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Yes, a 100% tax on earned income for single parent families

Monday, March 4, 2013 9:50

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Richard Rider, Chairman

San Diego Tax Fighters

BLOG: www.RiderRants.BlogSpot.com

In 2011 I wrote an article on my old Open Salon blog concerning the huge disincentive of minimum wage family earners to make more — as they faced what amounted to a 100% tax between $15K of income and $60K of income. This “tax” was due to the loss of benefits that occurred when one made more, coupled with the higher taxes paid for higher income.

http://open.salon.com/blog/richard_rider/2011/01/12/when_145k_minimum_wage_60k_salary

The only problem with my post was that it lacked a solid source. I pulled the numbers off a Mississippi website that in turn did not provide a source. Intuitively and empirically the numbers and conclusion seemed to be about right to me, but I love data backup.

Got it!

No, not data verification for that item, but from what amounts to an identical outcome found in a detailed Pennsylvania study — using the same single parent with two kids as the benchmark. I first found the story in the WALL ST JOURNAL — an op-ed by economist Arthur Laffer (see below). That article led me to the source material — a study and PowerPoint put together by the Pennsylvania Secretary of Welfare.

http://www.aei.org/files/2012/07/11/-alexander-presentation_10063532278.pdf

Two things become apparent in the study:

1. If one is taking advantage of the welfare/subsidy options, then between about $9,000 and $69,000 of (reported) earned income, such a family faces what amounts to an average 100% tax.

2. The loss of benefits is not a uniform sliding scale, as some benefits arbitrarily stop past a certain income point — each benefit with a different point.

The PowerPoint is worth reviewing, even if just for a quick overview.

Suggestions of reforms are made both in the Pennsylvania study and the WS JOURNAL article, but for now the fact remains — the government pays people to remain poor. Few will find their net income jumping between $9K to $70K in one increment, so for the years working between these two numbers, one is essentially working for free. And most such low skilled workers have little prospect of ever passing that $70K point where they start actually making money.

This 100% tax makes a strong economic (though hardly moral) case for working on the side in the underground economy for cash while collecting all the low income benefits. It would be a huge temptation to do so. Welfare (and that’s what all these “entitlements” are) is a drug, and we are addicting people to these subsidies.

Here’s the link to the excellent WALL ST JOURNAL article by Arthur Laffer:
http://online.wsj.com/article/SB10001424127887324235104578243373468081096.html?
If you have a problem accessing that link, try this one for the Laffer article:
http://americanjudgement.blogspot.com/

2013-03-04 09:45:18

Source: http://blog.stoptaxingus.com/2013/03/04/yes-a-100-tax-on-earned-income-for-single-parent-families.aspx?ref=rss

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