Work, not welfare, is the key to escaping poverty

Scott Lincicome’s new book, Empowering the New American Worker, is focused, unsurprisingly, on American workers. However, my chapter in this book is, in fact, focused on those who are not working—or at least not working as much as necessary to help them escape poverty. Specifically, I raise concerns about the ways in which the modern welfare state can discourage work, savings, and family formation.

Households in or near poverty that receive assistance often face marginal effective tax rates that are counterproductive, deterring work effort or putting a low ceiling on how much these families can increase their standard of living. In those cases, much of each additional dollar earned is clawed back through higher taxes or reduced benefits.

Perhaps this is best illustrated by the Federal Reserve Bank of Atlanta’s Career Ladder Identifier and Financial Forecaster Policy Rules Database, which illustrates the public assistance program eligibility based on household incomes. The examples in Figures 1 and 2 below depict the welfare benefits earned by a single parent with two children under five years of age.