12 ms·
The perverse incentives around these discontinuities is one of the worst misfeatures of programs intended to help people. Here is a real example. My niece wou
by btilly 7y ago
The perverse incentives around these discontinuities is one of the worst misfeatures of programs intended to help people.
Here is a real example. My niece wound up with 3 kids, divorced, with inconsistent child support payments. So she went on food stamps. She was looking for a better job. She found one, interviewed, and they wanted to hire her. But the salary that they offered was $0.50/hour too much for her to stay on food stamps, and was less than her current job. Thanks to union regulations, the person who wanted to hire her couldn't pay her less than the standard salary. The result is that she did not take the job.
A common result when Congress takes note of perverse incentives like this is that they introduce a more complex program with specific terms that address specific problems that emerged. The problem is that by creating more brackets and more complex rules you usually create MORE cliffs with perverse incentives (though the perverse incentive at each cliff tends to be less).
Another solution is to introduce rules that attempt to identify people who are "abusing the system" and punish them. So, for example, you can only be on welfare for a limited time because people got outraged that single mothers wound up on welfare for a long time. However those single mothers were acting that was in part because they were better off on welfare looking after their own kids than they were in a low end job and paying for daycare.
Stereotypically the first type of solution is characteristic of Democrats and the second of Republicans. But the truth is that both parties do a lot of both solutions.
- dragonwriter 7y ago> The perverse incentives around these discontinuities is one of the worst misfeatures of programs intended to help people. This is a key motivation for replacing many of those programs with UBI funded by progressive taxes.
- tjr225 7y agoEither that or a more progressive stance on socialist policies that provide basics to everyone. At least with socialist style policies there isn't the possibility of those spending their UBI on junk food or wine our whatever, but I really would prefer either to the current state of affairs.
- thrower123 7y agoGovernment paternalism is terrifying. People are going to screw up, and make bad choices, but having choices is better than being treated like a child your entire life.
- iron0013 7y agoSpeaking of children, that’s who’s gonna starve if you decide to let them suffer the consequences of their parents’ poor choices. I would have personally starved to death dozens of times over if not for food stamps.
- umvi 7y agoYou might have been more hungry, but death by starvation in the USA is nearly unheard of. I personally have never heard of anyone - homeless or otherwise - dying of starvation in the USA. The only people I've heard of dying of starvation were stranded on a mountain or on the ocean or something.
- crooked-v 7y ago"Well, at least there aren't a lot of people literally starving to death" isn't exactly a glowing endorsement of the system.
- TheOtherHobbes 7y agoEspecially in the UK, where there literally are people starving to death now. People in the US who live in a comfortable six-figure-middle-class bubble really have no idea how precarious their position is. All it takes is one expensive long-lasting serious illness and they'll be out on the street with the other people who "made poor choices."
- zeveb 7y ago> All it takes is one expensive long-lasting serious illness and they'll be out on the street with the other people who "made poor choices." You declare bankruptcy, your assets are divided up among your creditors and you start over again. That's why bankruptcy exists. Several (most?) states even let one keep one's home. Maybe we need a law to prevent landlords from refusing to let based on prior bankruptcy — would have to think that through. Bankruptcy is not (or at least should not be) the end of the world.
- chillacy 7y agoA Negative Income Tax which phases out would work too (though I think a UBI would be more popular and thus resilient to budget cuts, as Alaska has shown). The wonderful thing about cash (UBI, NIT, EITC) is that it's easy to divide up and low-cost to distribute.
- nkrisc 7y agoLooked into NIT a little, and as I understand it, it could basically be a linear function where Y=0 when X (income) is, for the sake of example, $40,000 yearly. Then anyone over that pays increasing income tax while anyone below receives increasing amount of money from the government instead? Apart from whether linear actually makes sense or not in the real world.
- kazagistar 7y agoIt doesn't have to be linear, that's just the easiest model to visualize and understand it just should be smooth enough in a way that ensures no discontinuity.
- xfkechyk 7y agoI think one problem with NIT is it would likely pay out annually, when income taxes are filed. That's not very helpful if you're living paycheck to paycheck. UBI can more easily dish out money on a more frequent basis. Additionally, this was already mentioned elsewhere, but, a major argument for UBI is that not having any sort of means-testing will drastically streamline the process, reducing costs and increasing efficiency. NIT still involves means-testing.
