# “Why work?”

by on December 9, 2010 at 6:57 am in Data Source, Economics | Permalink

Here's a claim, with concrete numbers, that:

"a one-parent family of three making \$14,500 a year (minimum wage) has more disposable income than a family making \$60,000 a year."

That's after various government benefits and taxes, but the calculation seems incorrect to me.  For instance, should the Medicaid and CHIP benefits of the poorer household actually be valued — to the user — at \$16,500 a year?  (Is that number coming from some kind of cost basis?  If so, is it adjusted for the age of the Medicaid recipients to rule out nursing home expenditures?)  Is the \$60,000 per year family receiving employer-supplied health insurance?  The assumption seems to be that they do not.

Still, even if you make adjustments this is a scary comparison.  I'd like to see a more exact calculation of the implicit marginal tax rates of the poor, as they climb from say 15k a year through the 60k range.  Does anyone know of such a table?

For the pointer I thank CC.

Daniel Daugherty December 9, 2010 at 3:37 am

Those numbers just can't be true. 10 years ago, my family of four had an income of \$60k and we lived luxuriously without my father taking on the amount of debt our neighbors were doing. I spent the last three years in school and working odd jobs, making under \$20k annually — one year less than \$10k reported on my taxes — and while I had a surprising amount of disposable income, I wasn't re-building antique cars in my garage or raising children like my father was. I had no health insurance and actually was turned away by an oral surgeon when he saw I couldn't afford treatment for my wisdom teeth. During this time the only money I got from parents was a modest birthday check. If I qualified for medicaid, nobody told me …

Mort Dubois December 9, 2010 at 4:17 am

Look at that chart carefully (assuming it's real numbers.) The 60k person has cash in their pocket, and their choice of what to do with it. The others end up with "economic benefit", not cash, which they can't use as they wish. What's freedom and a sense of control over your own finances worth?

And if this was true, presumably the middle class would be abandoning their lifestyle in droves, right? Incentives matter, after all. So if we have any middle class at all, there has to be more to the story. The most egregious claim, in my brief reading, is that any job making \$60k/yr is necessarily high stress and little better than slavery. I think you would find that most people get some enjoyment out of their jobs, and that they certainly enjoy the higher social status of being employed rather than unemployed.

Mort

Neal December 9, 2010 at 4:22 am

Greg Mankiw has this from last year: http://gregmankiw.blogspot.com/2009/11/poverty-tr

Eivind December 9, 2010 at 4:28 am

The numbers aren't true. Furthermore, it's too narrowly aimed.

This hypothethical family is a one-parent family of three. All 3 are in such an age that they *both* require childcare — and qualify for the national school lunch act. Thus they're both in kindergarten and in school, at the same time. Which is bullocks.

Furthermore, even if you correct this and other banal mistakes, you're still left with a very short time-period. Basically all children under 1 are at home, being taken care of by parents. (or in some cases close family) Childcare-costs for kids above 10-12 tend to be close to zero, and childcare-costs for kids who are in school, is limited to the difference between school-hours and working-hours (i.e not huge)

What this table really shows, is that having 3 kids who all require paid care, at the same time, is very expensive, expensive enough that it can mean a tight few years, even for high earners.

This is true (though not quite AS true as the table will have you believe), but it ignores the bigger picture. What does the situation in these 2 hypothethical families look like 5 years earlier, before the kids are born ? What does it look like 5 years later, when only one of the 3 kids require paid childcare?

Yes, in certain constructed temporary situations, you can end up getting the impression that the welfare-clients are equally well off. But that's not at ALL true if you look at the bigger picture.

Chris December 9, 2010 at 4:38 am

I'm confused about their Medicaid and CHIP row. They're making the claim that the maximum per year benefit amount from both programs is always tapped out for low income families and hence that financial benefit is folded into their disposable income.

