The Idle Poor and the Idle Rich

AP Photo/Mark Lennihan

A man passes the famed bronze bull in Lower Manhattan

IN A SPEECH LAST NOVEMBER, before the GOP’s tax reform became law, President Trump told a crowd in Missouri, “I know people that work three jobs and they live next to somebody who doesn’t work at all. And the person who is not working at all and has no intention of working at all is making more money and doing better than the person that’s working his or her ass off.”

This imaginary person next door, presumably, was living off of welfare benefits, and that’s why welfare reform was needed. But consider another person living off government benefits—in the form of tax breaks. That person may not work much, or not at all, but typically has far more money than someone working three jobs. 

As much as Trump and the Republicans malign the much-exaggerated idle poor, their tax reform is a major boost for the idle rich. Those who benefit from inherited wealth need not do anything to earn their windfall—just be born into the right family.

People who live on inherited wealth don’t get the same judgmental storyline as someone trying to make ends meet with a mosaic of paltry government benefits and inconsistent, low-wage work. And yet, the government taxes estates at a lower rate than it taxes the money people earn from working. The GOP’s tax reform has only made this worse.

 

THE ESTATE TAX is the tax on the wealth transferred from a deceased person to their heirs. Unlike earned income, there is no payroll or income taxes on inheritances. The estate pays the taxes—or it used to. 

Republicans have long wanted to repeal the estate tax entirely, but instead they have resorted to reducing its effectiveness. They doubled the maximum exemption (per married couple) from $11 million to $22 million (until 2025 when many provisions of the law sunset). That means that only the first dollar after $22 million of an inheritance will be taxed. 

Republicans generally hate the estate tax; many refer to itas the “death tax,” aiming to create a sympathetic image where a person—who only wants to provide for heirs!—is taxed merely for dying. But instead of a “death tax” it may be more helpful to think of the estate tax as a “silver spoon tax,” as NYU professor of tax law Lily Batchelder calls it. The tax is only levied on extremely large estates. So it’s not a death tax—it’s a tax on people who were already born with silver spoons in their mouths. As Batchelder points out, the average tax rate on inherited wealth is about 4 percent, while it’s about 17 percent on income and savings from work.

According to Batchelder, this divide exacerbates inequality of opportunity. “A lot of the reasons [wealthy heirs] have more opportunities is just money,” she says. “But it’s also all the social connections and legacy admissions and all of the things that come along with that money that mean that someone born into a wealthy family is going to have a huge leg up in life,” says Batchelder. 

Indeed, it’s much easier to make more money when you already have some, by way of investment opportunities, educational opportunities, and especially through the tax code itself. Batchelder further points out that financial inheritances are the principal driver of inequality of opportunity, as more than half of the correlation between parent and child wealth is due to financial inheritances—that’s more than personality, IQ, and schooling combined.

Contrast this with the life that comes along with the characteristics of the unstable, low-wage work that helps define the lives of the poor: the volatile scheduling, the lack of affordable child care, the instability of non-union, limited-skill jobs. 

But instead of working to remedy inequality, conservatives have decided that the poor are just not working hard enough. That’s why the Trump administration has pushed for work requirements in anti-poverty programs across the board, which would do little to help people get jobs and would only further complicate the lives of the poor. These “work incentives” are anything but, when most people in poverty are already working or want to work.

Financial inheritances, by contrast, disincentivize work. A 1993 study from Douglas Holtz-Eakin and Harvey Rosen, conservative economists, and David Joulfaian, who works for the Treasury Department, found that as the size of inheritances rise, labor force participation falls. “For example,” they write, “a single person who receives an inheritance of about $150,000 is four times more likely to leave the labor force than a person with an inheritance below $25,000. Raising the exemption of the estate tax will likely inflate the incentive for more wealthy heirs to not work.

Of course, it’s essential to understand that even before the GOP’s tax reform in 2017, the tax code was structured to disproportionately benefit those at the top. Wealth-building loopholes, such as the mortgage income deduction, the tax shelter for savings, and the deferral of taxes on capital gains, are skewed to the wealthy. Last year, the average benefit from such wealth-building tax programs for a millionaire was $160,190, while the typical benefit for a family working at the median income was $226. 

