When Work Is Punished: The Tragedy Of America's Welfare State

Tyler Durden's picture

Exactly two years ago, some of the more politically biased progressive media outlets (who are quite adept at creating and taking down their own strawmen arguments, if not quite as adept at using an abacus, let alone a calculator) took offense at our article "In Entitlement America, The Head Of A Household Of Four Making Minimum Wage Has More Disposable Income Than A Family Making $60,000 A Year." In it we merely explained what has become the painful reality in America: for increasingly more it is now more lucrative - in the form of actual disposable income - to sit, do nothing, and collect various welfare entitlements, than to work. This is graphically, and very painfully confirmed, in the below chart from Gary Alexander, Secretary of Public Welfare, Commonwealth of Pennsylvania (a state best known for its broke capital Harrisburg). As quantitied, and explained by Alexander, "the single mom is better off earnings gross income of $29,000 with $57,327 in net income & benefits than to earn gross income of $69,000 with net income and benefits of $57,045."

We realize that this is a painful topic in a country in which the issue of welfare benefits, and cutting (or not) the spending side of the fiscal cliff, have become the two most sensitive social topics. Alas, none of that changes the matrix of incentives for most Americans who find themselves in a comparable situation: either being on the left side of minimum US wage, and relying on benefits, or move to the right side at far greater personal investment of work, and energy, and... have the same disposable income at the end of the day.

Naturally, the topic of wealth redistribution is paramount one now that America is entering the terminal phase of its out of control spending, and whose response to hike taxes in a globalized, easily fungible world, will merely force more of the uber-wealthy to find offshore tax jurisdictions, avoid US taxation altogether, and thus result to even lower budget revenues for the US. It explains why the cluelessly incompetent but supposedly impartial Congressional Budget Office just released a key paper titled "Share of Returns Filed by Low- and Moderate-Income Workers, by Marginal Tax Rate, Under 2012 Law" which carries a chart of disposable income by net income comparable to the one above.

But perhaps the scariest chart in the entire presentation is the following summarizing the unsustainable welfare burden on current taxpayers:

  • For every 1.65 employed persons in the private sector, 1 person receives welfare assistance
  • For every 1.25 employed persons in the private sector, 1 person receives welfare assistance or works for the government.

The punchline: 110 million privately employed workers; 88 million welfare recipients and government workers and rising rapidly.

And since nothing has changed in the past two years, and in fact the situation has gotten progressively (pardon the pun) worse, here is our conclusion on this topic from two years ago:

We have been writing for over a year, how the very top of America's social order steals from the middle class each and every day. Now we finally know that the very bottom of the entitlement food chain also makes out like a bandit compared to that idiot American who actually works and pays their taxes. One can only also hope that in addition to seeing their disposable income be eaten away by a kleptocratic entitlement state, that the disappearing middle class is also selling off its weaponry. Because if it isn't, and if it finally decides it has had enough, the outcome will not be surprising at all: it will be the same old that has occurred in virtually every revolution in the history of the world to date.

But for now, just stick head in sand, and pretend all is good. Self-deception is now the only thing left for the entire insolvent entitlement-addicted world.

* * *

Full must read presentation: "Welfare's Failure and the Solution"


Some other thoughts on this topic: DOES IT PAY, AT THE MARGIN, TO WORK AND SAVE?

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Kobe Beef's picture

Right. So the Russians didn't fight a civil war against the Reds? Unfortunately, they lost. And then there's that whole World War II event that also involved lots of fighting along the lines and behind them. But no, you're right, we should all just surrender. That's the worthy thing to do. I'm sure our benevolent predators have such wonderful collectivist utopias planned for us, with skittles, unicorns, and the occasional death camp.

AGuy's picture

" if a government can't pay for entitlements via way of tax receipt, then the entitlement has to get cut"

Thats not really correct, since the US gov't can print money to pay for entitlements, and that pretty much what the gov't has done since 2009. No way entitlements get cut since the 90% of votes either have them, or are expecting them. Cutting entitlements is political suicide.



SoundMoney45's picture

This truth is painful to read

max2205's picture

Welcome to the gulag ( or stalag). Take your pick

mrktwtch2's picture

yes dignity is becoming a emotion that doesnt pay very well anymore..lol

Seasmoke's picture

feeling a Fool, will trump that every time

not fat not stupid's picture

Plutocrats sent American work opportunities overseas to squeeze out a few extra EPS, to pad their own pockets. Kill that incentive and the whole system can thrive/heal.

tmosley's picture

I'm sure it had nothing to do with the high levels of taxation and regulation here.

