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Defying the Odds

Defying the Odds
New book about the 2016 election.

Tuesday, February 11, 2014

Incentives and Disincentives

CBO reports that the Affordable Care Act includes work disincentives. Lloyd Green writes at The Daily Beast:
Significantly, the CBO did not point the finger at business for the anticipated drop. Instead, the CBO explained that the “estimated reduction stems almost entirely from a net decline in the amount of labor that workers choose to supply rather than from a net drop in businesses’ demand for labor.” Great, so Wayne and Garth—the basement dwelling metal-heads first made famous on Saturday Night Live in the 1980s, can keep on living with their parents for the rest of their lives.
There was a time when Democratic presidents thought that work incentives were good and work disincentives were bad.

John F. Kennedy, February 1, 1962:
In order to make certain that welfare funds go only to needy people, the Social Security Act requires the States to take all income and resources of the applicant into consideration in determining need. Although Federal law permits, it does not require States to take into full account the full expenses individuals have in earning income. This is not consistent with equity, common sense or other Federal laws such as our tax code. It only discourages the will to earn. 
Lyndon Johnson on February 21, 1968:
Now we are beginning to launch the work incentive program. Its objective is very simple:
--Replace the dole with the payroll.
--Rescue thousands of Americans from the waste of welfare.
--Start them along the pathway to productive lives. 
Jimmy Carter on May 2, 1977:
This is another defect in the hodgepodge welfare system that runs counter to the basic commitment of American people that work on a full-time basis--for those who are able to work--is beneficial, ought to be beneficial to a family.

Another thing that happens in the welfare system is that those who are working and receiving benefits, if their income should increase, either to more hours per week, or to a higher wage scale, is quite often counterproductive, and it doesn't take a working person, adult, long to figure out that an increased effort pays no dividends.
For instance, for a family head who again is earning the minimum wage, if they got an increase in income of $100, they would lose--this is kind of an average for the whole Nation--they would lose $66.67 in AFDC payments! The earned income tax credit--they would lose $10; food stamps--they would lose $9.90; housing assistance, where that is paid, lose $8.25. So, they would lose, out of the $100 increase in check, salary, $94.82, which means that they would have a net reward of only $5 out of an increase in earnings of $100.

So, you can see there's very little incentive to work your way off welfare.
Bill Clinton on November 2, 1994:
My proposal to change welfare as we know it is not punitive, it's positive. It gives people a chance to move to independence, and it removes all the disincentives to move to independence.
Barack Obama on December 2013:
And it's also true that some programs in the past, like welfare before it was reformed, were sometimes poorly designed, created disincentives to work.