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Monday, December 20, 2010

Outrageous: The Media Discovers What Too Many Already Know

Hat Tip: At least two readers including one friend. Article has been linked, published, and commented on in numerous places. Thanks for being my eyes and ears.

On the flip side of my previous link showing the challenges of the quarter-million-dollar income netting family, there is an article circulating in a handful of news sources crunching the numbers of a welfare family vs. a $30,000 income earning family and a $60,000 income earning family. And, the result is outrageous.

There will be those who will not believe that a (single) parent bringing in $14,500 and taking from all the programs can be better off than the family currently earning only $30,000, or the family earning $60,000, but my own experience in the area tells a similar story. (Note: I believe the tax figures in the charts include both sides of the employment tax for the $60K earner, so I'm not quite in sync with the numbers, but the point is a sad one nevertheless).

Read and comment.

41 comments:

alpidarkomama said...

I totally believe it. We endured a year of unemployment seven years ago, and we really weren't that much worse off than when DH was employed! We didn't even take advantage of all the services we probably could have. CRAZY.

Alexis said...

Big problem: Medicaid/CHIP is counted as income, but employer provided health insurance is not. If I count what my husband's employer pays towards our benefits, our family income rises by nearly $10K a year.

If Medicaid is counted as an economic benefit, than anything your employer pays towards your health insurance should also count. I find this misleading at best.

I find the entire article problematic. "World's most generous entitlement system"? Not by a long shot; any European will tell you so.

Orthonomics said...

Alexis, I don't like this presentation of number either.

However, on he $30K line above and below, I have dealt personally with couples on both sides of the line and have found that those who do pick up benefits have more budget leeway than those who don't. Although, hopefully those just getting started will eventually be more upwardly mobile.

And the point of what happens when a lack of honest is throw into the mix is all too true.

Anonymous said...

a prof of stats at columbia (and very smart to boot):it is rigged
http://www.stat.columbia.edu/~cook/movabletype/archives/2010/12/why_work.html

Miami Al said...

Alexis,

I would guess that a large portion of families making < $60k in Mississippi lack employer provided health care, which I believe is part of the point in this mess.

IIRC, Robert Reich, former Treasury secretary, once commented something to the effect of Americans will look back with shame at the time where we let the worst off fall below the median income of the country...

Basically, progressives think that you should help the poor be more like the middle class for reasons of dignity.

The conservative middle class is outraged that the poor are being lifted up to them.

That's the "What's the Matter with Kansas argument," rationally the middle class shouldn't be "mad" that taxes from rich people are helping poor people to have similar situations to them, it doesn't hurt them at all. It's a strange quirk of class warfare.

That's the middle class squeeze, programs that help the poor don't "hurt you" per se, but they reduce your comparative advantage over them, which makes your honest work seem like a "waste."

Meag said...

I realize that many people don't save for retirement and such, but I'd be interested to see a longer term analysis of working vs. taking benefits. While I know one could cycle back and forth between them, is taking benefits only the more profitable option when one has minor children? (This phase lasts about 25-27 years for most secular families, though I suppose up to 35-40 years for some frum ones. And it's fewer years that all the children would be minors at a given time.) As one enters old age, does the hypothetical working family start ending up better off because they have savings and more Social Security?

Miami Al said...

Meag,

Excellent point. There is a VERY small window with huge benefits... Pre School Age children: there are more childcare voucher type benefits at this stage, as they enter school age, it is presumed that the public school system picks them up, for Frum families, this isn't the case and you move to community welfare.

Social Security: system is rigged to provide the most benefits to someone that earns a moderate income for around 20 years to max out credits. While in theory our Frum family could earn Social Security credits early on (age 16 to 19, say), then after the kids leave, that seems unlikely.

Working 20 years from age 50-70 at a good but not great income would probably max out the social security benefit for FICA taxes paid, but that's not realistic, you generally have to be in the job market for a while to get good paying jobs.

The child linked benefits SEEM to last forever, but it's not really forever, even if you have your last child at 40, your last minor child is an adult when you are 58. So when you should be coasting off your peak earning years and looking toward retirement, you watch your benefits vanish and have no ability to make money.

