Becoming a Poverty Abolitionist
Endeavor Book Review
Poverty by America
By Matthew Desmond
Crown, 2023
Matthew Desmond wants to make sure no one thinks his plan to empower the poor is about socialism—a government takeover of private industry—or about a zero-sum redistribution of wealth that traps the poor in a state of financial dependency. Rather, Desmond wants to redeem capitalism so that it works for everyone.
“The notion of redistribution has the pernicious effect of framing social progress as a taking, as if the government were a greedy, many-tentacled monster seeking to reach deeper into your pocket,” writes Desmond, a professor of sociology at Princeton University. “The truth is that the government is devoting a considerable amount of effort . . . to underwriting the portfolios and estates of the American aristocracy. This country of ours should be in the business of helping its people create wealth, but it should not be in the business of subsidizing it” (p. 132).
Desmond believes that the systemic rules of capitalism in America (e.g., taxation, housing, education, etc.) have morphed over the decades so that now they serve to subsidize the wealthiest citizens and large corporations. Collectively, Desmond states that the US government offers more “corporate welfare” and subsidies for upper classes than it offers to the lower classes. As a result, the rules tend to undermine the ability of average and lower-class Americans to develop wealth.
Take for example an often-overlooked tax law known as the “mortgage interest deduction.” This provision in the tax code allows homeowners, regardless of their income, to deduct the interest they pay on home loans for the life of the loan, which can be up to thirty years. Although this government provision does not feel like a government “handout,” it is nevertheless a government subsidy to middle- and upper-class families. It reduces the amount of tax that homeowners would otherwise pay. Desmond reports that in 2020 the government spent nearly $200 billion dollars to subsidize American homeowners. By contrast, the government spent $53 billion on direct housing assistance for low-income families (p. 91), programs that conservatives condemn as “socialism.”
Or consider the ways by which corporations and high-earning individuals avoid paying taxes. Desmond presents IRS data showing that the US loses more than $1 trillion per year in unpaid taxes. Corporations often shift revenue to shell companies based in countries with lower tax rates, such as Bermuda. Facebook, says Desmond, recently claimed that it earned a $15 billion profit in Ireland, which would mean that each of its employees there generated $10 million in profits.
“When corporations hide profits in tax havens, and when rich families stash valuable assets in offshore accounts, they defraud the American public, forcing everyone else to pay for their greed,” writes Desmond (p. 126). He adds that the laws often permit this type of behavior, which is not a healthy expression of capitalism. Such laws do not reflect a conservative ideal of “equality of opportunity.”
Tax cuts over the decades, says Desmond, have also unfairly benefited the wealthy and the corporations. In historical terms, the current corporate tax rate (21 percent) is the lowest ever since the end of World War II. The argument for cuts to the corporate tax rate, as occurred in 2017, is that businesses will use the money to invest in innovations that create jobs and drive economic growth. President Reagan, in the 1980s, called this “trickle-down economics.” However, it is often the case that corporations have used tax savings for stock buybacks that benefit only shareholders. There is little evidence that major corporations use tax cuts to generate new jobs. And Desmond argues that collecting unpaid federal income taxes from the top 1 percent of income earners would bring $175 billion per year into government coffers. This amount, he says, would cover the entire “poverty gap” in the US.
The scale of poverty in America compared to its wealth, says Desmond, is hard to comprehend. On the one hand, the US economic engine is incredibly powerful. Americans produce $5.3 trillion in goods and services more than China. The US GDP is larger than the economies of Japan, Germany, the UK, India, France, and Italy combined. Just the state of California's GDP (about $5.3 trillion) is about four times larger than Russia's (p.6). But, on the other hand, one of every nine Americans lives below the poverty line. According to Desmond, this tells us that the problems in America are systemic—rooted in the rules of the economy—not a lack of resources.
“This is who we are: the richest country on earth, with more poverty than any other advanced democracy,” writes Desmond (p. 6).
