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The Poverty Trap Is Still Very Much A Reality In The U.S
11 February 2008This is the story of a woman trying to work her way out of poverty for son and herself. But unwittingly she finds herself in a worse position for having taken a job that gave her a 40% pay raise. Normally this would raise one’s standard of living considerably, however for this person it meant she crossed a threshold and lost many of her federal benefits.
From the Jeff Frankels Weblog, The Havard Kennedy School Of Government
“Despite the EITC and child credit, the poverty trap is still very much a reality in the U.S. A woman called me out of the blue last week and told me her self-sufficiency counselor had suggested she get in touch with me. She had moved from a $25,000 a year job to a $35,000 a year job, and suddenly she couldn’t make ends meet any more. I told her I didn’t know what I could do for her, but agreed to meet with her. She showed me all her pay stubs etc. She really did come out behind by several hundred dollars a month. She lost free health insurance and instead had to pay $230 a month for her employer-provided health insurance. Her rent associated with her section 8 voucher went up by 30% of the income gain (which is the rule). She lost the ($280 a month) subsidized child care voucher she had for after-school care for her child. She lost around $1600 a year of the EITC. She paid payroll tax on the additional income. Finally, the new job was in Boston, and she lived in a suburb. So now she has $300 a month of additional gas and parking charges. She asked me if she should go back to earning $25,000. I told her that she should first try to find a $35k job closer to home. Also, she apparently can’t fully reverse her decision to take the higher paying job because she can’t get the child care voucher back (the waiting list is several years long she thinks). She is really stuck. She tried taking an additional weekend job, but the combination of losing 30 percent in increased rent and paying for someone to take care of her child meant it didn’t help much either.
Seems hard to believe the system was designed with so many breakpoints at or near the same income level. If this person had thought this through she would have not taken the better paying job. But what a horrible system. A person who wants to break out can’t and may end up sliding even lower.
How many people just don’t try?
I have no answers not even snide comments. I feel for this woman. I as a taxpayer and a human being want to encourage and help this woman realize her and her son’s full potential. Let her take her place her place in society and stand tall.
This is where government should be at it’s best, but clearly it is not. My gut reaction is the architects of the system are not evil, this is merely un-intended consequences. The only way to eliminate un-intended consequences is to not meddle to begin with, something our politicians are loathe to do, or at least meddle the least amount possible, also something very loathe.
Just keep this in mind when they attack the finest health care system in the world and give us Universal Health Care. I do know this, governments are not at their best messing with complex systems. They lack the finesse of movement, the subtlety of understanding and the quickness of response.
Nothing is more expensive than free and when you give something away for free, that is exactly what it is worth.
As I am wont to do, I scan reddit.com and digg.com for comment. On these two very popular websites often these type of stories come up for review. If there is any hint of fiction, the wisdom of the masses dig it out pretty darn quickly.
I’ve reproduced some of the comments below:
As a recipient of practically every government assistance program out there (except TANF) and as a resident of a city with a living wage law and universal health care, maybe I can provide some insight about welfare programs for those wondering what it’s really like.
If I start working, I’ll lose financial aid grants, Medi-Cal, and section 8. If my combined family members’ bank accounts have over $5,000, we’ll lose EBT food stamps. If our income exceeds beyond that, we will no longer qualify for “lifeline” rates for our phone, trash, electricity/water services, and monthly bus passes. There is really no incentive for me to start working until I finish college and move out — and more importantly, members of the lower middle class simply can’t afford the cost of living in this city. I know many, many other people in my position who find it easier to either work less, or get paid under the table to milk the system.
San Francisco has a living wage law, so the minimum wage nudges up every year (it’s currently at $9.36/hr) and the first U.S. city to have universal health coverage. But the ever-creeping minimum wage just keeps driving up the cost of living so the wage keeps needing to be raised, seems like an endless cycle. The universal health care is primarily for the middle class, since those living below the poverty line already qualify for Medi-Cal, but the problem is, it doesn’t cover things like optometry or dental, so I’m not sure how useful it is to the middle class.
I guess my point is, these government assistance programs mean well, but they don’t fix the problem of poverty at the root. Am I hypocritical for wanting welfare reform?
Hypocritical for wanting welfare reform when you’re on welfare? Absolutely not.
As this story shows, one of the biggest problems with government assistance programs is that they’re difficult to get out of, and not slide backwards in quality of life. I have a small amount of experience with this as well. For a time, I received state-funded health insurance for my family. Later on, my wife took on a part-time job…which put us over the income cap for assistance…so we had to buy health insurance…ultimately decreasing our take home pay. We would have been better off with my wife not working, at least from an insurance standpoint.
I think something that is missed is that a lot of people on assistance programs don’t want ot be there…and would really like to work their way out. Unfortunately, the way the programs are set up makes it difficult to do so without hurting themselves financially.
I knew a family whose son was on a state-subsidized “insurance” program with an income cap. The wife didn’t work even though she was able to stay below the cap. Instead she maxed out her student loans, and they used part of it to live.
This program encouraged them to hurt themselves financially.
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