Tag: Welfare

The Welfare Trap

One thing conservatives constantly worry about is the danger of creating a welfare trap: a situation in which the welfare state is so entrenched that working is actually less profitable than being dependent on the state.

Check out this amazing graph from The Spectator on the UK’s welfare system:

How’s that for a perverse incentive? Lost benefits and increased taxes mean that, for a single mother, increasing her earnings from 0 to 15,000 pounds only increases her net income by 5000 pounds. Would you work for 1/3 of the wages? At certain points, she is losing 95 pence for every new pound she earns.

if I was in a position of a British single mother I have not the slightest doubt that I would choose welfare. Why break your back on the minimum wage for longer than you have to, if it doesn’t pay? Some people do have the resolve to do it. I know I wouldn’t. …So let’s not talk about “lazy” Brits. The problem is a cruel and purblind welfare system which still, to this day, strengthens the welfare trap with budgets passed without the slightest regard for its effect on the work incentives on the poorest. …Meanwhile, the cash-strapped British government is still creating still the most expensive poverty in the world.

Keep in mind that to get out of the welfare trap — to get to income levels where it does pay to work, you generally have to work your way up. You might spend years at low pay building your resume for a higher-paying job. So the real cruelty is not just that this traps people in dependency, but that it puts grease on the bottom rung of the socioeconomic ladder. It pulls back the possibility of rising above minimum wage.

OK, that’s Britain, you say. It could never happen here. Wrong. The CBO just issued a report showing that marginal rates for low-income workers are about 30-35%. And that’s an average. At certain inflection points, the marginal rate is over 100%, once the Obamacare subsidies kick in. And, even now, the marginal rate is over 60% as you cross the poverty line.

As with the UK, these traps in the tax/welfare system are created because politicians are not doing their damned homework. They have created a system so complex that only a bevy of CBO accountants can untangle it all. But look at those numbers and ask yourself: could this maybe be contributing just a tiny little bit to exodus of so many people from the work force?

Gutting the 90’s

The biggest accomplishment of the Clinton presidency was a good economy. And it was healthy because of two important related accomplishments that Republicans had a big hand in: balancing the budget and reforming welfare. Well, Bush and Obama have thoroughly abandoned the former accomplishment. Looks like Obama is going after the latter too:

Republicans are accusing the Obama administration of unilaterally gutting welfare reform after the Department of Health and Human Services quietly notified states that they may seek a waiver for the program’s strict work requirements.

How exactly the HHS change will play out is unclear. In Thursday’s policy directive, the department said the states may seek a waiver from the work component of the Temporary Assistance for Needy Families Program, in order to “test alternative and innovative strategies, policies and procedures that are designed to improve employment outcomes for needy families.”

The pravda from HHS — which is rapidly becoming the most destructive of our federal departments — is that they are just creating flexibility in a time when jobs, especially jobs for poor people, are hard to come by. But the whole reason welfare reform worked in the first place was because of its inflexibility.

Now perhaps you could justify this under the “times are tough” argument. But — show of hands — how many of you think those waivers will disappear once times aren’t tough? Yeah, I thought so.

The fundamental problem with government spending on anything — welfare, military, education — is that it is ridiculously easy to start or increase and nigh impossible to roll back. The welfare state was built up with little resistance for thirty years. Rolling it back required a Congress and a President with enough spine to take he abuse and criticism of the Left, who all claimed it would leave poor people dying in the street (note: it didn’t).

You want to help poor people? Make it easier to hire them. And I don’t mean with subsidies and special tax breaks catered to powerful interests. Cut or eliminate business taxes, simplify regulations and suspend some of the Obamacare regulations. I realize that doesn’t buy as many votes. Hell, if poor people get jobs, they might start voting (gasp!) Republican, if you can imagine. But it will work. We only need look at the last 50 years of American history to see that.

(H/T: Jim)