Thanks to food stamps, Medicaid, and housing subsidies, and other welfare benefits, many “poor” people have far more disposable income than self-supporting households earning $40,000 to $60,000 a year. Veronique de Rugy points to a finding that “a one-parent family of three making $14,500 a year (minimum wage) has more disposable income than a family making $60,000 a year” — even excluding benefits from Supplemental Security Income. “America is now a country which punishes those middle-class people who not only try to work hard, but avoid scamming the system.”
These disincentives to work were expanded in the job-killing $800 billion stimulus package, which largely repealed welfare reform and increased the refundable tax-credits given to non-taxpaying “poor” households. These refundable credits are being perpetuated in the costly $900 billion deal recently reached between Obama and congressional leaders.
The analysis de Rugy cites actually understates the disincentives to work, because it ignored the fact that many households that are “poor” in terms of taxable income are not poor at all once you factor in tax-free income from non-governmental sources. For example, child support is tax-free to the recipient family, no matter how huge the payments they receive (for example, a billionaire may pay several million dollars a year in child support to each of his ex-girlfriends with kids, leaving them in tax-free luxury, and under New York’s child support guidelines, everyone is supposed to pay at least 17 percent of their gross income in child support for just one child, regardless of how high that income is. In Massachusetts, middle-income households pay 25 percent of gross income for just one kid — which is around a third of their after-tax income — under that state’s child support guidelines).
The stimulus package contained provisions encouraging states to temporarily ratchet up their child support guidelines to reap more federal matching funds. Maryland recently increased its child support guidelines to excessive levels, permanently. Ohio is now weighing a massive proposed child-support increase, also apparently based on erroneous reasoning. However, these increases probably will not provide a net benefit to state budgets, because increased federal funding is offset by incarceration and other direct and indirect costs associated with enforcement of excessive child-support guidelines).
Federal matching funds are having a negative effect on child welfare in other contexts, such as unwarranted CPS seizures. (The federal government is increasingly using matching funds to meddle in areas of tort, criminal, family and domestic violence law traditionally handled by the states, sometimes in ways that actually increase domestic-violence-related deaths and injuries.) Financial obligations imposed by divorce courts are also harming soldiers and small businesses.
Federal food stamp allotments are so generous that they clearly exceed the amount needed to actually feed a family on a bare-bones budget.