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Modeling Potential Income and Welfare – Benefits in Illinois (2014) [pdf] (cloudfront.net)
70 points by gasull 8 months ago | hide | past | web | favorite | 108 comments



This is a point I tried to make in conversations I was having back in 1994 or so about the welfare reform that was then being debated. It's a rather technical point, though, so it was hard to get it heard in all the shouting about welfare moms.

Step-function subsidies are evil. (A "step function", in math, is a function whose value changes sharply at a single point, like a stairstep.) They're evil for just the reason being discussed here, that they create a point where a small increase in earnings causes a large decrease in total income.

When it comes to income taxes, our legislators are smart enough to use piecewise linear functions, but somehow this very small amount of mathematical sophistication goes out the window when it comes to subsidies for the poor.

And people's lives are ruined.


> Our legislators are smart enough to use piecewise linear function

Yes, but it's also hard to avoid when you are offering non cash welfare. An example for middle income people is affordable housing. You get into the unit (saving you $25k+ over market rate) if income below $X. Otherwise, you don't.

I haven't figured out a way to avoid this cliff that isn't exceedingly complicated or violates the intention of the program.


I'm very interested in solutions to this, as a bay area resident - somehow separating units into "the poor people houses" and "the rest of the people houses" doesn't quite seem like the right long term solution to anything.

I don't have a solution, hence why I ask.


You could give poor families a housing subsidy, which drops off smoothy as a function of income. You can't give a family half a house, but you can easily give them half as big a subsidy, knowing that they can more than make up the difference with their higher income.

This also means that the family receiving the subsidy can live wherever they want. I think some of the smarter housing programs already work this way.


That still has the effect of a (probably high) marginal tax and disincentivizes increasing one's income just the same. Why take night classes or work harder at your job if the $100/week raise comes with $80/week less in rent subsidies + taxes? (Example figures; you can change it around but most realistic situations are going to look similar.)


It's true that the price of receiving a subsidy at all is that any money you make is going to be effectively taxed at a higher rate than it would have been otherwise. I think people can live with that as long as the effective tax rate doesn't get too high. Not sure what "too high" would be for most people, but I would guess that as long as the total effective incremental tax rate is never over 60% — meaning that after the reduction of the subsidy plus income tax, one would never keep less than $.40 of one's next dollar in earned income — that would probably be good enough. Yes, there will still be people who will find that a barrier, but at least there won't be this point where your next dollar of earned income will be effectively taxed at 50,000%.

The extreme version is UBI, where everyone receives the full subsidy unconditionally, and the effective incremental tax rate is always just the income tax rate. I'm not sure that's a bad idea, but we could get rid of the current cliff much more easily than we could institute a full-blown UBI.


>It's true that the price of receiving a subsidy at all is that any money you make is going to be effectively taxed at a higher rate than it would have been otherwise.

I wasn't referring to that; I was referring to the decreasing-subsidy-as-income-goes-up as being effectively a marginal tax. (I think the rest of your comment is recognizing it as one.)

>I would guess that as long as the total effective incremental tax rate is never over 60% — meaning that after the reduction of the subsidy plus income tax, one would never keep less than $.40 of one's next dollar in earned income — that would probably be good enough. Yes, there will still be people who will find that a barrier, but at least there won't be this point where your next dollar of earned income will be effectively taxed at 50,000%.

Even a 60% marginal tax is very strongly disincentivizing and makes it difficult to justify most any feasible long-term plan for increasing one's productivity from a poverty level.

>The extreme version is UBI, where everyone receives the full subsidy unconditionally, and the effective incremental tax rate is always just the income tax rate. I'm not sure that's a bad idea, but we could get rid of the current cliff much more easily than we could institute a full-blown UBI.

Right, that's the major upside of UBI. The downside is that it's really expensive (in terms of tax rate relative to benefits) and can't be concentrated on people who might need more help (temporary or otherwise) than others. And if you combine the two, then it's an even more punishing tax with its own effects.


> Even a 60% marginal tax is very strongly disincentivizing and makes it difficult to justify most any feasible long-term plan for increasing one's productivity from a poverty level.

Are you aware of any research that bears on this question? Right now we just seem to have dueling intuitions.

Anyway, I already agreed that some people will find it disincentivizing. But again, the disincentive can't be anything like the massive one we currently have with the cliff. Do you really not think that what I'm proposing would be an improvement over the status quo?


Okay, let me give you the details of intuition then: the typical person in poverty might optimistically hope to go from $30k/year to $60k/year. But the typical such person has a high time preference and is only able to defer earning income under very difficult terms (e.g. high interest rates). But at a 60% effective tax on making that transition and given the long time it takes to bring it about, you need someone with an unusually low time preference and high luck for that to look worthwhile.

(You would be correct that you could have a poverty program that directly targets the high impediments that exist in the short term e.g. getting childcare for when you have the night classes, low-interest loans to cover short term expenses, etc. But those would also be different policies from simply giving stuff at a lower-effective-marginal-rate than the step function does, and it would be adding the kinds of incentive effects that I have been emphasizing as more important.)

If you model everyone as being the go-getter high-potential individual that you are, you'll have a different intuition on it; I don't think that model is accurate on average.


