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Brace yourself. I would say to reduce poverty, its about reducing child poverty and increasing the middle class. So to answer your question- you must find a way to rebuild the middle class and reduce child poverty as child poverty keeps going up.Here are some ideas I had- PS- the tax reform i propose has changed and so so has healthcare slightly.Tax ReformThe first solution I would propose to rebuild the middle class first and foremost is tax reform, at the federal level. As a libertarian economist I am sceptical of the current U.S federal tax code, and its ability to reward high productivity. Therefore, my solution is radical, but it is one that was used in America before 1913. I would propose abolishing the ENTIRE federal tax code, in other words corporation tax, income tax, payroll tax and any other taxes currently imposed on wages or profit. This would be replaced with a federal consumption tax (or sales tax) of 15% and I would like to see the 16th Amendment of the U.S constitution removed.Federal taxes would be collected at the point of consumption. Now many of you might be thinking: a consumption tax/VAT is regressive, meaning that the poor who spend all of their income would pay 15% tax, whereas a billionaire would pay 1%, because the rich are able to save some money. Therefore I would give every household a poverty line rebate- therefore if you live close to the poverty line your tax burden is less than someone who is rich, hence the FairTax is actually the most progressive as well as stimulating economic growth the most. Why the U.S economy will boom- as well as employment and wages: the current federal tax code states a top corporate tax rate of 35%, and a FICA contribution of 7%- this a strain on American businesses, and hence they will hike prices to make up for their tax on profits. Therefore, it is estimated that a good or service in America actually has an invisible tax (federal government does not impose sales taxes) of around 22%. If we eliminated this invisible tax, we have just increased purchasing power for all as well as increasing firms’ ability to increase its output. As a result, this tax would boost employment, purchasing power and disposable income.Of course this tax would lose revenue but that’s why states can adopt their own tax systems- in fact they have more freedom in their imposition of direct taxes now because the federal government would not impose direct taxes. It is estimated that the Fair Tax (23% sales tax) would increase capital investment by 75% in the first year alone and the U.S economy would see a 15% increase in additional growth. Overall the 0% corporate tax rate in the U.S would mean that Fortune 500 companies that have stashed $2 trillion of profits offshore would finally reinvest their profits back into America. In fact, a survey was carried out by the CEOs of the global 500 companies and 100 of them said they would move their HQs to America, and 400 of them said that their next plant would be built in the U.S. As a result, U.S manufacturing could return, hence putting all those who lost their manufacturing jobs back to work.Overall the elimination of the corporate and capital gains tax would increase employment, wages and economic growth. Reducing unemployment is what’s gonna drive that family income up and hence the result is that more and more households will have an income that funds a comfortable lifestyle.Healthcare ReformThe second piece of reform is healthcare. As a result of Obamacare, strict regulations on employers to cover their employees has led to employees reducing workers’ hours to under 30 hours, so that the Obamacare mandate does not apply to them. Furthermore, the regulation on insurance companies and the fact that every household is forced to buy certain health insurance packages means that premiums have skyrocketed. The median income in America for a single person was around $35,000, but spending on health insurance since Obamacare has increased 25%. The share of income dedicated to health insurance has increased by 25%, from 9% in 2009 to 11.5%, reducing disposable income. The poor gets assistance through Medicaid, the rich can easily afford healthcare leaving the middle class picking up the pieces. In fact, since 2000 healthcare spending as % of GDP has risen from 13.3% to 18%. As a result this poses a large opportunity cost for average Americans, and as a result industries such as entertainment, clothing etc., will suffer losses because their customers don’t have as much disposable income.Given the expensive nature of insurance-based healthcare, it is time to re think America’s healthcare system. One idea of reform is switching to Singapore healthcare. In Singapore households purchase medical services and drugs directly with their own money. To make sure that services are cheap the $15 billion government healthcare budget (3% of GDP) was used mainly to subsidize such services. Every month Singaporeans are required to save 7% of their paycheck into a medical savings account, until one would need to visit a doctor. If you were poor the government would deposit a paycheck into your health savings account until it was enough to pay your doctor bills. As a result, Singapore spends around 6% of GDP on healthcare and 98% of households had access to healthcare, so Singapore spends less