| Final-Fan said: That's terrible. It's as if there was a 150% income tax bracket (as some people act like there is in these discussions). I'm totally in favor of eliminating disincentives like that, though the preferred method of reform would no doubt differ among different people. I stand by my position that this flies completely in the face of the intended design of our tax law. And, as you point out, it's not tax law that's mainly creating this situation. |
It was the same deal back in the UK. My grandmother was a cleaner in the local school, working part-time on minimum wage. The school wanted to boost her pay, not by much, but a couple pounds per hour. She fought against it, because it would lose her qualification for a number of programs she relied on, and thus would be on the net worse off.
I can't give you exact numbers, because this is going off my own memory from about 12 years ago.
I imagine this is part of the reason why so many Walmart and McDonald's employees end up living on welfare. It doesn't make much sense to go for a promotion or put in the extra 10 hours per week, etc, it'll make you worse off.
The simplest solution would be a gradual degradation of payouts. I'm a big proponent of collapsing all welfare programs into a universal basic income which takes the form of a tax credit, and a very high initial tax rate. For example:
$12,000 ubi refundable credit, first $24k taxed at 50%. Next $1k taxed at 0%, then whatever tax system you want to apply from $25k onwards.
So, if you have zero income, you receive the full $12k. If you have a job that pays $12k, your net income would be $18k, and when you earn $24k you'll receive nothing. You get $1k of "bliss" with no tax, and then from $25k it's whatever.
All these numbers I chose for the simplicity of the math. The average social security payout is a little above $12k, so it would probably be replaced by the UBI, too.