Shizzmoney's picture

Correct.  That's why corporations, to save money on labor, rely on Communist states like China.


tmosley's picture

Government in China makes up ~20% of GDP.  Government in the USA makes up ~43% of GDP.

Which state was the communist one again?

LawsofPhysics's picture

almost.  What is required is the return of real consequences for bad behavior at all levels of society.  No more fucking bailouts, period.

CH1's picture

And above it all... the great coercive entity - the structure which allows all of these abominations to happen - is unquestioned, unchallenged, and presumed to be both righteous and as necessary as air.

Ah well...

LawsofPhysics's picture

Yes, the event horizan has long passed.  See the Soviet Union circa 1987-1989 (you are here).

Bicycle Repairman's picture

The "kaboom" seems to always be 5 years away.  I simply could not forsee the ability of this regime to kick the can.

LawsofPhysics's picture

There was no "kaboom" with the Soviet Union either, and there won't be for the U.S.  This can be the case, even if some states seceded (as was the case in the Soviet Union).  The currency will simply continue to lose purchasing power and greater capital controls and price "fixes" will be put in place, along with rationing.  The "official" word will always be that everything is okay, but there will be power and supply line disruptions all over the place.  As my friends in St. Petersburg used to always say, "no problem", at which point you knew things were not going as planned and a bribe would have to be paid in the near future.

Vegamma's picture

Please add Pell grants and all "needs based" educational assistance to this analysis if you include older children. If you were stupid enough to save and have kids in college, you will understand what I am talking about.

Chaos_Theory's picture

That's why I'm transfering my savings to precious metal and other substances....copper, primers, propellant, lead and ballistic tips

(don't sleep on Jack Daniels bottles either)

Shell Game's picture

+1  The two legs of Liberty are Rule of Law and anarcho-capitalism (Darwinian law). 


p.s. what twisted soul would down arrow your comment? 

MachoMan's picture

Ramblings fit only for an academic vacuum.  Please enlighten us all (the world) how the rule of law can be practically reconciled, in the real world, with anarcho-capitalism.  If you have a historical example, I'd like to hear about that too... 

Rhetorical questions aside, those two "legs" can never be maintained by humans for any reasonable period of time.  Once you introduce law, then it can be punitively implemented...  of course, without law, the capital formation necessary for capitalism is probably non-existent.  These things may not start mutually exclusive, but in practice they end up being so...

Shell Game's picture

"Ramblings fit only for an academic vacuum."

Really?  So roll over and allow the cesspool of central planning to run amok?  Do you have a better answer that is both sustainable and preserves individual liberty (if you value it)? I am all ears.   Remember, ideas - those things easily vilified as 'academics' - must always preceed and facilitate an awakening.

For enlightenment I would recommend Bastiat's The Law for starters, this reading list and Ron Paul's farewell speech for more. 


"those two "legs" can never be maintained by humans for any reasonable period of time."

Do you actually believe that any and all human institutions will not eventually fall to corruption?!   Anarcho-capitalism is simply the opposite of centrally planned fascism.  One is empowered by real money/barter, law and survival of the fittest, the other is empowered by fiat, special interest$ and protectionism.  Again, love to hear what ramblings you offer that lead to a resonably sustainable path for a reasonable length of time..


MachoMan's picture

I have no suggestion because humans have yet to find the answer.  It may very well be a limitation to human ingenuity.  Who knows.  Hopefully not, but...

The issue is that under any system of "hands off" or "anarchy", there must be rules implemented in order to have the rights necessary to compete as well as to ever get public acceptance.  Once you open the door to ANY rules, you open the door for the destruction of the system by and through those rules and their progeny.

I agree that it may be the best horse in the glue factory and, practically speaking, we may have no choice, but "liberty" in any real sense of the word is largely a relative measure, which is code for nothing resembling liberty.  In short, liberty does not exist absolutely, but only in materially watered down states and only for brief durations.  However, it does not change the fact that the "two legs of liberty" are practically diametrically opposed.  They likely cannot co-exist because humanity is apparently incapable of managing their intersection.  Each leg constantly kicks the other until the body collapses. 

