Summaries of Important Research
Edited By Brandon Bosworth

OUR SHRINKING UNDERCLASS

Paul Jargowsky and Isabel Sawhill, “The Decline of the Underclass,” The Brookings Institution, January 2006 (brookings.org)

 

Hurricane Katrina served as a stark reminder of the existence and consequences of entrenched pov­erty in America. Yet, according to Paul Jargowsky and Isabel Sawhill, statistics show that there has been a decline in the number of Americans in what is often described as the “underclass.”

 

In 1988, Sawhill and fellow researcher Erol Ricketts used census data to define “as an underclass neighborhood any cen­sus tract in which more than a quarter of the relevant population dropped out of high school, more than a third lived in female-headed families, more than a sixth were on welfare, and more than half the men were out of the labor force.”

 

The underclass in America is fairly small, numbering 2.2 million people living in 775 neighborhoods. Simply being poor does not make an individual a member of the underclass. While dur­ing the past few decades there have been over 30 million Americans living in poverty, at its peak the number of those in the underclass was never more than 3.4 million. Similarly, not all in the underclass were poor, as only 57 percent of underclass neighborhoods could be defined as high-poverty areas in 2000.

 

The underclass grew dramatically in the 1970s, climbed at a slower rate in the 1980s, and began to decline sharply in the 1990s. Jargowsky and Sawhill exam­ine possible reasons for the shrinking underclass. One possibility is the welfare reform law of 1996, which provided a greater link between assistance and per­sonal responsibility by promoting work and limiting benefits. They also consider housing policies that moved away from concentrating low-income people in the same areas: “The demolition of high-rise public housing projects and the greater emphasis on low-rise, scattered site public housing as well as portable Section 8 certificates acted to deconcen­trate low-income persons.” Other factors include a large drop in violent crime rates since the 1970s, greater economic growth, and a drop in teen births from 1970 to 2000.

 

Today, “far fewer neighborhoods than in the recent past have the confluence of low levels of education, few men in the workforce, and large numbers of unmar­ried women raising children on welfare.” While suggesting that such developments “should be celebrated,” Jargowsky and Sawhill warn that without “public policies that discourage crime and encourage edu­cation, work, and delayed childbearing…these positive trends could easily reverse.”

 

CHINA VS. JAPAN

Minxin Pei and Michael Swaine, “Simmer­ing Fire in Asia: Averting Sino-Japanese Strategic Conflict,” Carnegie Endowment for International Peace, November 2005 (carnegieendowment.org)

 

The relationship between Japan and China has recently been shaken by “chauvinistic textbooks, provocative vis­its to war shrines, submarine incursions, dueling claims to natural gas deposits,” and other expressions of mutual antago­nism. With China continuing to grow as a world player, and Japan pursuing stron­ger diplomatic and defense policies, there is a risk of further alienation and hostility between the two powerful Asian nations. Such a development threatens regional stability and is not in the U.S.’s interest, contend Minxin Pei and Michael Swaine. They urge the American government to play an active role in fostering more posi­tive Sino-Japanese relations.

 

So far, the commercial relationship between Japan and China has remained essentially unaffected by the political antagonism, and economic interests appear to be keeping the hostility some­what in check. Yet it “could only be a matter of time before the booming trade and investment between Japan and China fall victim to the escalating diplomatic and security tensions.” The authors offer some advice for sidestepping further animosity:

 

1) Japan and China, along with South Korea, should form a commission to set standards for the history textbooks used in each country in hopes of reducing resentments over disparate content. China needs to stop churning out anti-Japanese propaganda films and TV pro­grams. The Japanese need to repudiate the distorted history presented at the notorious Yasukuni Shrine museum.

 

2) Japan and China should unite to form an energy consortium in hopes of avoiding costly competition for resources.

 

3) China must seriously consider Japan’s concerns about growing Chinese military might. Japan needs to accept the “One China” policy. The two nations need to initiate a regional security dialogue.

