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It's
better to receive median welfare than median income according to a US Senate
budget committee report Total
Welfare Spending Equates To $168 Per Day For Every Household In Poverty.
Based on data from the Congressional Research Service, cumulative spending on
means-tested federal welfare programs, if converted into cash, would equal
$167.65 per day per household living below the poverty level. By comparison,
the median household income in 2011 of $50,054 equals $137.13 per day.
Additionally, spending on federal welfare benefits, if converted into cash
payments, equals enough to provide $30.60 per hour, 40 hours per week, to
each household living below poverty. The median household hourly wage is
$25.03. After accounting for federal taxes, the median hourly wage drops to
between $21.50 and $23.45, depending on a household’s deductions and
filing status. State and local taxes further reduce the median
household’s hourly earnings. By contrast, welfare benefits are not
taxed.
The diffuse and overlapping nature of federal welfare spending has led to
some confusion regarding the scope and nature of benefits. For instance,
Newark Mayor Cory Booker has recently received a great deal of attention for
adopting the “food stamp challenge” in which he spends only $30 a
week on food (the average individual benefit). The situation Booker presents,
however, is not accurate: a low-income individual on food stamps may qualify
for $25,000 in various forms of welfare support from the federal government
on top of his or her existing income and resources—including access to
15 different food assistance programs. Further, even if one unrealistically
assumes that no other welfare benefits are available, the size of the food
stamp benefit increases as one’s income decreases, as the benefit is
designed as a supplement to existing resources; it is explicitly not intended
to be the sole source of funds for purchasing food.
Crazy Incentives in Welfare System
Please consider Julia’s mother: Why a single
mom is better off with a $29,000 job and welfare than taking a $69,000 job.
The U.S. welfare system sure creates
some crazy disincentives to working your way up the ladder. Benefits stacked
upon benefits can mean it is financially better, at least in the short term,
to stay at a lower-paying jobs rather than taking a
higher paying job and losing those benefits. This is called the
“welfare cliff.”
Let’s take the example of a single mom with two kids, 1 and 4. She has
a $29,000 a year job, putting the kids in daycare during the day while she
works.
As the above chart – via Gary Alexander, Pennsylvania’s secretary
of Public Welfare — shows, the single mom is better off earning gross
income of $29,000 with $57,327 in net income and benefits than to earn gross
income of $69,000 with net income & benefits of $57,045.
It would sure be tempting for that mom to keep the status quo rather than
take the new job, even though the new position might lead to further career
advancement and a higher standard of living. I guess this is something the
Obama White House forgot to mention in its “Life of
Julia”
cartoons extolling government assistance.
Comments
Several comments to the article were interesting. Here are a couple of them.
Stinch writes ..
.
Here is the truth about welfare from one
who works in a PA welfare office. While welfare is designed to provide
assistance to those who are at the lower end of the economic spectrum. The
program was designed to supplement people’s efforts in supporting
themselves not being their sole support. Reality is that there are some that
by no fault of their own will never be able to fully support themselves, but
the number of people who could have supported themselves but due to poor
decision making (and suffering the negative consequences of those decisions)
only continues to grow. The truth is that welfare, though an assist for some
is a trap for too many. There are some who escape the trap, and more power to
them, but for most it is a trap. It is far too easy to become complacent and
begin to rely on the system. There is little to no incentive to leave the
system. I have seen too many people come through our doors ashamed to be
asking for help, and years later are fighting to remain on the welfare rolls
and seeking more. Without serious reform the future will only consist of more
and more people receiving benefit and fewer and fewer paying more and more
taxes to support them.
Nesg83 writes
...
I think there are some factual mistakes
here although the broader point is well taken that there are moments due to
benefit eligibility cutoffs where there is disincentive to gain the marginal
dollar in income.
Just a few moments of googling found these mistakes:
1. The chart shows childcare benefits up to $45,000 or so. The Pennsylvania
article for childcare credit shows a number well below the $45,000 shown on
this graph
(http://www.dpw.state.pa.us/forchildren/childcareearlylearning/childcareworkssubsidizedchildcareprogram/index.htm)
when the actual number is cutoff at $38,000 and worker is expected to co-pay.
2. CHIP is likewise cut off around the $38,000 mark
(http://www.chipcoverspakids.com/assets/media/pdf/complete_income_chart_2012.pdf)
not the $45,000 or so shown here.
The calculation of cutoff for Medical Assistance (MA) at 133% of poverty
level ($19,000 for family of 3) seems correct.
So I think the complaint implied here by the AEI is
twofold (1) the general concept of benefits proportional to income, and (2) a
mathematical problem where the use of eligibility cutoffs rather than gradual
reductions causes points of disincentive. Point (1) is a political point I
won’t debate here but has many words of discussion elsewhere on this
website, but point (2) is quite interesting to me as a mathematical kind of
guy. The simple way to solve this is to use equations rather than eligibility
limits, but that appears too complicated to most people (and we’d have
other Facebook postings complaining about complexity of equations in the tax
code). ...
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