Section 8 may give you better housing than you could afford, but you'd never get me to trade my ranch house in suburbia for a section 8 voucher apartment.

JS said...

The problem with articles like this one is that the headline is catchy but the premise is flawed.

There are basically 2 options in how to deal with the impoverished:
1) Do nothing; or
2) Give some entitlement.

If you want to do nothing, I suppose that's fine, but it creates a whole slew of other problems which likely make everyone else worse off due to, for example, increased crime and health problems.

If you're going to lend a helping hand through entitlement, by definition you're making some people better off or equal to those that don't receive the entitlement.

So, the question is really only to what point to make people receiving entitlements equal? Do you make them equal to someone receiving $30k in income, $50k? $100k? It's kind of arbitrary where you start getting outraged. Why get upset if they're made equal to $60k but then not get outraged when they're made equal to $40k? It's just an issue of class warfare and how comfortable people are with keeping people below them while lending a helping hand.

The same thing happens higher up on the income strata - a person making $250k is taxed more heavily and is only marginally better than someone making $200k, for example.

Anonymous said...

I am often shocked by how generous benefits can be in my state. If you know how to work the system, you can qualify for a free cell phone, food stamps, housing support, etc. that could easily be more than one might work and earn $30,000 especially after taxes are taken into account. Unfortunately, those most in need often do not have the wherewithall to work the system and don't know how to make the most of their benefits. For example, a business in my area specializes in selling steak and lobster, during the first week of the month. Often the customers spend all of their money then and often go to a food pantry for basics the rest of the month. For Jews in my area, there are even more benefits provied from our local federation including free camp tuition, high quality kosher food, snd medical/dental care. It doesn't really even make sense to work.

leaving the work force said...

That's the middle class squeeze, programs that help the poor don't "hurt you" per se, but they reduce your comparative advantage over them, which makes your honest work seem like a "waste."

These programs do hurt me. They raise the cost of housing , insurance etc.I DO NOT WANT TO
to cut down my hours and apply for programs but but the cost of medical insurance is giving me little choice.If insurance was subject to regular market factors alone it wouldn't be so high and I wouldn't have to do so.

Abba's Rantings said...

JS:

"So, the question is really only to what point to make people receiving entitlements equal?"

the purpose of "entitlements" or "benefits" (euphimisms i like as much as "scholarships" in the yeshivah context) shouldn't be to redistribute wealth and make people "equal." the purpose is to help people who have no other recourse.

"The same thing happens higher up on the income strata"

interesting point. i think difference is that as you look higher up the income ladder you will find people from different rungs earning different salaries (often vastly different) even though they are basically putting in the same effort. on the other hand, at the lowest rung of the ladder are hordes of people with zero work ethic and zero sense of individual responsibility, as well hordes of people out to scam the system (i'm not saying they're all like this).

Honus T. said...

It seems the original article linked to above that claimed "The Head Of A
Household Of Four Making Minimum Wage Has More Disposable Income Than
A Family Making $60,000 A Year" doesn't exist. Try going back to the trail of sources- you'll end up http://www.zerohedge.com/article/entitlement-america-head-household-making-minimum-wage-has-more-disposable-income-family-mak
which says the source is Wyatt Emerich of The Cleveland Current. visit TheClevelandCurrent.com I cant find it. and if you see the analysis it lists Mississippi taxes, though the alleged writer is from Clevelend!

Don't know what's write or wrong- I do know that people should be careful with numbers...

Miami Al said...

JS,

There is another issue, it's the poverty trap... It's a combination of factors where your income tax rate approaches 100%.

For example, if moving from $15k -> $30k costs you $10k in benefits + $4k in EITC type phase outs, then going from $15k->$30k is pointless. Sure, people might like to skip there, but the second job, night shifts, overtime, etc., are pointless, and people don't do them. That traps people at the $15k level.

The conservative cynics believe that this is by design, trapping this group as a set voting block for liberals, but given the combination of local/state/national benefits, it looks less and less like a conspiracy and more an accident.

One of the interesting things of the Health Care Affordability Act, is it tries to get this right (for all I don't like the plan, it nails a few points economically dead on)...

