Nathan Sass

What Does “Poor” Really Mean?

In Crazy Liberals, Economics, Tax Policy, Taxes, Tea Party on December 21, 2011 at 6:00 AM

My previous posting (link) discussed the data related to inflation adjusted incomes over the last 43 years (1967 to 2010).  The data showed that all income quintiles (20% segments of the population by income) saw real income growth in that time.  All quintiles saw double digit increases, including the bottom 20% of incomes (17% increase).

The next question I asked myself is what does it mean to be at the Federal Poverty line of $22,350, or roughly the bottom 20%, in monetary terms?  You see that number and probably think “How can anyone live on so little money?”.

I endeavoured to determine what that amount really means, after you include all the things beyond actual earned income that the quintile analysis leaves out.   I was stunned to say the least, and I think you will be too.

I imagined a family of four living in Milwaukee, a married couple and 2 minor children.  The total income in the household was exactly $22,350 per year.  They had no investments, savings or other income.  They rented an apartment for $600 per month, heat not included.

Then I dug up some calculators on the internet.  I found tools to determine all eligible benefits for my family provided by the State of Wisconsin, complete with expected dollar amounts and all types of benefits.  I was also able to calculate both Federal and State income taxes, refundable credits included.  It took about an hour to complete my research.  (Isn’t the modern age amazing?)

Here is what I found:

Lets start with Income Taxes.  Our family  doesn’t pay any income taxes at all.

That is not very surprising and most people would think that people with such a limited income should not have to pay income taxes.

But that is not the whole story.  Our family actually gets a refund for taxes that they don’t pay.  Their actual tax rate is -35%. Read that again.  Our family MAKES money when they file “taxes”.  They have a NEGATIVE tax rate.  They get over $7,500 in “free” money from the government.  (We used to call this welfare in the olden days).

Ok.  Some of my readers may shrug and say “Well, that’s a good thing.  They need the money.  Sounds fair to me.”  Maybe it is, and maybe it isn’t.

But remember that this money comes from other people who actually pay taxes.  If you pay taxes, just imagine that you are writing a check for $7,500 to a family you never met and handing it over with no expectations or control on how the money is to be used.  That feels a bit less “ok”, doesn’t it?

As shocking as the tax situation is, it gets worse.

In WI, our family qualifies for BadgerCare, the state’s Medicaid program.  This is a full coverage medical and dental plan for low-income families.  In order to figure out what that plan is worth in actual dollars, I consulted some data from the National Conference of State Legislatures.

In WI, the average cost of a family health insurance plan in 2010 was $14,194.  I am sure that in 2011 that amount is higher, but I don’t have access to that data (yet).  Also, BadgerCare has a pretty robust coverage plan compared to most employer-provided plans, so that $14,194 amount is probably on the low end of what it would REALLY cost.  Plus you need to add dental insurance costs to that mix.

I chose to be conservative and use the published 2010 average for a family plan and disregard increased benefit levels and inflation of the 2010 amount.

Our family has a cash income (including tax “refunds”) of just over $30,000.  Now add to that the $15,000 that they are NOT paying for health and dental insurance.  (If you have insurance at work, you are paying for all of it.  Some out of your check and the rest is unrealized income.)  We are up to $45,000 per year in cash and benefits.  That’s just under the 2010 US median household income of about $50,000.

But there were more benefits in my little helpful State of Wisconsin benefit eligibility report.

Our family gets FoodShare assistance, the kids get 2 free meals per day year round (breakfast and lunch) and the family gets energy assistance (heat and electricity).

Add these benefits to the BadgerCare amount and they receive total benefits worth $31,197.50!  That is actually more than the income PLUS tax “refunds” when we started.

All together, our family receives an annual $61,299.71 in cash and benefits.  That is $11,000 (22%) MORE than the 2010 US median household income.

What that means is that when you look at the bottom 20% of incomes, you are not seeing about 200% of their income and benefits represented.  All you are being shown is the actual wages they receive, and all the other (much more lucrative) benefits are ignored.

This fact is really important.  When you factor all the rest in, the bottom 20% is receiving income and benefits equal to more than the average middle class family earns in a year.   Worse yet, they pay no taxes on any of it at all.  It’s all tax free.

If that was not bad enough, the family soon figures out that if they attempt to “work their way out of poverty” much of that $40,000 in free stuff vanishes.  So most just don’t do it.  They would need to get a raise of over $50,000 per year in income just to break even with were they are at the poverty line, all things considered.

Most of us cannot imagine reducing your income to the poverty line to take advantage of these benefits.  (Or perhaps some of you can since you aren’t making much more than that now.)  For those of us who have lived outside of poverty, we cannot fathom going there, voluntarily or otherwise.

But remember we have a substantial part of our population who has never known anything BUT poverty, most for generations.  Those are the people who seem content to stay there, and reap the benefits I just described.

Our “compassionate” liberal friends have managed to set up a system that actually encourages people to NOT try to better themselves.  If you are currently below the poverty line, you would be insane to try to make more money (on the books, anyway).

Maybe the intentions of the left are pure and they really just want to help poor people.  Maybe they aren’t trying to actually encourage long term poverty.  Maybe they just cannot understand that people are quick to figure things like this out and will almost always take the path of least resistance.

If that is true, when confronted with these numbers and the way people behave, they may be willing to change the system to encourage people to escape poverty and better themselves.

Or maybe, just maybe, the left DOES understand that this is how it ends up working, and they secretly want it to be that way.  If that is true, they will refuse ALL attempts to fix this mess and say anyone that dares speak the truth about these numbers is a hateful tool of the rich.

Maybe they have figured out that keeping people poor and dependant on you (as a politician and as a party) means that you can always count on their votes on election day.

Those votes give you power, fame and riches.

And just maybe, just maybe, that is what the liberals really care about after all.

  1. Very interesting. I can’t verify the accuracy of the numbers used, but your logic and methodology seem sound. For what it’s worth, the Federal Earned Income Credit is not funded by the IRS, (i.e., not a “tax credit”), but by the Dept of Health and Human Services, (I think, could be some other agency).

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