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> Our legislators are smart enough to use piecewise linear function Yes, but it's also hard to avoid when you are offering non cash welfare. An example for mid

> Our legislators are smart enough to use piecewise linear function Yes, but it's also hard to avoid when you are offering non cash welfare. An example for middle income people is affordable housing. You get into the unit (saving you $25k+ over market rate) if income below $X. Otherwise, you don't. I haven't figured out a way to avoid this cliff that isn't exceedingly complicated or violates the intention of the program.

komali2 8y ago
I'm very interested in solutions to this, as a bay area resident - somehow separating units into "the poor people houses" and "the rest of the people houses" doesn't quite seem like the right long term solution to anything. I don't have a solution, hence why I ask.
- comicjk 8y ago
  You could give poor families a housing subsidy, which drops off smoothy as a function of income. You can't give a family half a house, but you can easily give them half as big a subsidy, knowing that they can more than make up the difference with their higher income. This also means that the family receiving the subsidy can live wherever they want. I think some of the smarter housing programs already work this way.
  - SilasX 8y ago
    That still has the effect of a (probably high) marginal tax and disincentivizes increasing one's income just the same. Why take night classes or work harder at your job if the $100/week raise comes with $80/week less in rent subsidies + taxes? (Example figures; you can change it around but most realistic situations are going to look similar.)
    - gizmo686 8y ago
      If you want to abolish the marginal tax, then I would start by looking at tax reform. If you think the marginal tax imposed by a given welfare system is too high, you can just tweak the numbers.
      - SilasX 8y ago
        I meant that it's effectively a high marginal tax, when you decrease the housing subsidy as the recipient earns more income. That is, if every $100/month gain in wages comes with a $30/month decrease in subsidy, that's effectively a 30% marginal tax (on top of all their other taxes). (And I don't know what you mean by "just tweak the numbers"; the more generous benefits you want, the more you have to disincentivize work; no amount of "tweaking" avoids the core tradeoff.)
        gizmo686 8y ago
        What do you want the marginal rate to be? 1%? Just have a $1/month decrease in the subsidy for every $100/month increase in wages. Personally, I would prefer if all welfare was unconditional and we did all of this tweaking through the explicit tax code, but that is an implementation detail. >The more generous benefits you want, the more you have to disincentivize work; What disincentives work is the marginal decrease in benefits. Assuming you have adequate funding, there is no need to increase the rate of marginal decrease. If you don't have adequate funding, then you will need to fund the increased benefits to the not-as-poor by decreasing benefits to the poorer. There is, admitadly, a decreasing marginal value of money that does behave like you are describing, but its effect is dwarfed at the level of income we are talking about.
    - ScottBurson 8y ago
      It's true that the price of receiving a subsidy at all is that any money you make is going to be effectively taxed at a higher rate than it would have been otherwise. I think people can live with that as long as the effective tax rate doesn't get too high. Not sure what "too high" would be for most people, but I would guess that as long as the total effective incremental tax rate is never over 60% — meaning that after the reduction of the subsidy plus income tax, one would never keep less than $.40 of one's next dollar in earned income — that would probably be good enough. Yes, there will still be people who will find that a barrier, but at least there won't be this point where your next dollar of earned income will be effectively taxed at 50,000%. The extreme version is UBI, where everyone receives the full subsidy unconditionally, and the effective incremental tax rate is always just the income tax rate. I'm not sure that's a bad idea, but we could get rid of the current cliff much more easily than we could institute a full-blown UBI.
      - SilasX 8y ago
        >It's true that the price of receiving a subsidy at all is that any money you make is going to be effectively taxed at a higher rate than it would have been otherwise. I wasn't referring to that; I was referring to the decreasing-subsidy-as-income-goes-up as being effectively a marginal tax. (I think the rest of your comment is recognizing it as one.) >I would guess that as long as the total effective incremental tax rate is never over 60% — meaning that after the reduction of the subsidy plus income tax, one would never keep less than $.40 of one's next dollar in earned income — that would probably be good enough. Yes, there will still be people who will find that a barrier, but at least there won't be this point where your next dollar of earned income will be effectively taxed at 50,000%. Even a 60% marginal tax is very strongly disincentivizing and makes it difficult to justify most any feasible long-term plan for increasing one's productivity from a poverty level. >The extreme version is UBI, where everyone receives the full subsidy unconditionally, and the effective incremental tax rate is always just the income tax rate. I'm not sure that's a bad idea, but we could get rid of the current cliff much more easily than we could institute a full-blown UBI. Right, that's the major upside of UBI. The downside is that it's really expensive (in terms of tax rate relative to benefits) and can't be concentrated on people who might need more help (temporary or otherwise) than others. And if you combine the two, then it's an even more punishing tax with its own effects.
    - ryandrake 8y ago
