A hypothetical single mother of two lives in Virginia and brings home $20,000 a year after the government takes out Social Security and other state and federal deductions. However, because of her low income she is able to collect Earned Income Tax Credit (EITC), food stamps, Medicaid/SCHIP and Section 8 housing.
In another scenario a recent college graduate is fortunate enough to find a job and makes a starting salary of $39,900.
Who makes more money — the single mother or the recent college graduate?
If you guessed the single mom, you’re right. With her income less taxes plus subsidies, she brings home just about $40,000, according to economist Clifford Thies.
When applying Thies research that the relationship of earned income and after-tax income plus subsidies is basically flat from $0 to $40,000, it paints a grim picture for today’s working class. During the fourth quarter of 2011 median weekly earnings for full time wage and salary workers in the U.S. was $764 — a yearly salary equal to $39,728. This means those who make this median amount or less essentially have less spending power than those who make a much lower salary and live off the government’s myriad welfare programs.
How can this be?
It’s simple really, when you consider that there are about 70 means-tested welfare spending programs overlapping in the U.S. today. These means-tested programs have nothing to do with Social Security, or other entitlement programs. Though they phase out as income increases, they keep people dependent on the government — even when they don’t want to be. They also discourage workers from moving up the ranks or from finding a job at all.
You see, someone making less than $40,000 a year might be penalized for accepting a raise or agreeing to work more hours because it might result in a much smaller personal budget. When low-income Americans move up in the tax code, they don’t just face a higher tax bracket, they also see their government benefits begin to disappear. Unfortunately for many, it economically makes more sense to stay at their current level and turn down that raise or extra hours of work.
This government trap ensures that the poor in America stay poor.
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