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June 22, 2004

Just Enough to Live On

My first reaction to this news was to wonder what people do with their money:

It takes about $50,000 for a Rhode Island family of four to scrape by with the bare necessities.

No Friday night dinner at Chuck E Cheese's. No trips to Walt Disney World, or karate lessons after school. Just rent, food, utilities, bills.

And they are the fortunate ones.

Roughly half of all families in Rhode Island -- 47 percent -- earn less than $50,000 a year, according to a study being released this morning by the Poverty Institute, a policy and advocacy group at Rhode Island College.

Primary among the discordant details of the article is that the story's central profile, that of April Brophy, doesn't fit the claims of the piece. Apparently, she and her husband were doing just fine on $35,000 — paying for a mortgage, two cars, "a modest savings account." Then divorce dropped her to $14,000 per year, but the state's temporary safety net was enough to get her rolling, even with only a GED foundation to start with. She still relies on state-subsidized healthcare and daycare for her children, but she's making ends meet, earning around $23,000 per year. So why do the state's social workers believe her to require almost twice as much?

The answer opens up all those sticky areas in which different worldviews lead directly to incompatible solutions. The first thing to note, looking at the Poverty Institute study that formed the basis of the article (PDF) is that the $50,000 figure neatly rounds up from just over $48,000 for a two-parent home. More importantly, the numbers are a theoretical sum of various expenses, calculated from separate estimates; they therefore do not take into account the sorts of decisions that people make to stay comfortably afloat.

For instance, the $391 per month for transportation strikes me as high. The $650 per month of medical assumes, at the least, an extremely poor benefits package at work (especially for jobs supporting that level of income). Not surprisingly, the biggest chunk is the $1,215 per month ($14,580 per year) for childcare. These few factors go a long way toward explaining how the Brophys survived before the divorce. Merely mom's staying home with the kids increases the income value of $35,000 per year to $49,580. A job that completely covers health insurance (like public school teacher in Rhode Island, ahem) adds another $7,800-plus of value.

And that is where the policy differences really begin to come into play. To isolate one factor, the high income ceiling for subsidies for childcare encourages double-income families. A family with two parents and two children can make $42,413 and still receive $9,588 from the Rhode Island taxpayer (if they pay the maximum co-payments, however that works). A family like the nuclear Brophys, making $35,000, has incentive, not for the mother (or father) to stay home and save $14,580 on daycare, but to work at least part time.

With the system as it is, the taxpayer reward for having two incomes exacerbates the job shortage and keeps wages down. It doesn't seem insignificant that the income that the Poverty Institute claims families to need is in the range of what might be thought of as the subsidized baseline. Meanwhile, encouraging parents to put their children in daycare inflates the demand for childcare providers, which raises the price. A similar (albeit more complicated) dynamic comes into play with the free or cheap healthcare that Rhode Island offers to all children whose household income is less than 250% of the national poverty level (or a little over $47,000 for a family of four).

All of these various policies are debatable at the individual level and become a mess of causes and effects, incentives and side-effects, in the broader view. Trying to solve them through ever-expanding giveaways, however, will tend make the problems worse. Unfortunately, the urge to do just that is all-pervasive — strangling Rhode Island from every angle:

Along with protecting the subsidies for struggling families, Gewirtz says the state should demand higher-paying jobs from companies that move to Rhode Island.

"The best way out of poverty is a good job," Gewirtz said. "A lot of times we give tax breaks to companies that promise to bring jobs, but they are often poverty-level jobs. There needs to be more accountability."

Apart from the interesting tidbit that the jobs Rhode Island attracts are in the range in which employers find the government covering much of what they would have to offer to secure workers, the extent of belief that a state can just force higher incomes is astounding. Demand higher-paying jobs. Accountability for creating the wrong types of employment. For companies that move to the state. Something tells me that the number of such companies would continue to decline.

Rhode Island, in short, is approaching calamity from two directions through its urges toward socialism. Driving away businesses while pushing the publicly funded benefits for citizens ever up the income scale will eventually create a state attempting to subsidize everybody with revenue from nobody.

This is the first post of a new "Rhode Island" category.

Posted by Justin Katz at June 22, 2004 7:08 AM
Rhode Island