Welfare Un-Reformed

Here is a measure of the enduring damage that comes from allowing the left to take a dominant role in American politics.

An economics blogger for the New York Times describes how welfare programs are moving in opposite directions in the United States and Britain.

As recently as 2010, Britain had a complex system of antipoverty programs ranging, including housing benefits, job seekers’ allowances and mortgage-interest assistance. With so many benefits available, many people found they could make almost as much from the combined programs as they could from working, even while any one of the benefits might not have been all that significant by itself. As Britain’s Department for Work and Pensions described, beneficiaries remained “trapped on benefits for many years as a result.”

Beginning next month, Britain will strive to put its welfare system on a different path…. The department forecasts that its “universal credit will improve financial work incentives by ensuring that support is reduced at a consistent and managed rate as people return to work and increase their working hours and earnings.”

So benefits are being readjusted to reduce the disincentive for work. In America, by contrast, we’re increasing the disincentive, particularly as a consequence of Obamacare.

The Congressional Budget Office estimates that the Affordable Care Act’s means-tested subsidies and cost-sharing will implicitly add more than 20 percentage points to marginal tax rates on incomes below 400 percent…of the poverty line (a majority of families fit in this category) by phasing out the assistance as family incomes increase, although a number of families will not receive the subsidies because they already get health insurance from their employer.

The phrase “implicit marginal tax rates” is bureaucratese for the fact that when someone on welfare goes to work, for every dollar he makes, he loses a certain amount of money in benefits, so that his net pay—income from working, minus the loss in benefits—is a fraction of his gross pay. Pay that is low to begin with is effectively made even lower. Referring to a loss of government benefits as a “tax” doesn’t make logical sense, but the point is to quantify the welfare state’s disincentive to work.

The bottom line: “In 2014, some Americans will be able to make almost as much from combined benefits as they would by working, and sometimes more.”

Although a Democrat, Bill Clinton, pushed through welfare reform in the 1990s, there was a wing of the Democratic Party that never accepted this and has been seeking to un-reform welfare. Their man is now in the White House.


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