Actually, we can find low income as the main cause of the hardships and damage of poverty by looking at the consequences of current welfare policies themselves. Government programs in which benefits have changed over time provide abundant data for isolating low incomes as a fundamental cause of problems.
Variations in government programs, or the creation of new programs, create what scholars sometimes call natural experiments. This “exogenous” increase in incomes offers an opportunity to measure the consequences of sudden increases in benefits and income compared to periods when funding was lower, or compared to those families who did not get increases.
Two sets of government-expanded income programs offered among the most interesting examples of natural experiments about the impact of money. The benefits of the Earned Income Tax Credit, which are especially helpful for families with children, were generously raised in 1993. The value of the credit increased by 40 percent on average for families with one child and roughly 100 percent for those with two children.
Researchers estimated how much improvement there was for those children in families with significant increases in tax credit income, comparing them to those where incomes didn’t rise as much. Such exogenous increases of income were separated from the effects of other potential coincident factors such as parental behavior or education. There were also increases in the EITC before 1993 and again in 2009 that add to the dataset on these issues. In addition, the state EITCs provided more information for analysis.
The results were a particularly fascinating affirmation that money makes a major difference. The children whose families had significant increases in EITC income as compared to those who did not had higher school grades and results on achievement tests, attended college in greater proportion, and were generally healthier. One study also showed that the birth weight of newborns was higher in these newly better-off families, and the stress level for mothers was also measurably reduced.
Looking back to the early 1970s, Richard Nixon proposed a guaranteed income program in the form of a “negative income tax” in order to continue but streamline the implementation of the War on Poverty. The lower the income of the poor family, the greater the tax refund benefits would be (to a maximum ceiling benefit); benefits would be distributed in the form of cash payments. It was a forerunner of the Earned Income Tax Credit. But in Nixon’s case, even if a family earned no income, it would receive a cash stipend. Opponents were concerned that it would encourage individuals not to work.