April 20, 2014

Why Are the Poor, Poor?

Have you ever wondered why poor people are poor? It’s not as though there aren’t plenty of role models around. Millions of people live highly successful, productive lives in this country. So why don’t people at the bottom of the income ladder copy the behavior of those several rungs above them and better their lot in life? As I wrote previously, the federal government’s own pilot programs established conclusively from the very early days of the War on Poverty that the welfare state encourages people not to be married, not to work and not to invest in human capital.

Have you ever wondered why poor people are poor? It’s not as though there aren’t plenty of role models around. Millions of people live highly successful, productive lives in this country. So why don’t people at the bottom of the income ladder copy the behavior of those several rungs above them and better their lot in life?

As I wrote previously, the federal government’s own pilot programs established conclusively from the very early days of the War on Poverty that the welfare state encourages people not to be married, not to work and not to invest in human capital.

This is Gene Steuerle before a House Ways and Means subcommittee:

The chart below shows a hypothetical example whereby a family (single parent and two children) can receive nearly $30,000 in government benefits with no household earnings, but only about $10,000 in government benefits with $35,000 in household earnings.

So if the mother earns, say, $35,000 she loses about two-thirds of that amount in lost welfare benefits, and that’s not even counting what the government will take in income and payroll taxes.

Steuerle’s chart shows what incentives look like at a point in time. But activities today affect benefits tomorrow. For example, working and earning wages produces Social Security benefits and perhaps a private pension at the time of retirement. What do the incentives look like when we look at the lifetime effects of earning wages today?

That question was addressed in a study for the National Center for Policy Analysis by Jagadeesh Gokhale, Laurence J. Kotlikoff and Alexi Sluchynsky (NBER version here.) The authors explicitly incorporate future Social Security benefits as well as current payroll taxes to calculate lifetime marginal tax rates. They conclude that:

• Americans at every income level face a lifetime marginal net tax rate greater than 50 percent.

• That is, for every dollar they earn, they will lose more than 50 cents in higher taxes and reduced transfer benefits.

Furthermore, the highest marginal net tax rates are not imposed on the highest-income families. They are imposed on those with the lowest earnings. For example:

• At two times the minimum wage ($42,800), working couples get to keep less than 30 cents out of each dollar they earn.

• At 1.5 times the minimum wage ($32,100), they get to keep less than 20 cents out of each dollar they earn.

• By contrast, a couple earning $200,000 a year gets to keep 44 cents.

In a follow up study, Kotlikoff and coauthor David S. Rapson calculate the effects of working more hours for people at different income levels. They conclude that effective marginal tax rates are generally and substantially higher for lower-income households than for high-income households.

• For 30-year-old couples earning $20,000 the marginal tax rate on an additional dollar earned is 42.5 percent; yet those earning $50,000 a year face a marginal tax rate of only 24.4 percent.

• At age 45, couples earning $30,000 a year face a higher marginal tax rate (41.9 percent) than do those earning $200,000 a year (35.9 percent).

• At age 60, couples earning $10,000 a year face a marginal tax rate of 50.9 percent, compared to a 43.2 percent marginal tax rate for those earning $200,000!

Moreover, single-parent households who qualify for more benefit programs than do couples face astonishingly high marginal tax rates beginning at lower incomes. For example:

• At age 30, a single parent earning $10,000 a year faces a 72.3 percent marginal tax rate on an additional dollar earned due to their loss of welfare benefits; this rate is substantially higher than the 36.9 percent tax rate on the single parent earning $200,000.

• At 45 years of age, a single parent earning $20,000 faces a marginal tax rate of 42.9 percent; higher than a single parent earning $200,000.

• A 60-year-old single parent earning $10,000 a year faces a 50.9 percent marginal tax rate, while those earning $200,000 face a rate of 43.2 percent.

Who We Are

The Patriot Post is a highly acclaimed weekday digest of news analysis, policy and opinion written from the heartland — as opposed to the MSM’s ubiquitous Beltway echo chambers — for grassroots leaders nationwide. More

What We Offer

On the Web

We provide solid conservative perspective on the most important issues, including analysis, opinion columns, headline summaries, memes, cartoons and much more.

Via Email

Choose our full-length Digest or our quick-reading Snapshot for a summary of important news. We also offer Cartoons & Memes on Monday and Alexander’s column on Wednesday.

Our Mission

The Patriot Post is steadfast in our mission to extend the endowment of Liberty to the next generation by advocating for individual rights and responsibilities, supporting the restoration of constitutional limits on government and the judiciary, and promoting free enterprise, national defense and traditional American values. We are a rock-solid conservative touchstone for the expanding ranks of grassroots Americans Patriots from all walks of life. Our mission and operation budgets are not financed by any political or special interest groups, and to protect our editorial integrity, we accept no advertising. We are sustained solely by you. Please support The Patriot Fund today!


The Patriot Post and Patriot Foundation Trust, in keeping with our Military Mission of Service to our uniformed service members and veterans, are proud to support and promote the National Medal of Honor Heritage Center, the Congressional Medal of Honor Society, both the Honoring the Sacrifice and Warrior Freedom Service Dogs aiding wounded veterans, the National Veterans Entrepreneurship Program, the Folds of Honor outreach, and Officer Christian Fellowship, the Air University Foundation, and Naval War College Foundation, and the Naval Aviation Museum Foundation. "Greater love has no one than this, to lay down one's life for his friends." (John 15:13)

★ PUBLIUS ★

“Our cause is noble; it is the cause of mankind!” —George Washington

Please join us in prayer for our nation — that righteous leaders would rise and prevail and we would be united as Americans. Pray also for the protection of our Military Patriots, Veterans, First Responders, and their families. Please lift up your Patriot team and our mission to support and defend our Republic's Founding Principle of Liberty, that the fires of freedom would be ignited in the hearts and minds of our countrymen.

The Patriot Post is protected speech, as enumerated in the First Amendment and enforced by the Second Amendment of the Constitution of the United States of America, in accordance with the endowed and unalienable Rights of All Mankind.

Copyright © 2024 The Patriot Post. All Rights Reserved.

The Patriot Post does not support Internet Explorer. We recommend installing the latest version of Microsoft Edge, Mozilla Firefox, or Google Chrome.