- SilasX 7y agoRelatedly, I learned about Universal Credit, an attempt by the UK to merge all their social benefits into one coherent system, and it seems like the cliff problem here is worse. From the BBC description: https://www.bbc.com/news/uk-41487126 https://www.bbc.com/news/uk-41487126 >Under the old system many faced a "cliff edge", where people on a low income would lose a big chunk of their benefits in one go as soon as they started working more than 16 hours. >In the new system, benefit payments are reduced at a consistent rate as income and earnings increase - for every extra £1 you earn after tax, you will lose 63p in benefits. In other words, after fixing the cliffs of the system, you would "only" face a 63% effective tax rate for working more. So whatever system they have no is even more discouraging. (That understates it because it's phrased post-tax; including a positive income tax, the total effective tax is even more!)
- mantap 7y agoThe purpose of universal credit was not to solve any particular problem - it was to give conservative politicians something to say when their voters demanded something must be done [about people on benefits]. The world makes a lot more sense when you realise that laws and regulations are primarily conceived and constructed to keep incumbents in power. Maybe we should vote in our representatives for life then they'd actually have to focus on making things better.
- SilasX 7y agoIf the system incentivizes capable people not to work and just live off taxes, that should be corrected.
- tremon 7y agoThat's a bit shortsighted. There are many valuable types of "work" in society that are not rewarded monetarily. Take for example, child rearing, community building, or caring for elderly/disabled/homeless people. Should "the system" really push capable people into valueless jobs at the cost of meaningful jobs that have no monetary value?
- mrfusion 7y agoI guess like the artical mentions she could have bought put options.
- boomboomsubban 7y ago>But the salary that they offered was $0.50/hour too much for her to stay on food stamps, and was less than her current job The salary was lower but would somehow remove her eligibility for food stamps?
- heavyset_go 7y agoThe number of hours scheduled to work matter here.
- Polylactic_acid 7y agoI'm not an expert on the system in Australia but how I think it works from what I have heard is there isn't a cut off point where if you make x you are eligible and if you make x+1 you aren't. Instead its a slope where if you make x+1 you lose a certain % of the payments until you eventually make enough to lose them all. But at all times its still better to take the job.
- jacques_chester 7y agoI'm afraid it's not that simple. The key is the Effective Marginal Tax Rate, which is the compounded effect of withdrawal of benefits and moving up to a different tax bracket. Depending on the prevailing settings it's not uncommon to find points at which the EMTR is more than 100%. I ran for the Federal Parliament for a libertarian party in 2007 largely because I supported their policy plan to reform taxation and welfare jointly. The concept was called "30/30": a 30% flat income tax, with negative income tax at 30% below $30,000 income. Capital gains and company tax would also be set at a flat 30%. The gist was to remove all distortions from different tax and welfare settings, so that any taxpayer was always facing the same deal: each additional dollar earned is taxed at 30%. There were a lot of policies I didn't agree with, and naturally, those were the ones I got the most questions about. Running for a microparty that grabs anyone who puts their hand up is an ... interesting ... experience. (I came second last with a whopping 0.7% of the primary vote, for those who were wondering)
- kwhitefoot 7y agoWell done for trying.
- taneq 7y agoMost things here are arranged that way and it works pretty well for the most part. There are a few things that still have cliffs, though. One of my friends is on a disability pension but is still able to work part time. If he works too many hours then he's disqualified from the pension so he's had to cap his work hours. Another thing is the childcare subsidy for working households - the subsidy itself scales in a reasonable manner but there's also a hard cap on annual payments which applies above a given household income threshold. If you go slightly over the cap you can end up out of pocket by $10k or more.
- dTal 7y ago>the salary that they offered was $0.50/hour too much for her to stay on food stamps, and was less than her current job I don't understand. How was she eligible for food stamps, if she already had a job that paid more?
- hnuser123456 7y agoprobably under table, waitressing tips etc
- loudmax 7y agoA lot of welfare and food stamp recipients are the working poor. This was a single mom with three children. She needs to arrange for child care while she's working and it's a good idea to set aside money for medical emergencies. I'm going to guess this job probably pays a few dollars above minimum wage. Someone in this situation is absolutely eligible for food stamps. But if we get another four years of MAGA, then who knows, maybe not.
