In the debate over health care, we constantly hear that the poor need subsidies because they cannot afford insurance, but we rarely hear how subsidies reduce what the poor get from working. But Harvard Economist Greg Mankiw points out that incentives matter:
The starting point for Ronald Reagan was the idea that people respond to incentives. The incentives that he most worried about were those provided by the tax system. According to his budget director, David A. Stockman, Mr. Reagan would regale the staff with stories of how he, as an actor, used to alter his work schedule in response to the tax code.
“You could only make four pictures, and then you were in the top bracket,” Mr. Reagan would say. “So we all quit working after four pictures and went off to the country.”
What would the 2,000 page house health care bill do to incentives? Mankiw has run the numbers:
A family of four with an income, say, of $54,000 would pay $6,200 for healthcare. That covers only about a third the actual cost. Uncle Sam would pick up the rest.
Now suppose that the same family earns an additional $12,000 by, for example, having the primary earner work overtime or sending a secondary worker into the labor force. In that case, the federal subsidy shrinks, so the family’s cost of health care rises to $10,000.
In other words, $3,800 of the $12,000 of extra income, or 32 percent, would be effectively taxed away by the government’s new health care system.
And remember: This implicit marginal tax hike of 32 percent is added on top of the explicit marginal tax rate the family already faces from income and payroll taxes.
In New York City, that family would already be paying as much as 32 percent of their income in taxes. Add the effect of the health care bill, and they'd lose 64 percent of every extra dollar.
We shouldn’t give people more incentives NOT to work.
I have to post this, I am a single mother of 3, I recieve my child support $800 per month, $600 in food stamps per month, my rent is paid along with $125 each month on my electric bill, and my children have state insurance. I tried to go back to work, only to find that I couldn't make ends meet, I lost all of my assistance and my children lost their Insurance because I "made too much money" I made 7.00 per hour 20 hours per week. Maybe if the government would help those who are working a little
November 7, 2009 at 7:55 pm
Dan
“Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone.” - Frédéric Bastiat (1801-1850)
November 4, 2009 at 3:33 am
Exactly
We're tired of paying so much money in taxes to a government that doesn't listen to us!
November 3, 2009 at 5:49 pm
regina woodcock
i just seen a new program out there .. it is called reachout wireless. this is a stimulus government funded program for free cell phones and free monthly minutes for all those on welfare foodstamps ect. the phone number is 1-877-870-9444 the website is www. reachout-wireless.com what kind of crap is this ... now we are paying for privileges of a cell phone . please help. we work hard for our money and the government keeps enabling the poor why work is the questions what next?no need to
November 3, 2009 at 4:36 pm
LAD
... and that's just one program.
State and federal governments have hundreds of programs to "help" the poor. Housing, food stamps, school lunches, transportation, healthcare, utilities, retirement, etc. Each of those programs create disincentives to increase earnings.
Solution? Eliminate all wealth transfer programs (and thier bureaucracies) and have the IRS send checks to the poor. For each dollar people's incomes increase, their IRS payment decreases by $0.50 (or some such amount).
November 3, 2009 at 2:43 pm
Aardvark
Part of the problem is the fixed brackets that cause enormous tax jumps. I recall a case many years ago where a colleague had to turn down a raise because the slight increase pushed her into the top tax bracket and she would actually wind up taking less money home after the raise than before it.
November 3, 2009 at 11:54 am
T-man
Right on! A recent hiree coming off 9 months of unemployment came in her second day to say when she did the math it was better to stay home ans collect. Oh by the way she would have to pay 20% for health care and also gets 401K & Match and profit sharing. This is the mentality we are spreading her pay was above the local pay grade for the position so I am not sure what people are expecting other than hand outs!
November 3, 2009 at 11:25 am
JimB
I guess I am hard=hearted. Being in my eightieth year, I have seen a lot. Generally, I have seen that fear is a greater motivator than moral urgings. We have lost the value of bad examples...that is, people actually suffering from the consequences of bad choices. We can't stand to see people suffer. So others in like positions lose the fear that they, too, might suffer if they use bad judgment.
Government takes away that incentive.
November 3, 2009 at 11:04 am
Dan
I completely agree - We must figure out ways to reward people who want to earn more money rather than taking it away. If a person is fortunate enough to have a high paying job, they obviously had to work hard to obtain that position. (in most cases) Even more important, if someone wants to take on an additional job, they should be rewarded with the ability to keep their money!