What if your kids don't get sick? If you have perfectly healthy children (not entirely likely in a poverty stricken household) should that row read zero for everyone? Also, the entitlement programs are restricted spending. I can't spend food stamps or utility bill help on whatever I feel like. In that case, the only thing providing a family making \$14,500 with disposable income they choose to distribute would be the tax breaks which really only amount to about \$8000 for that family. So in the end the family making \$14,500 has \$8000 to spend on clothes, movies, toys, phones, cars, gas, etc… It doesn't seem like the American dream to do that on \$600 a month or so. Something seems off in general in their claim that restricted spending benefits are equivalent to the cash obligation people without those benefits incur as well. Is spending a dollar on electricity bills the same as spending the equivalent dollar of utility bill assistance?

Sean Mulholland December 9, 2010 at 4:48 am

Tyler,
Clifford Thies posted a similar analysis looking at a family of three in VA. See here: http://mises.org/daily/3822. He includes a graph showing the implicit marginal tax rates from 15k to 150k and the relationship between earned income and income less taxes plus subsidies.
Sean

Ironman December 9, 2010 at 5:02 am

First, an real-life anecdote from 2008 with numbers:

We now see that between all the phaseouts of welfare benefits she had been receiving and the higher taxes that resulted from her taking on a job paying a higher income, which would incidentally place her roughly at the U.S.' 50th percentile for household income (scroll to the bottom of our post from yesterday for confirmation!), this mother faced exorbitantly high and punitive marginal tax rates in taking on a job that paid just \$10,000 more than she made before. In fact, Liebman estimates she faces an effective marginal tax rate increase of 130% for having traded up to that \$35,000 per year job.

The Consumer Expenditure Survey might provide some of the needed data to see how much spending is occurring at the lowest income levels. The report for 2008 gives the following average annual expenditure numbers for those earning less than \$70,000:

INCOME……….SPENDING
< 5000……….\$23,036
5000 – 9999…..\$19,125
10000-14999…..\$21,120
15000-19999…..\$25,536
20000-29999…..\$30,367
30000-39999…..\$35,778
40000-49999…..\$40,527
50000-69999…..\$50,465

Unfortunately, the data doesn't consider things like housing, transportation, health care and education subsidies, which inflate those expenditure categories for low incomes.

The consumption figure for the lowest income range is higher than you might expect due to the presence of individuals with a negative self-employment income. Generally speaking, these are people who are simply running in the red for the year – they don't consume many public subsidies, which you can see in the linked table.

Here's a tool where you can approximate the annual consumption spending of an average American of the age and income level you enter, which corrects for the effect of negative self-employment income at the lowest income levels.

Bill December 9, 2010 at 5:08 am

Actually, if you klick through all of the Mankiw post to the link he gives to Jeff Frankel's piece, you come to a person who actually made a thoughtful comment on this subject and how to correct it. Here is a comment that Frankel posts from someone who has studied this issue at Harvard:

"The question is what is the policy solution here. Means-tested transfers have to be phased out at some point, so there is no easy answer. I think there are three things we might be able to do â€” all of which would, as you say, be a better use of revenue than tax cuts for the rich. First, make child-related tax benefits equal for all families (now they are high at the bottom because of the EITC and high at the top because the dependent exemption is more valuable the higher the tax bracket you are in, and the dip in the middle raises marginal tax rates by 21 percent for a family with two kids â€” so eliminating the dip would get rid of this 21 percent portion of the effective marginal tax rate). David Ellwood and I analyze this first idea. Also Sawicky and Cherry have put forth a similar idea. Second, in designing universal health insurance, we need to be very careful not to phase out income-related premium subsidies over the same income range where all of these other benefits are being phased out. Third, implement a delay between income increases and rent increases in section 8 â€” allow people to save up a bit before they are hit with the rent increase (I believe I read that some states have been trying out something like this recently, but I am not up to date on these policies). There are some excellent papers that carefully model how the cumulative effects of the welfare system create a poverty trap. But I donâ€™t think either of these papers includes all of the factors facing the woman above â€” so they would probably indicate that she faced a 60 percent marginal tax rate rather than the 130% (or whatever it really is) rate that she actually faces.â€

See, Tyler is finding a better solution than tax cuts for the rich to solve this problem: make child related benefits equal for all children, support universal health insurance, and reform Section 8.

