How MacArthur Geniuses Handle Their Windfalls(nytimes.com)
nytimes.com
How MacArthur Geniuses Handle Their Windfalls
http://www.nytimes.com/2015/09/26/your-money/how-macarthur-geniuses-handle-their-money-windfalls.html
68 comments
My father worked for a MacArthur. That woman was ruthless in her search for perfection. She did so out of love. I just want to come here and say as someone with an immigrant childhood and where my family was doing whatever we could to move up - she made my child self so happy. She personally picked out 3 industrial sized bags of Christmas presents that my dad took home to me. They filled our apartment floor.
The MacArthur awards are amusing if you know who John MacArthur was. He made his money selling mail order life insurance and stalling on paying claims.[1]
[1] William Hoffman, "The Stockholder", 1969, ASIN: B001HS4R58.
[1] William Hoffman, "The Stockholder", 1969, ASIN: B001HS4R58.
This is the very reason the foundation was created. The family wanted to give back to the community for his actions - basically forcing him to do so.
Most people who randomly get a windfall of money were previously poor. If you’re poor and suddenly get lots of money, you most probably can’t handle it; “#4. Extra Money Has to Be Spent Right Goddamn Now!”: http://www.cracked.com/blog/the-5-stupidest-habits-you-devel...
MacArthur winners have two advantages: First, they are probably good at something, and therefore are likely not poor. Secondly, even if they are poor, they are probably very focused on their thing which made them get the prize, and any money goes to their thing, not to themselves, which makes most people a little more rational when deciding things.
MacArthur winners have two advantages: First, they are probably good at something, and therefore are likely not poor. Secondly, even if they are poor, they are probably very focused on their thing which made them get the prize, and any money goes to their thing, not to themselves, which makes most people a little more rational when deciding things.
I think there is more to it than just not being able to handle it. Two aspects occurred to me:
Having a saturation point: some people just keep on spending, way beyond what they can actually get comfort and enjoyment from. When poor people have this personality, they spend their windfall and go broke. When rich people have this personality, they also spend almost all the free-floating cash they have. The difference is just their money keeps growing back. However, when their money source dries up, many rich people do indeed quickly go broke as well.
It can take a lot of money to upgrade a life (permanently): for poor people suddenly receiving lots of money, it can seem like all their problems are solved. But upgrading your lifestyle, your family, your social situation can easily swallow up millions of dollars without necessarily "wasting" anything. If you're permanently and hereditarily poor, there is a more profound form of debt than just what you owe to the bank. This debt still needs to be paid, and it can easily be more than the windfall provided.
Having a saturation point: some people just keep on spending, way beyond what they can actually get comfort and enjoyment from. When poor people have this personality, they spend their windfall and go broke. When rich people have this personality, they also spend almost all the free-floating cash they have. The difference is just their money keeps growing back. However, when their money source dries up, many rich people do indeed quickly go broke as well.
It can take a lot of money to upgrade a life (permanently): for poor people suddenly receiving lots of money, it can seem like all their problems are solved. But upgrading your lifestyle, your family, your social situation can easily swallow up millions of dollars without necessarily "wasting" anything. If you're permanently and hereditarily poor, there is a more profound form of debt than just what you owe to the bank. This debt still needs to be paid, and it can easily be more than the windfall provided.
>> there is a more profound form of debt than just what you owe to the bank. This debt still needs to be paid, and it can easily be more than the windfall provided.
I have my own thoughts on this, but would love to hear you or others expound upon it.
I have my own thoughts on this, but would love to hear you or others expound upon it.
Additionally the MacArthur grants are divided into quarterly payments over five years, so you're not getting 625k all at once, you're getting 20 payments of $31,250, one every three months. That makes it pretty much impossible to blow all of it within half a year.
People could still get into debt because they know that the money is coming. Look at how many people buy things and assess the price based on the size of the monthly payments instead of the actual total price.
You could literally go into debt by using the structured payments as collateral for a loan for something close to the full amount up front.