 

RIGHT QUESTION, WRONG ANSWER

Jagadeesh Gokhale and Michael Tanner, “KidSave: Real Problem, Wrong Solution,” Cato Institute, January 2006 (cato.org)

 

There is growing bipartisan support for some sort of federally funded grant specifically for children. One pos­sible plan would deposit $2,000 into an account for every newborn child. Families could then contribute $500 annually to the accounts, which would grow on a tax-free basis. This type of program attempts to rectify the prob­lem of low-income Americans failing to save for their own and their children’s futures. In reality, argue Jagadeesh Gokhale and Michael Tanner, the touted “KidSave” accounts would simply be a massive new federal entitlement netting no real positive outcome.

 

The cost of KidSave accounts would be high; some estimates show the pro­gram costing $266 billion over the next 75 years. If the program were to cover all children, not just newborns, the costs could soar to over $400 billion.

 

And KidSave could cause parents to “offset their own saving for their chil­dren’s future.” There could also be an encouragement for out-of-wedlock births. And these accounts might benefit the wealthy more than the poor, who may not contribute significant sums to them. This could lead to calls for greater federal money for the accounts of poor families, leading to an even bigger pro­gram and higher taxes.

 

Simpler solutions exist, like reversing provisions in government assistance programs that penalize recipients for saving. States should experiment with government savings programs to dis­cover what works best. On the federal level, taxpayers should be given the option of directing tax refunds into retirement accounts. Parents should be allowed to set up Roth IRAs for their children. Most important, low-income families should be allowed to “save and invest a portion of their Social Security payroll taxes.”

 

Providing incentives for low-income Americans to save money is a good anti-poverty strategy, but “KidSave does not appear to be the right answer.”

 

ENERGY CLOSE TO HOME

Roger Noriega, “Two Visions of Energy in the Americas,” AEI Latin American Outlook, February 2006 (aei.org)

 

The U.S. could ease its dependence on Middle Eastern oil by looking to nations in the Western Hemisphere that possess rich energy resources. AEI visit­ing fellow Roger Noriega believes “build­ing constructive, cooperative approaches to energy along with our neighbors in the Americas should be a priority.”

 

Imported fuel is expected to increase from 27 to 38 percent of the U.S. total over the next two decades. Yet the U.S. has nearby alternatives to the Middle East—in Canada, Latin America, and the Caribbean. These energy-rich areas are expected to be net energy exporters for the foreseeable future, and “advances in exploration and production technologies will allow the Western Hemisphere’s net oil import/export balance to grow from 5.5 million barrels per day in 2004 to over 8 million barrels per day by 2025.”

 

Nations in the Americas have taken different roads in their approach to energy production. Canada and Peru, for example, have held to free-market principles and created a positive climate for investment. Other countries, such as Venezuela, are adopting statist policies and implementing controls on foreign companies. The results are telling. Canada’s oil sands are expected to create 240,000 new jobs by 2008, along with $123 billion dollars in government rev­enue by 2020, while a natural gas project in Peru is expected to generate 35,000 jobs and bring the government $200 million in annual revenue. On the other hand, Venezuela’s state-owned oil com­pany is in disrepair, concerned less with profitable oil production than with using oil as a policy tool to influence neighboring countries.

 

The rest of the Western Hemisphere should follow the market-based energy approaches of Canada and Peru, not the statist model of Hugo Chavez in Venezuela. “Western energy companies would be wise to use their capital and technical expertise as levers to encour­age countries in Latin America and the Caribbean to adopt clear and fair poli­cies,” writes Noriega.

 

HIDDEN TAX COSTS

Wendy Warcholik, Scott Moody, and Scott Hodge, “The Rising Cost of Complying with the Federal Income Tax,” The Tax Foundation, January 2006 (taxfoundation.org)

 

While Americans can expect to pay roughly $1.2 trillion in federal income taxes for 2005, Wendy Warcholik, Scott Moody, and Scott Hodge point out that our “tax burden is more than just the amount of tax paid. It also includes the cost of com­plying with federal taxes, including tax planning, paperwork and other hassles caused by tax complexity.”

 

In trying to comply with the federal income tax code, individuals, businesses, and non-profits will spend an estimated $265 billion this year. By 2015, compli­ance costs are estimated to exceed $482 billion. Businesses pay 56 percent of total compliance costs, individuals 42 percent, and non-profits 3 percent of the total.

 

The authors urge members of the President’s Advisory Panel on Federal Tax Reform to “address this growing compli­ance burden, and work to reduce it through tax simplification and reform.”