Saturday, April 13, 2013

Why a single mom is better off with a $29,000 job and welfare than taking a $69,000 job

James Pethokoukis explains:
The U.S. welfare system sure creates some crazy disincentives to working your way up the ladder. Benefits stacked upon benefits can mean it is financially better, at least in the short term, to stay at a lower-paying jobs rather than taking a higher paying job and losing those benefits. This is called the “welfare cliff.”

Let’s take the example of a single mom with two kids, 1 and 4. She has a $29,000 a year job, putting the kids in daycare during the day while she works.

As the above chart – via Gary Alexander, Pennsylvania’s secretary of Public Welfare — shows, the single mom is better off earning gross income of $29,000 with $57,327 in net income and benefits than to earn gross income of $69,000 with net income & benefits of $57,045.

It would sure be tempting for that mom to keep the status quo rather than take the new job, even though the new position might lead to further career advancement and a higher standard of living. I guess this is something the Obama White House forgot to mention in its “Life of Julia” cartoons extolling government assistance.


  1. When you're a politician, getting elected is Job 1. How to get elected? Steal from Group A, take a cut for yourself, and give the remaining loot to Group B in exchange for Group B's votes. Simple.

    And now you know why Obama was re-elected. Ain't democracy grand?

  2. The problem is that government has incentives to keep people on welfare to increase its budgets, bureaucrats like building empires and staffs, and a system which hurts taxpayers and doesn't do a good job of helping the poor, as this page details:
    "Official US Census poverty figures show about 46 million people have been living in poverty the last couple of years, the most ever. The 15% poverty rate is tied for the highest it has been since 1965. The problem isn't lack of funding.

    $195 billion would have been needed last year to simply give everyone enough money to bring their income above the poverty level.
    $1030 billion at least was spent on federal anti-poverty programs (including state funding put into those programs)."

    The page offers a suggestion to start introducing competition into the system: make charity a 100% tax credit instead of a deduction. Similar to the concept of school vouchers, it would introduce competition into the system by letting people give money to a charity that works instead of to government. Even Obama gives more to charity than taxes, he doesn't contribute to the social programs he himself is in control of. After the more efficient private sector begins to take over, taxes, and the associated credit,can be reduced slowly to show the system still works even without government involvement.