It’s not just handouts, it’s also givebacks
I have written several times about the implicit marginal rate which makes it economically irrational for a poor or lower-middle class wage earner to make more money because of the loss of government benefits the higher income incurs.
Back in November 2009, I saw the government benefits trap as a key political tool for Democrats, 100% Plus Taxation Key To Permanent Dem Majority:
In addition to all the other problems with highly subsidized, income-tested health care benefits, will come an even more permanent underclass which, being economically rational, will choose not to earn another dollar rather than lose more than a dollar of benefits.
Conservatives often speak of the Obama-Pelosi-Reid axis as seeking to create a permanent Democratic majority through big government handouts. This implicit marginal tax analysis shows that it is much worse than it seems; the permanent big-government majority will not be there by choice, but by government-created economic necessity….
A permanent, Democratic-voting majority living off government benefits with no way out. It really is that bad, and this really is a once-in-a-lifetime chance for the Democrats to achieve a permanent, economically-enslaved majority.
This chart I posted showed that the problem, implicit marginal rates in excess of 100% for wage earners moving from $30,000 of income to $50,000 of income:
It’s almost like I actually saw Julia, Sandra Fluke, and the Obama campaign 2012 coming.
At Zero Hedge today there is an article making similar points, When Work Is Punished: The Tragedy Of America’s Welfare State (emphasis in original):
Exactly two years ago, some of the more politically biased progressive media outlets (who are quite adept at creating and taking down their own strawmen arguments, if not quite as adept at using an abacus, let alone a calculator) took offense at our article “In Entitlement America, The Head Of A Household Of Four Making Minimum Wage Has More Disposable Income Than A Family Making $60,000 A Year.” In it we merely explained what has become the painful reality in America: for increasingly more it is now more lucrative – in the form of actual disposable income – to sit, do nothing, and collect various welfare entitlements, than to work. This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, “the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045.“
There are plenty of charts and other data at the link.
It’s worse than we think, if all we are focused on are handouts. It’s a combination of handouts and givebacks.