Why Work?

There is a lot of debate and discussion about the fiscal cliff in Washington right now.  However, we never hear anything about the welfare cliff.

What is the welfare cliff?

It is the point in which it makes more sense to sit at home and do nothing and collect welfare benefits than do work.

Tyler Durden of Zero Hedge writes about the welfare cliff in "When Work Is Punished: The Tragedy Of America's Welfare State".  He cites a recent presentation by Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania, in making his key points.

To illustrate the welfare cliff consider this fact about a single mother in Pennsylvania with two children.

The single mom is better off earning $29,000 with gross income of $57,327 in net income and benefits including welfare assistance than to earn gross income of $69,000 solely from working that nets out to income and benefits of $57,045.

The two charts below are from Alexander's presentation which is worth looking at to also see the massive growth in welfare and Medicaid over the years.

What is also sobering is what the welfare burden has become on working taxpayers.  For every 1 person receiving welfare assistance nationally, there are only 1.65 employed persons in the private sector.

For every, 1 person who is either receiving welfare or works for the government, there are only 1.25 persons working in the private sector.  After all, either way, taxes are needed from the private sector to support these payments.  Ouch!

One big factor in why the welfare recipient makes out so well is the tax-free nature of welfare benefits and the refundable tax credits that are built into the Internal Revenue Code. Tax loopholes are not just for the rich any more.

Providing housing assistance, food stamps (EBT), welfare, Medicaid, child care assistance and Obamaphones in after-tax dollars provides a significant income advantage to the welfare recipient compared to a middle-class worker.

Consider a cell phone.  If a private sector worker and taxpayer wants a $50 monthly cell phone plan, they need to earn about $65 to pay for the cell phone.  They need to pay income taxes (15%), FICA (7.65%) and state taxes before they have the money to spend on the cell phone.  People on welfare are just given the cell phone.

I am all for helping people who need a helping hand.  However, this is clearly not a sustainable path.

It also clearly shows that the incentives in the system are not properly aligned to get us the results we should be getting.  Our goal should be to get as many people in productive roles in our society as we can.  Our welfare programs are clearly not doing that.

We should also have policies that foster as much alignment between people in our country as possible. The disconnect between the people working and paying the bills and those receiving government benefits will do nothing but create greater discord in society if we don't fix this.

If we get past the fiscal cliff I certainly hope that we will soon start looking at the welfare cliff.