Just to be clear, I don't necessarily oppose those other programs, and I never suggested that getting rid of the step function was the only thing that should be done, though I continue to believe that that in itself might be a very substantial improvement. At the very least, any welfare reform bill should clearly include that as a key component.


"Even a 60% marginal tax is very strongly disincentivizing"

Citation needed. What I've read is that even an 80% marginal tax does not create strong disincentives.

Think of it this way. Most people spend 95-105% of every dollar they earn, and very few of those dollars are very elastic. The vast majority of those dollars are already allocated for taxes, rent/mortgage, food, car payments, et cetera and only a couple of pennies of every dollar made is discretionary. But if you're able to pick up an extra shift, the extra dollars you make from that are purely discretionary. So even 20 cents on the dollar is a windfall.


I'm not sure what literature is out there. My own sense though is:

1. I personally am very attuned to marginal tax rates and opportunity costs. e.g.

a. I won't pick up the extra shift because I'd rather be doing something else than earning $0.2/dollar. (This happened to me in my lower-income days as a student. Due to X hours/week of being a TA giving a tuition waiver, I would never work more than X hours due to the marginal income beyond X hours being so much lower)

b. This happens to me today where I'll take long breaks between jobs I might otherwise not take. I take longer breaks than I would if we had a flat tax, because my loss of income is (1-marginal_rate) * salary, rather than the significantly higher (1-effective_rate) * salary. Similar thing applies in windfall years (e.g. IPO generating large taxable incomes), where I'll opportunistically take months off.

2. I've generally found others to be much less in tune to marginal rates, etc. So my hunch is that marginal rates are not that disincentiving as GP might suggest.


If you want to abolish the marginal tax, then I would start by looking at tax reform. If you think the marginal tax imposed by a given welfare system is too high, you can just tweak the numbers.


I meant that it's effectively a high marginal tax, when you decrease the housing subsidy as the recipient earns more income.

That is, if every $100/month gain in wages comes with a $30/month decrease in subsidy, that's effectively a 30% marginal tax (on top of all their other taxes).

(And I don't know what you mean by "just tweak the numbers"; the more generous benefits you want, the more you have to disincentivize work; no amount of "tweaking" avoids the core tradeoff.)


What do you want the marginal rate to be? 1%? Just have a $1/month decrease in the subsidy for every $100/month increase in wages.

Personally, I would prefer if all welfare was unconditional and we did all of this tweaking through the explicit tax code, but that is an implementation detail.

>The more generous benefits you want, the more you have to disincentivize work;

What disincentives work is the marginal decrease in benefits. Assuming you have adequate funding, there is no need to increase the rate of marginal decrease. If you don't have adequate funding, then you will need to fund the increased benefits to the not-as-poor by decreasing benefits to the poorer.

There is, admitadly, a decreasing marginal value of money that does behave like you are describing, but its effect is dwarfed at the level of income we are talking about.


Your example is pretty simple to avoid - don't phase it out so abruptly as to break the incentives to work.


If you could go from $200/week salary + $200/week welfare to $300/week salary + $120/week welfare, it would be in your interest to do so, as the total is more in the second scenario.


And if the extra $100/week salary came from going working 30 hours/week instead of 20?


Sure. 1. It's still more than you had before and 2. The next incremental increase you get, you'll be "keeping" even more on a percentage basis.

The argument, "I don't want more income because I will lose some % of it due to [tax | benefits reduction]," makes no sense to me.


Would you work 10 hours for $20 cash, or do you know anyone who would?

If so, I'll gladly hire you next weekend to paint my garden fence.


> I'm very interested in solutions to this, as a bay area resident - somehow separating units into "the poor people houses" and "the rest of the people houses" doesn't quite seem like the right long term solution to anything.

The real problem is that we do taxes wrong. We have a progressive tax schedule on the tax side, but then we want to have benefits phase outs on the benefits side. But these are really opposites that cancel each other. It's also very hard to reason about, because if you have multiple benefits programs that phase out in the same place, you can accidentally produce these >100% marginal rates at specific income levels.

And progressive tax schedules are very expensive. If you e.g. reduces taxes by 10% on incomes under $40,000 then someone who makes $40,000 pays $4000 less in taxes. But so does everyone who makes more than $40,000, because they now pay $4000 less on the first $40,000 of their income.

The answer is to not phase out benefits whatsoever, let that be the progressive component of the system, and use a single uniform tax rate. The uniform rate supplies the revenue to compensate for the lack of phase outs, but will never produce a cliff.


If you want the left perspective, all or nearly all housing would be public housing. This cuts landlords and banks out of the loop and decreases housing prices for everyone. No one goes homeless. You can move whenever you want, though there might be waitlists in some cities depending on how it's implemented.

For what it's worth though, we already have waitlists, you can just skip them by having sufficient money.


This seems interesting, I wonder why it's being downvoted?

I personally don't understand the value landlords contribute to society so I'm curious what a society without them looks like. I expect I can get sarcastic answers about failed Communist states, but I'm hoping someone has spirited examples.


Some countries will let the market figure out prices but will offer a sliding scale rent subsidy. From an income of 15k a year and below you get 100% rent subsidy, which falls down to 0% at an average income of say 40k.


It seems obvious that the solution is to make it like we have in Denmark: If you have a rent that is more than some multiplier for your income, you get a cash subsidy. It goes up drastically if you have kids, and it only covers up to a certain amount of square feet (so you can't get money for a giant apartment).

