Taxes: A Big Gun In The War on Poverty

By :: January 16th, 2014

When Lyndon Johnson declared his War on Poverty 50 years ago this month, he could not have imagined how many battles would be fought through the Tax Code.

In the ‘60s and early ‘70s, the safety net was built almost entirely on spending programs.  Back then, policymakers created Medicare, Medicaid, student loan programs, and Head Start, and made food stamps permanent. They also increased Social Security benefits and housing subsidies for low-income families. Many, though not all, were aimed at the very poorest households.

But starting in the late 1970s, poverty programs changed dramatically. Tax subsidies played a bigger role and, as they did, beneficiaries were no longer just the very poor. Low-income and even middle-income working households also began getting assistance.

The best example is the Earned Income Tax Credit. In 1976, government spent about $22 billion (in today’s dollars) on Aid to Families With Dependent Children (AFDC), then the nation’s major welfare program for poor households. By contrast, the EITC, created the year before, provided only about $5 billion in assistance.

By 2010—in the depths of the Great Recession— the successor program to AFDC, Temporary Assistance for Needy Families or TANF, paid about $27 billion in benefits. But it was dwarfed by an EITC that had grown to $61 billion. The Child Tax Credit, created in 1997, provided nearly $60 billion more to low- and moderate-income households.

Even as the tax-based safety net grew, so did the notion of using the tax code to encourage community development.  For example, in the 1980’s direct spending to build subsidized and government-operated housing for low-income people began to dry up. But in 1986, Congress created the Low-Income Housing Tax Credit to encourage construction and rehabilitation of affordable rental housing.

In the mid- 1980s, Congress established Enterprise Zones as a way to use tax subsidies (and other tools) to drive economic development in certain low-income communities.  In the mid-1990s, it created a similar program for Empowerment Zones. In 2000, Congress developed yet another tax subsidy for economic development, the New Markets Tax Credit.

Tax incentives, of course, have become ubiquitous in all of our lives, no matter our income. The question, a half-century on from LBJ’s landmark speech, is whether the tax code is a reliable weapon in today’s version of the war on poverty.

To highlight the tax code’s central role, the Tax Policy Center is sponsoring a three-part program on Friday, January 24.

The leadoff panel will focus on the Revenue Code as safety net. It will include former Acting Secretary of Commerce Rebecca Blank, former director of the Congressional Budget Office Doug Holtz-Eakin, TPC’s Elaine Maag, and Chris Howard, professor of Government and Public Policy at the College of William & Mary. David Wessel, long-time economics columnist at The Wall Street Journal and now Director of the Brookings Institution’s Hutchins Center on Fiscal and Monetary Policy, will moderate.

The second panel, which I will moderate, will focus on the tax code’s role in enhancing development in low-income communities. Panelists will include Ingrid Gould Ellen, Professor of Urban Planning and Public Policy at NYU  and co-director of the Furman Center for Real Estate and Urban Policy; Michael Rich, Associate Professor in the Department of Politics at Emory University; and Brett Theodos of The Urban Institute.

Jason Furman, chairman of the White House Council of Economic Advisers, will wrap up the discussion with a luncheon speech.

If you’d like to join us, in person or on the Web, you can sign up here.



  1. Michael Bindner  ::  5:16 pm on January 16th, 2014:

    This sounds like an excellent panel. I would say that the future is even greater use of the tax code, particularly the Child Tax Credit (much to the chagrin of Maya MacGuinness), to assure a guaranteed income for families – possibly paying for it by getting rid of the Home Mortgage Deduction – which was not mentioned here but I am sure will be mentioned at the conference – especially if the chief of research for the Realtors is in attendance. While tax reform is not on the menu, I suspect it will be discussed – but not by Jason Furman – who represents a president whose entire tax reform agenda initially was to keep the tax cuts of his predecessor for all but the top 2%. He got it so he’s done.

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  6. Wyn Achenbaum  ::  10:30 am on January 20th, 2014:

    We’re talking about the wrong taxes here, and until we start exploring the right ones, the analogy to rearranging deck chairs is quite apt.

    We currently tax things we ought not to tax, and fail to tax, or tax only lightly, things we ought to be taxing quite heavily. Confining the conversation to tweaking the wrong taxes is rather pointless. It is let’s-not-rock-any-yachts thinking.

    What shouldn’t we tax? Wages, sales, evidences of productive effort.

    Where ought we to be looking? Natural resources and value created by the community.

    Natural resources — water, oil, natural gas, coal, all the metals. We collect ridiculously low taxes from those who hold the rights to those nonrenewables. We seem to be accepting the impolite fiction that those who draw them from the earth actually created them AND can create more when these run out; neither is the case.

    Geosyncronous orbits. Rush hour landing rights at LaGuardia and other space-constrained airports that can’t expand to meet demand. The electromagnetic spectrum — those airwaves we all SAY belong to the American people (another impolite fiction). We ought to be collecting rent on them, month in and month out, from those who “own” them.

    And the most important one: land value. Land value is created by the community, and collecting from those who own our sites in proportion to the value of the land they hold is both just and efficient. It would nudge into use choice urban sites which currently sit vacant or occupied by 1- and 2-story buildings where a 10- or more story building should be. Taxing land value (quick and dirty, the annual rent on land is about 5% of its selling value) would bring the selling price of land down to next to nothing, requiring far less mortgage financing (and shorter mortgages), create jobs, increase wages, reduce/reverse sprawl, reduce the wealth concentration.

    Ah — there’s the problem! that last one will not be popular with certain parties.

    But the Tax Policy Center has devoted little or no effort to examining the virtues of this idea. It is not a new one — Henry George’s writings and speeches in the 1880s and 1890s had it on the lips of most Americans. Today’s students are seldom exposed to it; one might reasonably wonder why, particularly since most economics textbooks speak favorably of it, as did Milton Friedman, Bill Buckley, a number of quotable Nobels and quotable notables. You’ll have to educate yourself; there is plenty of material online.

  7. David Walmsley  ::  2:50 pm on January 20th, 2014:

    Further to Mr. Bindner’s closing comment, I recently attended a Christmas party where one of the guests was a U.S. Congressman who told me that Baucus’s appointment as Ambassador to China was really motivated by Obama’s desire to get a tax reformer out of the Congress even though he plans to retire next year anyway.

  8. Michael  ::  8:20 pm on February 2nd, 2014:

    What the war on poverty didn’t foresee was the quick tripling of the out-of-wedlock birthrates, which effectively swamped the effectiveness of Great Society. The public was quick to figure out the LBJ gravy train.