- dTal 7y agoRight, that's not the point. The point is that taking a pay cut, with apparently no other change in circumstance, somehow rendered her ineligible for a social service she was already receiving. I want to know what rule made that possible, as it appears to be critical to this discussion of perverse discontinuities.
- loudmax 7y agoYeah, we're missing some details here. Could be tips or hours worked as sibling comments suggested. Life is messy.
- pavel_lishin 7y agoDoes the food stamp program look at hourly wage as your income determinant, instead of weekly income?
- cdblades 7y ago
- jonnycomputer 7y agoI agree, and I have my own stories to tell (like my foodstamps admin telling me to spend my tax return as quickly as possible or I'd lose foodstamps; which is doubly perverse). A for tax brackets, why do they exist. I think our mathematics is advanced enough that things like tax brackets could be replaced by continuous functions. So its either by design or by lack of imagination that these discontinuities exist. I've a friend from Finland who is vehemently opposed to any sort of means testing for any social program or aid. I see his point. Means testing creates all of the problems mentioned above ... and encourages those not eligible for them to view them as some burden that other people get but they pay for--fostering resentment.
- greggyb 7y ago> A for tax brackets, why do they exist. I think our mathematics is advanced enough that things like tax brackets could be replaced by continuous functions. So its either by design or by lack of imagination that these discontinuities exist. Progressive tax brackets do not have discontinuities such that your income net of income tax becomes lower as a result of moving up a bracket.
- jonnycomputer 7y agogood point. its actually not as bad as I thought.
- currymj 7y agoat least in the US, income tax brackets are done in a mostly reasonable way. if the tax bracket is at $30,000 and you make $35,000, then you’d pay a low percentage of the first $30k and a higher percentage of the last $5k. so you can’t lose money by earning an extra dollar, at least only considering income tax. it’s other benefits, tax credits, social programs, etc. that sometimes end up being designed with perverse incentives.
- rtkwe 7y agoMaking them continuous means requiring everyone to use a computer to calculate simple things like income taxes. Brackets aren't even a case of perverse discontinuities because the higher tax rate only applies to the money made in that bracket. Looking at just income taxes you never take home less money from getting paid more, it's a quite reasonable balance between computational simplicity and a rational progressive tax structure.
- bo1024 7y agoThis is one reason behind universal basic income as a welfare program. There are no hoops, no cutoffs, no distortion of incentives.
- lonelappde 7y agoYes there are. Money if fungible, so UBI can become a tent subsidy for landlords by driving rents up, instead of paying for food and medicine while leaving rents at current equilibrium
- kazagistar 7y agoThe leftist solutions are to get rid of of the conditions entirely, and find non-means-tested ways to accomplish goals more universally. The advantage here is significantly reduced administrative costs, freeing up time and energy of those in a tough situation on recovery rather then stress over beurocracy and limitations, and of course, people not viewing the people on the programs as morally deficient. Social security, fire departments, medicare, primary education etc are all available broadly, and are broadly liked by people. People using these government handouts aren't considered lesser for it.
- smnrchrds 7y agoI reminds me of that quip that if libraries didn't exist already and did not have a history millennia long, no government would create one today. Instead, they would create a means-tested tax credit for purchasing books.
- thu2111 7y agoIntriguing idea :) I'm not sure if you're speaking approving or not (or neither). It seems like a reasonable thing to do though. Amazon is bigger than any library, it avoids the use of physical space in city centres and the need to manage loan systems/handle stolen books. I think the difference between then and now is that IT happened, so it's much easier to do things like calculate complex per-item tax rates than it would once have been.
- iainmerrick 7y agoI'm not sure if you're speaking approving or not It’s “not”
- mech1234 7y agoI'm getting strange vibes for how people must be reacting to this. Your idea of a possible better world is so bad that you should feel bad! /s
- 7y ago
- 113 7y agoSounds like the business should be paying their employees enough to feed their families.
- ZeikJT 7y agoWhat is a "family"? Should a business adjust the salary based on how many members you have in your family? If one person has 10 kids and another has 2 they have drastically different requirements. An only child with a well-off family might only be taking care of themselves whereas another child might need to also be taking care of their parents and grandparents who also need to pay for medicines in addition to taking care of their younger sibling who isn't old enough to work yet. The variety and complexity of "enough to feed their families" is crazy.
- lonelappde 7y agoBusiness should pay enough to feed a family of say 4. I don't care what family you specifically have.