In other words, a stepwise/linear function that means it is always worth making more money.

Since something like this is so obvious, what am I missing in this solution?


We have a similar thing in the US (section 8). The program is intended for low income people.

The affordable housing programs I'm mentioning aim to help people at roughly the median income afford expensive areas to ensure income diversity.

Cash based methods can significantly hurt that goal as such people generally would be better off living in a cheaper area anyway. Or the program handles subsidies building by building which seems administratively complex.


Don't make affordable housing a binary in or out system. Instead of kicking someone out at $X, increase their rent until it hits market value at $Y income.


That's what my parents did when I started making money. My rent at home went up with my income until I could afford to move out.


The units are administered by private developers/management. Who collects the extra rent? If the developers, you create strong malincentives to rent to people that likely will earn more in the coming years.


The state would get the extra rent allow it to subsidize more affordable housing.

However, affordable housing is inherently a terrible idea. There is no reason to subsidize retired people living in highly desirable areas for example. But subsidizing cops is also ineffecint when you can simply pay them more directly and avoid overhead.


HUD/local PHA.

Affordable housing is not an unfunded mandate. The landloard still receives the full rent; the only difference is who is paying it.

Further, we are talking about changing the welfare system. If we had a system where the landlord made substantially less from affordable housing units, we would likely already need to switch systems, because I cannot imagine that being a functional program.


> If we had a system where the landlord made substantially less from affordable housing units,

That's how this works in California. Unfunded mandate on developers. Developers agree to it so they get their development permits.

(The system is then administered by the successor management office and occasionally audited by the city. Directing excess rent to the government is possible, but introduces a number of calculation and administrative complexities. )

Finally you get the problem that this system is going to push up the median income in affordable housing (income rising, landlords preferring higher income individuals for stability, etc.), hurting the program's intention.

That said I think this solution is better, but I don't understand how high the admin cost goes.


I was under the impression that the welfare reform at the time was an attempt to remove the incentive to stay on welfare (and that what was passed was the most politically viable during that period), but I'd be happy to learn otherwise, since I was an unexperienced, if politically vocal, teenager at the time it was being passed. There was quite a bit of hyperbole during and immediately after, but I haven't heard much later from either side about where the implementation was flawed or how it could be improved, so any info will be happily chewed on :)


I wouldn't say it's evil, but it has certain dependencies: that people legitimately want to get out of poverty and unemployment, and see that as an end in itself, even if a purely monetary hyper-optimizer would just milk the welfare system as long as they can. If social pressures (or selection for proud people) don't simulate that, then step-functions are going to create the death spiral.

Even continuous functions can create high effective marginal taxes with most of the same (mal)incentive structure.


I don't think "evil" is an overstatement at all. At the cliff, the effective incremental tax rate is not only well over 100% but can be almost arbitrarily large. [ETA:] And the real damage that has been done to people's lives, for decades now, is substantial. If welfare had been done right in the beginning, with no cliff, I'm not even sure it would be an issue now. It's certainly an experiment worth trying!

> Even continuous functions can create high effective marginal taxes

Agreed (as we're discussing in another subthread). So, what are you saying? The cliff is fine as it is? You have a better idea? What?


I agree that a continuous function is better than a stepwise function. I don't agree that it avoids the core problem with stuff-giving welfare problems, which is that they introduce high effective marginal taxes. I think those get trapped in death spirals the very same way unless you introduce orthogonal disincentive effects against gaming the system, like social pressures, work training requirements, benefit limits.


I think that as long as it's in their clear and immediate interest to make a little more money, most people are going to try to find a way to do that. I think poverty itself applies all the "stick" that's needed; as long as even part of a "carrot" is available, people will reach for it. (Sure, there will be exceptions, but that's not what we're talking about here; we're talking about most people.)

I don't think people need "social pressures" to get them out of poverty — the idea is ridiculous and, frankly, offensive. [Edit: that was too strong, and I withdraw it. I'm not sure how effective it can be, though, for the government to try to apply social pressure, and I don't think it's most of what's needed, anyway.] What they need is a little more help. Case in point: In 2015, Montana implemented a bipartisan, state-funded employment initiative that offers Medicaid recipients a range of services, including career counseling, on-the-job training and tuition assistance. The program is voluntary — people can sign up when they enroll in Medicaid — and it’s paired with targeted outreach so that those who stand to benefit most from the program are aware of their options. So far, more than 22,000 Montanans have participated, and employment among nondisabled Medicaid recipients is up 9 percent in the state. [0]

[0] https://www.nytimes.com/2018/07/07/opinion/sunday/do-poor-pe...


What is the alternative this is being compared to? Universal welfare? If not, this may just be one of those unsolvable problems given the constraints.


Yeah, but isn't this the problem that the earned income tax credit was designed to solve?


TLDR, in many situations in Illinois you make more money (due to benefits) by making less, up to a staggering income level of ~$70000 a year in some cases.

I have seen this first hand. When I was broke in community college I became eligable for $200 month food subsidy which quickly dropped off a cliff if I worked more than 26 hours a week. So I worked just under that. Any more would be a net loss until ~35 hours due to my low wage per hour not making up for benefits lost. I did some more math, and it turned out I would make only ~10% less money if I could find a job with very high hourly pay and very low hours per week.