Instead of picking on the poor this holiday season, we can actually address problems and solve them.

DK December 9, 2010 at 5:15 am

@mort and others have said that the person earning \$14.5K probably doesn't value the government benefits at their full level of "economic benefit". if that is true, then we have a moral responsibility to immediately replace these benefits with cash transfers, to give the lowest income groups a large welfare/utility gain. the cash transfers can be adjusted to keep marginal tax rates reasonable.

Justin M Ross December 9, 2010 at 5:24 am

I calculated the implicit rate for different income groups for a "Indiana Single Mother of Two" for an op-ed that was published in the IndyStar. The permalink below contains a reasonably detailed table illustrating the breakdown of earned income, taxes, and transfers are found (I did not count Medicaid or CHIP as cash benefits):

I based the table on a similar one done for West Virginia, but I believe that it did count Medicaid as a cash benefit (See p.8 of the pdf): http://www.be.wvu.edu/divecon/econ/sobel/Unleashi

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liberalarts December 9, 2010 at 5:44 am

Beyond the question of whether to value the benefits same as cash, there are 2 problems with these numbers:

1. Payroll and federal income taxes. I dare anyone to find a single mother of three children who pays \$13,034 in these taxes. As a rough approximation, her income of \$60,000 would be reduced by a _minimum_ of \$3,650 x 3 (personal exemptions) and by \$8,400 (standard deduction for head of household), thus she could not be taxed on more than \$60,000 – \$18,350 or \$41,650. That leads to a \$5,650 in taxes at the head of household rate. Then, 2 child tax credits at \$1,000 each drops the bill to \$3,650. Then, the childcare tax credit of 20% of the first \$6,000 of childcare (I think that is the max) is another \$1,200 off of that for a grand total federal taxes paid of \$2,450. Add in 7.65% social security and medicare taxes (.0765x\$60,000 = \$4,590) and total payroll and income taxes clock in at \$7,040! Even if this person is self employed that number would only rise by about another 3 thousand and would still be thousands below the stated amount. This also assumes the unlikely event of no other deductions or credits.

2. \$10 a day for school lunches for children (180 days @\$1800)? My kids pay \$2 and \$2.40, respectively for elementary and junior high lunches, and that is the full rate. Kids in Mississippi must really be eating well at their public schools.

Floccina December 9, 2010 at 5:46 am

BTW the university of Florida estimates (all colleges do such estimates for incoming freshmen) that the incoming freshmen who live off campus should budget about \$10,000.00 for living expenses. 10k yearly quite a good life for them. It is my opinion that we could give the poor just as much help much, much cheaper through an hourly wage subsidy than the current system.

Even Gov. schooling is very costly for what it yields to the typical poor person and even the middle class people would not spend anywhere near as much on education as the state does on their behalf if they paid for it directly. Many people complain about the quality of Gov. eduction I think it is adequate but I think we spend way more in it that we should.

On the value of section 8 housing, of the problems with section 8 housing is the neighbors, this is not solvable by any known means.

Andrew L December 9, 2010 at 5:56 am

in NYC, I don't have trouble believing this.
In NYC, once you qualify for low income housing, you can rent an apt for a fraction of the market rate. The caveat is of course, it's low income housing, which is functional at best, but can get you a coveted Manhattan address. In addition, there is a rash of benefit programs from Medicaid to EBT benefits that drastically reduce fixed expenses. There are actual agencies in NYC whose sole purpose is to find "work" (fictional or not)to provide the necessary documentation to apply for benefits.

IMO, I think it would be extremely difficult for someone to raise a family on 100k in Manhattan, yet you can be sure not everyone who lives on Manhattan earns close to 100k.