Shell Game's picture

The dragon consuming it's own tail.  It is indeed frustrating.  But by definition, we must aim for the impossible to push the next collapse three or four generations forward.  I believe natural law is compatible with free markets. And that is the 'impossible' a free man must fight for.

MachoMan's picture

One of the big issues to tackle and, where I think your thesis hits a snag, is the distribution of non-renewable resources...  in this case, among other things, the fight for oil and water.  Natural law really has no answer for the trajedy of the commons/externalities.  We're getting into a position where real "production" is very difficult because of limited resources...  there are no more undiscovered frontiers to subjugate and enslave...  I think it will inevitably change the perception of economics and the notion of productivity.  Maybe this will provide an opportunity to positively change our groundhog day.

Shell Game's picture

Not to beat a horse heading for the glue factory, but...   In a world of diminishing natural resources isn't the 'growth' mantra the true snag?  In the coming $US collapse, and defacto cheap oil collapse, the centrally planned and hollowed economy will contract and what will emerge will be local economies with new wants and needs.  It will be all too Darwinian.  But maybe it will afford an opportunity, I do hope so.

MachoMan's picture

The thing about anarcho capitalism is that it presumes an equal playing field at the first move...  at present, we have everything but a level playing field.  The resources already have someone else's name on them.  Production, in the real sense of the word, is largely an impossible task...  hence why, in large part, capital has completely destroyed labor in their little struggle.

Shell Game's picture

Nothing healthy can be created top down at this current time. The playing field must be cleared first.  The petro-dollar story will play a major role in providing that opportunity, if we're lucky enough.

MachoMan's picture

All of the old paradigms will be challenged, including the petrodollar (presently operating on weekend at bernies time).  We're probably slated to devolve into neofeudalistic/plantation models with regional robber barons.  The only thing that will really change this is collective bargaining...  ironically, exactly how we got in the present situation.

Zap Powerz's picture

The people living in the decaying western cultures are now incapable of following your very good advice.  They will not return to a world of real consequences voluntarily.  Nature will force it upon them (at least the ones that dont die in the process) and Nature will restore order.

We cannot fool Mother Nature forever.

chubbar's picture

It's not just the plutocrats sending jobs overseas, it's the tax and regulations as well. I just was speaking to an old friend that owns (with other investors) a company that is very capital intensive and employs 30 or so folks making in the 50-60k range.

If this tax bill goes through that greatly increases their dividend taxes then they are moving to a suitable overseas location. My friend draws a salary as CEO (plus dividends) that is pretty decent but the other investors get dividends from profits (sub S corp or something along those lines). I think they are over the 250K limit of income but under 500K if they make what my buddy makes, so they are members of the hated 1%.He is saying with all the FICA, UI, State, FED and regulatory rules already in force plus Obamacare taxes to come, the dividend tax increase will be the straw that breaks this particular camels back for the investors. Too much money at risk for too little return after taxes, etc., are taken into account. I think they have already started the search process in fact. That'll be another 30 folks looking for work and increasing the welfare roles. When will these asshats learn you can't tax yourself to prosperity. Heckofajob Brownie!

seek's picture

The 200K-1M income range seems to be the primary target for wealth harvesting these days. This is where successful upper middle class (doctors, lawyers, small business owners) all reside, as well as where middle-class weath that remains is.

I'm in that 1% as well, if 2013 is an exact repeat of 2012 with the tax laws you mention in place and no changes to the structure of my business, I'm looking at about a 40% increase in my taxes in 2013. Needless to say I'll be making adjustments in my business to reduce the tax burden based on whatever my CPA tells me to do.

I really don't think it's comprehended by most just how large of a tax bomb is set to go off at the start of the year, and how much disincentive this gives smaller businesses to spend or hire, e.g. this will be a massive drag on the economy.

Blankenstein's picture

The puppeteers that pull the strings (the billionaires and multimillionaires) won't be affected by the tax hikes.  They want to wipe out any possible opposition to their plan to impoverish and enslave the 99.9%.

slaughterer's picture

Thinking ahead, I will need to earn capital losses to control my tax bill after 2012.   Guess FB and ZYNG will come in handy then.  

BraveSirRobin's picture

Need capital losses? Easy, sell your house.