Not really, it makes it less likely sure but far from impossible. For one, a guaranteed cashflow contract is something you can sell to lots of different parties for a discounted lump sum right away. Hell a month ago or so there was an article on HN about a iirc mentally handicapped woman who'd received a legal settlement payout because a company had been negligent in letting her live in housing which was filled with neurotoxins (in the paint iirc), and some guy called her up and swindled her out of a large portion of the money by buying her settlement contract and paying her a ridiculously low discounted value. Anyway it happens all the time, most companies sell or buy B2B with 30-60 day payments, and many companies with cashflow issues will sell those future payments for money today. It's not a loan that you pay back at some point when you get the money, rather you're selling a loan/credit (for instant cash) someone has with you who's contractually obliged to make future payments on that to you.
And secondly you can incur lots of debt, or spend money you had saved up, knowing it'll be replenished.
Either of the two or a combination could let you blow through the money in half a year, not impossible, although it's unlikely.
And secondly you can incur lots of debt, or spend money you had saved up, knowing it'll be replenished.
Either of the two or a combination could let you blow through the money in half a year, not impossible, although it's unlikely.
>First, they are probably good at something, and therefore are likely not poor.
The wider world is not a meritocracy. The United States isn't even remotely a meritocracy. There is a prevailing ideology that depends upon this presumption of meritocracy, but that's all you can say.
The wider world is not a meritocracy. The United States isn't even remotely a meritocracy. There is a prevailing ideology that depends upon this presumption of meritocracy, but that's all you can say.
[deleted]
Is this just because there have been some high profile cases in the media like Viv Nicholson the Spend Spend Spend woman
There may be many previously poor recipients who haven't blown it all.
There may be many previously poor recipients who haven't blown it all.
> If you’re poor and suddenly get lots of money, you most probably can’t handle it;
The last study I saw said this was not true. And it's pretty illogical really. A bit of a Gladwellian story, or worst an urban legend since it's pretty mean.
People who are poor/less educated do have trouble with money, yes.
But if you give them a big chunk (lotto or smaller) it greatly improves their lives.
Well off/educated people generally invest the money better but it's silly to think poor people would blow it or worse, become less well off.
The last study I saw said this was not true. And it's pretty illogical really. A bit of a Gladwellian story, or worst an urban legend since it's pretty mean.
People who are poor/less educated do have trouble with money, yes.
But if you give them a big chunk (lotto or smaller) it greatly improves their lives.
Well off/educated people generally invest the money better but it's silly to think poor people would blow it or worse, become less well off.
Do you have a link to that study?
yep, agreed. and also the macarthur isn't nearly as much money as the usual lottery windfalls
Cormac McCarthy used his windfall to research and write the greatest (IMO) novel of the 20th century Blood Meridian, or the Evening Redness in the West
Try as I might, I can't bring myself to love Blood Meridian more than The Road.
But I would definitely place it among my top 20 books of the last century. Perhaps even in the top 10
But I would definitely place it among my top 20 books of the last century. Perhaps even in the top 10
What programs are out there like a MacArthur for coders? I know a bit about Google's Summer of Code, but it's not really the same...
Computer scientists win MacArthur grants almost every year [0]. This year it was Chris Re, a Stanford prof. Most of the CS grants are to academics, but not all, e.g., RMS got one in 1990.
[0] https://en.wikipedia.org/wiki/MacArthur_Fellows_Program
[0] https://en.wikipedia.org/wiki/MacArthur_Fellows_Program
The closest thing I know of is the Shuttleworth Foundation Fellowships. It's longer and more money than the MacArthur Genius Grants (3 years, $1.2M). Here's my experience as a fellow.
http://jaisenmathai.com/articles/shuttleworth/
http://jaisenmathai.com/articles/shuttleworth/
Okay, I don't want to sound like I'm making fun of you, but you're on a website run by a company that gives large amounts of free money away to coders to explore ideas...
Comparing MacArthur Genius Grants and similar awards to venture capital isn't particularly apt. YCR or the fellowship might be slightly more comparable, but still pretty off mark.
To the parent: MacArthur Genius Grants have been given to computer scientists... IDK about "coder"; ostensibly, that code should be pretty remarkable if you're getting that kind of windfall. And if the code is so remarkable, there's probably some science or engineering behind it that is the actual reason for the award. In other words, by the time code is doing something that is societally significant, there are probably ideas extant in that code that are worth codifying and explaining in something other than a programming language. And probably those ideas/results have impacts that go far beyond a particular implementation.
