Rep. Tom Petri, a Wisconsin Republican, is working on addressing the work disincentives that flow from poorly designed benefit schedules:
For instance, consider the scenario of a single mother with two children making $17,000 a year living in Wisconsin in 2009 who claims all available deductions and participated in all eligible benefit programs. If this single mother were to work extra hours or receive a raise so that her earnings increase to $21,000, she would only see $540 of that $4,000 in new earnings—she would have lost $3,460 in benefits. That amounts to almost an 88 percent effective tax rate, leaving the hard-working parent and her children little to show for the extra effort. Even more shocking is that if this mother received a raise or worked more to raise her earnings another $1,000 to $22,000, she would actually have less in disposable income than she had when earning $21,000.
How can this be?
It all comes back to benefit phaseout schedules. For instance, SNAP benefits for a single mother in some states gradually diminish as income rise and eventually stop when earnings reach $23,000 annually, leading to over 100 percent in effective taxation at some point—meaning that you lose more than you bring in.
It takes a deep dive into the numbers for lawmakers and policy experts to understand the situation, but for millions of low-income families the results are an everyday reality. By comparison, a middle-class single mother of two making $55,000 a year whose salary rises by $5,000 would see approximately $3,500 of the increase—further suggesting that hard work pays more for middle-class families than those at the bottom. This is surely not the message government should be sending.
And so Petri is working with Rep. Niki Tsongas, a Massachusetts Democrat, on legislation that will establish a commission devoted to improving the coordination between federal and state programs. Oren Cass’s Flex Fund proposal, which was recently championed by Florida Sen. Marco Rubio, represents one strategy for tackling this coordination problem. But it certainly isn’t the only one, so here’s hoping that Petri and Tsonga’s effort gets the support it deserves from conservative lawmakers.