Welfare/tax adjusted income, sliding pay in a Michigan, USA

[Kluge]

Don't have much to do today, so figured I'd throw out some food for thought. I live in Michigan. In most cases, people will have a higher net income not working while on welfare than working for $12.50/hr or less full time. I've decided to ignore people not working since Michigan's generally pretty harsh toward people without work vs. those working part-time (you are ineligible for almost everything unless you attend a government training program for something like 20h/wk). Here are some examples of net income based on earnings (using tax rules for FY2013, welfare rules for 2014) and assuming people take full advantage of welfare available to them. I will not be going into the many state and federal tax deductions which, for most people, are more trouble than worth filing for (for example, deductions for buying work boots), or which are generally not used by many individuals (environmental credits and deductions).

These are not necessarily accurate examples and in many cases, I've generalized and "averaged" where eligibility and benefits would need a large amount of extra data. Michigan counties also often "demand" income taxes (usually ~.5-3% of income after a certain point) based on where the person works and lives, but this is usually so poorly enforced (generally not at all), I'm not going to bother including its effects. I will also not be including any tax refund deals companies offer -- for example, Amazon partners with Turbotax and provides a 5-10% bonus on top of the refund for any amount (up to a maximum of something like $2,500) taken as a Amazon GC balance. Michigan has relatively high property taxes (I personally pay ~1.75% of FMV annually), but MI income taxes generally refund a large portion of paid property taxes as a credit.

Michigan participates in the following major welfare programs (excluding post-employment unemployment, disability, etc, and minor welfare like WIC):
SNAP/EBT (food stamps)
Formulas for calculating eligibility/benefits here.
TANF (cash assistance)
TANF is a very nuanced program not easy to calculate for given generalities, and I will actually be using Delaware's rules because there's a slick calculator available and their rules are much more straight-forward. This will significantly decrease accuracy of results, but still probably give a better ballpark estimate than I could. I will be assuming everyone meets asset maximum requirements. Though I'm not factoring this in, TANF cannot be taken by a family for more than 5 years -- in defense of this, TANF counts as unearned income which can dramatically reduce SNAP benefits.
Medicaid/CHIP (comprehensive health insurance with practically no co-pays or deductibles)
Net income factor here is guesstimated at $300/mo per adult (after co-pay and deductibles), $250/mo per child. Eligibility info was taken from here.
Section 8, "Housing Choice Vouchers" (near-free rent)
HCA is a bureaucratic clusterfuck and I will be generalizing/guesstimating. I will be using DoJ family size median income numbers and eligibility information provided by HUD here and local knowledge on general rent prices without Section 8.
LIHEAP (energy subsidization, subsidized appliance replacement)
LIHEAP benefits are very variable, particularly in MI where we have both normal subsidizations as well as "crisis" payments in case of shut-offs (with much more lax eligibility). It also comes with a flat 20% reduction in gas/electric costs. General info is taken from here. I've guesstimated the subsidy for any household making less than $12,837 annually @ $1,500 ($850 in gov't direct subsidies, $650 in savings from rate reduction), and the subsidy for any family making between that and $22,911 to be $25/yr (crisis coverage, which gives up to $350/yr but will probably not be used). In reality, LIHEAP scales just like any other Progressive welfare program, but I can't find all the data I want to really give a decent estimate.


Ex1a -- Bill ($10/hr, 15h/wk)
Bill earns $10/hr pre-tax. Bill lives alone with his 16-year-old son. He has no investments and is generally able to get a heavy or light work schedule based on his preference. Averaged out, let's say Bill works 15h/wk, for a yearly haul of $7,800 ($650/mo). This is Bill's only earned income. Bill owns his home outright on which he pays $2,600 annually in property taxes, $1,800 annually in homeowner's insurance. Bill has no other income or expenditure relevant to his income tax filings.