Desmond's Poverty Abolition Ideas
After presenting many of the underlying systemic causes of American poverty, Desmond turns his attention to solutions. As stated earlier, he emphasizes that he is not thinking in socialist terms; rather, he wants to restore America’s capitalist “house,” to make it a healthier home for all people.
“There are plenty of capitalist countries with far less poverty than us,” writes Desmond. “Conservatives like to say they are not for equality of conditions (everyone gets the same thing) but equality of opportunity (everyone gets the same shot). Fine by me—but only if we actually work to make equality of opportunity a reality” (p. 179).
Thus, all Desmond's thoughtful solutions are designed to improve “equality of opportunity” by changing systemic rules that disempower the poorest Americans while empowering the wealthiest people and corporations. His goal is not to hold poor Americans in a state of dependency on the government, but to empower them to live full and productive lives.
First, as stated above, Desmond argues for changing tax law so as to prevent tax evasion and to increase tax rates to levels that are historically normal. He does not want to overtax the wealthy or corporations, but he says that today's extremely low rates, along with a plethora of tax loopholes, are unfair and detrimental to most Americans.
A second idea, he says, is to improve the welfare system so that those who most need temporary help actually receive it. Data about “welfare dependency” debunks the myth that government support causes a dependency trap. Desmond's book provides numerous economic studies showing that “the welfare system does not foster reliance on welfare so much as it acts as insurance against temporary misfortune” (pp. 88-89). In addition, Desmond documents that only 25 percent of families who qualify for welfare assistance accept it and fewer than half of those who qualify for food stamps receive them. During the Great Recession in 2008, 10 percent of Americans were out of work but only 3 percent accepted unemployment benefits (p. 89).
“This is decidedly not a picture of welfare dependency,” says Desmond.
Other solutions for which Desmond advocates include improving the banking system so that low-income individuals have more access to capital, and to stop charging people exorbitant overdraft fees—fees that “rob the poor of billions of dollars per year” (p. 149). Desmond also argues that major changes should occur in home ownership practices and zoning laws, which often cause “poverty segregation.”
Yet another of Desmond's solutions is to change labor laws. Desmond shows that in 2020, more than a million workers earned at or below the federal minimum wage of $7.25 per hour, a wage that hasn't changed in more than a decade. Restaurant owners are allowed to pay workers a subminimum wage of $2.13 per hour, which means that five million restaurant workers must rely on sufficient tip income to make a minimum wage. This system of payment, says Desmond, is a “vestige of slavery.” In addition, labor laws have allowed large corporations to hire “gig workers” and freelancers who receive no benefits for health insurance or retirement savings. Desmond cites sociologist Gerald Davis, who said, “Our grandparents had careers. Our parents had jobs. We complete tasks” (p. 53). The laws passed by Congress, under the influence of lobbyists, permit all these practices, which are detrimental to average workers.
Perhaps Desmond's main point is that we all need to change our mindset about American poverty. He hopes to foment a movement of “poverty abolitionists,” a new widespread effort from the top down to dramatically reduce poverty.
“Poverty abolition is a personal and political project,” he writes, emphasizing that Americans need to think more about we and less about me. Poverty abolitionists need to be willing to revitalize the “house” we live in, to recognize that many of our economic systems are based on unfair laws that eliminate equal opportunity for poor Americans.
Desmond's solutions are compelling and well-documented. I found no reason to doubt his arguments, and I certainly agreed with his passion for helping the weakest among us. The book is a tour-de-force. However, I found myself wishing to hear what leading economists might say about his ideas. As a sociologist, Desmond does a great job of citing data to accurately document America's problems and the causes of those problems. But he presents his solutions in broad, abstract terms. This does not mean he's wrong, but an economist could improve the book by offering a more thorough evaluation of whether and how Desmond's solutions could work.
All said, this book is worthy of your time and money. Your views of American society will be shaken, and that is a good thing.