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> 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

> 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. Are you aware of any research that bears on this question? Right now we just seem to have dueling intuitions. Anyway, I already agreed that some people will find it disincentivizing. But again, the disincentive can't be anything like the massive one we currently have with the cliff. Do you really not think that what I'm proposing would be an improvement over the status quo?

SilasX 8y ago
Okay, let me give you the details of intuition then: the typical person in poverty might optimistically hope to go from $30k/year to $60k/year. But the typical such person has a high time preference and is only able to defer earning income under very difficult terms (e.g. high interest rates). But at a 60% effective tax on making that transition and given the long time it takes to bring it about, you need someone with an unusually low time preference and high luck for that to look worthwhile. (You would be correct that you could have a poverty program that directly targets the high impediments that exist in the short term e.g. getting childcare for when you have the night classes, low-interest loans to cover short term expenses, etc. But those would also be different policies from simply giving stuff at a lower-effective-marginal-rate than the step function does, and it would be adding the kinds of incentive effects that I have been emphasizing as more important.) If you model everyone as being the go-getter high-potential individual that you are, you'll have a different intuition on it; I don't think that model is accurate on average.
- ScottBurson 8y ago
  Just to be clear, I don't necessarily oppose those other programs, and I never suggested that getting rid of the step function was the only thing that should be done, though I continue to believe that that in itself might be a very substantial improvement. At the very least, any welfare reform bill should clearly include that as a key component.

SilasX 8y ago

Okay, let me give you the details of intuition then: the typical person in poverty might optimistically hope to go from $30k/year to $60k/year. But the typical such person has a high time preference and is only able to defer earning income under very difficult terms (e.g. high interest rates). But at a 60% effective tax on making that transition and given the long time it takes to bring it about, you need someone with an unusually low time preference and high luck for that to look worthwhile. (You would be correct that you could have a poverty program that directly targets the high impediments that exist in the short term e.g. getting childcare for when you have the night classes, low-interest loans to cover short term expenses, etc. But those would also be different policies from simply giving stuff at a lower-effective-marginal-rate than the step function does, and it would be adding the kinds of incentive effects that I have been emphasizing as more important.) If you model everyone as being the go-getter high-potential individual that you are, you'll have a different intuition on it; I don't think that model is accurate on average.

ScottBurson 8y ago
Just to be clear, I don't necessarily oppose those other programs, and I never suggested that getting rid of the step function was the only thing that should be done, though I continue to believe that that in itself might be a very substantial improvement. At the very least, any welfare reform bill should clearly include that as a key component.