Professional golfer Phil Mickelson has been in the news lately for complaining — and then apologizing about complaining — about the marginal tax rate he faces under new tax laws at both the federal level and in his home state of California. He claimed he now pays more than 60 percent of his income in taxes.
Presumably, he apologized because now is not the most popular point in U.S. history for questioning the wisdom of the government for taxing sharply the income of Americans who earn tens of millions of dollars a year. And as someone who earns a goodly chunk of his millions precisely because of his popularity (think endorsements), Mickelson has to consider such things.
So perhaps readers will be more interested to know that Mickelson has nothing on low-income Americans when it comes to watching his take-home earnings dissipate with each additional dollar. But not only because of tax rates.
Based on data released earlier last fall by the Congressional Budget Office, the Heritage Foundation produced two charts that depict the way federal benefits help to discourage low-income workers from trying to earn more money.
That one’s pretty self-explanatory. If you are a single parent with one child, our social-welfare system practically begs you not to try to increase your earnings between the $5,000 and $20,000 levels — because, if you do, you stand to lose benefits at a rate nearly equal to the additional income. So, while our system does a decent job of keeping people from being abjectly penniless, the price it imposes on them is a daunting climb to improve their position.
Here’s the second chart:
This is truly breathtaking. If you earn between $10,000 and $23,000 a year in this country, the government takes more of each additional dollar you earn than it does from Phil Mickelson.
Here’s what that looks like in practical terms. At the federal minimum wage of $7.25 an hour, $10,000 per year comes out to 26.5 hours per week. To reach $23,000 per year, a single parent with a minimum-wage job would have to work 61 hours per week. Who on earth would work twice as hard, knowing they’d actually be able to spend much less than half of each additional dollar they earned?
At $10 an hour, it’s the difference between working 19.2 hours per week and 44.2 hours per week. Again, it is not rational to expect anyone to make that jump. Even worse, consider a mix of the two scenarios: A single parent could get a raise of $2.75 an hour (that’s a wage increase of about 38 percent) and pick up two more eight-hour shifts per week — and be barely better off than he or she was before the raise and the extra work.
There are scenarios in which this arrangement arguably does help people improve their lives: for instance, a single mother who is able to keep herself and her child afloat long enough to finish college and take a job well above the “low-reward zone.” But there are also plenty of scenarios in which low-income Americans may just resign themselves to their current standard of living because the challenge of rising from $10,000 a year of earnings to more than $25,000 a year is so daunting.
That’s not good for them or for our nation. Our policies should encourage additional work both out of respect for individual dignity and because our fiscal condition requires that we have more people paying into the system rather than drawing money out of it.
Judging by our political debates of late, Democrats’ answer to this dilemma is to pretend the whole problem would be solved if only people like Mickelson paid even more in taxes. As Mickelson’s initial comment about his taxes made clear, not all of these high earners are willing to do that. And in any case, the math doesn’t add up.
Mitt Romney did his presidential campaign, and the GOP more broadly, an enormous disservice by suggesting, in that infamous speech to campaign donors, they simply write off these Americans, at least from a political perspective. Instead, the proper approach is to reform the safety net and the tax code so that they help people when they need it most but do not effectively trap them in their present condition. That, and to encourage other related behaviors — such as waiting until marriage to have children in the first place — that keep people from arriving at such a desperate position in the first place.
It is bad policy to punish people for working harder, no matter how much they earn. Republicans have done a good job of convincing the public that they believe this is true for high earners. Their challenge is to make clear that this very sound principle applies to people at the lower end of the income spectrum, too.
– By Kyle Wingfield