Are poor people an economic asset to a U.S. state or a liability?

With the potential for some changes to Obamacare due to a pending U.S. Supreme Court case there has been discussion about what states might do. To keep the system rolling, for example, all that a state would need to do is set up its own exchange (could a state avoid the expense and embarrassment of a healthcare.gov-style debacle by using humans in a call center filling out paper forms and faxing them to insurers? There is at most one transaction per subsidized person per year.). Yet some states have resisted this task and also have resisted the expansion of Medicaid. Journalists often present this as an ideological decision, but I’m wondering if there isn’t a practical angle.

From a politician’s point of view, it could make sense to adjust the number of people collecting various forms of welfare. Given that few welfare recipients vote for Republicans (some numbers), a Republican politician might seek to limit the number of voters getting various forms of welfare, including Obamacare subsidies, in order to have any chance of winning an election. (More than 20 percent of Americans get Medicaid now (Kaiser), which is enough to form a solid base of political support.)

What about the economics? Given that poor people are generally poor it would seem that there is no way for a state’s economy to be boosted by their presence. Unless some politicians want to keep poor people around as reliable voters, New Jersey should therefore seek to cut welfare benefits to the point that its poorest citizens will move to neighboring Pennsylvania, Delaware, New York, and Connecticut. Yet generally we observe that states go in the opposite direction. Welfare benefits are enhanced each year in most states. Are Americans becoming ever more generous? Perhaps the answer is, as the City of Ferguson discovered, there is money in poor people. There are a lot of Federal hand-outs that can be obtained only if a state contains poor people. For example, the Feds will pay for most of Medicaid, thus boosting nearly 20 percent of a state’s economy (the health care industry). The Feds also pay enough for public housing that building apartments for poor people is one of the most lucrative corners of the commercial real estate business (very tough to break into, however, and dominated by big companies such as Warren Buffett’s Berkshire Hathaway (story)). The Feds give out food stamps, home heating assistance, and general cash assistance, all of which are spent in a state’s local economy.

Poor people are more likely to be convicted of various federal drug offenses, which results in the federal government paying for courthouses and prisons in a state, plus paying salaries and benefits for the government workers who staff those buildings. Poor people are often hit with orders to pay child support that they cannot pay. The presence of deadbeat parents in a state entitles a state to a share of the $6 billion federal child support enforcement budget (video). Arguably a state could become reasonably prosperous without any productive industry if 20 percent of its citizens agreed to become drug dealers with out-of-wedlock children. The remaining 80 percent could be federally paid judges, clerks, district attorneys, court-appointed lawyers, child support enforcement officers, sheriffs, prison guards, etc.

Presumably to boost a state’s economic health it is better to have a rich citizen than a poor citizen, but could it be that a state government will collect more revenue by retaining the poor people that it does have?

What do readers think? Do politicians seek to manipulate the number of welfare-eligible voters in their districts? Do state policy-makers consider poverty in the larger economy when deciding whether to adopt policies that will attract more or fewer poor Americans to their states?

Related:

• February 2015 posting asking “Just how many government workers can a poor American support?”