What Life Is Like for the Takers

A single mother of two in the Keystone State earning no wages will obtain welfare benefits—such as food stamps, child care and Medicaid services—worth more than $45,000 annually. If the woman begins earning wages, her total annual income, including the value of her welfare benefits, will rise as well—up to about $9,000 in wages. But the next $5,000 in wages will not increase her total income, because she will lose some Medicaid and other benefits. In short, she faces the equivalent of a 100% marginal tax.

From about $14,000 to $29,000 of gross wages, she will also lose government benefits such that her total annual income will rise only about $5,000—an effective marginal tax rate of 67%. At $29,000 of wages, the woman will realize a little less than $57,000 in net income plus benefits. Once she earns more than $29,000 in wages her housing subsidies and food subsidies drop way down. With wages above $43,000, her child-care subsidies disappear, and once her wages top $57,000 her family will no longer qualify for the Children’s Health Insurance Program.

What this means is that her total income—welfare benefits plus wages, minus taxes—won’t reach $57,000 until her gross wage income rises to $69,000. In other words, the money earned by her between $29,000 and $69,000 faces a marginal tax rate, on average, of 100%. She receives no net benefit from her labor. Now if that doesn’t motivate you to get up and go to work, I don’t know what will.

Art Laffer in The Wall Street Journal.

Comments (6)

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  1. Studebaker says:

    I’ve slept since then, but I thought we reformed Welfare back in the 1990s. I guess that’s a big “…Not!”

  2. Charlie says:

    Art Laffer is a very bright economist. I love his “Laffer Curve” and I believe that the pro-growth policies he supported while in the Reagan Admin was a strong contributing factor to economic growth in that period.

  3. Andrew O says:

    Interesting illustration and puts things into perspective. Not sure what the “best” solution is in regards to having some sort of safety net for society, but it is clear that at the moment the system is clearly out of control and providing even incentives to stay unemployed. Not good.

  4. Gabriel Odom says:

    When I was still in college, my younger brother got a job earning about $300 per month. The government decreased my mother’s food stamps per month my $250 per month to compensate.

    My brother’s job COST my family $50 per month.

  5. Floccina says:

    I agree generally but it is not as bad as it sounds because to many health families Medicaid is worth nothing so the marginal tax is needs to exclude that.

  6. Floccina says:

    Also $1 in food stamps are worth less than a dollar. I one did a survey of single mothers that showed that Government provided daycare is worth a fraction of what is spent on it by Government, to the point that some people who qualify for it do not use indication zero value.