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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 t

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.

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.