Bill December 9, 2010 at 6:04 am

The lesson of the post as it relates to Medicaid, Chip and school lunch subsidies in the example above is that we need to train children not to pick impecunious parents.

In the spirit of a Modest Proposal, Newt Gingrich will be auctioning off indigent children to wealthier parents who can better afford and support their health and educational attainment.

This will free up the indigent parents, reduce their subsidy (which, of course, did not benefit them but only their children), so that these now childless pareents will have a lower effective marginal tax rate, considering that their family unit is smaller. They will see the poverty tax rate decline and, without children, will now earn a higher income, which, afterall, is what this is all about.

Children will be able to visit their natural parents on holidays and week-ends, but it hasn't been worked out yet who will pay for the transportation.

Now, if the above comment strikes you as strange (and I hope it does) it might also cause you to think about what your implicit assumptions are in Tyler's original post: that the parent, and not the child, benefits from school lunches and insurance and that the parents welfare is being supported with benefits to children; that we are measuring utility across one person (the parent) and not three persons; that there are costs that flow from children not being educated or receiving medical care; that those costs fall on the child non-worker, and not the parent; that you benefit (or at least I hope you think you do) if others are well educated and not permantly sick or disabled.

Sources December 9, 2010 at 6:14 am

The original article, which the people at Zero Hedge may (surprisingly) have read on the paper edition of the Cleveland Current, was written by Wyatt Emmerich, president of the Mississippi Press Association and of Emmerich Newspapers, Inc., which publishes 25 local newspapers. The article has surely been printed in several of them.

Online, the (McComb, MS) Enterprise-Journal shows two versions:
1) From October 13: http://m.enterprise-journal.com/mobile/article_ff
2) From October 25: http://m.enterprise-journal.com/mobile/article_62

The latter is the canonical version, with the final reference to China that Zero Hedge also reports. It was also published in the (Jackson, MS) Northside Sun on October 14: http://northsidesun.com/printer_friendly/9915498
and in the Clarksdale Press Register on October 20: http://www.pressregister.com/articles/2010/10/21/

I couldn't find the table anywhere online except through Zero Hedge.

joan December 9, 2010 at 6:21 am

In addition to the other problems than have already been covered, the "family" is being taxed like a head of household not as married couple. If you are concerned with the implicit marginal tax rates on a single parent, it is the right number to use, but he should make clear that is what he is doing.

John Thacker December 9, 2010 at 6:24 am

@Ironman:

A not-insignificant portion of those with very low income who still spend a lot are parent-supported students and the like. Some are children-supported parents.

Not to be all science-y, but we can test the prediction against the observed world.

on the one hand: many people who do, in fact, choose to earn \$60k a year

Incentives, including monetary incentives, matter, but I don't think economists suggest that it's reasonable to expect some kind of phase transition from everyone working to everyone not working. Incentives affect things at the margin.

For instance, plenty of people who work at \$60k/year do so because they have aspirations of using that to get to higher incomes where they would see a return. Perhaps different people have different views of whether it's worth it to suffer now for long-term reward?

Ed December 9, 2010 at 6:58 am

While the above commentators have rightly pointed out the holes in the article, there are two general points that are true:

1. People overestimate how easy middle class Americans have things. There are so many fixed costs (housing/ education/ health insurance/ taxes) to a middle class life style in the U.S. that it really is possible to find income-poor people who have a slightly higher standard of living, though you usually have to go out of the country because the American poor have high fixed costs too. Blogger Charles Hugh Smith often make this point.

2. The U.S. welfare system, with lots of little programs that you might or might not qualify for, encourages chiseling if not outright fraud.

To address #2, and to some extent #1, I am increasingly leaning in the direction of replacing the welfare system with a guarantee of one half of the median income. The government will top up your income to one half of the median, regardless of your circumstances or whether you work or not (I'm not worried about incentives to work because I think the jobs aren't there, and anyway most people will still want to get to above half the median). But no other benefits.