      If you could go from $200/week salary + $200/week welfare to $300/week salary + $120/week welfare, it would be in your interest to do so, as the total is more in the second scenario.
      - michaelt 8y ago
        And if the extra $100/week salary came from going working 30 hours/week instead of 20?
        ryandrake 8y ago
        Sure. 1. It's still more than you had before and 2. The next incremental increase you get, you'll be "keeping" even more on a percentage basis. The argument, "I don't want more income because I will lose some % of it due to [tax | benefits reduction]," makes no sense to me.
        michaelt 8y ago
        Would you work 10 hours for $20 cash, or do you know anyone who would? If so, I'll gladly hire you next weekend to paint my garden fence.
    - lostapathy 8y ago
      Your example is pretty simple to avoid - don't phase it out so abruptly as to break the incentives to work.
- AnthonyMouse 8y ago
  > I'm very interested in solutions to this, as a bay area resident - somehow separating units into "the poor people houses" and "the rest of the people houses" doesn't quite seem like the right long term solution to anything. The real problem is that we do taxes wrong. We have a progressive tax schedule on the tax side, but then we want to have benefits phase outs on the benefits side. But these are really opposites that cancel each other. It's also very hard to reason about, because if you have multiple benefits programs that phase out in the same place, you can accidentally produce these >100% marginal rates at specific income levels. And progressive tax schedules are very expensive. If you e.g. reduces taxes by 10% on incomes under $40,000 then someone who makes $40,000 pays $4000 less in taxes. But so does everyone who makes more than $40,000, because they now pay $4000 less on the first $40,000 of their income. The answer is to not phase out benefits whatsoever, let that be the progressive component of the system, and use a single uniform tax rate. The uniform rate supplies the revenue to compensate for the lack of phase outs, but will never produce a cliff.
- jadedhacker 8y ago
  If you want the left perspective, all or nearly all housing would be public housing. This cuts landlords and banks out of the loop and decreases housing prices for everyone. No one goes homeless. You can move whenever you want, though there might be waitlists in some cities depending on how it's implemented. For what it's worth though, we already have waitlists, you can just skip them by having sufficient money.
  - komali2 8y ago
    This seems interesting, I wonder why it's being downvoted? I personally don't understand the value landlords contribute to society so I'm curious what a society without them looks like. I expect I can get sarcastic answers about failed Communist states, but I'm hoping someone has spirited examples.
tomjen3 8y ago
It seems obvious that the solution is to make it like we have in Denmark: If you have a rent that is more than some multiplier for your income, you get a cash subsidy. It goes up drastically if you have kids, and it only covers up to a certain amount of square feet (so you can't get money for a giant apartment). In other words, a stepwise/linear function that means it is always worth making more money. Since something like this is so obvious, what am I missing in this solution?
- usaar333 8y ago
  We have a similar thing in the US (section 8). The program is intended for low income people. The affordable housing programs I'm mentioning aim to help people at roughly the median income afford expensive areas to ensure income diversity. Cash based methods can significantly hurt that goal as such people generally would be better off living in a cheaper area anyway. Or the program handles subsidies building by building which seems administratively complex.
gizmo686 8y ago
Don't make affordable housing a binary in or out system. Instead of kicking someone out at $X, increase their rent until it hits market value at $Y income.
- usaar333 8y ago
  The units are administered by private developers/management. Who collects the extra rent? If the developers, you create strong malincentives to rent to people that likely will earn more in the coming years.
  - Retric 8y ago
    The state would get the extra rent allow it to subsidize more affordable housing. However, affordable housing is inherently a terrible idea. There is no reason to subsidize retired people living in highly desirable areas for example. But subsidizing cops is also ineffecint when you can simply pay them more directly and avoid overhead.
  - gizmo686 8y ago
    HUD/local PHA. Affordable housing is not an unfunded mandate. The landloard still receives the full rent; the only difference is who is paying it. Further, we are talking about changing the welfare system. If we had a system where the landlord made substantially less from affordable housing units, we would likely already need to switch systems, because I cannot imagine that being a functional program.
    - usaar333 8y ago
      > If we had a system where the landlord made substantially less from affordable housing units, That's how this works in California. Unfunded mandate on developers. Developers agree to it so they get their development permits. (The system is then administered by the successor management office and occasionally audited by the city. Directing excess rent to the government is possible, but introduces a number of calculation and administrative complexities. ) Finally you get the problem that this system is going to push up the median income in affordable housing (income rising, landlords preferring higher income individuals for stability, etc.), hurting the program's intention. That said I think this solution is better, but I don't understand how high the admin cost goes.
IkmoIkmo 8y ago
Some countries will let the market figure out prices but will offer a sliding scale rent subsidy. From an income of 15k a year and below you get 100% rent subsidy, which falls down to 0% at an average income of say 40k.