With the incredibly broken way the system was set up, I ended up finding a website admin job that paid 18 hourly but only 4 hours a week to maximize the benefit. Some would say I "messed with" the system, but I was going to be broke either way and it made zero sense to work more for less money when I was going to school.

I quickly moved out of Illinois from this and a hundred other political happenings that convinced me the government there was just unfixably corrupt and broken.

I'm not surprised this is coming from Illinois, at all. Incredibly high taxes from benefits allocated absurdly. Laughable benefits for students and other blocs that don't "bring in the vote". The state has a shadow governer Madigan who has run the state for two decades no matter who was in charge on paper.

Illinois is teetering on bankrupcy and the only state with a shinking population due to so much out migration. And the average person leaving makes almost $30,000 more a year than the average person moving in. Because anyone that can afford to leave is on the way out due to extremely high taxes. Businesses have been fleeing in droves for over a decade, and it's rated in many small business polls as one of the top 5 worst states to run a business.

The state has turned to raiding the public universities and local governments in recent years. Cutting funding so severely that several large public universities are almost bankrupt. My education grants dropped from 10k a year from my low income to zero in a single semester because of budget cuts, and I have about 20k in student loan debt as a result.

Basically, don't move to Illinois, it has easily the crappiest most corrupt government of any state. The financials are so bad they've narrowly avoided bankrupcy and have a junk credit rating. If you move there be prepared to pay down the previous decade of uncontrollable debt to the state in taxes due to the inability of Madigan and friends to balance a budget while maintaining their staggering level of corruption


You could move to Louisiana where you would have been ineligible as an enrolled student for your food subsidy unless you worked at least 20 hours a week or earned $600 a month. Go fish.


One commenter on Reddit notes the "programs provide a necessary relief, but they definitely aren't built to help people truly improve their circumstances in sustainable and lasting ways." They're probably not designed at all.

There is no grand plan anywhere. Regulations are a hodgepodge of legislation and executive decisions made by people with conflicting incentives, little to no feedback and expertise, limited resources, and very real abuse/exploitation.


I’m not completely in the UBI (Universal Basic Income) camp, however your comment made me realize how much better UBI would work.

There would be no step functions, no mishmash of overlapping agencies, no complicated eligibility tests, no massive bureaucracy to navigate.


It’s a terrible way to solve the problem. If someone has $20k/yr of benefits from Medicaid what are they going to do on $10k/yr of UBI?


> If someone has $20k/yr of benefits from Medicaid what are they going to do on $10k/yr of UBI?

Buy health insurance, which costs less than $20k/year (because the average person receives less than that amount in benefits).


This is dodging the question. For one thing, The price you pay for health insurance is not the same as it’s cost. The price of insurance is lower than the price of care because people who are healthy buy insurance.

Moreover, the general point stands: what does UBI do for people who currently receive more $ benefits than what the UBI level would be?


> For one thing, The price you pay for health insurance is not the same as it’s cost. The price of insurance is lower than the price of care because people who are healthy buy insurance.

That's the point. It doesn't cost $20,000/person to provide Medicaid because healthy people are eligible for Medicaid. If you take average amount of money and hand it to the same people as cash, it should be the amount needed to buy the equivalent insurance.

But then people have the option to buy only catastrophic coverage and put the rest of money in their pocket, if that's what they want to do, which should on average save money (and in the catastrophe case you still have the catastrophic coverage).

> Moreover, the general point stands: what does UBI do for people who currently receive more $ benefits than what the UBI level would be?

Half the point is to get rid of that sort of thing. Someone who makes $35,000 shouldn't ever be receiving more government assistance than someone who makes $15,000, because they have $20,000 more of their own money to spend on whatever it is.

The purpose of a UBI is income redistribution, not insurance against misfortune. If you want insurance you use your money to buy insurance.


> The purpose of a UBI is income redistribution, not insurance against misfortune. If you want insurance you take your money and buy insurance with it.

While this approach sounds good on paper it wouldn't work in real life. Another example--what if I'm getting the equivalent of $50k/yr in unemployment benefits under Social Security? That becomes $10k/yr under UBI. Or someone getting $60k/yr on Social Security retirement income--again $10k/yr under UBI.

Yes, you can say "Well you should save for retirement." Well, what about all the people who hit 65, and haven't saved for retirement? Or all the people who get laid off and don't have more than 2 weeks of savings? Tough luck?


I can imagine there's some sort of grandfathering rule for existing pensioners, but there has to be a cut off somehow. For example, those who are 10 yrs away from retirement will be told when UBI starts, so they can prep ahead of time (assuming 10 yrs is "enough", if not, then make this number higher).

It's not as if the day UBI starts is also going to be the day everything else suddenly stops. The transition period can be made longer or more gradual.


You could also just give people a one-way election to have the UBI. $10,000/year starting right now has a higher net present value for anyone not at/near retirement than ~$17,000/year (the average social security benefit) starting at age 65, especially when opting out of social security means you no longer have to pay social security tax.

Then make the hard cut off something like age 30, even though most people under ~50 would still choose the UBI.

And "what if someone was getting $60K" is not a thing that actually happens. The maximum monthly social security retirement benefit at full retirement age is $2788, less than $33,500/year.