To the parent: MacArthur Genius Grants have been given to computer scientists... IDK about "coder"; ostensibly, that code should be pretty remarkable if you're getting that kind of windfall. And if the code is so remarkable, there's probably some science or engineering behind it that is the actual reason for the award. In other words, by the time code is doing something that is societally significant, there are probably ideas extant in that code that are worth codifying and explaining in something other than a programming language. And probably those ideas/results have impacts that go far beyond a particular implementation.
I think that there's a lot of "boring" code that could be written which could have a tremendous positive impact for the world. Some of it I think, if it actually saw real adoption, which would collapse the market caps of some fairly big companies.
I've started companies which have taken (small amounts of) VC funding, and I can tell you definitively it is nothing at all like a MacArthur. Try to close a deal while telling the investor you will treat their investment like a gift, and you will know exactly what I mean. Now granted, YC is starting to do things more MacArthur like, i.e. with their YC Research initiative. In particular the equity grant in YC component is very interesting.
Companies are formed to generate a profit, and investment is a direct expectation of that, or more directly, an expectation for a company to grow their market cap irrespective of any actual profit. MacArthur is the abject opposite of that, cash money without expectation.
Companies are formed to generate a profit, and investment is a direct expectation of that, or more directly, an expectation for a company to grow their market cap irrespective of any actual profit. MacArthur is the abject opposite of that, cash money without expectation.
Not exactly "free", you have to do something for it and there are strings attached.
Recurse Center[0] is a candidate, it's not free money but it gives you the opportunity to explore
[0] https://www.recurse.com/
[0] https://www.recurse.com/
It might be free if you get accepted, but accommodation in NY + not working for a few months has got to hurt
Why not just simplify it down to MacArthur Fellows are smart, and smart people are smart enough to solve the rather simple problem of not wasting a large windfall?
We detached this comment from https://news.ycombinator.com/item?id=10384732 and marked it off-topic.
Because poor people are not stupid. They're often actually pretty damn rational within their constraints. Smarts alone does not equip one to handle a windfall.
This is a very crucial point. The so called "stupid" financial behavior of people in (first world) poverty is anything but, it's a series of carefully calculated and measured responses to extreme inflexibility. Almost all means of establishing long term financial stability involve either a) put away some money now, wait for some time, then receive more money or b) risk losing some money for the chance to gain more money in a way that averages to a net positive over time. Neither of these are possible when you do not have flexibility, you can't afford to put away money when doing so means not eating for a week, and you can't afford to risk money for more money when coming out on the losing end of that deal means becoming homeless. You have to have a completely different approach to managing money when in poverty, and it sticks with you mentally even after escaping to a more stable situation.
Yes, that was exactly my point.
hugh4(3)
Relevant xkcd:
https://xkcd.com/1570/
https://xkcd.com/1570/
Because no smart person in the history of the world has ever gone broke from spending too much, right?
People always say winning the jackpot will change their lives, but from what I have seen $50,000 will change a LOT of lives for ever. In Am.Me.Ri.Ca.
Give a person $200,000 and that may be just enough that they know they cannot make a mistake. Give them north of $500,000 and now they feel they can spend freely without a worry. Give them north of $1.5M and now they may literally think this money is a bottomless well.
Give a person $200,000 and that may be just enough that they know they cannot make a mistake. Give them north of $500,000 and now they feel they can spend freely without a worry. Give them north of $1.5M and now they may literally think this money is a bottomless well.
Different scales and different 'changes'. You can give $50,000 to someone who has $10k/yr living expenses and it might change their life. But people with $10k/yr living expenses probably don't typically have the work experience and skill sets of your target demographic. When MacArthur finds someone who meets both criteria, well, that's great and a smaller award might even have more impact.
But if you are giving an award to someone with 6-figure salary and 5-figure annual living expenses, no $50,000 isn't going to make as much of a difference in their lives. If you want to seriously free that person from thinking about money for a significant period of time, it better be 7 figures. And anyway, $1.5M is not all that far from a bottomless well (i.e. 5% per year).
But if you are giving an award to someone with 6-figure salary and 5-figure annual living expenses, no $50,000 isn't going to make as much of a difference in their lives. If you want to seriously free that person from thinking about money for a significant period of time, it better be 7 figures. And anyway, $1.5M is not all that far from a bottomless well (i.e. 5% per year).
Correct, but remember that even in the US 4 out of 5 people make less than 6 figures yearly (Before tax).