Someone brought up the situation in New York City. You don't find many middle class people living in Manhattan, but lots of rich people and poor people. There are reasons for that, how New York runs its welfare system being one of them.

RPLong December 9, 2010 at 7:06 am

There is a hilariously large amount of hand-waving in this thread.

Behold the welfare monster created by left-liberalism. Even if the numbers aren't exact, they don't exactly bode well for the welfare systems, do they?

BCC December 9, 2010 at 7:17 am

As noted above, the numbers are pretty bogus, starting with the Payroll and Federal Income Taxes line. Looks to me like a family of 3 with 60k income would pay about \$7k on that line, not \$13+k.

I pay less than \$13k in Payroll + Federal, and I make way more than \$60k. Home ownership and having a mess of kids has its privileges…

Andrew December 9, 2010 at 7:36 am

"Translation: the numbers are wrong, but so what, I like the point it makes anyway."

Translation: the numbers may in fact be good enough for government work (because the government never actually did the work, obviously), but we can use selective critical thinking to nit-pick it to death to avoid looking under the hood because we are scared of what we might find.

"I don't think I'm going to sit around being offended that some single parent operating the fry machine at the local McDonald's isn't suffering enough."

These people have psychological issues.

Tim December 9, 2010 at 8:05 am

Well one reason to work is that the chance that someone making \$60k/year will be making \$70k per year in 5-10 years is pretty high. We were discussing this at work recently, because one co-worker would be eligible for a tax credit if he made just a couple thousand less per year. Economists would say that this should change his behavior, and he'd work less or ask for a pay cut. But it doesn't. And I know of no other person who has ever asked for a pay cut to take advantage of a tax break.

The fact is that ultimately if someone earning \$16k per year doesn't work, it's more than likely happening because they're not close enough to the next hand hold to pull themselves up the economic system. We should be asking if we gave them \$20k/year would that be enough that they'd start moving up? What is it about what we're doing that is causing people to not advance?

If we think about people on welfare like new restaurants, then we would be asking, are we underfunding the startup costs of these restaurants and that's why so many of them are requiring continuous additional capital investment? What is it about the amount of capital we're investing that is keeping us from succeeding?

Andrew December 9, 2010 at 8:23 am

If people aren't exactly rational and economists' models aren't exactly right, it doesn't make that graph good.

Neal December 9, 2010 at 8:28 am

Translation: the numbers may in fact be good enough for government work (because the government never actually did the work, obviously), but we can use selective critical thinking to nit-pick it to death to avoid looking under the hood because we are scared of what we might find.
What point are you trying to make? Just come right out and say it. Are you just pointing out that implicit marginal tax rates greater than 100% are ridiculous? I think even us liberal-left commenters would be inclined to agree with you on that.

PS- Noting that it's
(a) ridiculous to count Medicaid/CHIP, which constitute a full half of the supposed benefit to not working, as economic benefits if they're not used or they won't be buying insurance anyway, and
(b) pretty effin' dishonest to call economic benefits "disposable income"
are not "nit-picks."

Six Ounces December 9, 2010 at 8:36 am

We all agree there are problems with the numbers. But most of us recognize that there is a margin at which the choice to work or not work becomes relevant. Individual preferences (laziness vs. ambition or future prospects) affect the final decision.

It seems to me that there is an asymmetry to this decision. The non-working adult close to the margin may have strong disincentives to start working while the working adult near the margin might have weaker incentives to quit working. The institutional poor have already gained information on attaining benefits, stretching their incomes, and dealing with the nonpecuniary costs if living on the dole. The worker, however, faces information costs and risks. Do you really want to move into free or subsidized public housing?

The value of Medicaid (or any other insurance) is based on the likelihood of use. It's gibberish to say, "Well, if their kids don't get sick the value of the insurance is zero." Since people actually BUY insurance under uncertainty, it's clear insurance does have a monetary benefit. Valuing it precisely is another matter.