$10,000 is not much less than what many people live on from their full time jobs. In combination with even modest retirement savings, it's plenty to live on in a low cost of living area, and people who desire more can save more or supplement it by teaching at a community college or local high school.

If you want to live your retirement in Manhattan or San Francisco without working then you'll need a lot of retirement savings, no different than it is now.

The existing design of social security is quite ridiculous and should be changed. A safety net shouldn't be giving more to wealthier people than poorer people. If the payment is good enough for the poor then it's good enough for the rich. Anyone who made a lot of money and wants to live a lavish retirement has every opportunity to have saved up.


Yes, UBI is much less distorting.

Of course that said much welfare and tax policy is intentionally designed to distort society's preferences.


When I first heard of Welfare Cliff I was shocked, coming from Brazilian public schools I realized how much propaganda is spread there.

They teach how the US is imperialist and how they only care about money and some other soviet stories.

To give out some money is one thing, we have that in Brazil, but to give out so much money it is better not to work is shocking.


> To give out some money is one thing, we have that in Brazil, but to give out so much money it is better not to work is shocking.

You miss the point. It's not that welfare is so much, it's that the jobs you get that knock you off welfare don't pay enough to be able to live. America has a lot of very low paying jobs where people need to work 70 hour weeks for multiple employers to get enough to live. In a modern country it is shocking that basic employment standards are not guaranteed and that when you have a job it doesn't cover the minimum needed to live.


This is sort of a function of nondocumented immigrantion. Those are the folks working these low wage jobs. If those people leave then the jobs would either have to raise wages generating inflation, improve productivity or go out of business. I think this is why we see a big push for kiosks/tablets in causal restaurants now.


It's a function of big industry lobbying to keep wages low and block laws that protect workers plus the systematic weakening of unions. There is plenty of money in large corporations to pay workers more but it goes to the executives and shareholders rather than making employees lives more bearable. Inequity is increasing and migration is a useful scapegoat. Large companies are making absurd profits while paying their employees a pittance. Migration isn't causing this but it useful for rich people with vested interests to make it seem like it is.


> There is plenty of money in large corporations to pay workers more but it goes to the executives and shareholders rather than making employees lives more bearable.

The money comes from the fact that they have one well-paid manager per thousand employees instead of having one per five employees as a small business does, which makes getting that opportunity for advancement a one in a thousand shot for their employees instead of one in five. What you want isn't for big companies to pay more, it's for small companies to replace them.

If you pass laws like increasing the minimum wage that disproportionately impact smaller businesses "because big companies can afford it" then you make that problem worse.

If you really want better wages, make things tougher for bigger companies. Condition regulatory burdens and taxes on high total revenue. Eliminate regulations at the federal level that are typically highly complex and whose uniformity favors large interstate businesses, in favor of simpler local regulations that benefit local businesses and allow locals to carve out a profitable niche.


Large businesses are more efficient because they can hire 1 manager per thousand employees.

If laws were introduced to artificially stop this sort of efficiency, the country's productivity drops. Thus will actually cause more harm than good.

A much more sound way of redistribution is to close tax loop holes and aggressive hunting down of those who evade (piercing the veil and all). Recover lost tax revenue, and use it to improve social welfare or infrastructure.


> Large businesses are more efficient because they can hire 1 manager per thousand employees.

> If laws were introduced to artificially stop this sort of efficiency, the country's productivity drops. Thus will actually cause more harm than good.

These are basically the talking points of big corporate lobbyists, but they don't bear out. Efficiency doesn't help real people unless it results in better products or lower prices. If the surplus is going to executive salaries, Wall St and foreign investors then it has no value -- or negative value, if those people then use that money to e.g. bid up real estate prices so that real people have to spend more of their income on housing.

And having less of something isn't always more efficient to begin with. The thing may be producing more value than it costs. For example, people love to go to a store and talk to a knowledgeable person about what they need. A few minutes can save hours of research or years of using the wrong product. But what if one store has that and consequently has higher prices, and another store doesn't have it but has lower prices? Customers go to the store that can answer their questions, determine what they need to buy and then compare prices and buy it from Amazon or Walmart. That isn't more efficient, it's just free riding. And when the smaller stores go out of business, "the country's productivity drops."

> A much more sound way of redistribution is to close tax loop holes and aggressive hunting down of those who evade (piercing the veil and all). Recover lost tax revenue, and use it to improve social welfare or infrastructure.

But that's just an example of what I'm talking about. The tax code is highly complex federal regulation that benefits large companies at the expense of small. Replace the complicated income tax with simple no-exceptions VAT and they can't do that anymore. If you sell something in the US, VAT is collected and it doesn't matter where the rest of your operations are. It's basically corporate income tax where the jurisdiction of "profit" is the location of final sale rather than a bunch of complex rules that international corporations can game to pay less tax than local businesses.

But you also have to make sure they don't absorb that revenue on the spending side. As soon as the feds have money to spend, large corporations devise corruption schemes like the one where government-funded research is patented and transferred for pennies on the dollar to big business, so the public is paying for it twice. Which is why spending should be local -- a billion dollars of corruption sticks out much more in a city budget than the federal budget.


Maybe to a degree, but a lot of those jobs only exist because of how low the wages are. Very few large corporations can afford to just give everyone a raise. That's a terribly short-sighted view of the economy and business administration.

