Thursday, January 15, 2015

Cognitive Dissonance and Welfare

I have realized that I hold two views on welfare that might be incompatible. Being that I earn less than the magic 75K, I'll tell you that my income is very slightly north of the US household median income. I know the median includes scores of single mothers so I do wonder what the median is for married couples with a single income and for dual income married couples and for single people.  I'd love to see it all separated out, but as it is, that's where I stack up with the country as a whole.

Baffling to me is that at this income level, which is tight but comfortable--I don't worry about eating or paying the utilities, but do wonder how to save for a car--our children qualify for reduced lunch at school and we get a fat tax refund every year for taxes we did not pay. That's a nice, dignified way of saying we get a welfare payment from the government. The Earned Income Tax Credit and the child tax credit are refundable meaning even when you owe nothing in taxes, you can still get a tax refund also known as welfare. It has been an odd (to me) feature of my paycheck all these years that the line for federal tax withholding always says $0. I understand the purpose of these refundable credits is to reimburse low income people for their FICA taxes. The refund we get is well over and beyond anything I pay in FICA so it truly is out and out welfare. The reason our particular check is so high is because we have an above-average number of children and our income hits what my father-in-law once called, "the sweet spot in the tax code." What I don't understand is how someone with an income north of median could be considered 'low income.'

I don't really like this state of affairs. It seems absurd that we can make as much money as we do and quality for welfare, but more absurd is that I accept it. It is a humbling blow to my pride to acknowledge that accepting the money is the better choice for our family. While it is true that all of our immediate needs are covered, it is difficult to save over and above for long term needs. We manage to save for Christmas and save to keep our cars in good working order and put token amounts of money into the children's savings accounts, but we struggle to save more. The fat refund check is what pays for replacing large broken appliances like the washing machine or the annual life insurance bill or the patio door that rotted out and needed replaced. If we didn't have that money set aside, we would have to find a way to further tighten our budget which would probably mean forfeiting petty luxuries. My desire for broadband internet is stronger than my disgust at the fact that welfare is available for solidly middle class families. I don't think this money should be available to us, but we accept it anyway because I am a hypocrite.

For the past two years, Dave has been an affiliate blogger with Troy-Bilt. With this association has come a little bit of income. More like a gratuity. He is not here right now for me ask if he cares if I disclose the amount so I won't be specific, but I will say it was less than 5K. There was a list of tasks, assignments, and expectations that came with the money which took a fair amount of time and effort. This relationship was only slated to last two years and is over now. Last year, as I was doing our taxes, I realized that this little bit of additional income had an almost dollar for dollar reduction of our tax refund/welfare check. When I saw the reduced amount, my first response was that he could have just not bothered which would have given him more time for homestuffs and we would have ended up with the same amount of money anyway. My second response was horror at my first response.

I strongly believe the welfare system should be set up in a way that encourages work, achievement, and the betterment of the individual. If the benefits are reduced in such a way where a person can choose to work or not work and still end up with the same amount of money, the benefit reductions need restructured. You should be better off when you earn income regardless of how much welfare you get. I've not put a whole of thought into how you might set it up, but that is my overriding principle. Earning income should be worth more than not earning income. If the welfare benefit only reduced at half the rate of the additional income, i.e earn two dollars and only lose one welfare dollar, you would see a benefit to working without having the rug pulled out from under you. It would also discourage "Now why, exactly, am I busting my rear for no reason?"

Here is where my point of contention comes into play. Can you gradualize benefit reductions and not give support to people who have solidly entered the middle class? I am in favor of both those things: gradual benefit reduction and not giving money to people who don't absolutely need it. I am not sure you can do both. If you are going to gently wean people from support that means you are probably going to have to offer some measure of support even after they are technically self-sustaining. In plainer terms, middle class households are going to get welfare for the societal gain of making work more attractive to those further down the ladder.

Now I still think we get to much money given our income and I am still chagrined that we take the money anyway and I still think the whole welfare/tax system needs restructured. But maybe I am less outraged by the prospect of basically self-supporting people still getting a little handout.

Tell me where I am going wrong.

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