Tuesday, December 21, 2010

It pays to be poor?

In a discussion of the Obama tax deal and extension of unemployment insurance someone said to me, "It sure pays to be poor." At first I thought they said "pays to be pure" and while I agree that purity is worth the extra expense, I didn't see how it was relevant to the discussion at hand. Then I realized they said "pays to be poor". 

This, of course, is a conservative mantra here in the United States that government social programs are so generous there is no incentive to work, the poor pay no taxes, and this financial windfall for not doing anything has created a lazy welfare class. 

On the face of it, this is an absurdity. When you dig deeper it's even more ridiculous. 

Let's take a look at it. 

No incentive to work. 

Welfare pays on average $500 in cash and food stamps for a single person household per month. That's $6,000 per year, of which only $3,600 is cash. Per year. For a family of 4 these numbers would increase to approximately $1,400 per month, or $16,800 per year, of which $11,800 would be cash. 

Unemployment insurance is a bit more generous. On average payments are $300 per week,  or $15,600 per year. This can vary quite a bit based on where you live and what you were earning before you lost your job. You see, we pay unemployment insurance .... it's insurance for times like this when you lose your job. If you were making a high salary before you got laid off, you will receive a higher weekly payout to try to keep you solvent while you look for a new job.

So no, benefits are not so generous that they create a disincentive to work.

The poor pay no taxes. 

Social Security, Medicare, unemployment insurance, and other state/local program taxes ... these are all taxes paid on income for which there is no refund. You get to deduct these taxes from your federal (and state) income tax bill so you're not paying taxes on taxes, but you don't get them back if you don't make enough. Because you're paying into the funds for each of these programs in case you need to use them. So unless unemployed or getting paid off the books, we all pay all of these taxes whether we're rich or we're poor. In fact, the only break anyone gets on these taxes are among those who make more than a certain amount, because social security tax is only applicable to the first ~$106,000 of income. After that you no longer pay that tax. So it pays to be rich, apparently. 

And there are other taxes. The biggest and most obvious is sales tax. This is a percentage of everything you purchase if you use legitimate sources for goods and services. The poor spend a higher percentage of their income rather than saving/investing, so they pay a higher proportion of their income in sales taxes. 

Finally, well not finally, but the last tax point I'll make is this. Renters may not pay property taxes directly, but you better believe those taxes are rolled into the price of the rent by the landlord. So no, renters don't get free school for their kids without paying taxes for that education. 

So, nope, the poor pay taxes. Perhaps not quite the same percentage as the wealthy, but they do pay them and it's a substantial portion of their income. 

Poor people are lazy.

I'm not even going to acknowledge this nonsense with a response. 

But I will leave you with this. We've reached the point in the United States where our leaders will gladly give 25% of a nearly $900B tax break to the richest 1% of Americans, but there are counties in United States that need foreign aid to take care of their poor children

That's pathetic. We should be ashamed. 

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