Tag Archives: Incentives

News

New study: social welfare programs encourage low-income Americans not to marry

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Does government provide incentives for people to get married?
Does government provide incentives for people to NOT get married?

I don’t think anyone disagrees that it’s good for society if the next generation of young workers are raised in a home where their mothers and fathers are present in a stable, loving married home. And so, you would expect that no one would ever pay people money to not get married, and/or take away money from people who do get married. After all, if marriage is a good thing, why use money to discourage people from doing it?

Well, take a look at this article in the Wall Street Journal.

It says:

When it comes to marriage, the U.S. tax code is roughly neutral: The number of people penalized for being married is roughly the same as the number who benefit from it.

The same is not true for social welfare programs, such as Medicaid, food stamps or housing assistance, which can impose significant financial penalties on recipients who are married, according to new research from the R Street Institute, a Washington think tank.

In some cases, that creates major disincentives for low-income couples—especially those who are already living together—to tie the knot.

“Historically, low-income couples have faced especially onerous marriage penalties, because most safety-net benefits are means-tested (with steep phase-out rates or even cliffs)” applied on those who are married, researchers Douglas J. Besharov and Neil Gilbert wrote. “Marriage could easily reduce or end the benefits of a single parent with children.”

The effects vary from state to state, and depend on the relationship between the couple living together, whether or not they have children, whether they share expenses and how much money they earn.

In Arkansas, the state with the highest marriage penalties, if a nonparent marries a parent with two children and each adult earns $20,000, they would lose approximately $13,248 in benefits, or roughly a third of their total household income, according to the study.

The effects also vary by program. In a paper released Tuesday, researchers at the Urban Institute found the additional-child tax credit and the earned-income tax credit had the largest effect on creating either marriage penalties or bonuses, depending on the state and how the earnings were divided among the couple.

The penalties have become a growing issue in recent years as the size and coverage of means-tested welfare programs has swelled, and now includes more middle-income households. At the same time the stigma associated with living together out of wedlock has shrunk, leading to declining marriage rates.

The study’s authors claim:

“The supposition that marriage penalties have an impact on decisions to marry gains credence from the simple fact that marriage rates are highest among higher-income groups that are less affected by them and for whom such penalties represent a smaller proportion of total income,” they wrote.

I think we want to guard against the situation where we are transferring money from people who do the right thing and get married to people who do the wrong thing and have children before they get married. It’s not good for anyone that single mothers do this. It’s not good for the children of single mothers, it’s not good for the single mothers, and it’s not good for the taxpayers who have to pay for these welfare programs. It’s not a good thing when a politician is generous at spending other people’s money.

Like it or not, taxes and welfare payments do communicate incentives to people… incentives that affect their decision-making. If we really care about kids getting the best environment to grow up in, then we ought to care that government does not tell people to not get married by how they tax and spend.

You can read this paper by Dr. Robert Rector of the Heritage Foundation to see why marriage is so good for children, when compared to a single mom on welfare.

News

How well are Democrat Party economic policies working out in Venezuela?

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I think that when we discuss economics, we should try to identify where specific policies have been tried and then we should observe the consequences to the people who tried them. Often, in college and university classrooms, one view of economics is sold to students by professors as the “nice” view. The professors, many of whom have never worked in the private sector in their entire lives, tell the students that socialism is the “nice” point of view, and anyone who disagrees is “mean”. Is that the right approach to teaching young people what to believe about economics?

Are Barack Obama and Hugo Chavez very different?
Are Barack Obama and Hugo Chavez very different?

Let’s take a look at this article from Yahoo News about socialist dictator Hugo Chavez’s country of Venezuela, a country much admired by people on the socialist left.

It says:

All the lady wanted was some chicken. But in shortage-plagued Venezuela, she waited in line five hours, only to go home empty-handed.

“I got here at 5:30 am and came away with nothing! It is just not fair that you have to work so hard — and then put up with these lines,” said an exasperated Lileana Diaz, a 49-year-old receptionist at a hospital emergency room.
Venezuelans have been enduring shortages of the most basic goods, such as toilet paper, for more than a year.

In Caracas, a cottage industry has emerged with people who will wait in line for you — at a price.

But things are even worse outside the capital.

The problems are staggering here in Valencia, an industrial city west of the capital of this oil-rich country.

Valencia has big factories that produce food and other essentials. Still, the list of goods in short supply is long.

It includes coffee, cooking oil, cornmeal, soap, detergent, you name it.

Chicken is one of the most coveted.

Frustrated shoppers like Diaz are legion.

One tells the story of people who climbed over a fence to get a good place in line outside a store, prompting police to intervene and stop scuffles that broke out.

Another lady shopper shows off a nasty bruise on her right leg, thanks to a fight she got into as she tried to buy disposable diapers.

In recent weeks, the lines of people waiting hopefully outside supermarkets and stores have grown longer in cities away from the coast, such as Maracaibo, Puerto Ordaz and Cumana.

Venezuelan media have reported situations of nerves running very, very high and shoppers coming close to looting.

