Government programs, well-meaning or not, serve to trap the already downtrodden

The Many Ways the State Taxes the Poor

by Julian Adorney

Most defenders of the state assume that government services help the poor. And, sometimes, some poor people do benefit financially from government programs. But there’s a hidden cost: taxation and mandatory programs (Social Security, for instance) that hurt the needy by restricting their choices. Government taxes away income that low-income households could invest in improving their lives. At the same time, state-sponsored benefits create incentives that keep the poor trapped in poverty.

Many assume that government barely taxes the poor, but the reality is otherwise. The poorest fifth of Americans pay 16 percent of their incomes in taxes (including federal, state, and local). One in six dollars they earn goes straight to the government. For a family living at the margin, those taxes can be the difference between food on the table and hungry children.

Admittedly, a big chunk of government expenses is for programs designed to help the poor. But even when this money actually helps — and it rarely does — it’s important to note the pernicious effects of taxation. Consider: every dollar of taxes is one dollar that a worker must give to the government first, regardless of whether that dollar could help him feed his family or improve his livelihood. If a poor man is faced with the choice of paying taxes or starting a business, he had best choose the former, otherwise he’ll go to jail.

This is true for the wealthy as well. But poor people live closer to the margin. More of their money is taken up with fixed bills like rent and food. This leaves them less discretionary income to, for instance, invest in a business. Because their pool of discretionary income is smaller, taxes cut deeper into it.

Mandatory government programs, such as Social Security and Medicare, compound the choice-restricting effects of taxation. Social Security, for instance, forces people to save for retirement regardless of whether or not that money could be better spent in another way.


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