The point has also been made that cash is better than in kind benefits to the user. The problem with this numerical example is, of course, interpersonal comparisons of utility.

I've already stated that the poor suffer costs from negative externalities and public bads. But they also have many more benefits than meet the eye. In many states, the poor pay significantly reduced rates for power, water, garbage, telephone, transportation, property taxes, car registration, car insurance, etc. There is almost no basic need which is not subsidized by government, corporations, or non-profits. There are even extraordinary needs, like legal services, which are provided cheaply or free. If I were a defendant in a criminal or civil case, I would be unqualified for a public defender/pro bono and the legal fees would bankrupt me. The poor get (and need) legal services far more than the average Joe.

The bottom line is that we have substantial barriers to upward class movement, many of which hinge upon and exacerbate the worst character flaws in the institutional poor. On the other hand, the middle class is squeezed between an onerous tax burden and lack of means tested publicly provided goods and services.

The middle class is punished for their virtues and the poor are rewarded for their vices. It's little wonder we've maintained a poverty rate at 12% for the past four decades. We fought the War on Poverty, and poverty won.

Peter December 9, 2010 at 8:50 am

This is the best argument for universal health care I have ever seen.

Peter

Andrew Edwards December 9, 2010 at 9:21 am

People trying to score political points for or against welfare should stop, as this has nothing to do with welfare-as-concept.

You could smooth this curve by cutting benefits at the bottom or just by designing benefits to claw back more slowly, or by adjusting the tax curve to be slightly steeper (in terms of both lower at the bottom and higher at the top). You could smooth the curve in a defecit neutral-way, a deficit-increasing way, or whatver pleases you.

The issue is agency – politicians don't know anyone with this problem and so like some people here they ignore it in favour of hobby horses about either too much or too little welfare.

mark December 9, 2010 at 9:23 am

I disagree with Neal that the medicaid / chip inclusion is craxy or dishonest. Sure there may be some parents that would "choose" not to use it. But I doubt it. It may notbu universal but it is typical. The majority would use it. The point is to take a typical set of consumption and look at two ways ro buy it: work full time with no subsidies or owrk part time with subsidies.

A self employed person making 60K has to buy that health insurance; the person who qualifies for Medicaid doesn't. You're right that the former can choose not to buy it but that's not terribly typical anymore than the latter chooses not to use Medicaid.

Without commenting atlength on the details and specifics, I think the general thrust of the article is correct. Inequality is constantly being asserted based on reported income when in fact there are trillions of tax loopholes, subsidies, transfers that don't run through reported income and reduce inequality considerably.

Mankiw's chart doesn't begin to capture it because it doesn't take into account among other things, free public education K-12, the employer health insurance inclusion, off the books income, and so on.

td December 9, 2010 at 9:39 am

Everybody willing to live in the neighborhood you can afford at 14K as opposed to 60K raise your hand…..

Vehicle Driver December 9, 2010 at 10:16 am

I think the lefties who are nit-picking this are missing the point:

The middle class is shrinking, that is a point on which we all can concede. And it is the middle-class who fund the welfare state and make the welfare state possible, either through tax money, or simple by working to produce the goods and services that the welfare state redistributes to recipients. You aren't going to have a welfare state made up of entirely of a highly taxed capitalist class and an unproductive recipient class. No middle class means no welfare state.

The lefty "solution" to the problem is:

A) to increase regulations that make labor and capital less productive (i.e., which is essentially converting tangible goods and services into intangible things like "worker safety"). Regardless if you believe the trade-offs are good or bad, we all must agree that increased regulations ultimate reduce the available goods and services, all things being equal.

B) to increase the benefits that non-productive members of society receive. Regardless of the morality of providing these benefits, there will always be some people at the margins, and thus increasing the benefits that non-productive members of society receive will push some finite number of middle class people into the non-productive class, all things being equal.

