Public Policy Forum Blog

The middle class ticket to...nowhere?

The Forum does not advocate on behalf of anyone and generally uses a taxpayer's perspective in our analyses. However, some policies are focused on particular demographics, which require us to analyze their effectiveness from the perspective of both the intended beneficiary and the average tax-paying citizen. School choice is an example: How does the program impact the educational achievement of low-income students using vouchers and how does it effect the state's taxpayers?

Early childhood education could be another example. Most research on the effects of high quality early childhood education have found greater benefits for low-income children than for middle class children. Many states have focused their early childhood policies on low income families for that reason: to get the most bang for their buck. For a taxpayer's group like the Forum, maximizing the return on a public investment is a worthy goal.

The problem with such narrowly focused policies is that they may provide a perverse incentive for families to languish in poverty, or at minimum they may introduce unanticipated barriers to transitioning out of poverty and into self-sufficiency.

A past Forum research project called Making Work Pay found that government benefit programs with steep drop-offs of benefits at certain income levels prevented many families from moving out of poverty. In 1999 we found:
Wisconsin’s working poor face “disincentives” at certain income levels due to the tax structure and the phase-out of federal and state benefits. A single parent of two moving from an income of $17,000 to $18,000 experiences a marginal tax rate of 190% due to loss of food stamps and reduced tax credits.
New research from the Brookings Institution shows that not only can these poorly-designed policies prevent this parent from moving up in economic status, they can effect her children's eventual status as well.

Julia Isaacs asked the question: "To what extent do American families improve their incomes over a generation?" Her findings are worth noting. First, she found that 42% of children born to parents in the bottom fifth of the income distribution remain in the bottom after reaching adulthood. Also troubling, she found children of middle-income parents have a near-equal likelihood of ending up in any other quintile, "presenting equal promise and peril for those born to middle-class parents."

(Side note: The most provocative finding is the link with race:
Almost half (45 percent) of black children whose parents were solidly middle class end up falling to the bottom of the income distribution, compared to only 16 percent of white children. Achieving middle-income status does not appear to protect black children from future economic adversity the same way it protects white children.
Thus, this new research indicates the most effective policies have to not only avoid disincentives to increased income to truly raise a family's economic status, but must help families maintain the gains over future generations, as well. The hurdles to achieving this long-term effectiveness are two-fold: elected officials do not often plan beyond the next election cycle, and longitudinal studies on social policy effects are rare.

When it comes to early childhood education, there are several studies tracking children well into adulthood (see our matrix of research on early childhood outcomes). Whether the long-term benefits found in these studies outweigh the immediate political and economic costs is the focus of the Forum's current research.
Anneliese Dickman