Disincentives to Work

February/22/2013 9:02AM
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Here are the numbers. A single mother of two will get $45,000 in government benefits each year. This is food stamps, child care, and Medicaid.

If she gets a job she keeps gaining up to $9,000 in annual wages. The next $5,000  costs her some benefits. If she gets a better  job that pays $29,000 her income plus benefits goes up to $57,000. So she gained $12,000 by working full time. This $57,000 number pretty much maxes her out. If she goes above that she begins to lose benefits. She has to go to $69,000 to get back to the $57,000 taking lost benefits into consideration. Between $29,000 and $69,000 she pays 100% taxes if you equate lost benefits to a tax.

This points out the problem with freebies. To get freebies you must be poor. When you get less poor, you lose freebies. If you work you begin to see the disincentive to that work and question whether you are better off just taking the freebies.

I’m for helping people who need help. But, I also sense we are creating a larger population base who are doing the math. No one wants to work if you can do better financially by not working. Or, better yet, work and get paid in cash and have the best of both worlds.

Arthur Laffer, Reagan’s Economist, provided those numbers(above) in a recent Wall Street Journal article. His numbers were based on Pennsylvania, but apply in most states. Art, like most economists, get’s a little wordy. I’m just boiling it down.

Art’s solultion to this is to have zones where poverty is the worst and eliminate payroll taxes for employers and employees. He didn’t provide any numbers on this, but I am sure this won’t work. The truth is Art has no solution. Nor do I. Especially when you have problems as big as this one:


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