Essay: Antipoverty Strategy
This can be said on economic and political grounds that it would be unwise to place an expansion of income transfers at the core of future antipoverty strategy. The argument makes one main economic point and two main political points:
1. Given current levels of spending on transfers, raising income-tested benefits inescapably pits minimizing disincentives against minimizing costs. To avoid creating high marginal tax rates and their attendant work and marriage disincentives, benefits must phase out gradually as income rises. Then benefits will go to families well above the relative poverty threshold and the total financial cost of expansion will be large. For example, Great Britain’s recent experience with its child tax credit exemplifies the consequences of this path.
But if we wish to keep costs down and concentrate benefits on the neediest, we must phase out income-tested benefits rapidly. Economists across the political spectrum agree that the resulting high marginal tax rates for poor families risk creating “poverty and unemployment traps” (Aspinall, 2001).
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