Eagle Forum Legislative Alerts

Sunday, December 02, 2012

Disincentives of the welfare cliff

Gil Spencer writes in a Penn. newspaper:
Question: When is it better to earn $29,000 than to earn $69,000?

Answer: When you’re a single mom living in Pennsylvania.

Why? Because, thanks to our generous welfare system, a single mom makes out better that way.

When all the benefits are added up, the lower-paid single mom qualifies to receive $57,327 in net income and benefits, while the mom who earns $69,000 ends up with a net income and benefits of $57,045.

This is according to figures from our own state Secretary of Welfare Gary Alexander. Worse, his chart on Household Income and Benefits shows that if the same single mom making $29,000 were to get a $1,000 raise, she would lose close to $7,000 in state benefits.

If you were in her position, would you accept that raise? But such are the disincentives built into our current and crazy welfare system.
A comment adds:
I'm shocked that the truth has finally been printed. Single Motherhood has exploded in this country and it's not a result of a breakdown in moral fiber. It's built into the economy. This is why poor people stay poor. The incentive to get an education isn't there and they are penalized for getting married. Poor people are better off if they have children they have no intention of being able to support.

Imagine you are a 22 year old high school dropout. You are making $20,000 a year. You have no health insurance, you can't afford to support yourself and you notice that your friends that don't work or work part time are able to have their own place, all the food they can eat and health insurance because they have children. And their boyfriends live with them free of charge to boot. The incentive is to have a child that you can't afford to support. Now imagine you are a 22 year old recently married college graduate. You and your husband were lucky enough to get $30,000 a year jobs. You have combined $50,000 in student loans and are struggling to make ends meet. You can't afford to even think about having children. What is the result of all of this? The poor and uneducated are out breeding the educated. And we wonder why the US is falling behind other countries.
Tyler Durden adds charts that demonstrate a welfare cliff:
The graphic below quite clearly, and very painfully, confirms that there is an earnings vacuum of around $40k in which US workers are perfectly ambivalent toward inputting more effort since it does not result in any additional incremental disposable income.
This welfare cliff is dividing our middle class into single moms dependent on welfare, and college grads who postpone kids until the student loans are paid off. The incentives are broken.

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