On the economics of the "insurance exchanges" the subsidies go up to a family making up to 4 times the poverty level... for a family of 5, the poverty level is: $25,790.00, so 4x that is over $100k. The entire working class, middle class, and much of the upper middle class may get subsidies.

This outrageous ideological conservatives, because it puts everyone on the dole.

However, from an economic viewpoint, this actually deals with the current debacle, where the loss of medicaid before one earns enough to buy insurance causes an effective insurance "tax" rate of over 100%.

Earning $1 more should never make you worse off, but if you run off a cliff of benefits, it might happen.

That's why EITC is much more effective than these programs, a negative tax rate incentivizes work. The problem is that in the phase where EITC is phasing out, you put working class people at a 30%-40% effective tax rate. However, this would be easily solved by quadrupling the range of the phase out, so instead of adding 5%-10% to the tax rate, it would add 1.25% - 2.5% to the tax rate.

JS said...

Yes, I found the numbers thoroughly confusing and have no way of verifying that they are true. The website cited also sounds a bit too crackpot for my tastes to be taken seriously. I'd like to see someone who actually is knowledgeable in this area put together some real numbers for comparison.

"the purpose of "entitlements" or "benefits" (euphimisms i like as much as "scholarships" in the yeshivah context) shouldn't be to redistribute wealth and make people "equal." the purpose is to help people who have no other recourse."

What does "redistribute wealth" mean anyways? The government takes money from me in the form of taxes and redistributes it all over the place. So, I don't really get what this term means, quite frankly.

If I give a benefit of $1,000 to a family making $29,000 but not one making $30,000, by definition I'm making the $29k family equal to the $30k family. You want to play games with labels and call it helping people with no other recourse or redistributing wealth, it doesn't matter. The net effect is the same. Whenever you give a benefit that ends for a certain level of income, be definition you're going to make people of different income levels equal.

This just ticks people off because we believe you should work for a benefit, not just have it handed to you. So, to make 2 people economically equal when one worked and the other didn't is unfair.

But, there's really no other way if you want to provide benefits.

As yet another comparable example: yeshiva scholarships. Makes people with lower incomes equal to those with higher high income by conferring a benefit on only those with lower incomes.

JS said...

Al,

Agree with what you're saying. In the end though, it basically comes down to where the benefits phase out. At some point you've gotta make people equal unless everyone gets the benefit. Either do it at the lower to middle class range and tick off those people, or do it higher up the income ladder and tick those people off.

Dave said...

JS,

The key is the slope.

If I am working and making $30k, and have the same results as if I made $15k, then I will be more unhappy than if I am working and making $40k, and making the same results as if I were making $39.5k.

For one thing, it's more likely that I had the same benefit working my way up, for another, the difference isn't that great.

When you have large "steps", they form both a disincentive to advancement (since there is a lot of work before any gain), and a source of resentment.

Anonymous said...

Interesting and disturbing article. I see 200kchump has a post up about it as well. What a sick country we live in where you are better off making less money. I am sick to my stomach.

Miami Al said...

Dave,

Exactly. What I find amazing is how many credits phase out in such a short range.

Take the child tax credit, the phase out starts at $110,000 in income, and basically for each $1000 above that, you lost $50 of credit.

Basically, for one child, it phases out across 20k in income, for three children, 60k in income.

However, this means that for a family of 4, with two credits, from $110,000 to $150,000 in income, in addition to their taxes, they lost 5% of that increase in the lost tax credit.

If instead you started the phase out at $90,000, and reduced it by $25/$1000, that same family would phase out from $90,000 -> $170,000. Assuming an even distribution in that range (a simplification, obviously not a bell curve on that range), you'd have the same phase outs, but you'd shrink the slop. As a result, the marginal tax rate on that range would drop by 2.5%.

But in designing this system, you want to not trap people. If we think that a marginal rate of 35% or 40% or whatever is a disincentive to work, make certain that at all points in the slop, you never get that high.

The more step functions you have, the more poverty traps you have. The shorter your phase out range, the more traps you have. The more "special cases" you put in the code, the more chances of overlapping phase outs, which can result in marginal rates of 40%, 50%, or more for middle income families.