Annualized income and (outgo) from Progressive programs:
Federal income tax - $3,381
Michigan income tax - $2,436
TANF - $1,992
SNAP - $3,672
Medicaid - $6,600
Section 8 - ineligible
LIHEAP - $1,500

Real annual income - $27,381
Effective hourly pay - $35.10


Ex1b -- Bill ($10/hr, 25h/wk)
Same as Ex1a except Bill decides to work more, 25h/wk, for a yearly haul of $13,000 ($1083/mo).

Annualized income and (outgo) from Progressive programs:
Federal income tax - $4,250
Michigan income tax - $2,215
TANF - $1,272
SNAP - $2,124
Medicaid - $6,600
Section 8 - ineligible
LIHEAP - $25

Real annual income - $29,486
Effective hourly pay - $22.68


Ex1c -- Bill ($10/hr, 40h/wk)
Same as Ex1a except Bill decides to work more, 40h/wk, for a yearly haul of $20,800 ($1733/mo).

Annualized income and (outgo) from Progressive programs:
Federal income tax - $3,316
Michigan income tax - $1,884
TANF - ineligible
SNAP - ineligible
Medicaid - $6,600
Section 8 - ineligible
LIHEAP - $25

Real annual income - $32,625
Effective hourly pay - $15.69


Ex1d -- Bill ($10/hr for 40h/wk, $15/hr [OT] for 20h/wk)
Same as Ex1a except Bill decides to work more, 60h/wk (40h/wk for normal pay, $10/hr, and 20h/wk for overtime, $15/hr), for a yearly haul of $36,400 ($3033/mo).

Annualized income and (outgo) from Progressive programs:
Federal income tax - ($1,083)
Michigan income tax - $1,220
TANF - ineligible
SNAP - ineligible
Medicaid - ineligible
Section 8 - ineligible
LIHEAP - ineligible

Real annual income - $36,537
Effective hourly pay - $11.71

-----

Ex2a -- Rhonda & Jim (R- $7.50/hr for 15h/wk, J- $12.50/hr for 15h/wk)
Rhonda and Jim are married with three young kids. They rent a 3BR HCA-participating apartment. Where they live, that apartment would normally go for $650/mo. Rhonda works for $7.50/hr for 15h/wk, for an annual haul of $5,850. Jim works for $12.50/hr for 15h/wk, for an annual haul of $9,750. Combined, that's $15,600/yr ($1,300/mo). They file jointly (because it's easier on me!). Rhonda and Jim have no other tax-relevant details.

Annualized income and (outgo) from Progressive programs:
Federal income tax - $7,934
Michigan income tax - ($327.50)
TANF - $3,996
SNAP - $4,740
Medicaid - $16,200
Section 8 - $6,240
LIHEAP - $1,500

Real annual income - $55,883
Effective hourly pay (averaged, per person) - $35.82


Ex2b -- Rhonda & Jim (R- $7.50/hr for 25h/wk, J- $12.50/hr for 25h/wk)
Rhonda earns $9,750/yr. Jim earns $16,250/yr. Combined, $26,000/yr ($2167/mo)

Annualized income and (outgo) from Progressive programs:
Federal income tax - $8,379
Michigan income tax - ($769.25)
TANF - $2,532
SNAP - $2,676
Medicaid - $16,200
Section 8 - $5,200
LIHEAP - ineligible

Real annual income - $60,218
Effective hourly pay - $23.16


Ex2c -- Rhonda & Jim (R- $7.50/hr for 40h/wk, J- $12.50/hr for 40h/wk)
Rhonda earns $15,600/yr. Jim earns $26,000/yr. Combined, $41,600/yr ($3467/mo)

Annualized income and (outgo) from Progressive programs:
Federal income tax - $4,101
Michigan income tax - ($1,432.25)
TANF - ineligible
SNAP - ineligible
Medicaid - ineligible
Section 8 - $2,808 (very possibly not eligible)
LIHEAP - ineligible

Real annual income - $47,077
Effective hourly pay- $11.32


Ex2d -- Rhonda & Jim (R- $7.50/hr for 40h/wk, $11.25/hr for 20h/wk [OT], J- $12.50/hr for 40h/wk, $18.75/hr for 20h/wk [OT])
Rhonda earns $27,300/yr. Jim earns $45,500/yr. Combined, $72,800/yr ($6067/mo)

