Bloomberg's Cash-Back Plan for Poor

Categories: Citystate

Mayor Bloomberg's State of the City speech yesterday was long on tax cuts for the well-heeled ($1 billion to slash property taxes 5 percent and ditch sales taxes on high-priced clothing), but mostly mum about the "more than 30 programs" he'd promised were in the works for fighting the city's still-high poverty rates (about 20% by official measures). The one exception was yet another tax cut: Starting this week, the city will begin sending pre-filled-out tax rebate forms to 120,000 low-income New York households that were eligible for the Earned Income Tax Credit in 2003 and 2004 but never applied for it. All that those who receive the forms will need to do is sign them, stick a stamp on, and wait for their cash—an average of more than $1,000 per household—to roll in.

Helping people apply for the EITC, meant as a supplement for those in low-wage work, is a win-win for the city, noted the mayor: "For working families with children, that money is going to make a huge difference in helping them get ahead and it's money that will be spent in their local communities, thereby helping local businesses, as well." And better yet, he added, since most of the cost of the tax rebate will fall on the state and federal treasuries, the program "will generate more in sales tax revenue for the city than our share of the EITC expense."

It was a rare government recognition of a principle familiar to economists: Giving money to the poor can provide a better economic boost than giving it to the rich. That's because the former is less prone to what's called "leakage": Poor people are less likely to spend rebate checks on vacation homes in Bimini, and more inclined to cycle their windfall back into the local bodega.

If EITC rebates are a good economic engine for all these reasons, though, there's another program that's potentially even better: food stamps, which are entirely federally funded, and which likewise are almost entirely recirculated in the local economy. Yet the mayor has consistently shied away from focusing on food-stamp outreach, refusing to ask for a federal waiver allowing more single New Yorkers to receive food stamps, even though the cost to the city would be negligible, and the potential benefits huge: According to a Fiscal Policy Institute study released last year, merely getting food stamps into the hands of those eligible who don't currently receive them would pump an added $210 million a year into the city economy, and create 2,300 new jobs.

The difference, it seems, is that the EITC goes solely to the working poor, while a food stamp waiver would aid non-working New Yorkers—a key distinction for a mayor who has made it clear that to be considered deserving of city aid, you need to be punching a clock. Even for a bottom-line mayor like Bloomberg, it seems, the aversion to helping the "undeserving" poor trumps what might be best for the city economy.


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