4 ms·

That chart suggests that at pretty much every income level you're better off (in financial terms) earning more. Over most of its range it looks like d(benefits)

• zaroth 11y ago
  If you consider only Medicaid, SNAP, and EITC, the lost benefits equate to at least a $10,000 tax on the first $70,000 gross (an effect 14% tax). Since the chart is only showing a subset of lost benefits, it can't show if you're "better off" because it doesn't show all the lost benefits and it doesn't show the effect of taxes. First, there are all the programs the chart simply ignores. Some are asset-tested like TANF and SSI, so you can't just stop working and start claiming them. Yet they pay out about $70 billion so they are not insignificant. Others are income-based and can be very significant, like Section 8 which could pay $10,000/yr in rental assistance. Another question, is it fair to value Medicaid as the average cost / enrolled person, when the government is getting a special low rate? If valued on a replacement cost basis (what it costs for worse insurance paid for by the employee+employer) then it would be valued closer to $20,000 in premiums plus the deductible. So yes, you can easily lose $40,000 in benefits, and pay $20,000 in taxes earning that first $100k gross, besides the fact that it will cost you 4160 hours of work to get there.
  • gjm11 11y ago
    Assuming for the sake of argument that all your figures are correct, that still puts you $40k/year better off with the $100k salary than without it. I am still not seeing how it can possibly be correct to describe this by saying that it's at about $100k/year gross that you start to "pull out the other side". Programmes for which "you can't just stop working and start claiming them" are surely irrelevant to this particular discussion, which is entirely about the effect of earning more or less (at, presumably, a fixed level of assets). Also: 4160 hours of work is over 11 hours/day, 365 days/year. I'm sure there are people working such hours, unfortunately, but if you're implying that that's in any way typical then I must gently suggest that you might be wrong. (For the avoidance of doubt: I think "poverty traps" are a very bad thing, and I would love to see taxation and benefits everywhere reformed so that effective income rises smoothly as a function of gross earnings, and I agree that the US tax and benefit system is a mess and makes it unprofitable for some lowish earners to earn more. All I'm disagreeing with is the suggestion that the point at which this stops happening is anywhere near as high as $100k/year gross.)
    • zaroth 11y ago
      Sorry I should have clarified, I went with 4160 hours as two parents each working full time (2080 hours x 2), since we're talking about a family of 4 and anyway most people cannot and do not gross $100k alone. Unfortunately just because the family is netting after lost benefits and taxes $40k for the work, doesn't mean they are "$40k/year better off" for working. For two people to work full time and gross $100k somewhere outside the home, there are substantial direct costs. After you "net" the lost benefits and taxes, you still have to "net" the direct costs. Child care, transportation, and clothing are probably the top 3, food and household costs also tend to increase when working. Many of these direct costs are also not fully tax deductible. Opportunity cost is significant not just in terms of not having to hire service providers to do things you no longer have time to do yourself (e.g. child care, repairs, maintenance), but also in things like personal value-producing activities which are not considered income, e.g. gardening, home improvement, home schooling. You're not "better off" if you spend 4160 hours neting $40k of cash, then spend $15k of that on unreimbursed business expense, and could have done more valuable things with your time than $6/hour. So everything works together to lower the net utility dramatically below the alternative of simply not carrying a job, and doing something directly productive to your family with your time. My thesis is that up to about $100k, the true fully realized benefit for a family of 4 with two adults working full time outside the home is significantly less than $10/hour, and in fact for families consuming significant healthcare is actually negative. This is what I mean by "x^3 shaped curve", and "for a long time working more nets you little to nothing, and then eventually you can pull-out the other side" around $100k for a family of 4. E.g. $6/hour of actual received value is an extremely low bar considering the time and effort required for two people to gross a combined $100k. Compared to if those same two people simply expended the same level of time and effort taking care of their families, their homes, and themselves. If you really do the math and consider the economic value transferred, while the overall economy certainly benefits from all this money swirling around, and taxpayers benefit from decreased social welfare expense, the individual family will see very little gain (i.e. increase in assets or disposable income) if not a loss at the end of the year, after having devoted the majority of their waking life that year to their job. While historically the workforce participation rate has grown, it has recently been shrinking, and I personally think we will see it continue to shrink for some time, in part due to this almost complete futility of low to middle-class earning power. The only things saving the economy from a mass exodus from these jobs is; first this was only just recently made quite as bad as it is through the ACA Medicaid and SNAP expansion. By giving $5000 of Whole Foods vouchers, and best-in-the-world free healthcare to all non-workers regardless of assets, this strongly altered the value proposition of working, particularly for chronically ill families. These programs also take quite a bit of time and persistence to get into, but we are seeing a massive expansion of these programs every year. Over time more people catch on, sign up, and drop out of the work force. Means-tested programs are unfortunately not irrelevant. For people in the worst case scenarios (very low assets AND no income), starting to work provides the most damaging effects by immediately canceling benefits, in many cases more than dollar-for-dollar against what is earned. Families who operate in the bottom $40,000 of the curve will almost certainly pass the asset tests, and also face incredibly steep marginal rates (the original point) when you consider these programs, cumulatively they are much worse than 100% marginal. So the people in the absolute worst shape are locked out the hardest from starting to work, because they have $0 assets and literally cannot afford a net loss for adding a new commitment to their day. For example, TANF will pay up to $713/per month in cash, but every dollar in countable gross income reduces the benefit by $1. So if you qualify for TANF then TANF alone produces 100% marginal tax on the first $8772/yr, and then you still need to pay the taxes and direct costs of working! Note that TANF doesn't count SNAP/Medicaid/Section 8 as income, Medicaid doesn't count SSI, etc.// so the 5 programs are largely (not entirely) stackable by design as long as you strictly avoid other earned income. A second dimension, but I would say a much less pressing problem, is means-testing on its face seems fairly strict (e.g. < $2,500 cash balance in a bank account) but many assets (like your primary residence, your first car, and personal property like jewelry) and some forms of income are also excluded. So in practice it's possible to qualify for the program with substantial non-liquid assets, as long as countable income and cash is tightly controlled. I do really appreciate your comments, I'm sorry if I wrote way too much here!