Annualized income and (outgo) from Progressive programs:
Federal income tax - ($2,276)
Michigan income tax - ($2,758.25)
TANF - ineligible
SNAP - ineligible
Medicaid - ineligible
Section 8 - ineligible
LIHEAP - ineligible

Real annual income - $67,766
Effective hourly pay- $10.86

-----

Ex3a -- Janet ($17.50/hr for 15h/wk)
Janet lives by herself. She has a house on mortgage for which she pays $500/mo ($6,000 annually) for the mortgage, and $2,200 annually in property taxes. Janet makes $17.50/hr and works 15h/wk for a yearly haul of $13,650 ($1,137.50/mo).

Annualized income and (outgo) from Progressive programs:
Federal income tax - ($317)
Michigan income tax - $1,956
TANF - $1,368
SNAP - $840
Medicaid - $3,600
Section 8 - ineligible
LIHEAP - ineligible

Real annual income - $21,097
Effective hourly pay- $27.05

Ex3b -- Janet ($17.50/hr for 25h/wk)
Janet makes $22,750/yr, $1895.83/mo

Annualized income and (outgo) from Progressive programs:
Federal income tax - ($1,470)
Michigan income tax - $1,569
TANF - ineligible
SNAP - ineligible
Medicaid - ineligible
Section 8 - ineligible
LIHEAP - ineligible

Real annual income - $22,849
Effective hourly pay- $17.58

Ex3c -- Janet ($17.50/hr for 40h/wk)
Janet makes $36,400/yr, $3033.33/mo

Annualized income and (outgo) from Progressive programs:
Federal income tax - ($3,518)
Michigan income tax - $989
TANF - ineligible
SNAP - ineligible
Medicaid - ineligible
Section 8 - ineligible
LIHEAP - ineligible

Real annual income - $33,871
Effective hourly pay- $16.28


Ex3d -- Janet ($17.50/hr for 40h/wk, $26.25 for 20h/wk [OT])
Janet makes $63,700/yr, $5308.33/mo

Annualized income and (outgo) from Progressive programs:
Federal income tax - ($9,360)
Michigan income tax - ($171.50)
TANF - ineligible
SNAP - ineligible
Medicaid - ineligible
Section 8 - ineligible
LIHEAP - ineligible

Real annual income - $54,169
Effective hourly pay- $17.36

[Kluge]

Need a break. Will clean up and add more cases to look at in a few hours. Oh -- before someone else gets to it -- $3,672 annual food budget for household of two in poverty is possibly unreasonable. Even though the allowance exists, it may not have been fully utilized if it weren't "free."

[Kluge]

I guess that's good enough to call done. I think it's worth noting that everyone demanding a higher minimum wage should keep in mind it's very possible to have that being a net detriment (possibly a killer for large families) to the lower class working at those rates without first increasing the welfare net by a significant margin.

Again - not exact, just ballpark info (often with rules from other states!). Large families already on welfare are likely to be financially harmed or ruined in trying to move out of poverty and into the middle class -- small families will see greatly diminished returns for working longer hours (and possibly be financially harmed moving from poverty to middle-class) unless both parents are working for at LEAST ~$12.50 per hour already, full time (in which case, it's only a relatively slight diminishment). Once they're out of Medicaid/CHIP's umbrella, they're basically screwed unless they receive a dramatic increase in pay and work much longer hours. Individuals without dependents are most likely to survive a transition from minimum wage pay to a higher pay since they receive little in the way of welfare.

[inca]

I guess that's good enough to call done. I think it's worth noting that everyone demanding a higher minimum wage should keep in mind it's very possible to have that being a net detriment (possibly a killer for large families) to the lower class working at those rates without first increasing the welfare net by a significant margin.

