A May report from the leftist Economic Policy Institute (EPI) claims to show how much money a “representative family” in and around Denver needs to earn “to have a modest but adequate standard of living.” The report claims (among other things) that 41 percent of families don’t earn enough for that and that a family of two parents and three children needs to earn $92,117 to qualify. The remedy, according to EPI, includes passing a higher minimum wage, the effect of which would be to outlaw many introductory-level jobs.
But EPI’s report is based on wildly unrealistic assumptions. EPI’s approach is to simply ignore most of the relevant facts about how real families actually make ends meet, substituting for reality their fantasy “representative” family. Of course there is no such thing. And EPI’s report includes only recommendations to expand government control of people’s lives, not suggestions for getting government off people’s backs.
Undoubtedly, skyrocketing housing costs in and around Denver have strained many people’s budgets. And it is a matter of common sense that people who earn less than the median wage have a harder time paying their bills than do people who earn more. We don’t live in a utopian Lake Wobegon, where all people earn more than average. But it is not helpful to misrepresent, as EPI does, how families on tight budgets actually make their finances work. Nor is it helpful for EPI to call for ill-conceived government programs that harm the poor.
Anyone who has actually lived on a tight budget is probably familiar with the cost-saving strategies that real people often use. As EPI helpfully points out, for many families with children, the biggest expenses often are taxes; housing; child care; and “other necessities,” which includes clothes and entertainment. So let’s consider how real people, living in the real world rather than in EPI’s fantasy world, often approach such expenses.
Unfortunately, when it comes to taxes, there is little people can do. If you don’t pay the taxes the government says you owe, the government will harass you and threaten to take your stuff by force and lock you in a metal cage. The main way to reduce your tax load is to reduce your income, but of course that’s counterproductive in terms of paying other bills. An obvious approach to reducing the tax load for people on tight budgets is to cut taxes—but of course EPI does not even consider that as an option, choosing instead to label taxes paid by struggling families a “necessity.”
When it comes to the expenses over which families are able to exercise more control, families often have a lot more flexibility than EPI recognizes.
Consider housing. We all know that adult children often live with parents for a time (as my wife and I did after we married), that grandmothers and uncles and other extended family often cohabitate with larger families, and that couples just starting out often rent a room of their house to a friend. But EPI refuses to account for such phenomena, ignoring such cases on grounds that it is somehow wrong for “subfamilies to share housing.”
EPI also arbitrarily assumes that housing costs should be calculated “at the 40th percentile” of housing that is “structurally safe,” “sanitary,” and available with “suitable amenities.” In other words, EPI assumes without reason that 40 percent of available housing isn’t good enough. No doubt we’d all rather live in lavish mansions at the 90th percentile, but sometimes families on tight budgets choose to rent less-nice places, as my family often did when I was growing up.
None of this changes the fact that the Denver-area housing market is on fire right now. I was astonished when my neighbor’s house recently sold for tens of thousands of dollars more than it would have just a few years ago. Although various factors drive up housing costs, including the continual influx of new residents, ill-conceived government regulations, such as growth boundaries, artificially drive up costs. But of the course the leftist EPI will consider only ways to expand government involvement in the economy, not ways to roll back government regulations to let people trade in a freer market.
Next consider child care costs. Most of us are familiar with ways people often save on such expenses. Grandparents and other family members often watch kids. Sometimes families trade off watching each others’ kids. Some parents stagger their work schedules, which allows them to limit child care expenses. Often older children watch younger children. But EPI assumes away all such practices; the report states, “We assume all families in urban areas utilize center-based care.”
Regarding such costs as clothes and entertainment, obviously families have enormous control. Consider a few examples. One of my suits I purchased at a thrift store for around $15; another I purchased at a department store for around $400. Had I been on a tighter budget at the time, I would have forgone the more-expensive suit. A family can rent a DVD from Redbox for $1.63 and pop homemade popcorn for a few dimes more, or a family can go to the theater for $38 and spend another $30 (or more) on snack food. A family can spend a few hundred dollars to go camping in Colorado or a few thousand dollars to go to Disney World. Despite such wide ranges in costs, EPI assumes that spending on such things must be at least in the “second quintile” to be enough.
EPI makes similarly ridiculous assumptions in other areas. For example, EPI assumes that a family must have a car and that driving will cost what the IRS declares to be the “cost per mile” for tax purposes. Obviously not every family has a car; for example, because of financial constraints years ago, my wife and I went without a car for over two years—we rode the bus, biked, walked, or caught rides. And the real-life costs of driving vary radically; for example, the 1998 Honda Civic I currently drive cost me $3,000, whereas many vehicles cost twenty times that or more.
EPI’s estimates for food and health costs are more realistic. On the whole, though, the report assumes away reality and thus does a terrible job estimating how much a family on a tight budget needs to make ends meet.
Despite the serious flaws of EPI’s report, obviously it is the case that many families in the Denver area struggle to get by financially, a problem worsened by the pricey real estate market. But we should not follow EPI in presuming that the solution to such problems must be to expand government meddling in the economy. EPI’s proposal of a higher minimum wage is especially counterproductive, as it would prevent some people from finding an entry-level job and gaining valuable work experience. On the principle of “first do no harm,” we should look at ways that government taxes and regulations make life harder for those on tight budgets—and explore reforms to remedy such problems.
Colorado blogger and author Ari Armstrong writes at AriArmstrong.com
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