>Large companies are making absurd profits while paying their employees a pittance

Take a look at profit margins on some big companies. You will definitely be surprised. E.g. Over the last 5 years Walmart averaged <3% profits [1], Amazon averaged <1% [2]. Some tech companies are a lot higher (Apple, NVidia, etc.) but these are not the companies you hear about when people discuss low wages. Imagine Amazon trying to give all of their workers a 10% raise. With ~566,000 employees [3] making a median salary (sorry, could not find any mean or total amount so I'll pretend like it's the mean) of $28,446 [4], a 10% raise would amount to 566,000 * $28,446/10 = $1,610,043,600. This would more than slash their net income in half [5] and would only increase the median income by a modest $2800. Obviously these numbers aren't perfect because we don't have means or an accurate list of who earns what, but I think you can see my point here: if every Amazon employee earned a true "living wage", the company would probably go out of business pretty quickly. And that's a big deal when half a million people's lives rely on it (not to mention the millions of shareholders, many of whom likely own the stock as part of their pension plans). And that's not really in anybody's control. It's not like Jeff Bezos is the wealthiest person alive because he's making some massive salary and taking cash out of the company. His personal compensation was $1.68 million last year, most of which was the cost of his personal security team [4]. What makes him wealthy is all of his shares in Amazon, which is pretty worthless if he goes ahead and dumps all of it. Not to mention that his wealth often fluctuates by 10s of billions in a matter of days because of that.

>Migration isn't causing this but it useful for rich people with vested interests to make it seem like it is.

I can agree with you that blaming things on migration is often incorrect and used as a red herring, but the previous commenter is somewhat correct. Immigrants (both legal and illegal) often settle for much lower paying jobs or much harder labor because of how much it pays relative to what they would earn in their home country. This doesn't really cause most people to earn less money, because for the most part few "natural-born" Americans are willing to do those jobs, but it does increase the proportion of jobs that pay these tiny wages. There are certainly many American-born workers who are getting minuscule wages, but an even bigger percentage of these people are immigrants. Of course, it doesn't change the fact that people are getting paid those jobs in general, but for a vast majority of them something as simple as raising the minimum wage is just going to make their jobs go away.

[1] https://ycharts.com/companies/WMT/profit_margin

[2] https://ycharts.com/companies/AMZN/profit_margin

[3] https://www.geekwire.com/2018/amazon-now-employs-566000-peop...

[4] https://www.bloomberg.com/gadfly/articles/2018-04-19/amazon-...

[5] https://www.nasdaq.com/symbol/amzn/financials?query=income-s...


I get a lot of this feeling that the rich and corporations have all the money needed to fix these problems around here.

But the truth is that the US is a huge machine and the government already spends too much money.

Amazon is nothing compared to $4T a year the US spends. You need 4 Amazons a year, people don't seem to understand you can't just eat the rich.

Some concerned with the companies "absurd" profits while they are dwarfed by the US spending.

Wow, great answer btw, with sources and all.


You can't eat the rich but you can tax them.


You can, but there aren’t enough to make that big of a difference.


I appreciate your response but respectfully disagree. Companies like Amazon are notorious for hiding their profits for these reasons. http://evonomics.com/amazon-accounting-corporate-profits-ric...


Sure unionization, laws and lobbies are part of it too.


Your logic is not sound, you say welfare is not so much, but if the job doesn't pay enough and you choose to stay on welfare is because it has more money than the job/raise.

There are cases where welfare will double your income, it's a lot of money for free.

Anyways, I was comparing to Brazil, where the assistance is very low, and you are way better off with a job.

Yet the propaganda there is that the US is terrible for the poor.

Google welfare cliff and you'll see people getting thousands of dollars a month.

I've known people in the US that say they can't afford to get a raise.

And when I tell Brazilians that some Americas are better off without a raise they don't believe me.


I guess it depends on if you think low paying jobs in America are enough to live on without welfare support. If the jobs just paid more then your last paragraph wouldn't be true and people would be happier to leave their welfare behind for a decent wage.


To give out some money is one thing, we have that in Brazil, but to give out so much money it is better not to work is shocking.

That's not what's shocking, what's shocking is that the living wage isn't high enough given costs (health care in particular). Welfare exists not out of kindness, but because people need a minimum before they naturally are going to do anything needed to survive. Welfare keeps people alive and cuts down on crime. If we don't like welfare systems, then we need to make sure that private businesses pay wages that are sufficient to afford the basics: health, housing and education.


> what's shocking is that the living wage isn't high enough given costs

Could you define what a living wage is? I see that a lot but I'm not sure what it means exactly. On this reddit link I see people with several special needs kids. Should the minimum wage be set to sustain a single adult? Or should it be an adult with a kid? Two kids? What if I have 5 kids some of them with special needs? That sets the minimum wage as a "living wage" super high. How could any small business or even big business compete with 6 or $10k minimum wages to sustains these families?


How about enough to sustain an individual with accommodation, healthcare, transportation to and from work and enough to feed themselves on a 40ish hour work week. Some jobs don't offer that. Let's start there before talking about how much trouble it would be for businesses to support your edge cases.


I'm not talking about edge case, I'm talking about the main example in the posted article in case you did not read it which is also a very common case among people on welfare cliff. What I'm saying is that it's a more complicated problem than just "let's just give everyone a living wage", in fact most people who single with no kids or spouse to support are not on the welfare cliff as it's pretty easy to find a job that will pay for the basics even at a fast food joint these days. Just saying.


