Memo to The New Republic: It Doesn’t Pay to Work
At least it doesn’t pay very much. The New Republic has an over-the-top critique of a chart posted at National Review and elsewhere, showing that families don’t gain very much extra take-home pay from working more and earning more. TNR claims the chart “epitomizes conservative intellectual dishonesty.” But this is a classic case of not being able to see the forest for the trees.
Here is the latest, most authoritative estimate of what families lose in taxes and transfer benefits when they earn an extra dollar of income from our own study by Larry Kotlikoff (Boston University and TNR contributor), Jagadeesh Gokhale (Cato) and Alexi Sluchynsky:
Note: Assumes a two-earner couple, with two children, who take advantage of a wide array of tax avoidance opportunities, including the mortgage interest deduction, the earned-income tax credit, and the child tax credit. When qualified, the couple also receives the full array of transfer benefits, including Food Stamps and Medicaid.
A family whose earnings are in the range of $20,000 to $30,000 gains almost nothing (and may even lose income) if the move is from part-time to full-time labor and gets to keep as little as 20 cents of every dollar if the shift is from non-work to work.
Good post. Those guys at TNR don’t know what they are talking about.
The original critique in The New Republic questioned whether or not the analysis performed by Wyatt Emmerich was intellectually dishonest (mostly because Jesse Singal, The New Republic writer, didn’t agree with all of Emmerich’s assumptions).
Singal questioned how much Medicaid coverage is really worth; whether a family with an income of $14,500 would qualify for Medicaid coverage in Mississippi (answer: sometimes). He questioned what value should be used for Section 8 housing subsidies since only one-quarter of eligible families apply. He disputed the tax liability the comparison family earning $60,000 would pay. He argued that food stamps should not be used to calculate disposable income (why not: food stamps free up money to purchase beer that would otherwise be used to purchase food).
For the most part, these questions delve too far into the weeds and miss the point. We know these programs exist and are used by many low-income families. We know that the value of these benefits can accumulate to significantly reduce poverty (another way to describe this scenario is to say these programs increase income for the poor). We know these programs are means-tested and the benefits phase out as income rises.
If various poverty programs can elevate resources for a family with a base income of $14,500 to double; triple; or even nearly four time that amount (as Wyatt Emmerich suggests), then the marginal tax rate equivalent has to be very high.
Maybe this post will cause the editors at TNR to sober up.
Kotlikoff writes for the New Republic? That ought to settle the issue.
Basically, most people at the New Republic don’t understand economics, although they are much better than most psople on the left.
So they went to the Center for Budget and Policy Priorities for a response. But the CBPP’s only reason for existing is to support the welfare state, so why would you expect them to objectively review the evidence?
Interesting table. Also a depressing table. Thanks for publishing it.
If the New Repulic is really interested in this issue, rather than just wanting to bash conservatives, they should take a look at Obamacare. As has been pointed out at this site and others, the marginal tax rates (from the income and social security taxes alone) are 40% or higher for moderate income families, beginning in 2014.
Thanks for this post. This is the type of objective, scholarly information we need to make public and broadly publicize.
As the comments over at TNR make clear, people are confused about whether their ideological opponents are stupid or evil.
Good stuff.