At times it has gotten that bad, in fact. In late January, one person died and dozens were arrested in the chaos of a looting outbreak at stores in the town of San Felix in the southern state of Bolivar.

[…]In another supermarket in Valencia, a line 50 meters (yards) long snakes away from the entrance.

“We call these ‘holding out hope lines,’ because once you get inside, there is nothing on the shelves,” said Oscar Oroste, a 53-year-old chef.

Oroste said that until recently, people would wait in line knowing what was available to buy. “Now, people are in line but do not even know what they will be sold.”

Venezuelans go from supermarket to supermarket, and store to store, clamoring for basic necessities which have prices regulated by the leftist government.

But some buy just to resell at a handsome profit, and economists say that is another source of the shortages.

Egne Casano, a 28-year-old homemaker, said things are a bit better in Caracas. “I went there not long ago and saw that there is a better supply,” she said.

[…]In the long lines, people digest their woes with a mix of humor, resignation and anger.

At another supermarket in Valencia, a whopping 600 people stood in line under a blazing sun to buy powdered milk.

Graciela Duran, a retiree, got a kilo of it after waiting for four hours.

“I was lucky today, Sometimes I come and there is nothing,” she said.

“Waiting in huge lines is what we do all day, every day,” said Duran, shielding herself from the sun with an umbrella.

A dozen police were stationed at the entrance of the store and around the parking lot through which the queue moved.

A truck drove by and the driver shouted out sarcastically: “Homeland, homeland, beloved homeland.”

That comes from a song that late president Hugo Chavez used to sing and is heard often on government-run media and at official events.

If you’re interested in real statistics on Venezuela, I recommend this recent article from The Economist, which is as far left as Venezuela is, and endorsed Barack Obama.

In socialism, the main purpose of policies is to make the leftist leaders at the top receive applause. They say things that will get them applause from the people. The policies are not intended to lift people out of poverty, otherwise Zimbabwe, North Korea, Cuba, Venezuela, etc. would all be rich and prosperous. The policies are intended to make the leaders feel good about themselves. “If you like your doctor, you can keep your doctor”. “If you like your health plan, you can keep your health plan”. It’s not true, it’s just meant to make economically-illiterate people applaud.

So why do we keep voting for socialism, when we know it doesn’t work?

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Commentary

Do unemployment benefits discourage people from working?

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I noticed that the latest jobs report showed that the percentage of work-eligible Americans working was at a 38-year-low.

CNS News reports:

A record 93,626,000 Americans 16 or older did not participate in the nation’s labor force in June, as the labor force participation rate dropped to 62.6 percent, a 38-year low, according to the Bureau of Labor Statistics.

In June, according to BLS, the nation’s civilian noninstitutional population, consisting of all people 16 or older who were not in the military or an institution, hit 250,663,000. Of those, 157,037,000 participated in the labor force by either holding a job or actively seeking one.

Now, let me ask you this. Does paying people to not work cause more people to not work? It seems to me that whatever you subsidize, you get more of, and whatever you tax, you get less of.

Now look at this article from the radically-leftist New York Times.

It says:

Before this recession, most economists probably thought that some amount of unemployment benefits were just and compassionate, and offered a sense of security even to people who were lucky enough to retain their jobs, despite the fact that the program would raise unemployment rates and reduce both employment and economic output.

In other words, unemployment benefits shrink the economy to some degree, but shrinking the economy a bit may be a price worth paying.

Unemployment benefits were thought to reduce employment and output because, by definition, working people were ineligible for the benefits. In particular, an unemployed person who finds and starts a new job, or returns to working at his previous job, is supposed to give up his unemployment benefits. Economists had found that a large fraction of unemployed people delay going back to work solely because the unemployment insurance program was paying them for not working.

Here’s a new study explaining how the “generosity” of the big government Democrat Party actually encourages people to avoid working, and to remain dependent on the government for their “income”.

A study published by two labor economists, Stepan Jurajda and Frederick J. Tannery, looked at employment histories for unemployment insurance recipients in Pittsburgh in the early 1980s. Unemployment rates got quite high in Pittsburgh in those days, reaching 16 percent at one point, and staying over 10 percent for two and a half years.

The chart below summarizes their findings for Pittsburgh.

The chart displays the fraction of persons (in Pittsburgh) receiving unemployment benefits who began working again, as a function of the number of weeks until their unemployment benefits were scheduled to be exhausted. For example, a “hazard” value of “0.04″ for week “-14″ means that, among unemployed persons with 14 weeks remaining until their benefit exhaustion date, 4 percent of them either began working a new job or returned to their previous job.

The chart:

Unemployment offers a disincentive to find work
Unemployment benefits offer a disincentive for Americans to find work

The most troubling thing about this is what is not said in the chart or the study – think about the children growing up in these households where their parents, especially the fathers, are not working. What are they learning about self-sufficiency and the role of government? They are the ones who we are going to task with paying for our lavish entitlement programs in the future. Are people who think that dependency on government is normal being trained to pay for the exploding costs of Social Security and Medicare?