Some Unpleasant Welfare Arithmetic Economics 260 Fall 2012 © copyright 2012 by Casey B. Mulligan.

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Presentation transcript:

Some Unpleasant Welfare Arithmetic Economics 260 Fall 2012 © copyright 2012 by Casey B. Mulligan

Unemployment Insurance Misconceptions When participating in UI, unemployed people have about half of their earnings replaced, which still leaves plenty of incentive to get back to work The average weekly UI benefit of $300 barely exceeds the compensation from a full-time minimum wage job, and falls far short of the compensation from the job that was lost. To a good approximation, the macroeconomic effects of the ARRA, ACA, and other recent government expansions can be well understood without examining the incentives of people receiving the assistance --> a little arithmetic casts doubt on, if not refutes, this conventional wisdom

Earned Income Tax Credit Household Earnings for the Calendar Year Increasing EITC Maximum EITC Decreasing EITC End of Increasing Credit Begin Phaseout No EITC The Earned Income Tax Credit married with one child, tax year 2011 $9,100$21,770$41,132 $0

Means-tests in the ACA Health insurance price discrimination on the basis of income –equivalently, free health insurance plus a progressive addition to the income tax Three sources of health insurance –Medicaid: eligible if below 1.33 or 1.8 FPL –Employer plans: maintain tax exclusion, subsidies for small employers and low-wage employers –Individual plans: participants pay through means- tested premiums and means-tested out-of-pocket cost-sharing

Unpleasant 100 percent tax rates –caus[e] needless waste and demoralization. –This application of the means test is bad economics as well as bad sociology. –It is almost as if our present programs of public assistance had been consciously contrived to perpetuate the conditions they are supposed to alleviate. one thing that Milton Friedman (Chicago) and James Tobin (Yale) agreed on.