MachoMan's picture

So you're going to make the losses up on volume are you?  [note: giving away a dollar is more expensive than just paying the tax on the dollar (obviously this gets thrown out the window with creative valuations for assets, but this is the general rule)].

drbill's picture

Damn! Now its just that much harder to get out of bed and go to work....

Umh's picture

I know just how you feel about it. Somehow it doesn't feel right to be paying for someone else to goof off while you work.

ebworthen's picture

Guess what?

When wages are so low that going on the government dole is more beneficial than busting your ass most people actually have a brain.

Let's see:  bust my ass to not have time with my kids and pay taxes that are funneled to foreign countries and corrupt Wall Street institutions or take advantage of handouts?


toady's picture


I find the numbers in these articles ridiculous. 'A single mother making $60K'... does anybody know a single mother making $60K? Hell, I don't know ANYONE making $60K.

I used to know a lot of them before pensions were turned into 401k's, employers stopped paying for healthcare, and any job that paid that $60K was shipped overseas.

The main premise of the article should be 'will you work two jobs that cover 12 hours a day, for a total of $40K a year, then pay $10K for insurance & taxes & childcare to make $30K a year, or stay home and raise your kids right for $60K?'

williambanzai7's picture

This lazy single mother narrative is one of the things that killed Romney. The idea that lazy single mothers are running around sucking the system dry is ludicrous. The only single mothers I have ever known worked their asses off for their kids.

Now for this purpose we should be careful to exclude bailout mothers like Lloyd Blankfein.

Here's a question for you. Retail is typically one of the few areas of small business economic activity that someone might attempt to self start.

How the fuck does one do that in a country dominated by the box store retail culture of Walmart?

prains's picture

the racial undertone is unmistakable, the 1% love this shit, "everyone point the finger at anyone but us"

darteaus's picture

"The only single mothers I have ever known worked their asses off for their kids."

Maybe you should get out a little more.  The non-anecdotal evidence regarding the correlation of single parents and poverty is pretty overwhelming:


MachoMan's picture

The country is dominated by e-tailers and consumers smart enough to avoid tax and the cost of driving around town to pick up goods.  The "box store retail culture" is all but dead.  Wal-mart still exists simply because it is the victor of the box store wars and has a core comptetency (logistics) that allows it to compete with e-tailers in a hybrid warehouse/retail model. 

If you want to start a business, then you can do so from the comfort of your own home...  which is how businesses are now being created.  The ready market on the internet is actually the great equalizer to the capital costs necessary to create a box store.

Retail, like many other aspects of our society, really serves no purpose other than for immediate, mindless consumption.  Thankfully, economic conditions are largely incentivizing people to behave differently.  Needless to say, differentiation is the only possible business stategy for start-ups...  the economies of scale needed to become a low cost leader are cost prohibitive.

cartonero's picture

Ridiculous indeed. This article starts with a complaint about the msm using strawman arguments, then goes ahead and creates one. 

waterhorse's picture

But of course, what else would we expect of the AEI think tank?

MyBrothersKeeper's picture

Actually the inner city segment of the population makes up a large portion of single moms who are on the dole.  Remember that 50% of all African American babies are born out of wedlock...many of those "moms" have multiple children fathered by multiple fathers. For that reason alone, collecting child support is virtually impossible. Considering you only have a 3% chance of becoming impoverished if you finish high school and have your first child after marriage, the solutions should be relatively easy.

As you state, most hard working single moms are getting the shaft just as bad or worse than the rest of the middle class

sunnyside's picture

I think that the number is closer to 70% out of wedlock last reported.  The destruction of the black family and father figure is pretty well complete.  The federal gov't is the father to most black youth in this country.


Overfed's picture

"Black Culture" is the worst thing to happen to black people in 500 years.

Cathartes Aura's picture

always helpful to remember that "African Americans" are only 13% of the population, and out of that, "half" will be males, and then there's only a certain age group that can birth. . .

how many African American birth moms benefit-ing make up a Banker/CEO corporate bonus - MATH, please.

darteaus's picture

"Hell, I don't know ANYONE making $60K."

Your ignorance does not invalidate the argument - that 'A single mother making $60K...'.

toady's picture

OK, but do you know anyone making $60K? Especially any single mother's? I'm sure there are a few in NYC and other high rent locations, but that would just mitigate the higher pay rate.