Often times, a graph will speak louder than words. Such is the case with this chart posted by Michael Cannon on Cato-at-Liberty:
Cannon produced the chart for a study on the effects of two proposed health-care bills and the mandates they require of individuals and families to purchase above a certain income level. The marginal tax-rate is the amount of each additional dollar that a worker earns on top of his existing income that he pays to the government, rather than keeps for himself to consume or invest. Greg Mankiw posted a similar chart a few months ago, explaining that when welfare programs such as food stamps and public housing are factored in, marginal tax-rates can exceed 100%.
Incentives matter! Some people will choose to seek higher paying jobs regardless of extra pay, because those jobs tend to be more rewarding. However, higher paying jobs come with more responsibility and require more effort. You cannot systematically depend on people to exert more effort without a corresponding increase in monetary pay. When 80 cents out of every additional dollar is going to a faceless bureaucracy, the remaining 20 cents is hardly a motivator to become a more productive member of society
I am going to keep these charts in mind during Robert Reich’s Wealth and Poverty course which I am enrolled in this coming semester. The government is incentivizing poor people to stay poor, albeit more comfortably than they would be without such an expansive welfare system. I find the underlying philosophy behind these policies to be dismal and defeatist. I contrast this philosophy with the words of Hanford Henderson (sadly, a google search of his name reveals that Henderson has all but vanished into obscurity), as quoted by Leonard Read, founder of the Foundation for Economic Education, in his inspiring essay In Pursuit of Excellence:
“He may be a day laborer, an artisan, a shopkeeper, a professional man, a writer, a statesman. It is not a matter of birth, or occupation, or education. It is an attitude of mind carried into daily action, that is to say, a religion. It is the disinterested, passionate love of excellence… everywhere and in everything; the aristocracrat, to deserve the name, must love it in himself, in his own alert mind, in his own illuminated spirit, and he must love it in others; must love it in all human relations and occupations and activities; in all things in earth of sea or sky.”
What does government do by incentivizing worker stagnation? It slows upward mobility and dulls the passionate love of excellence. It remains to be seen what effect this dulling of minds will have on the future of our country, which since its inception has been the greatest experiment in individual liberty known to man.
Marginal Tax-Rates and the Working Poor
Often times, a graph will speak louder than words. Such is the case with this chart posted by Michael Cannon on Cato-at-Liberty:
Cannon produced the chart for a study on the effects of two proposed health-care bills and the mandates they require of individuals and families to purchase above a certain income level. The marginal tax-rate is the amount of each additional dollar that a worker earns on top of his existing income that he pays to the government, rather than keeps for himself to consume or invest. Greg Mankiw posted a similar chart a few months ago, explaining that when welfare programs such as food stamps and public housing are factored in, marginal tax-rates can exceed 100%.
Incentives matter! Some people will choose to seek higher paying jobs regardless of extra pay, because those jobs tend to be more rewarding. However, higher paying jobs come with more responsibility and require more effort. You cannot systematically depend on people to exert more effort without a corresponding increase in monetary pay. When 80 cents out of every additional dollar is going to a faceless bureaucracy, the remaining 20 cents is hardly a motivator to become a more productive member of society
I am going to keep these charts in mind during Robert Reich’s Wealth and Poverty course which I am enrolled in this coming semester. The government is incentivizing poor people to stay poor, albeit more comfortably than they would be without such an expansive welfare system. I find the underlying philosophy behind these policies to be dismal and defeatist. I contrast this philosophy with the words of Hanford Henderson (sadly, a google search of his name reveals that Henderson has all but vanished into obscurity), as quoted by Leonard Read, founder of the Foundation for Economic Education, in his inspiring essay In Pursuit of Excellence:
What does government do by incentivizing worker stagnation? It slows upward mobility and dulls the passionate love of excellence. It remains to be seen what effect this dulling of minds will have on the future of our country, which since its inception has been the greatest experiment in individual liberty known to man.