Is grant or award money taxed?
I've read stories about people in the US who win a not huge but not small lottery prize of say $1 million don't do so well.
By the time they pay all the taxes and get bumped up a tax bracket or two spend a few hundred thousand they probably owe even more.
In Canada lottery wins are not taxed but the interest is. But even so many "poor" people and that's a broad term end up blowing it all.
I've seen fishermen who made $30,000 a year go work in oil fields and seem to treat $100,000 like it's play money.
I've read stories about people in the US who win a not huge but not small lottery prize of say $1 million don't do so well.
By the time they pay all the taxes and get bumped up a tax bracket or two spend a few hundred thousand they probably owe even more.
In Canada lottery wins are not taxed but the interest is. But even so many "poor" people and that's a broad term end up blowing it all.
I've seen fishermen who made $30,000 a year go work in oil fields and seem to treat $100,000 like it's play money.
Note that because of the way tax brackets work, it is not possible for a small increase in income to increase your taxes to the point that it's a net decrease (due to tax brackets anyway). If you're just below the next tax bracket, and you get a ten dollar raise, only those ten dollars are taxed at the higher rate. All of your previous income remains taxed the same as it was before.
I wish I could upvote this a thousand times. I don't know where this idea of getting "bumped up a tax bracket" comes from. I occasionally hear it from smart and otherwise informed people.
It's easy to dismiss as a wonkish point, but I actually think it's important. Some people think it's unfair for millionaires to be "taxed at a higher rate" when they've "earned their money." I wonder if they would still feel that way if they understood the millionaire is paying the same rate as everybody else for the first $75k, for example.
Of course, the truth is the millionaire is probably paying a lower tax rate due to clever accounting and large portion of earnings being subject to capital gains tax instead of income tax. But that's a different topic.
Anyway, not trying to make this political. :) I just wish more people understood how tax brackets actually work.
It's easy to dismiss as a wonkish point, but I actually think it's important. Some people think it's unfair for millionaires to be "taxed at a higher rate" when they've "earned their money." I wonder if they would still feel that way if they understood the millionaire is paying the same rate as everybody else for the first $75k, for example.
Of course, the truth is the millionaire is probably paying a lower tax rate due to clever accounting and large portion of earnings being subject to capital gains tax instead of income tax. But that's a different topic.
Anyway, not trying to make this political. :) I just wish more people understood how tax brackets actually work.
>Some people think it's unfair for millionaires to be "taxed at a higher rate" when they've "earned their money." I wonder if they would still feel that way if they understood the millionaire is paying the same rate as everybody else for the first $75k, for example.
In the UK at least once you go into the 45% super high earner bracket (150k I think) - you'll start to lose your tax free allowance which means you do actually pay more tax on the sub threshold income. Obviously it's still designed to ensure no one ever goes over 100% marginal tax rate (where you'd actually lose money by earning more).
In the UK at least once you go into the 45% super high earner bracket (150k I think) - you'll start to lose your tax free allowance which means you do actually pay more tax on the sub threshold income. Obviously it's still designed to ensure no one ever goes over 100% marginal tax rate (where you'd actually lose money by earning more).
Interesting. I should have said "... in the United States." I know very little about taxes in other countries.
> In the UK at least once you go into the 45% super high earner bracket (150k I think)
The personal allowance decreases by £1 for every £2 you earn over £100k. Combined with the existing income tax this is equivilent to having a marginal rate of 60% on earnings between 100 and 120k.
The personal allowance decreases by £1 for every £2 you earn over £100k. Combined with the existing income tax this is equivilent to having a marginal rate of 60% on earnings between 100 and 120k.
This is definitely true if you are just looking at income tax. The problem is that's not the only taxes you pay. For example, EITC rebate decreases as well, which additionally erodes any gross increase.
GSA has some studies which specifically look at effective tax rate on incremental dollars. There are places in the curve which are nearly 100% marginal.
To see dramatically higher than 100% marginal rates, you have to look at the big picture and not just income taxes. There is a bevy of state and federal-supported social programs, the big ones SSDI, Medicaid, SNAP, and ACA, which pay out tremendous sums if you don't work at all, and ratchet down aggressively as you start working.
