Thursday, December 6, 2012

Interesting graphic showing how someone earning $69,000 or $29,000 ends up with the same income (cash and non-cash) after taxes/benefits/subsidies are factored in/out. Enlightening regardless of your politics.

This chart has been bouncing around various blogs. I tried to find something to counter the points made here but could not find anything substantial. I made some edits, just to highlight reference points to make it clearer.

The chart suggests that a single mother (with 2 children and lives in Pennsylvania) earning a gross income of  $69,000 in a year ("D") would have a net income (after taxes and adding in any cash and non-cash benefits) of $57,327 ("C").

IF a different mother earned a gross income of $29,000 ("A") in a year, she would have a net income (after taxes and adding in any cash and non-cash benefits) of $57,045 ("B"). 

Their after tax/after benefits (cash and non-cash) would just about equalize their income.  The mother with the $69,000 income would be a net "loser" of $11,673 and the mother with an income of $29,000 would be a net "gainer" of tax dollars/subsidies of $28,045.

Source: Here
This is interesting BUT there is more!  If this data is correct and this is the system people operate under, there is a GLARING unintentional consequence here.  Can you see it?

Look at the income level and benefit level at point "B", $29,000.  This this mother earns $1.00 more what happens to her level of benefits overall?  Yikes, they decrease by much more than the extra dollar she earned from, perhaps, a raise or a promotion.  This is a significant penalty for someone who is just getting by. 

So, what happens to the incentive to earn more, and by implication to be more productive? Notice the same thing happens to someone when they reach the $45,000 income level. The next dollar earned is VERY costly. 

People trying to get by and do the best they can are going to respond to the real-life, immediate, incentives put in front of them. 

This does not appear to be a system that promotes self-sufficiency as people climb the income ladder. 

Maybe I am looking at it wrong.  What do you think?  Tell me where I am going off the rails.

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