Once you get into the "rich" part of the code, your phase outs are over and you have a "flat" tax of sorts. But on the way up, there are plenty of chunks of income where the rates get MUCH higher.

While the math there is a little funny, that huge number of "programs for the poor" that drop off dramatically cause this problem. OTOH, if you run a health care subsidy across a huge income range, the family making $40k is still better off than the family at $35k, which is important, because you want the $35k family to be willing to work hard to get to $40k, because that's economic growth.

Dave said...

Politics.

On the low end, you get Class Warfare from the right, about "negative income tax" and condemning the EITC and other similar programs.

On the high end, you get Class Warfare from the left, about subsidizing the rich.

And there is enough of a truth in both perspectives to get both sides riled up.

Ezzie said...

I'll just note simply that we've been in some ways *better* off when I've been unemployed than employed the past few years, after you include various programs, babysitting savings, etc.

Certainly it would require a very nice offer to get me out of my chair.

I don't think this is right, though I do benefit nicely from it.

Mike S. said...

I doubt the details a right, but the point is not completely wrong.


From a strictly mathematical standpoint, you have a dilemma if you are constructing a social benefits system. If you provide basic support for the poor, and don't want to have high marginal rates at low incomes that limit the incentive for work, you have most of the populace on the dole. Let's say the basic benefits have an equivalent value of $20K for a family of however many. If you want to hold the marginal rate for this family under 30% as someone begins to work, you can't reduce the benefits by more than 1 dollar for every 12 dollars earned (assuming the person is also paying 10% Federal income tax, FICA and 5% state income tax.) That means the same family is getting some benefits until $240K in income. You could push the numbers some by tolerating a higher marginal rate at least somewhere in the income range or by lowering the benefit level, but there is not way to provide even semi adequate nutrition, health care and shelter to poor family without either providing benefits to the middle and even upper middle class or having high marginal rates on low end workers.

This was the social value of stigmatizing being on "welfare". It provided an incentive to work at entry level even if the marginal increase in standard of living with increased work was modest. Chazal also understood the shame of being supported by tzedokah--thus the concept of "nama dikisufa", bread of shame. It seems in both the frum world and the larger society this sense of shame in not being self-supporting is weakened if not absent entirely.

Anonymous said...

Ezzie - you are not benefiting from sitting in your chair. You are growing lazy. You lack a sense of pride. You are losing out on the many positive relationships you make in the workplace, where people depend on you and you overcome challenges to deliver high quality results on time. You are losing out on Social Security benefits when you're too old to work. Sit in your chair now and collect. Later you will regret it. To be an adult among men (and women) you need to raise yourself up out of your chair and assume responsibility. Women do not want a chair-sitter for a husband. Children do not benefit from a chair-sitter as a father. Life takes energy. Productive work gives you get-up-and-go. Laziness begets more laziness.

Money is only one of the benefits of working.

Ariella said...

I'm not surprised at the numbers. Many people have figured this out and realize they are better off with less (reported) income. Some people feel good about milking the system for all they can. Then there are those of us who like the satisfaction of earning our income.

YoelB said...

Ideological small government conservatives are concerned not just by disincentives to work but by incentives to derive one's income from the government rather than the private sector. Like, for example, nationalizing 1/6 of the economy -- the health care industry.

Couple that with private sector job growth under the "recovery" program being essentially nil, but there being real growth in government jobs, with well over 40% of the voters already getting their paycheck from the state either directly (in which case there's a substantial salary and benefits advantage for public sector work over private,) or by working for companies that get paid by the government, or by living on government benefits.

Have all that be mostly the work of a political party nearly a third of whose Congressional delegation (at least according to the Democratic Socialists of America) caucuses with the Socialists and small government conservatives.

Then consider the fate of republics once "voting your pocketbook" means electing officials who will pay you benefits.

You'll see why small government conservatives turned out for the Tea Party.

Jewish small government conservatives also think that both monarchies (including the effective monarchies of the International Socialists in the old USSR and its satellites) and socialist states (ranging from the current situation in Europe to, of course, the ultimate example, National Socialism) are, in the current unredeemed state of humanity, Bad for the Jews over the long run.

