The Welfare Trap, Maryland Style, 2013

Cato Institute’s Michael Tanner had an excellent, painful-to-read article in The Baltimore Sun yesterday on one dreadful downside of the effort to help the poor through government welfare programs. That is, the terrible disincentive for welfare recipients to begin to support themselves.

The article is entitled, “In Maryland, it pays not to work.” I comment here on some particularly disturbing passages, but I recommend the whole article. Tanner writes,

In Maryland, a mother with two children participating in seven major welfare programs (Temporary Assistance for Needy Families, Medicaid, food stamps, WIC, housing assistance, utility assistance, and free  commodities), could receive a package of benefits worth $35,672.

That’s what the mother would give up if she takes a job so as to start supporting herself. Of course she would not lose it all at once, but every significant increase in what she earns means some significant decrease in what she can bring her family from these programs.

 It is important to remember that welfare benefits are not taxed, while wages are.

That means the mother of two, in order to maintain disposable income for her family of $35,672 from her own earnings, would have to earn enough more than $35,672 to leave her with that amount after taxes.

In fact, in some ways, the highest marginal tax rates anywhere are not for millionaires, but for someone leaving welfare and taking a job.

The earned income tax credit and child tax credit have gone some way to address this wedge between welfare and work, but significant deterrents to work still remain. Even after accounting for the effects of these tax credits, a mother with two children in Maryland would still have to earn $18.35 per hour for her family to be better off than they would be on welfare.

When considering the disincentives to work in numbers of these magnitudes, sometimes I’m awed at the many people who fall into this welfare trap but nevertheless have the gumption and the wisdom take the short-term loss of disposable income and escape.

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