Yeah that's not actually true for a minimum wage (7.25 USD per hour is fedral minimum) employee in most states. Start by at least making the minimum wage a living wage for most individuals as the bare minimum.

https://www.usatoday.com/story/money/personalfinance/budget-...

https://www.cnbc.com/2017/07/14/only-point-1-percent-of-us-m...


There are many low skill jobs that pay above minimum wage these days. McDonnalds pays $10 per hour for example http://money.cnn.com/2015/04/01/news/companies/mcdonalds-pay...

Unless you have severe disabilities, getting a job at McDonnald's or the tons of other low skill jobs available is not what I would call something hard to achieve.


Right but the first link I shared explained why even $11 isn't enough. And to the original point, the minimum wage should be a living wage. I hope you are clearer about what that means now.


> Right but the first link I shared explained why even $11 isn't enough

It is possible, I've done it and so have my wife. More on that here:

https://www.reddit.com/r/AskReddit/comments/hxwby/is_it_poss...

> I hope you are clearer about what that means now.

Regardless of what your definition of a living wage is or should be, it also doesn't solve the problem of people with kids who are the most vulnerable to the welfare cliff so even by your definition, making the minimum wage a living wage would not solve the issue for most affected people.


It's the bare minimum of what a living wage should be. You seem to ignore that I keep saying minimum. I am not discounting families etc. just wondering if America can at least get to this point where a 40 hour work week at minimum wage is enough to live on for most individuals. We disagree on whether that is true in general even though statstics back me up.

I support welfare and free healthcare etc. to help vulnerable people at a sliding scale rather than a hard cutoff which has the strange incentives discussed in the original article.


The other commenter nailed it. After that the answer to your special needs question is around a public health care system as well as general social services.

It's not theoretical, fanciful or rocket science, for such things exist in many countries already. France and Germany come to mind.


> but to give out so much money it is better not to work is shocking

That's not how it works.


I invite you to the American South. I'll hold your hand and walk you through it.


Welfare cliffs are caused by flaws in how they are calculated with respect to income, not their magnitude. Now, what does your comment have to do with that? Care to elaborate?


First, I'd like to apologize for being rude and negating your statement. There's nuance to the problem; we shouldn't just tit-for-tat dismiss each other.

The U.S. welfare is multifaceted. Try to shift to a stack oriented model. The real picture should include both indirect subsidization and multiple direct benefits/subsidization. Income, rent, food, medicine, childcare, transportation, utilities. There are what someone in poverty would consider sweet spots under certain conditions.

Now, Not all welfare programs stack. Local cost of living changes the stickiness point. But, imo, the most overlooked problem is poor people get good at being poor. There are ways to exchange benefits and untaxed labor for value, even if it's not explicit or monetary.

I've lived it. I know people who are scared to lose benefit X if they earn over Y. The bigger problem is that the government can't manufacture meaning and purpose no matter how much cash they pour out. No marketable skills develop, no local capital accumulation, no gaining experience and moving up. There are no good jobs to escape to. The cliff is doing what you know. What you consider unlivable is life for a lot of people.

Also, I can give some sweet spot scenarios if you want hard numbers.


I would invite you to elaborate. The parent apparently has a misunderstanding, and all you've offered as a counterpoint is "that's not how it works". When someone tried to engage in a discussion, your response should be to explain your understanding, not to ask them to clarify their misunderstanding.


> PDF link to a 2014 study of the welfare cliff, the circumstances in which families on welfare become trapped in staying poor because the cost of replacing the benefits outpaces their ability to gain the same in income.

It's the first sentence of the link guys, come on.


Speaking purely hypothetically, if the benefit value was small enough, it would never make sense to not work, no matter the flaws in the program. We take it for granted that one can live off welfare, even if not well- that assumption/precondition itself could be what pedro_hab is marveling at.

black6 8 months ago [flagged]

I grew up in the Mississippi Delta and still live in the South. The government incentives are to have more kids and no job. Drop your kid on the head or smack ‘em around a bit while they’re young and you get more money on account of mental disability.

This is completely anecdotal, but olbrecht isn’t wrong. A lot of the problems with the system have only anectodal evidence, but that’s because of generations of practice playing the game.


> Drop your kid on the head or smack ‘em around a bit while they’re young and you get more money on account of mental disability

Whoa whoa whoa. It's fine to make a general point based on personal experience but gussying it up like this just for effect is not only abusive, it's vicious. Please don't degrade HN like that.

https://news.ycombinator.com/newsguidelines.html


Are there a lot of good jobs in the American South that pay enough to live on? What's the minimum wage?


Well, the US _is_ imperialist and also doesn't care about implementing quality social programs. So both are true.


Please don't post nationalistic flamebait to HN.


I apologize, and will desist. I would point out that it's actually anti-nationalist rhetoric though. I'm from the US and am unrelated to anyone in South or Central America.


Chicagoan here.

I grew up in Northern California (moved here for college and have stayed for 15 years). I have nothing but the utmost respect for the environment, for minority rights, and for helping the less fortunate.