We therefore favor small government (i.e. the percentage of the government sector of the economy being small) and free markets which have, historically been Good for the Jews.

YoelB said...

Ideological small government conservatives are concerned not just by disincentives to work but by incentives to derive one's income from the government rather than the private sector. Like, for example, nationalizing 1/6 of the economy -- the health care industry. Small government conservatives worry about where the money to pay for all of that will come from if the private sector shrinks much more.

They're worried that the fact that private sector job growth under the "recovery" program is essentially nil, but there being real growth in government jobs. They're worried that that's no accident. Well over 40% of the voters already getting their paycheck from the state either directly (in which case there's a substantial salary and benefits advantage for public sector work over private,) or by working for companies that get paid by the government, or by living on government benefits.

Have all that be mostly the work of a political party nearly a third of whose Congressional delegation (at least according to the Democratic Socialists of America) caucuses with the Socialists and small government conservatives.

Then consider the fate of republics once "voting your pocketbook" means electing officials who will pay you benefits.

You'll see why small government conservatives turned out for the Tea Party.

Jewish small government conservatives also think that both monarchies (including both old style European monarchies and the effective monarchies of the International Socialists in the old USSR and its satellites) and socialist states (ranging from the current situation in Europe to, of course, the ultimate example, National Socialism) are, in the current unredeemed state of humanity, Bad for the Jews over the long run.

We therefore favor small government (i.e. the percentage of the government sector of the economy being small) and free markets which have historically been Better for the Jews since the Industrial Revolution.

YoelB said...

Sorry for the double post. I don't know what happened.

Some of my best friends are Rebbes said...

To be honest I am not surprised. In the ortho world, where RW schools often give huge tuition discounts to rebbes to encourage them to send to the schools they are teaching in, a rebbe at $45k is clearly ahead of faimiles in the $75k range; more so when including parsonage (and the associated reduction in taxes).

I actually wrote a letter describing this with numbers to a RW magazine who not surpirsingly refused to print it.

JS said...

Would you post the letter here?

Anonymous said...

"Some of my best friends are Rebbes said...
To be honest I am not surprised. In the ortho world, where RW schools often give huge tuition discounts to rebbes to encourage them to send to the schools they are teaching in, a rebbe at $45k is clearly ahead of faimiles in the $75k range; more so when including parsonage (and the associated reduction in taxes).

I actually wrote a letter describing this with numbers to a RW magazine who not surpirsingly refused to print it."

Certainly Rebbes who earn more than 75K-not rare are well off compared to most Ortho Jews.

Anonymous said...

I'm very concerned about the number of kollel families dependent on government programs. Most of you are unfamiliar with the situation in Lakewood - there are thousands and thousands of families living in Section 8 housing and receiving food stamps. People whose grandparents worked for a living are now living off the dole because they have qualified themselves as poor. Even if they are poor, it is a choice they have made, not a circumstance beyond their control. Kollel supported by the government is a shanda, which means a public shame. Why is this not publicized in the secular press? The Agudah would quickly step in to create the social conditions for change if the situation were publicly exposed. The yeshivas would need to weed out the large middle and only the best would be sustained in kollel. The remainder would have a tough transition to the workforce, but the Agudah would have to mobilize for the retraining of yungeleit for the workforce. That includes teaching basic English skills. With an intelligent and motivated population, and motivated wives to get behind their husbands (it's amazing how motivated and motivating women can be when faced with 5 plus children and no government support!), this can be done. Not without pain though at this point.

tesyaa said...

Why is this not publicized in the secular press?

Because the number of frum Jews who are poor by choice is really small potatoes. Don't forget, Jews are a tiny minority, Orthodox Jews are a tinier minority, and "learning" frum Jews are an even tinier minority than that. Even if there were negative press, who really cares?

We all NEED to stop being so frum-centric. The seismic issues of the frum world don't even register on the Richter scale of the planet.

I'm not disagreeing with your concern or disapproval, by the way. But the Agudah has nothing to worry about.

Dave said...

Couple that with private sector job growth under the "recovery" program being essentially nil, but there being real growth in government jobs

Uhmmm, that's flat out backwards.

In fact, private job growth exists, and government jobs are being cut.

Dave said...