Combined with the higher bracket income-based taxes, you get a curve which looks like a shifted x^3 curve. Namely, as soon as you start working you are heavily negative. Then for a long time working more nets you little to nothing, and then eventually you can pull-out the other side (for a family of 4, that starts around $100k gross household income)
GSA has some studies which specifically look at effective tax rate on incremental dollars. There are places in the curve which are nearly 100% marginal.
To see dramatically higher than 100% marginal rates, you have to look at the big picture and not just income taxes. There is a bevy of state and federal-supported social programs, the big ones SSDI, Medicaid, SNAP, and ACA, which pay out tremendous sums if you don't work at all, and ratchet down aggressively as you start working.
Combined with the higher bracket income-based taxes, you get a curve which looks like a shifted x^3 curve. Namely, as soon as you start working you are heavily negative. Then for a long time working more nets you little to nothing, and then eventually you can pull-out the other side (for a family of 4, that starts around $100k gross household income)
That last statement -- that it takes a household income of ~$100k/year before you "pull out the other side" and end up genuinely better off than you would be earning nothing -- seems extremely surprising.
The great majority of households in the US have household income less than $100k. Are you saying that they are all worse off, or only insignificantly better off, than they would be with an income of zero?
If so, I'd love to see some data.
The great majority of households in the US have household income less than $100k. Are you saying that they are all worse off, or only insignificantly better off, than they would be with an income of zero?
If so, I'd love to see some data.
The typical chart looks something like this; http://www.economonitor.com/dolanecon/files/2014/01/P140103-...
But even that does not include a substantial number of assistance programs, like TANF (up to $10k per year in cash), Section 8, and forget about a proper analysis of progressive income-based-pricing for things like college tuition.
Most of all, these analysis always assume the cost of working is $0 when in fact it costs a lot to get to work and be at work all day, as well as the marginal value of not being employed and spending that time doing work you would otherwise pay someone else to do (childcare, housework, home schooling, etc.) is very significant.
It also depends heavily on how healthy the family is, and therefore the market value of $0 deductible Medicaid / ACA. GSA pegs the average value of Medicaid around $8,000 but consider the max family out-of-pocket for Bronze ACA without any subsidies is $13,200, and that's not even counting the premiums, so that $8,000 value is assuming a a relatively health family of 4.
If the family has chronic health needs, then getting eligible for Medicaid can save upwards of $25,000 per year between premiums and out-of-pocket expenses. Also note, SSDI is ~$48,000/yr for a fully vested disabled individual with 2 children.
So I definitely agree if you just look at the tax return the average healthy family of 4 will see net income rising certainly before you hit $100k gross. How much their cost-of-living is increasing in lock-step with that rise, versus how much is eaten by increasing work-related and income-related expenses is a more contentious topic which I have yet to find, even from GSA, a truly comprehensive analysis which includes the effects of the ACA.
But even that does not include a substantial number of assistance programs, like TANF (up to $10k per year in cash), Section 8, and forget about a proper analysis of progressive income-based-pricing for things like college tuition.
Most of all, these analysis always assume the cost of working is $0 when in fact it costs a lot to get to work and be at work all day, as well as the marginal value of not being employed and spending that time doing work you would otherwise pay someone else to do (childcare, housework, home schooling, etc.) is very significant.
It also depends heavily on how healthy the family is, and therefore the market value of $0 deductible Medicaid / ACA. GSA pegs the average value of Medicaid around $8,000 but consider the max family out-of-pocket for Bronze ACA without any subsidies is $13,200, and that's not even counting the premiums, so that $8,000 value is assuming a a relatively health family of 4.
If the family has chronic health needs, then getting eligible for Medicaid can save upwards of $25,000 per year between premiums and out-of-pocket expenses. Also note, SSDI is ~$48,000/yr for a fully vested disabled individual with 2 children.
So I definitely agree if you just look at the tax return the average healthy family of 4 will see net income rising certainly before you hit $100k gross. How much their cost-of-living is increasing in lock-step with that rise, versus how much is eaten by increasing work-related and income-related expenses is a more contentious topic which I have yet to find, even from GSA, a truly comprehensive analysis which includes the effects of the ACA.
That chart suggests that at pretty much every income level you're better off (in financial terms) earning more. Over most of its range it looks like d(benefits)/d(income) is no worse than about -0.1.
The other factors you mention will of course make a difference, but I'm not seeing anything that comes close to justifying the statement that you don't get into positive returns until $100k/family/year.