Essentially, lefties are eating their seed. The middle class, and the goods and services they produce, are essential to the welfare state you so desperately crave. Yet, the long term effect of your policies are that you will continue to have less and less resources to run your welfare state, and more and more people making larger demands on your welfare state.

Lefties are so caught up with making moral arguments, or discussing the minutia of a specific policy, that they don't understand that the welfare state is in danger (and not in danger of being cut by "heartless" libertarians, who are politically irrelevant). For people who are obsessed with "sustainability" in every other freakin' aspect of society, they are too brainwashed to understand that the current model of the welfare state is not sustainable.

The fact is, resources to sustain and expand the welfare state are not going to increase any faster than resources expand in our economy in general. The only way to sustain and expand the welfare state, is economic growth in general, and to make the welfare state much more efficient. Lefties tend to be skeptical (if not outright hostile) to economic growth, and lefty politics tends to have a vested short term interest political interest in keeping the welfare state inefficient (i.e. the massive unionized labor of government bureaucracy). The successful western European mixed economies that lefties so want to emulate, haven't significantly expanded their welfare state (beyond economic and population growth) for years.

The details of this article might be false, but the fact that the article resonates with so many middle class people, proves there is a problem. Middle class perceive their standard of living decreasing, and the only solution progressives offer is early-20th-century style class-warfare.

Vehicle Driver December 9, 2010 at 10:34 am

Given the increased number of people on welfare since the 2001 and 2003 tax cuts, compared with the reduced number of people on welfare in the 90s after the tax hikes, are we to conclude that after the tax cuts, more people over the decided that not working and going on welfare was better than paying the lower Bush tax rates?

Tax cuts and tax increases tend to be counter-cyclical. Countries tend to cut taxes in response to high unemployment, and countries tend to raise taxes during boom periods. The only thing that "we are to conclude" is that you haven't opened a high-school economics textbook.

lemmy caution December 9, 2010 at 10:37 am

"The only conceivable reason to value Medicaid and CHIP at \$16500/yr is if you would otherwise be insuring yourself and your child for \$16500/yr. But since in the absence of Medicaid and CHIP our parent would not be able to afford insurance anyway, it makes no sense to think of that coverage as freeing \$16500 of income: you can't trade Medicaid or CHIP coverage for other goods and services."

This is correct. Plus, 60k jobs usual come with healthcare.

If it wasn't correct, you can easily fix the incentive structure using single payer health care.

Bill December 9, 2010 at 10:43 am

Why is it that when I say "supply side economics" you think I am talking about a rich person who pays less taxes and will work more, and not a poor person who should be taxed less (adjusted for benefits) in order for him to work more?

Implicitly some of you supply siders should be on the bandwagon for not reducing benefits or requiring less contribution as income increases.

It's how you frame the issue, folks. Frame it one way, they are welfare queens; frame it another way, and they are being held back by the tax system.

Andrew December 9, 2010 at 10:51 am

Neal and Bill,

There are no implicit assupmtions. Look at the graph. If you don't like Zero Hedge's numbers, fine, I don't care. I didn't know they existed until this morning, but I've seen the same thing before. The only point I'm trying to make is denial ain't a river in Egypt. This funked up chart is only a symptom of the funked up government. My theory is that they could afford to be jack legs just like everyone else could during the decades long credit boom, but it doesn't really matter.

Floccina December 9, 2010 at 10:54 am

Now if the \$60K earner is a religious person they may feel compelled to tithe on gross (\$6,000 to church and charity) and send their children to religious schools (\$8,000). I know lots of people who do that.

To December 9, 2010 at 11:09 am

The valuation of medicare at \$16500 implies that the middle-income family doesn't get insurance from work and would have to spend that sum on getting it on the market. Actually, with ACA, this number is closer to \$5000:

(a) This calculation is bogus, or at least (soon) outdated.

(b) Yes, ACA is generally good for the middle classes.