Again - not exact, just ballpark info (often with rules from other states!). Large families already on welfare are likely to be financially harmed or ruined in trying to move out of poverty and into the middle class -- small families will see greatly diminished returns for working longer hours (and possibly be financially harmed moving from poverty to middle-class) unless both parents are working for at LEAST ~$12.50 per hour already, full time (in which case, it's only a relatively slight diminishment). Once they're out of Medicaid/CHIP's umbrella, they're basically screwed unless they receive a dramatic increase in pay and work much longer hours. Individuals without dependents are most likely to survive a transition from minimum wage pay to a higher pay since they receive little in the way of welfare.

Very interesting. In the UK we have a similarly unfair system. An unemployed single mother with three kids would have to be earning 75000 dollars to maintain the lifestyle given out in benefits. Working couples with children are entitled to extra support (tax credits) which equalises pay to within a few thousand dollars regardless the hours worked. In essence you have to earn well over twice the median wage before you start to see any real improvement in net takehome after tax.

And that's before you consider the hugely overpriced poor  quality housing

The west is now an awful Orwellian nightmare. Crony pseudo capitalism, total surveillance, socialist state

[Kluge]

Very interesting. In the UK we have a similarly unfair system. An unemployed single mother with three kids would have to be earning 75000 dollars to maintain the lifestyle given out in benefits. Working couples with children are entitled to extra support (tax credits) which equalises pay to within a few thousand dollars regardless the hours worked. In essence you have to earn well over twice the median wage before you start to see any real improvement in net takehome after tax.

And that's before you consider the hugely overpriced poor  quality housing

The west is now an awful Orwellian nightmare. Crony pseudo capitalism, total surveillance, socialist state

Yeah -- it's really weird to work >250% the hours (ex1a vs ex1c) and have net take-home only increase <20%. It's a case study in socio-economic immobility. Taxes and welfare have set it up so the sweet spot is working part time for the majority of people, where working long hours or multiple is punished rather than rewarded.

There's another interesting take-away. For most people, saving $100 is worth significantly more than earning $100 more at their job. Maybe quit working over-time and spend the time clipping coupons!

[onezerobit]

This is really interesting, correct me if i am wrong.

Its like the government is actually paying you to do less work and stay poor. Totally vote-bank policy.

[screwUdriver]

This is disgusting. The current welfare state in the US makes it so people have many incentives not to work, or to work less then the maximum that is available. This is a prime example of excess of 100% marginal tax rates when counting welfare payments to the lazy.

Even if the net effect was that people could work at a higher paying job or work more hours but not have a lower net pay, these welfare programs enable people to have a good standard of living while working very little.

[Cicero2.0]

This is really interesting, correct me if i am wrong.

Its like the government is actually paying you to do less work and stay poor. Totally vote-bank policy.

Creating a dependent class then painting your opponents as a threat to the income of the dependent class is a political art form in our country. These laws are intentionally set up to keep reciepients dependent and to discourage work.

[Harley997]

Very interesting. In the UK we have a similarly unfair system. An unemployed single mother with three kids would have to be earning 75000 dollars to maintain the lifestyle given out in benefits. Working couples with children are entitled to extra support (tax credits) which equalises pay to within a few thousand dollars regardless the hours worked. In essence you have to earn well over twice the median wage before you start to see any real improvement in net takehome after tax.

And that's before you consider the hugely overpriced poor  quality housing

The west is now an awful Orwellian nightmare. Crony pseudo capitalism, total surveillance, socialist state

Yeah -- it's really weird to work >250% the hours (ex1a vs ex1c) and have net take-home only increase <20%. It's a case study in socio-economic immobility. Taxes and welfare have set it up so the sweet spot is working part time for the majority of people, where working long hours or multiple is punished rather than rewarded.

There's another interesting take-away. For most people, saving $100 is worth significantly more than earning $100 more at their job. Maybe quit working over-time and spend the time clipping coupons!

I think this is the major hurtle that most people have in trying to climb the economic latter. If you are working at a low wage job part time, then you will have fewer opportunities to show your boss and higher ups your skill set and abilities, meaning that you will unlikely receive a promotion when promotions are being given. After several cycles of promotions, an employee would likely not have these disincentives via welfare to work less hours so they would likely work a full work week, further showing off their skills and abilities.