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Does it pay to work?
Old 03-01-2006, 11:19 PM   #1
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Does it pay to work?

With all the social services out there, ever wonder if it pays to earn more money- and not qualify? I have been wondering what the "total utility" curve would look like for some time, and today I finally took the time to research the main programs in WA state, and crunch some numbers. These are rough numbers as i'm sure there are nuances I missed, but I believe that the utility curve is fairly close to reality.

The only section that's hard to place a dollar amount on is health insurance- so I simply placed the value of the health insurance at what my employer currently puts in for my own insurance, less the basic-health co-pay.

This chart is for a hypothetical family of four- two adults and two children. Thoughts?
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Re: Does it pay to work?
Old 03-02-2006, 12:33 AM   #2
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Re: Does it pay to work?

Wow. Nice job. Looks like the sweet spot is somewhere around $1100./mo. Clearly, this analysis even overstates the value of working, at least within the limits you studied. Assigning zero utility to all that leisure (an odd assumption on this board), unless one were totally helpless he could find some off book stuff that wouldn't stress him too much. Send the wife out to make the $1100 cleaning hotel rooms or something while you work on your golf game. VoilŠ!.-- a pretty good life with no need for all the scrimping and saving to reach FIRE.* * And then there is always disability; psychiatric should work if you can't develop a limp.

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Re: Does it pay to work?
Old 03-02-2006, 06:53 AM   #3
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Re: Does it pay to work?

Quote:
With all the social services out there, ever wonder if it pays to earn more money- and not qualify?

yes. This is a very interesting topic. I am wondering if you would get stuff if you had assets though (paid off house, money in the bank, iras, etc.). Besides, you canít buy cigarettes and liquor with food stamps (at least not directly). 8)

Also, can you really count on this stuff to continue?
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Re: Does it pay to work?
Old 03-02-2006, 07:32 AM   #4
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Re: Does it pay to work?

I have no idea if there is any reality to Marshac's graff as the extent of assistance depends on where you are and cash assistance is limited, with eligibility limits, time limits, and many other requirements.

For example, my neice lost her job after she had her daughter. Her daughter is disabled and in the hospital. My niece spends almost all of her time at the hospital. My niece get 0 cash assistance because she moved back home with her mother. She has absolutely no money to buy anything.

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Re: Does it pay to work?
Old 03-02-2006, 09:54 AM   #5
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Re: Does it pay to work?

This was an interesting project for me since I had to learn a fair amount about all of the major programs here in the state. Some programs like the housing vouchers have waiting lists, although once you're in the program, the benefits are quite generous- if you qualify, you must pay 30% of your income towards rent or a mortgage, and the program will pay the remaining amount up until a pre-defined amount which varies by region. In addition to this, there is a utility allowance added to cover electricity, heating, cooking, etc. When determining the # of bedrooms a place can have, they figure 2 people per room, so a family of four would have a 2br place. The family could rent/own a 3br place, although they would only receive the 2br benefit level.

Cash assistance through TANF is limited to a lifetime benefit of 60 months, and you must have "need"- meaning that your essential expenditures outstrip your income....what are essential? Here's the list- "food, clothing, shelter, energy costs, transportation, household maintenance and operations, personal maintenance, and necessary incidentals."

When it comes to assets, almost all of the programs ask about savings, checking, CDs, and almost any other account you can think of. One glaring omission (to me at least) were assets like gold and silver- fairly liquid, and of high value... so in theory, you could sit on a ton of gold, and it wouldn't count against you. If your car is worth $4500 or more, any amount over that number is also treated as an asset- unless you owe money on it. This means that you could have a $30k car, owe $26k on it, and it wouldn't count against you.

Food stamps- aka 'Basic Food' here in WA- seemed to provide fairly generous benefits through an EBT card.

I don't have anything against social services- I like social services. My problem with the current system is that there is obviously a disincentive to earn money until you pass a certain income pont. As the family size grows (ie: 6 people), the disincentive becomes even larger (I'll put up another graph tonight if I remember). IMO, this is not what should be happening... there should always be an incentive to earn more money, not less.
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Re: Does it pay to work?
Old 03-02-2006, 11:15 AM   #6
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Re: Does it pay to work?

Nice effort, Marshac. But I don't think it really works like this. I know it doesn't in Arizona. Receiving food stamps is based on assets as much as it is based on income. And they have a question that asks about "any other assets". I imagine you could lie and get away with it, but that's not really the point. Plus some of the benefits are only a % of cost. So unless you can afford the remaining %, you don't get the funds. I doubt seriously that low income medical assistance is really comparable in even the remotest way to the medical insurance you get through your job.

I've done a lot of volunteer work in some of the areas around Phoenix that have a lot of people who receive various government benefits. I'm not sure how to measure the utility curve, but I am not in the least bit invious of their position or benefits.
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Re: Does it pay to work?
Old 03-02-2006, 11:20 AM   #7
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Re: Does it pay to work?

My first year in ER my income was positively possum living as nothing I had was bringing in 'ordinary income'. I actually qualified for low income phone and electric/gas service. Assets were not a consideration for any of the ones I qualified for, just any income from jobs or assets. You could have a billion dollars and as long as it didnt produce an AGI of over ~20,000 you were a-ok to participate. I didnt think that was particularly good, but I guess once you get into assets you're just fighting for how you're going to measure it and what you're going to measure. And how people are going to hide it.

On the original topic, apparently theres a point at which its not worth it to work. And a lot of people around my neck of the woods are in that vicinity.
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Re: Does it pay to work?
Old 03-02-2006, 04:34 PM   #8
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Re: Does it pay to work?

My SIL is disabled and lives "off the state" with SS disability payments. I did a ton of research for her to give her the information on what is available in here state. There is a ton of freebies she would be entitled to due to her complete disability. She has been applying to all the state agencies for assistance. She is divorced, has no assets other than a 10 year old Saturn and the few things in her rented apartment. She cannot work due to pain and mobility issues due to her disability. Family has been able to help some but most of them are not all that well off either. She "makes" under $1500/month from her various payments so is under the radar and qualifies for most everything. I am happy to see my tax dollars at work in this case.

On a side note... I have a friend that is in the state welfare fraud unit. He has stories you would not believe! He is an investigator for the unit and collected evidence and testified in court against these folks. The can't catch them all but they try real hard!

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Re: Does it pay to work?
Old 03-02-2006, 04:52 PM   #9
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Re: Does it pay to work?

Marshac,

I've run the numbers too, on the back of the envelope at least. There does seem to be a disincentive to work up to a certain point. Then there's the effect of the benefits phasing out as you make more. Your effective tax rate (real taxes plus cost of decreased benefits) can be pretty high.

I seriously considered going the "low income" route when I was considering job options out of school. We also have essentially free health insurance for children in my state if you are under certain income limits (~200-250% of the poverty level, after all is said and done). $5 copays at doctors, $1 prescription copays.

Let's say I know people who know people who may or may not get boat loads of government assistance.

Oh yeah, I'm getting a $1000 welfare check back from ole Uncle sam this year (refundable child tax credit!! wohoo!). Sucks being poor, don't it

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