebenezer Scrooge.

Today, surprisingly, the rich in the U.S. get at least as much government welfare as the poor. According to an article written by Bill Quigley, our government gives the rich over one trillion dollars in the form of tax breaks and subsidies. At the same time, low-income Americans, constituting about a third of the U.S. population, receive some form of welfare that is also in the neighborhood of one trillion dollars. Among many Americans, however, the attitude toward welfare for the poor remains grudging and negative. We continue to identify many welfare recipients with demeaning stereotypes and unflattering nomenclature: the expression "Welfare Queens" comes to mind. Congressman Paul Ryan asserts that welfare exacerbates the problem of poverty, but this ignores the fact that many of the poor are physically disabled, mentally challenged, or dependent children.

Today, another major area in particular need of welfare assistance is higher education. Many poor students amass debilitating student debt to finance their education, which arguably ought to be free. Since the 1980s, total student debt has risen to the neighborhood of a whopping trillion dollars. While there has been some recent discussion about ways to address this problem, I believe nothing short of total debt forgiveness can bring about meaningful relief for students. After that, the next step should be to make higher education free for all Americans.

There are many issues to sort out in finding the right balance in government welfare subsidies--in determining how much should go toward incentivizing America's investor class and how much toward meeting the basic needs of ordinary people. However, what I've found most instructive in considering the question of inequality in our country is the ways in which we Americans tend to perceive the wealthy and the poor. We accept that welfare is good for the rich, but bad for the poor. We accept that it's okay for the rich to send lobbyists to Washington to make their case, while the poor have no one to champion their cause on Capitol Hill. For me, the crying shame in our country is that there is still no political cost, partisan or popular, for cutting benefits to the poor.

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Seymour Patterson received a Ph.D. in economics from the University of Oklahoma in 1980. He has taught courses and done research in international economics and economic development. He has been the recipient of two Fulbright awards--the first in (more...)
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