Welfare and Economic Mobility

I’ve written elsewhere of the trap for Americans that is welfare in  the form of handouts. The CBO’s Nov 2012 report, Effective Marginal Tax Rates for Low- and Moderate-Income Workers, makes this explicit.  Here are two examples from the report:

[T]he single parent who moved from not working to working part-time would face a marginal tax rate of 36 percent because even a modest level of earnings would result in the reduction or loss of several transfer benefits [the tax].  Earnings from part-time work would result in a loss of eligibility for assistance through the Temporary Assistance for Needy Families program, some reduction in the housing voucher, and a decrease in benefits available through the Supplemental Nutrition Assistance Program.


The marginal tax rate associated with moving from part-time to full-time employment…would be higher—47 percent.  Earnings from full-time work would place the single parent in the EITC’s plateau range and would allow him or her to claim the maximum EITC [Earned Income Tax Credit] amount ($3,169 in 2012).  However, because moving from part-time work to full-time work does not increase the EITC as much as does moving from not working to working part-time, marginal tax rates in this scenario would be higher than in the first scenario.

The disincentive to get work is large, but by remaining in her current situation, the single mother (yes, I’m assuming) is foregoing opportunity to improve her economic situation: there is potential for advancement, pay raises, and so on with a paying job.  Remaining on the government’s dole leaves this woman dependent on her government for her livelihood.  And doing so makes it even harder for her child(ren) to move up the economic ladder in his own time.  Upward mobility is severely handicapped, if not foreclosed altogether.

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