komali2 8y ago

I'm very interested in solutions to this, as a bay area resident - somehow separating units into "the poor people houses" and "the rest of the people houses" doesn't quite seem like the right long term solution to anything. I don't have a solution, hence why I ask.

comicjk 8y ago
You could give poor families a housing subsidy, which drops off smoothy as a function of income. You can't give a family half a house, but you can easily give them half as big a subsidy, knowing that they can more than make up the difference with their higher income. This also means that the family receiving the subsidy can live wherever they want. I think some of the smarter housing programs already work this way.
- SilasX 8y ago
  That still has the effect of a (probably high) marginal tax and disincentivizes increasing one's income just the same. Why take night classes or work harder at your job if the $100/week raise comes with $80/week less in rent subsidies + taxes? (Example figures; you can change it around but most realistic situations are going to look similar.)
  - gizmo686 8y ago
    If you want to abolish the marginal tax, then I would start by looking at tax reform. If you think the marginal tax imposed by a given welfare system is too high, you can just tweak the numbers.
    - SilasX 8y ago
      I meant that it's effectively a high marginal tax, when you decrease the housing subsidy as the recipient earns more income. That is, if every $100/month gain in wages comes with a $30/month decrease in subsidy, that's effectively a 30% marginal tax (on top of all their other taxes). (And I don't know what you mean by "just tweak the numbers"; the more generous benefits you want, the more you have to disincentivize work; no amount of "tweaking" avoids the core tradeoff.)
      - gizmo686 8y ago
        What do you want the marginal rate to be? 1%? Just have a $1/month decrease in the subsidy for every $100/month increase in wages. Personally, I would prefer if all welfare was unconditional and we did all of this tweaking through the explicit tax code, but that is an implementation detail. >The more generous benefits you want, the more you have to disincentivize work; What disincentives work is the marginal decrease in benefits. Assuming you have adequate funding, there is no need to increase the rate of marginal decrease. If you don't have adequate funding, then you will need to fund the increased benefits to the not-as-poor by decreasing benefits to the poorer. There is, admitadly, a decreasing marginal value of money that does behave like you are describing, but its effect is dwarfed at the level of income we are talking about.
  - ScottBurson 8y ago
    It's true that the price of receiving a subsidy at all is that any money you make is going to be effectively taxed at a higher rate than it would have been otherwise. I think people can live with that as long as the effective tax rate doesn't get too high. Not sure what "too high" would be for most people, but I would guess that as long as the total effective incremental tax rate is never over 60% — meaning that after the reduction of the subsidy plus income tax, one would never keep less than $.40 of one's next dollar in earned income — that would probably be good enough. Yes, there will still be people who will find that a barrier, but at least there won't be this point where your next dollar of earned income will be effectively taxed at 50,000%. The extreme version is UBI, where everyone receives the full subsidy unconditionally, and the effective incremental tax rate is always just the income tax rate. I'm not sure that's a bad idea, but we could get rid of the current cliff much more easily than we could institute a full-blown UBI.
    - SilasX 8y ago
      >It's true that the price of receiving a subsidy at all is that any money you make is going to be effectively taxed at a higher rate than it would have been otherwise. I wasn't referring to that; I was referring to the decreasing-subsidy-as-income-goes-up as being effectively a marginal tax. (I think the rest of your comment is recognizing it as one.) >I would guess that as long as the total effective incremental tax rate is never over 60% — meaning that after the reduction of the subsidy plus income tax, one would never keep less than $.40 of one's next dollar in earned income — that would probably be good enough. Yes, there will still be people who will find that a barrier, but at least there won't be this point where your next dollar of earned income will be effectively taxed at 50,000%. Even a 60% marginal tax is very strongly disincentivizing and makes it difficult to justify most any feasible long-term plan for increasing one's productivity from a poverty level. >The extreme version is UBI, where everyone receives the full subsidy unconditionally, and the effective incremental tax rate is always just the income tax rate. I'm not sure that's a bad idea, but we could get rid of the current cliff much more easily than we could institute a full-blown UBI. Right, that's the major upside of UBI. The downside is that it's really expensive (in terms of tax rate relative to benefits) and can't be concentrated on people who might need more help (temporary or otherwise) than others. And if you combine the two, then it's an even more punishing tax with its own effects.
  - ryandrake 8y ago
    If you could go from $200/week salary + $200/week welfare to $300/week salary + $120/week welfare, it would be in your interest to do so, as the total is more in the second scenario.
    - michaelt 8y ago
      And if the extra $100/week salary came from going working 30 hours/week instead of 20?
      - ryandrake 8y ago
        Sure. 1. It's still more than you had before and 2. The next incremental increase you get, you'll be "keeping" even more on a percentage basis. The argument, "I don't want more income because I will lose some % of it due to [tax | benefits reduction]," makes no sense to me.
        michaelt 8y ago
        Would you work 10 hours for $20 cash, or do you know anyone who would? If so, I'll gladly hire you next weekend to paint my garden fence.
  - lostapathy 8y ago
    Your example is pretty simple to avoid - don't phase it out so abruptly as to break the incentives to work.
AnthonyMouse 8y ago
> I'm very interested in solutions to this, as a bay area resident - somehow separating units into "the poor people houses" and "the rest of the people houses" doesn't quite seem like the right long term solution to anything. The real problem is that we do taxes wrong. We have a progressive tax schedule on the tax side, but then we want to have benefits phase outs on the benefits side. But these are really opposites that cancel each other. It's also very hard to reason about, because if you have multiple benefits programs that phase out in the same place, you can accidentally produce these >100% marginal rates at specific income levels. And progressive tax schedules are very expensive. If you e.g. reduces taxes by 10% on incomes under $40,000 then someone who makes $40,000 pays $4000 less in taxes. But so does everyone who makes more than $40,000, because they now pay $4000 less on the first $40,000 of their income. The answer is to not phase out benefits whatsoever, let that be the progressive component of the system, and use a single uniform tax rate. The uniform rate supplies the revenue to compensate for the lack of phase outs, but will never produce a cliff.
jadedhacker 8y ago
If you want the left perspective, all or nearly all housing would be public housing. This cuts landlords and banks out of the loop and decreases housing prices for everyone. No one goes homeless. You can move whenever you want, though there might be waitlists in some cities depending on how it's implemented. For what it's worth though, we already have waitlists, you can just skip them by having sufficient money.
- komali2 8y ago
  This seems interesting, I wonder why it's being downvoted? I personally don't understand the value landlords contribute to society so I'm curious what a society without them looks like. I expect I can get sarcastic answers about failed Communist states, but I'm hoping someone has spirited examples.