The other factors you mention will of course make a difference, but I'm not seeing anything that comes close to justifying the statement that you don't get into positive returns until $100k/family/year.
If you consider only Medicaid, SNAP, and EITC, the lost benefits equate to at least a $10,000 tax on the first $70,000 gross (an effect 14% tax). Since the chart is only showing a subset of lost benefits, it can't show if you're "better off" because it doesn't show all the lost benefits and it doesn't show the effect of taxes.
First, there are all the programs the chart simply ignores. Some are asset-tested like TANF and SSI, so you can't just stop working and start claiming them. Yet they pay out about $70 billion so they are not insignificant. Others are income-based and can be very significant, like Section 8 which could pay $10,000/yr in rental assistance.
Another question, is it fair to value Medicaid as the average cost / enrolled person, when the government is getting a special low rate? If valued on a replacement cost basis (what it costs for worse insurance paid for by the employee+employer) then it would be valued closer to $20,000 in premiums plus the deductible.
So yes, you can easily lose $40,000 in benefits, and pay $20,000 in taxes earning that first $100k gross, besides the fact that it will cost you 4160 hours of work to get there.
First, there are all the programs the chart simply ignores. Some are asset-tested like TANF and SSI, so you can't just stop working and start claiming them. Yet they pay out about $70 billion so they are not insignificant. Others are income-based and can be very significant, like Section 8 which could pay $10,000/yr in rental assistance.
Another question, is it fair to value Medicaid as the average cost / enrolled person, when the government is getting a special low rate? If valued on a replacement cost basis (what it costs for worse insurance paid for by the employee+employer) then it would be valued closer to $20,000 in premiums plus the deductible.
So yes, you can easily lose $40,000 in benefits, and pay $20,000 in taxes earning that first $100k gross, besides the fact that it will cost you 4160 hours of work to get there.
Assuming for the sake of argument that all your figures are correct, that still puts you $40k/year better off with the $100k salary than without it. I am still not seeing how it can possibly be correct to describe this by saying that it's at about $100k/year gross that you start to "pull out the other side".
Programmes for which "you can't just stop working and start claiming them" are surely irrelevant to this particular discussion, which is entirely about the effect of earning more or less (at, presumably, a fixed level of assets).
Also: 4160 hours of work is over 11 hours/day, 365 days/year. I'm sure there are people working such hours, unfortunately, but if you're implying that that's in any way typical then I must gently suggest that you might be wrong.
(For the avoidance of doubt: I think "poverty traps" are a very bad thing, and I would love to see taxation and benefits everywhere reformed so that effective income rises smoothly as a function of gross earnings, and I agree that the US tax and benefit system is a mess and makes it unprofitable for some lowish earners to earn more. All I'm disagreeing with is the suggestion that the point at which this stops happening is anywhere near as high as $100k/year gross.)
Programmes for which "you can't just stop working and start claiming them" are surely irrelevant to this particular discussion, which is entirely about the effect of earning more or less (at, presumably, a fixed level of assets).
Also: 4160 hours of work is over 11 hours/day, 365 days/year. I'm sure there are people working such hours, unfortunately, but if you're implying that that's in any way typical then I must gently suggest that you might be wrong.
(For the avoidance of doubt: I think "poverty traps" are a very bad thing, and I would love to see taxation and benefits everywhere reformed so that effective income rises smoothly as a function of gross earnings, and I agree that the US tax and benefit system is a mess and makes it unprofitable for some lowish earners to earn more. All I'm disagreeing with is the suggestion that the point at which this stops happening is anywhere near as high as $100k/year gross.)
Sorry I should have clarified, I went with 4160 hours as two parents each working full time (2080 hours x 2), since we're talking about a family of 4 and anyway most people cannot and do not gross $100k alone.
Unfortunately just because the family is netting after lost benefits and taxes $40k for the work, doesn't mean they are "$40k/year better off" for working. For two people to work full time and gross $100k somewhere outside the home, there are substantial direct costs. After you "net" the lost benefits and taxes, you still have to "net" the direct costs. Child care, transportation, and clothing are probably the top 3, food and household costs also tend to increase when working. Many of these direct costs are also not fully tax deductible. Opportunity cost is significant not just in terms of not having to hire service providers to do things you no longer have time to do yourself (e.g. child care, repairs, maintenance), but also in things like personal value-producing activities which are not considered income, e.g. gardening, home improvement, home schooling. You're not "better off" if you spend 4160 hours neting $40k of cash, then spend $15k of that on unreimbursed business expense, and could have done more valuable things with your time than $6/hour. So everything works together to lower the net utility dramatically below the alternative of simply not carrying a job, and doing something directly productive to your family with your time.