We all NEED to stop being so frum-centric. The seismic issues of the frum world don't even register on the Richter scale of the planet.

I'm not disagreeing with your concern or disapproval, by the way. But the Agudah has nothing to worry about.


I agree, and disagree.

Perception often trumps reality. The fact that most Welfare recipients were White, did not mean that the political image of the "Black Welfare Queen" wasn't inordinately powerful.

Despite relative numbers, the notion of whole communities deliberately funding themselves off of the largesse of working Americans is a powerful one. Add in tax fraud and benefit fraud, and it gets worse.

There is no predicting what images/ideas will catch fire in the public space, but there is a danger there.

Mark said...

Miami Al - IIRC, Robert Reich, former Treasury secretary, once commented something to the effect of Americans will look back with shame at the time where we let the worst off fall below the median income of the country...

Did he really say something so stupid? I can't believe that such an educated man doesn't know what "median" means!

Commenter Abbi said...

"at the lowest rung of the ladder are hordes of people with zero work ethic and zero sense of individual responsibility, as well hordes of people out to scam the system (i'm not saying they're all like this)."

That's dang chutzpadik to say during a recession and it's basically a myth propagated by Reagan and his ilk. There are no such thing as "hordes" of Welfare Queens. They exist, just like run of the mill thieves and smarmy insider traders, but you would say there were "hordes" of the latter.

Miami Al said...

Mark, "Did he really say something so stupid? I can't believe that such an educated man doesn't know what "median" means!"

I think he knows exactly what it means.

I don't recall the quote, and as a policy it was more about keeping people up to some high fraction. It is a philosophy.

Obviously you can't pull everyone up to the median, but his points was for more of a safety net. Because incomes in America do not follow a bell curve, you could, on an after tax basis, have everyone be equal to the median income before taxes.

YoelB said...

Dave, the BLS begs to differ with you. Here's November, for example. 39,000 new jobs is, IUUC, not enough to keep up with population growth, especially considering the depressed figures all year:

The unemployment rate edged up to 9.8 percent in November, and nonfarm payroll employment was little changed (+39,000), the U.S. Bureau of Labor Statistics reported today. Temporary help services and health care continued to add jobs over the month, while employment fell in retail trade. Employment in most major industries changed little in November.

I will grant that I'm inconsistent in quoting the BLS, which did make it clear that the Federal hiring bump this year was for Census workers and has gone away. Of course, that didn't stop the White House from claiming it as job growth....

Anyway, that pesky old BLS also shows a general trend in Federal job growth almost every year since 2000, and this year is only bucking that trend (year over year for each month) for a couple of months so far.

Not exactly "flat out backwards."

Dave said...

Yoel,

Absolutely true, the economy is not generating enough jobs to keep up with the population growth.

Nonetheless, the private sector has increased jobs every month since January, and the public sector is shedding jobs at a record pace (159,000 public sector jobs dropped in September, although that included the last of the Census temporary workers).

You claimed that the place to get jobs was in the Public Sector, and that there was no Private Sector growth.

In fact, the Private Sector has grown, albeit slowly, every month this year, while the Public Sector has shrunk. So yes, your statement was in fact "flat out backwards".


[Please note, the Public Sector includes jobs at all levels of Government, Federal, State, and Local]

Anonymous said...

I work at a non-Jewish mental health facility in the Bronx. The staff is underpaid and we struggle to provide for our kids. However, my clients somehow find a way to go to Disney World and wear designer clothes, solid gold necklaces, and expensive sneakers. We actually have an "entitlement counselor" who makes sure the clients get every possible benefit they can. One client actually laughed at me because my outfits are so out of style and suggested I needed a new "due."

YoelB said...

Dave, you're right for the last year or two on state and local payrolls. Given that many state and local governments are now being forced to choose between current payroll and pension and medical obligations that's likely to get worse, too.
Just look at California. Just reelected the Governor who got public employee strikes legalized his first time around, and who has been on the wrong side of most issues since then.
It may be worth pointing out IIUC that the unemployment statistics count those receiving unemployment befits, and not those whose benefits have run out.

Dave said...

Unemployment statistics count those who are looking for work, regardless of benefit status.