Our recently anointed Democratic candidate for Mayor, Bill de Blasio, is making the "tale of two cities" and the "crisis of income inequality" the principal themes of his campaign. Here he is quoted at The Daily Beast a couple of days ago:
The Bloomberg administration managed to ignore the inequality crisis. He claimed he wanted a third term to address the economy, yet very few policies were put in place to address the economic suffering that people are going through. So, yeah, I will be very focused on fighting inequality. That to me is the job of a mayor.
So I want to return to our look at two hypothetical families of four in the Chelsea neighborhood, just a few blocks from where I live. Both live in comparably sized two bedroom apartments. One has a cash income from employment of $100,000, which officially puts them at about the top 20% of the income distribution. This family rents its apartment for $4000 per month, $48,000 per year, which is at the low end of what a two bedroom goes for in this neighborhood. The other family has little or no cash income and is officially in poverty. It lives for little or no rent in one of the low income public housing projects in the area, say the Robert Fulton Houses along 9th Avenue between 16th and 19th Streets.
Now consider this question: If well being is measured by access to physical goods (housing, food, clothing, medical care, etc.) as opposed to the arbitrary government measure of "cash income," which of these two families is better off? The answer is remarkably close and could go either way.
The "rich" family pays about $25,000 in income taxes and $48,000 in rent, leaving $27,000 for everything else. The "poor" family gets the $48,000 apartment for free and pays no income taxes. Its food stamp allowance is about $660 per month (almost $8000 per year) and its cell phones are free. But they do have a problem of no cash to spend on anything. Or do they?
Actually, there are many ways to get your hands on some cash if you are poor. Method number one is welfare, now known as TANF. That is time limited to 5 years, but it's a start. Then there is social security disability. You may qualify for disability, or maybe one of your kids does. For example, a learning disabled kid is entitled to an SSDI check. Over 6 million children ages three to 21 received checks for disabilities according to 2010 data here. (According to NYCHA data here, 41% of NYCHA tenants receive some form of a monthly check for social security, SSI, veteran's benefits, a pension, or other.) Next comes the Earned Income Tax Credit. That requires a modest amount of work, such as a part-time job with the City sweeping the parks, or a job at McDonald's. With a 20 hour a week minimum wage job, you'll earn about $7500 for the year, and then you'll get another about $5000 - 6000 from the EITC. Then of course there is off the books income of various sorts, and unrecorded cash contributions from the father(s) of the kids. Obviously not all of the poor people have all of these sources of cash, but the majority clearly have one or more.
Do we have any way of knowing that all or almost all of the poor have access to substantial amounts of cash? One way is by observation of the low income housing projects. Thus I took a walk yesterday over to the Robert Fulton Houses. Here I have arrived at the main entrance:
I've never been able to find any government in-kind distribution program to provide the poor with air conditioners. (There is a program to pay the electricity bill for cooling, but that's different.) So do some or most of the poor people living in RFH have air conditioning? Here is a picture taken on West 18th Street looking at the northernmost of the three big RFH buildings between 18th and 19th:
Other than one apartment there on the 11th floor, it looks like every apartment has one or more air conditioners. But this was a cool very late summer day, so the 11th floor people may have removed the air conditioners from the windows for the season. Anyway, now looking south at the two big buildings between 16th and 18th Streets, it's the same thing -- hundreds of air conditioners:
Another question: Do the poor people living in RFH have enough cash to buy cars? In fact, the buildings are surrounded by parking lots with spaces reserved for tenant parking. Here is a view of one of the lots:
And here's another lot across the street:
A reserved parking spot in this neighborhood goes for at least $500 per month, $6000 per year, for someone paying cash. Very few people with cash income of only $100,000 per year can fit that in their budget.
A few other comparisons:
(1) Medical care. The "rich" family likely gets medical insurance through work, but must make some contribution to the premium, plus there will be some deductible and some co-pays. That's likely a couple of thousand per year. The "poor" family gets Medicaid. New York State pays in excess of $10,000 per beneficiary per year for its Medicaid program, so by the measure of the cost to the taxpayers, the poor family gets medical benefits worth in excess of $40,000.
(2) Leisure time. The majority of families earning at the $100,000 level have at least two income earners, and at least one full (or more) time earner. The poor family has at most one part-time earner. That's a big difference in leisure time, advantage to the poor family.
(3) Taxes. The "rich" family pays $25,000 in income taxes, and its landlord pays real estate taxes on the building. The "poor" family pays no income taxes, instead getting an EITC credit, and RFH pays no property taxes.
So which family is better off? By the government's official measure of "cash income," it's $100,000 for the rich family and $7500 for the poor family, a disparity of a factor of over 13 in favor of the rich. By the measure of access to physical goods and services the poor family very likely comes out ahead. If you value the Medicaid at what the government pays for it, then the poor family gets at least $48,000 for the apartment, $40,000 for Medicaid, $6000 for the parking space, $8000 for the food stamps, $2000 for the cell phones, $6000 for the EITC, and of course there is the $7500 for the minimum wage job at McDonald's. That's a total of $117,500 (before getting to any off-the-books cash or SSDI, which would be additional), compared to $75,000 after tax for the "rich" family.
But the rich family does have one very valuable thing that the poor family does not: its independence. And with its independence goes hope for the future. If they work hard and continue to strive, the $100,000 family could well find itself in five or ten years earning $200,000 and moving up to a much nicer apartment and maybe even getting that parking space, plus saving up a nest egg. The poor family is trapped in place. If they make the mistake of earning more observable cash, their rent will be increased by 30% of the increased earnings (that's how it works at NYCHA), and then they start taking away the other benefits as well. The worst possible thing a single mom of this family could do would be to marry a man with a middle class income, which would disqualify the family for the food stamps and the cell phones and the Medicaid and increase the rent through the roof. So the poor family is virtually forced to remain in a situation where its measured cash income will keep it well within the poverty level.
Thus the way actually to allow the poor family to become better off is to decrease the benefits, and/or put time limits and caps on all of them. Got that, de Blasio?