My thesis is that up to about $100k, the true fully realized benefit for a family of 4 with two adults working full time outside the home is significantly less than $10/hour, and in fact for families consuming significant healthcare is actually negative. This is what I mean by "x^3 shaped curve", and "for a long time working more nets you little to nothing, and then eventually you can pull-out the other side" around $100k for a family of 4. E.g. $6/hour of actual received value is an extremely low bar considering the time and effort required for two people to gross a combined $100k. Compared to if those same two people simply expended the same level of time and effort taking care of their families, their homes, and themselves. If you really do the math and consider the economic value transferred, while the overall economy certainly benefits from all this money swirling around, and taxpayers benefit from decreased social welfare expense, the individual family will see very little gain (i.e. increase in assets or disposable income) if not a loss at the end of the year, after having devoted the majority of their waking life that year to their job.
While historically the workforce participation rate has grown, it has recently been shrinking, and I personally think we will see it continue to shrink for some time, in part due to this almost complete futility of low to middle-class earning power. The only things saving the economy from a mass exodus from these jobs is; first this was only just recently made quite as bad as it is through the ACA Medicaid and SNAP expansion. By giving $5000 of Whole Foods vouchers, and best-in-the-world free healthcare to all non-workers regardless of assets, this strongly altered the value proposition of working, particularly for chronically ill families. These programs also take quite a bit of time and persistence to get into, but we are seeing a massive expansion of these programs every year. Over time more people catch on, sign up, and drop out of the work force.
Means-tested programs are unfortunately not irrelevant. For people in the worst case scenarios (very low assets AND no income), starting to work provides the most damaging effects by immediately canceling benefits, in many cases more than dollar-for-dollar against what is earned. Families who operate in the bottom $40,000 of the curve will almost certainly pass the asset tests, and also face incredibly steep marginal rates (the original point) when you consider these programs, cumulatively they are much worse than 100% marginal. So the people in the absolute worst shape are locked out the hardest from starting to work, because they have $0 assets and literally cannot afford a net loss for adding a new commitment to their day. For example, TANF will pay up to $713/per month in cash, but every dollar in countable gross income reduces the benefit by $1. So if you qualify for TANF then TANF alone produces 100% marginal tax on the first $8772/yr, and then you still need to pay the taxes and direct costs of working! Note that TANF doesn't count SNAP/Medicaid/Section 8 as income, Medicaid doesn't count SSI, etc.// so the 5 programs are largely (not entirely) stackable by design as long as you strictly avoid other earned income.
A second dimension, but I would say a much less pressing problem, is means-testing on its face seems fairly strict (e.g. < $2,500 cash balance in a bank account) but many assets (like your primary residence, your first car, and personal property like jewelry) and some forms of income are also excluded. So in practice it's possible to qualify for the program with substantial non-liquid assets, as long as countable income and cash is tightly controlled.
I do really appreciate your comments, I'm sorry if I wrote way too much here!
Unfortunately just because the family is netting after lost benefits and taxes $40k for the work, doesn't mean they are "$40k/year better off" for working. For two people to work full time and gross $100k somewhere outside the home, there are substantial direct costs. After you "net" the lost benefits and taxes, you still have to "net" the direct costs. Child care, transportation, and clothing are probably the top 3, food and household costs also tend to increase when working. Many of these direct costs are also not fully tax deductible. Opportunity cost is significant not just in terms of not having to hire service providers to do things you no longer have time to do yourself (e.g. child care, repairs, maintenance), but also in things like personal value-producing activities which are not considered income, e.g. gardening, home improvement, home schooling. You're not "better off" if you spend 4160 hours neting $40k of cash, then spend $15k of that on unreimbursed business expense, and could have done more valuable things with your time than $6/hour. So everything works together to lower the net utility dramatically below the alternative of simply not carrying a job, and doing something directly productive to your family with your time.