November 3, 2009 at 10:55 am
K B
Despite claims to the contrary, I think the Democrats would really like to keep people (all of us) in poverty. If we're all poor, we'll all be dependent on the government and, as a result, the government will have total control. Ultimately that's what the Democrats want - total control.
November 3, 2009 at 10:53 am
FoxInSocks
Leftist plans never help the working poor. In Ma. the state gov health care law is a disaster for the WORKING poor.
When their place of employment does not offer health insurance, they are forced to pay premiums to the state. But they can barely find health providers willing to take the state insurance plans due to non and extreme delayed payments from the state to the providers.
They have to be welfare status to get free and timely health care.
You're so right about the incentive NOT to work!
November 3, 2009 at 10:46 am
lynn
no wonder we are all depressed. there is no way to get ahead anymore. there is only the upper and lower class. middle class has been weeded out. we are penalized for trying to better our standards of living. how is this helping anyone?
November 3, 2009 at 10:40 am
aboutthis blog
John Stossel joined FOX Business and FOX News in October 2009. He is the New York Times best-selling author of Give Me A Break and Myths, Lies and Downright Stupidity. His "Give Me a Break" commentaries take a skeptical look at a wide array of issues, such as education, the economy, parenting, and more.
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Brandy
I have to post this, I am a single mother of 3, I recieve my child support $800 per month, $600 in food stamps per month, my rent is paid along with $125 each month on my electric bill, and my children have state insurance. I tried to go back to work, only to find that I couldn't make ends meet, I lost all of my assistance and my children lost their Insurance because I "made too much money" I made 7.00 per hour 20 hours per week. Maybe if the government would help those who are working a little
Dan
“Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone.” - Frédéric Bastiat (1801-1850)
Exactly
We're tired of paying so much money in taxes to a government that doesn't listen to us!
regina woodcock
i just seen a new program out there .. it is called reachout wireless. this is a stimulus government funded program for free cell phones and free monthly minutes for all those on welfare foodstamps ect. the phone number is 1-877-870-9444 the website is www. reachout-wireless.com what kind of crap is this ... now we are paying for privileges of a cell phone . please help. we work hard for our money and the government keeps enabling the poor why work is the questions what next?no need to
LAD
... and that's just one program. State and federal governments have hundreds of programs to "help" the poor. Housing, food stamps, school lunches, transportation, healthcare, utilities, retirement, etc. Each of those programs create disincentives to increase earnings. Solution? Eliminate all wealth transfer programs (and thier bureaucracies) and have the IRS send checks to the poor. For each dollar people's incomes increase, their IRS payment decreases by $0.50 (or some such amount).
Aardvark
Part of the problem is the fixed brackets that cause enormous tax jumps. I recall a case many years ago where a colleague had to turn down a raise because the slight increase pushed her into the top tax bracket and she would actually wind up taking less money home after the raise than before it.
T-man
Right on! A recent hiree coming off 9 months of unemployment came in her second day to say when she did the math it was better to stay home ans collect. Oh by the way she would have to pay 20% for health care and also gets 401K & Match and profit sharing. This is the mentality we are spreading her pay was above the local pay grade for the position so I am not sure what people are expecting other than hand outs!
JimB
I guess I am hard=hearted. Being in my eightieth year, I have seen a lot. Generally, I have seen that fear is a greater motivator than moral urgings. We have lost the value of bad examples...that is, people actually suffering from the consequences of bad choices. We can't stand to see people suffer. So others in like positions lose the fear that they, too, might suffer if they use bad judgment. Government takes away that incentive.
Dan
I completely agree - We must figure out ways to reward people who want to earn more money rather than taking it away. If a person is fortunate enough to have a high paying job, they obviously had to work hard to obtain that position. (in most cases) Even more important, if someone wants to take on an additional job, they should be rewarded with the ability to keep their money!
K B
Despite claims to the contrary, I think the Democrats would really like to keep people (all of us) in poverty. If we're all poor, we'll all be dependent on the government and, as a result, the government will have total control. Ultimately that's what the Democrats want - total control.
FoxInSocks
Leftist plans never help the working poor. In Ma. the state gov health care law is a disaster for the WORKING poor. When their place of employment does not offer health insurance, they are forced to pay premiums to the state. But they can barely find health providers willing to take the state insurance plans due to non and extreme delayed payments from the state to the providers. They have to be welfare status to get free and timely health care. You're so right about the incentive NOT to work!
lynn
no wonder we are all depressed. there is no way to get ahead anymore. there is only the upper and lower class. middle class has been weeded out. we are penalized for trying to better our standards of living. how is this helping anyone?