and delivers healthcare to more people than America does. As a result, Singapore government only spends 12% of GDP overall whereas the federal government spent over 22% of GDP in 2015. Who said smaller government was bad? To be clear this new healthcare system would be administered by states but of course they would have to abide by the reforms I have just explained. Therefore, federal spending on healthcare would be $0.Welfare ReformThe current welfare state in the U.S does have flaws that need fixing. One problem is that welfare is exponentially reduced if you work more hours. According to the NBER, and BLS for every $1 extra you make (through working extra hours), you lose $1.30 in benefits, so a family may ironically fall into poverty by working more! The result is we would have a society where families bust their hump to pay the bills and getting nowhere! That has been the exact concern of the Democratic party for many years- they are concerned that working people don’t get anywhere! That’s exactly what’s happening! Another fundamental flaw with the U.S federal welfare is that only 30 cents on the $ actually goes to the poor recipient- there are high administration costs, because the federal government offers 126 different specialized programs. This is not only confusing but it requires government employees in each of these 126 programs to administer the help. This is why the redistribution has not taken place. Furthermore housing projects have caused a cycle of poverty to exist in major US cities. Ever wondered why Harlem and South Bronx are extremely poor and violent parts of NYC? It is because the liberal welfare state decided that the government makes better spending decisions than the recipients themselves. As a result high rise housing projects have created pockets of poverty in major cities, where all the cities’ poor live in a confined area of many high rise housing projects. Some boroughs in major cities have no poverty and some have lots of poverty rather than little bits of poverty everywhere. The effect is that Bronx and Harlem have inadequate access to services and local businesses. If I am an entrepreneur, why would I setup shop in dangerous areas? The effect is that unemployment in these areas are so high because there are no local businesses and public schools in these areas perform terribly. Clearly the paternalistic liberal welfare state has simply reinforced inequality and trapped millions in poverty. As a result people in Harlem resort to crime.Therefore, my solution is simple: replace the entire system with a pay check in your mailbox. The negative income tax is simple. If you earn between 0% and 225% of the poverty line then you should be eligible for a 50% subsidy rate. In other words if one were to earn 125% of the poverty line, then the 50% subsidy rate would mean that person gets a pay check equivalent to 50% of the poverty line. Well the poverty line for a single person is $12,000- so this would lead to a $6,000 pay check. The negative income tax would replace all 126 federal programmes. The advantage of the negative income tax is that it rewards people for working more than people who dont work. And most importantly its a direct transfer, so we dont have this situation where only 30 cents on the $ goes to the recipient.Business Regulation, Labour Markets and CrimeLast but not least the capitalist society we live in today doesn’t have enough competition and innovation. Many industries are dominated by monopolies and oligopolies who suppress labor bargaining and provide little choice for consumers. The solution is reducing those barriers to entry, which stop small businesses from growing and even existing. Had industries been made up of many small firms, then labor unions could bargain higher wages and hence workers could bargain a greater slice of the economic growth. Hence we mustn’t resort to greater regulation and taxes. Quite the contrary- its reducing regulation, red tape and taxes. Preferably no corporate tax. Another advantage of reducing business regulation is that the (near) perfect competition gives the consumer better services and cheaper ones. In a perfectly competitive market no firm is worth hundreds of billions. Industries are instead littered with lots of small firms who are price takers- they have no influence over prices and hence consumers will not be ripped off- hence greater purchasing power for all. Another advantage is that eliminating the red tape and having no barriers to entry would also allow poorer members of society to start a business of their own- gives everyone the ability to be self sufficient and create their own wealth and prosperity. Do the current regulations make that possible? No it does not. The effect is that lower income neighbourhoods would therefore be deprived of nearby businesses because the poor may not have the resources to start a business currently. As a result if there is a scarcity of businesses in these neighbourhoods then local employment is lower, and as a result no family income due to unemployment and welfare dependency.Another alarming fact is that youth unemployment is at 24%, and this is worrying because firstly teenagers cannot contribute to their household income, restricting the number of earners in middle income/lower income households. Hence my solution is to get rid of the minimum wage, which prices out