Think of it this way: There are two welfare systems, and both are conditional on wealth. One is for the poor, and is outward-facing—there are physical offices where people line up to receive benefits. The other welfare system is for the rich, and is hidden, embedded within the intricacies and complexities of the tax code. And when the president signed the new tax bill into law last December, this inequity between the two welfare systems was only exacerbated.

What really puts a perfect, hypocritical bow on this story is that Republicans will target public assistance programs—the other welfare system—to pay for their tax cuts. 

 

PRESIDENT TRUMP BEGAN CALLING for “welfare reform” even before the tax bill was in place, indicating that it was the next policy hurdle to tackle after tax reform was finished. Welfare reform was a curious phrase considering that the largely bipartisan welfare reform passed under President Clinton already shredded the welfare system beginning in 1996. What exactly was left to reform? The answer was any program, not just cash assistance, that benefited the poor. In-kind benefits, like food assistance, medical assistance, and housing assistance—those too would be targeted and “reformed” away. 

One reason given was the size of the deficit, but of course the deficit balloons by almost $2 trillion because of the tax cuts. A second reason was that too many people weren’t working. It’s a two-fold strategy: work requirements push low-income people into the low-wage labor market, and when some inevitably cannot find work and are removed from the social program, these work requirements also help reduce social spending.

The Trump administration has moved to implement work requirements in programs where such requirements would be unprecedented, like housing assistance and medical assistance. The work requirement model is based on the centerpiece of 1996’s welfare reform, or Temporary Assistance to Needy Families. TANF replaced the more-generous Aid to Families with Dependent Children in the bipartisan 1996 welfare legislation—the Personal Responsibility and Work Opportunity Reconciliation Act. The name of the act gives away its intentions, to make people on public assistance programs more “responsible” by pushing them into work “opportunities.” 

If the poor must be pressured into working that implies that they are not already working. In a country like the storied United States, land of opportunity, how could someone work hard and be poor? While the statistics point out that most people in poverty who can work, do work, the American narrative simply doesn’t support it. The result of TANF has been more extreme poverty, and fewer people in poverty receiving assistance. But the narrative hasn’t changed. Seemingly, the poor can’t be working hard enough, if at all.

So we enter the long-held idea of the idle poor. The current welfare system can be traced in part back to the English Poor Laws of the 16th and 17th centuries. At first, the early poor laws did provide mercy and charity. But by the 1830s, the law defined two categories of people in poverty: the “able-bodied,” and women, children, the elderly, and people with disabilities—the deserving and the undeserving poor. Able-bodied people were expected to labor, and were forced to work in poor houses if they couldn’t find work. The others, while not deemed completely blameless for their situations, qualified for meager charity. 

The legacy of this structure persists in the United States’ current anti-poverty programs, where tiers of the poor are divided commensurate to the public’s sympathy for them. People without (diagnosed) disabilities who are expected to work in lieu of public assistance are even called “able-bodied” in the governmental codes and regulations.

The language that Republicans use today carries this history into the present. Scott Walker said that public assistance should be “a trampoline, not a hammock,” implying that receiving public assistance is synonymous with a relaxing day at the beach. Secretary of Agriculture Sonny Perdue said that welfare has become a “lifestyle.” The president said that “people are taking advantage of the system.” Representative Jodey Arrington of Texas quoted the bible: “if a man will not work, he shall not eat.” Eighteenth century puritan preacher, Cotton Mather said, “For those who indulge themselves in idleness, the express command of God unto us is, that we should let them starve.” (Oops, Mather’s not a modern-day Republican.)

The reality, of course, is that the U.S. doesn’t really have a welfare system for the poor, at least it hasn’t since 1996. Republicans have already made it impossible for people who are not able to find decent work to access welfare. But the rhetoric, while inaccurate, does help reduce the welfare rolls.

 

THE COROLLARY TO THE DENIGRATION of the poor is that the rich are idolized. Supposedly, the wealthy are successful because they deserve it, as would be the case in a true meritocracy. However, racism, classism, and the economic exploitation of the poor and working class distort the possibility of meritocracy in the U.S., so what we really have is a myth. Moreover, there is no evidence that low taxes are necessary to create incentives to produce wealth.  But sometimes policy—like that which enables inherited wealth to go untaxed—is based on myth. 

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