But here in Shitcago, I get shouted down as a traitorous, MAGA-loving nazi because I criticize the very obvious flaws that we have in our welfare programs, pensions and unions. Welfare cliffs like these ones are borderline inhumane, robbing people of their ability to improve themselves as human beings and to have the self-respect of being a great as they would like to be. We arguably hurt people with these programs, and we PAY TO HURT them.

Now this isn't to say that there aren't great programs that we can undertake to help those in need by redistributing wealth in productive ways, but it is not at all clear to me that supporting our current welfare and educational system is at all synonymous with supporting the idea of helping and educating people.


It's hard to stomach the commentary on Reddit. I glanced at that thread and could post examples of this; in short you have a lot of speculative, off-the-cuff, freeform-braindump-type advice giving and opinions. I have a lot of trouble with Reddit although HN folks have mentioned certain subreddits have articulate people in them with interesting back and forths.

Yes, though, the spirit of the thread is correct: the health care costs and insurance mechanisms are absurd and hit the lower-middle class the hardest.


>certain subreddits have articulate people in them with interesting back and forths

Very, very few. Even on some of the "deep" subreddits, they went off the rails years ago and are now echo chambers where the most insightful comments are just re-statements of the article's main point. The closest thing you get is the heavily moderated subreddits like askscience or history or space, etc. But even then, good luck navigating any discussion, because 9 out of 10 comments will be "this comment was deleted by a moderator", with a few now-contextless comments thrown in here and there.



I haven’t had income in a few years because I’ve been working on a personal project that has yet to materialize. I am on Obamacare and it’s really good. It’s free, better than anything on the market you can buy with money. $1 rx copay, no copay for visits, no referrals to specialists, and the network seems to have all the highly rated specialists in the area. When you see a doctor there are no unexpected, unintelligible bills months later that you have to argue endlessly.

It keeps me from taking side jobs because I’d immediately have too much money and would have to buy inferior insurance. I know this is very different from the much more difficult and real circumstance in the OP but having heard of welfare entrapment for a long time it was odd for me to realize that it had sort of happened to me too. Welfare, man.


You mean Medicaid, not Obamacare (a policy purchased on the exchange)


Correct. In Maryland and probably other states it’s Medicaid that pays MCOs. “Obamacare” seems to be a colloquialism for all programs that resulted from the ACA. I believe MCOs paid by Medicaid are from the ACA. Certainly the ACA mandated I had to enroll, buy a plan or pay the penalty.


Just in case people don't know, the Illinois Policy Institute is an antitax lobbying group.


Too bad there isn't money to be made "disrupting" poverty.


Wal-Mart is one of the most successful businesses of all time. What would "disrupting" poverty be, if not enabling the poor to afford things they couldn't before?


> Wal-Mart is one of the most successful businesses of all time.

Why? I'll offer a reason; unlike many of their competitors they've deftly avoided unionization. I offer no proof that this is the reason, and you offer no reason at all. Only "they're successful so they're right." What do you hope to achieve with this simple minded assertion?

> What would "disrupting" poverty be, if not enabling the poor to afford things they couldn't before?

Walmart isn't magical; equivalent goods are not an order of magnitude lower in price then elsewhere, and the benefit of the small difference in cost applies only to consumer goods Walmart sells; not housing, utilities, vehicles, taxes, healthcare, etc. These represent a vastly greater burden than the marginal savings obtained shopping at Walmart. At best Walmart is minor mitigation.

This sophistry appears in every discussion of poverty, welfare, etc.


> Only "they're successful so they're right."

You have some good points, but please don't use quotes to make it look like you're quoting someone when you're not. That's an internet trope that makes it hard to continue serious conversation. Attributing it to them explicitly as a "simple minded assertion" is even worse, and also breaks the site rule which asks you to "respond to the strongest plausible interpretation of what someone says, not a weaker one that's easier to criticize."

https://news.ycombinator.com/newsguidelines.html


It would be better if they paid people well and treated them with dignity. You could argue that Walmart created more poverty by crushing wages and benefits of it's employees and forcing them to work long hours just to earn enough to live. Disrupting poverty would be to offer employees a living wage and benefits for a 40 hour work week.


Try building a business and hiring a person in poverty.


I am a person in poverty.


It's worse than that. Many powerful forces in this country will kick in to gear to make sure you get hurt for even trying.


It's worse than THAT. If you're not creating poverty and strife, you're doing venture capitalism wrong.


How did you draw that conclusion? It is debatable whether VC creates net jobs and distributes value creation broadly enough but clearly VC isn’t the weapon you make it out to be. Marc Andreesen makes a strong defense of this point in a few talks about innovation/disruption but even if you don’t think VC is an ideal model the companies must be adding value to survive and both employees and non—shareholders capture that value. Social Capital is an example of a fund that appears to be making money and doing great things; you can lose money being terrible and make money doing good.


Practically all woke criticism of capitalism says that it would be impossible without wealth and income disparity and untold "externalized" ecological costs (including human ecologies, such as those that result i.e. people who can't rise out of poverty in the richest country). Those things are havok. Meanwhile, everybody likes to ride high on the idea that they are making the world a better place, with capitalism; but this requires one to consciously, one might says, conspicuously, ignore what it takes for the things they take for granted to be produced, the shoes, phones and "sharing economy". To answer your question, Venture Capitalism is capitalism, so that's the conclusion.




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