young people like me out of the labour market. If a teenager does not gain the skills during his teenage years, this will increase his chances of underemployment and lack of job training in the future.As a result, lack of job opportunities in the future make young people turn to crime and criminal records permanently reduce job opportunities, so the poor will be faced with underemployment and thus trapped in a cycle of poverty. Speaking of crime- the War on Drugs has led to incarceration of over 1.5 million non-violent drug users, who are mainly from poor backgrounds. How is anyone supposed to get a job and escape poverty, if incarceration is hanging over your head.5. Investing in Capital Spending Rather Than Current SpendingAnother way of rebuilding the middle class, is avoiding a fiscal disaster, which the U.S seems imminently closer to. Avoiding a debt crisis or even a demographic crisis would save millions of families from economic devastation. The first major reform is fixing America’s infrastructure and immigration. Investing heavily in infrastructure now, is an investment for the future generations. Why is infrastructure so good? Because it provides easier mobility for factors of production, which in turn is good for countless industries, especially manufacturing. The effect of increased manufacturing is that trade deficits will reduce, and hence growth will increase, which in turn increases wages and employment. So to make sure this happens the federal government ought to provide hundreds of BILLIONS in infrastructure grants to states. Possibly the federal government should even undertake a nationwide high speed railway like Japan does. The effect is that one could commute to New York City for work and then go back to small town Ohio! When that worker earns a wage (which is higher in NYC) he will spend it on his local economy, so thus reducing regional inequality and poverty. Now in order to fund infrastructure spending, Social Security and Medicare (federal pension schemes for the elderly) must be privatised so that in 20 years’ time future retirees are not relying on federal handouts but their own retirement portfolios. This would free up vast resources for job training and infrastructure, which in turn would improve occupational and geographical immobility, thus correcting labour market failures, and allow the unemployed to fill jobs where there is a shortage of labour.Of course education is a must- but this is a state’s issue. It is hard to pinpoint what education system should take place- I would personally follow Japan’s education system: many schools are private or charter but the government provides vouchers and grants so that all kids get education, but the education itself is not administered by the government- teachers and resources are owned by the private firms supplying the education. However its best if education is left to the states and states can experiment what system is best.6. Ending Government Control of People’s Personal LivesThe War on drugs is a perfect example of government unnecessarily intervening in people’s personal lives. The War on Drugs’ infringement of civil liberties has had an economic effect as well. Child poverty in the United States is 22%. This number has risen despite economic recovery and expansion in federal welfare. This is mainly explained by the War on Drugs but also parts of the liberal welfare state. As I mentioned earlier men in Harlem turn to crime because of high unemployment. Well the War on Drugs makes their fate much worse. The lower income are disproportionately affected by the War on Drugs, and as a result more and more lower income children are living with just one parent as their fathers go to prison. Poverty rates among single parent households are much higher than 2 parent ones. If millions of non violent drug offenders returned home, it would increase 2 parent households and hence increase the number of children living in a house with TWO INCOMES. This explains why only 5.8% of married households live in poverty.The government through legislation has further eroded civil liberties by outlawing Polygamy and Polyandry and restricting 3 person marriages. While this is seems like a remote point, legalising victimless crimes like polygamy would have economic benefits. As I mentioned earlier single parent households were in poverty much more than 2 parent households. In some cases even 2 parent households struggle, and hence 3 parent households would potentially provide 3 earners in a household. This would also relieve pressure on housing and also allow families to be able to support more children as 3 earners provides more stability. Having more children may solve the demographic crisis so more taxpayers to support pensioners in the long run. More tax receipts and more workers could support more investment into capital spending, which would in turn allow more households to be self sufficient, and would also allow middle class families to save more rather than pay large amounts of money to the govenrment to pay for pensioners.In conclusion the solution to the declining middle class is not taxing the rich and reducing those who have worked hard and contributed to the economy in the first place. In fact, many of the solutions I have provided actually reduce the role and involvement of government in the economy. That is the Libertarian way!