tomjen3 8y ago

It seems obvious that the solution is to make it like we have in Denmark: If you have a rent that is more than some multiplier for your income, you get a cash subsidy. It goes up drastically if you have kids, and it only covers up to a certain amount of square feet (so you can't get money for a giant apartment). In other words, a stepwise/linear function that means it is always worth making more money. Since something like this is so obvious, what am I missing in this solution?

usaar333 8y ago
We have a similar thing in the US (section 8). The program is intended for low income people. The affordable housing programs I'm mentioning aim to help people at roughly the median income afford expensive areas to ensure income diversity. Cash based methods can significantly hurt that goal as such people generally would be better off living in a cheaper area anyway. Or the program handles subsidies building by building which seems administratively complex.

gizmo686 8y ago

Don't make affordable housing a binary in or out system. Instead of kicking someone out at $X, increase their rent until it hits market value at $Y income.

usaar333 8y ago
The units are administered by private developers/management. Who collects the extra rent? If the developers, you create strong malincentives to rent to people that likely will earn more in the coming years.
- Retric 8y ago
  The state would get the extra rent allow it to subsidize more affordable housing. However, affordable housing is inherently a terrible idea. There is no reason to subsidize retired people living in highly desirable areas for example. But subsidizing cops is also ineffecint when you can simply pay them more directly and avoid overhead.
- gizmo686 8y ago
  HUD/local PHA. Affordable housing is not an unfunded mandate. The landloard still receives the full rent; the only difference is who is paying it. Further, we are talking about changing the welfare system. If we had a system where the landlord made substantially less from affordable housing units, we would likely already need to switch systems, because I cannot imagine that being a functional program.
  - usaar333 8y ago
    > If we had a system where the landlord made substantially less from affordable housing units, That's how this works in California. Unfunded mandate on developers. Developers agree to it so they get their development permits. (The system is then administered by the successor management office and occasionally audited by the city. Directing excess rent to the government is possible, but introduces a number of calculation and administrative complexities. ) Finally you get the problem that this system is going to push up the median income in affordable housing (income rising, landlords preferring higher income individuals for stability, etc.), hurting the program's intention. That said I think this solution is better, but I don't understand how high the admin cost goes.

IkmoIkmo 8y ago

Some countries will let the market figure out prices but will offer a sliding scale rent subsidy. From an income of 15k a year and below you get 100% rent subsidy, which falls down to 0% at an average income of say 40k.