(c) The issue is that middle classes don't get enough services/transfers from government. Please explain what decreasing transfers to low-earners solve, except improve the formal aesthetics of the system ?

As a reminder, to be compared to the ~100% tax rate experienced by the working poor, the tax rate on capital gains is still 15% flat.

sam December 9, 2010 at 11:13 am

Interestingly ACA will "fix" the worst offender of the marginal tax rate which is Medicaid/CHIP by offering a sliding scale benefit well past 60k.

Andrew December 9, 2010 at 11:53 am

Back when we were really growing people wiped their butts with corn cobs. There is no rule that says we have to do all the things that were irrelevant or counterproductive.

I doubt tax rates are really lower adjusted for inflation, cost of living, and the number of people now among the 'rich.' And even if tax rates really are lower now, back then people were getting for their money a government that didn't suck quite as much ass.

RPLong December 9, 2010 at 12:17 pm

Hilarious. You talk about the abstract concept, and they will complain that you're not being specific enough. You get specific, and they tell you you're missing the point.

Does it matter if the marginal tax rate at some levels is "100%" or "65%?" Does anyone make any actual economic decisions based on the actual numerical value of their marginal tax rate?

OF COURSE NOT. The only thing that matters is the relative values. It's not X vs. Y, 35% vs. 50%, or whatever. It's "feels high to me" versus "feels low to me." Remember, values are subjective, not cardinal. If the values feel too high to me, then they are too high for me.

It's very definitely a welfare issue. Numbers like these demonstrate fully that people in reality DO NOT value welfare systems, because the tax rates feel too high. That pokes a big, gaping hole in the theory that we can all be happy as clams sitting under the government umbrella.

Furthermore, you're not being greedy if you feel over-taxed. The value of your marginal dollar of income is every bit as real and valid for you as your preference of Beethoven over Brahms or Ford over Chevy.

The problem is that left-liberals don't WANT it to be so. So they complain that the problem is people like me, who disagree with the concept of welfare for all of the above reasons.

Turok December 9, 2010 at 12:28 pm

Status

Ron Hager December 9, 2010 at 12:59 pm

Where is the list of those people actually getting those monies?

That is because what may be possible on paper is in reality next to impossible.

Andrew December 9, 2010 at 2:25 pm

Or…people could have kids when they can afford them.

Or, if that is too much to ask how 'bout we just flatten the gosh darn chart.

jorod December 9, 2010 at 5:43 pm

It's not that far off the mark.. But I think the \$60,000 income would also receive subsidies worth something such as public schooling. Also, the \$60,000 income could save money by adjusting one's living standard, thereby creating wealth that the welfare recipient could not accumulate. That's one of the problems with welfare. People live hand to mouth.

\$16,500 is cheap for a family health policy.. That's the group rate for a company's employees.

econobiker December 10, 2010 at 6:43 am

And one family, making \$1.5 billion per year, has more disposable income than millions of \$14,500 and \$60,000 per year families.

Ah, to be the uber wealthy…

Brenton December 11, 2010 at 10:52 am

I don't know where anybody got the idea that a poor person can just sign up and receive subsidized housing when they want to. It usually involves waiting for *years*, or waiting until you're dead, depending on where you live. The areas where the wait isn't so long (under 2 years) are areas where market rate housing is barely more expensive anyway.
Usually voucher holders end up in the cheapest parts of town, or even relocating +100 miles to a cheaper area. The types of kids your children will be growing up with in these areas won't exactly be role models.

And the idea that a family can find a Section 8 apartment in Manhattan is misleading at best, contrary to what one commenter said. I suppose it is *possible*, but you would have to be looking for a studio in the worst parts of Harlem, and even then it's highly doubtful. (I tried it myself :p ) This is despite a law that prohibits landlords discriminating against voucher holders in NYC. It's nearly impossible to rent with a voucher in *any* of the boroughs, especially if you have kids. If you can't bribe a landlord with thousands of dollars as "key money", forget it and move to the South.

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