My thesis is that up to about $100k, the true fully realized benefit for a family of 4 with two adults working full time outside the home is significantly less than $10/hour, and in fact for families consuming significant healthcare is actually negative. This is what I mean by "x^3 shaped curve", and "for a long time working more nets you little to nothing, and then eventually you can pull-out the other side" around $100k for a family of 4. E.g. $6/hour of actual received value is an extremely low bar considering the time and effort required for two people to gross a combined $100k. Compared to if those same two people simply expended the same level of time and effort taking care of their families, their homes, and themselves. If you really do the math and consider the economic value transferred, while the overall economy certainly benefits from all this money swirling around, and taxpayers benefit from decreased social welfare expense, the individual family will see very little gain (i.e. increase in assets or disposable income) if not a loss at the end of the year, after having devoted the majority of their waking life that year to their job.
While historically the workforce participation rate has grown, it has recently been shrinking, and I personally think we will see it continue to shrink for some time, in part due to this almost complete futility of low to middle-class earning power. The only things saving the economy from a mass exodus from these jobs is; first this was only just recently made quite as bad as it is through the ACA Medicaid and SNAP expansion. By giving $5000 of Whole Foods vouchers, and best-in-the-world free healthcare to all non-workers regardless of assets, this strongly altered the value proposition of working, particularly for chronically ill families. These programs also take quite a bit of time and persistence to get into, but we are seeing a massive expansion of these programs every year. Over time more people catch on, sign up, and drop out of the work force.
Means-tested programs are unfortunately not irrelevant. For people in the worst case scenarios (very low assets AND no income), starting to work provides the most damaging effects by immediately canceling benefits, in many cases more than dollar-for-dollar against what is earned. Families who operate in the bottom $40,000 of the curve will almost certainly pass the asset tests, and also face incredibly steep marginal rates (the original point) when you consider these programs, cumulatively they are much worse than 100% marginal. So the people in the absolute worst shape are locked out the hardest from starting to work, because they have $0 assets and literally cannot afford a net loss for adding a new commitment to their day. For example, TANF will pay up to $713/per month in cash, but every dollar in countable gross income reduces the benefit by $1. So if you qualify for TANF then TANF alone produces 100% marginal tax on the first $8772/yr, and then you still need to pay the taxes and direct costs of working! Note that TANF doesn't count SNAP/Medicaid/Section 8 as income, Medicaid doesn't count SSI, etc.// so the 5 programs are largely (not entirely) stackable by design as long as you strictly avoid other earned income.
A second dimension, but I would say a much less pressing problem, is means-testing on its face seems fairly strict (e.g. < $2,500 cash balance in a bank account) but many assets (like your primary residence, your first car, and personal property like jewelry) and some forms of income are also excluded. So in practice it's possible to qualify for the program with substantial non-liquid assets, as long as countable income and cash is tightly controlled.
I do really appreciate your comments, I'm sorry if I wrote way too much here!
Strange, I'm not familiar with the US system I figured it was similar to Canada's. We have four sections and you get dumped into only one of them although the first $11K is not taxed.
That's not how tax brackets work, but it is how some brain-dead payroll systems work! I have seen first hand a broken payroll system that simply extrapolates the current pay period out into the full calendar year and then deducts taxes at that rate. This has the result of a small gross increase (usually due to intermittent overtime pay) resulting in a net decrease in pay for that pay period. This is very much an edge condition of an already broken model, but I have definitely seen it happen.
> extrapolates the current pay period out into the full calendar year and then deducts taxes at that rate
For US Federal taxes, thats generally how its supposed to work - see [1], and for some exceptions [2].
> small gross increase [...] resulting in a net decrease in pay for that pay period
If a payroll system is doing that, its not for the reason you cite. US tax rates are such that an increase in gross pay always results in an increase in net pay, and that doesn't change when you divide gross and net by 24 (or however many pay periods you have each year).
[1]: https://www.irs.gov/publications/p15/ar02.html#en_US_2015_pu...
[2]: https://www.irs.gov/publications/p15a/ar02.html#en_US_2015_p...
For US Federal taxes, thats generally how its supposed to work - see [1], and for some exceptions [2].
> small gross increase [...] resulting in a net decrease in pay for that pay period
If a payroll system is doing that, its not for the reason you cite. US tax rates are such that an increase in gross pay always results in an increase in net pay, and that doesn't change when you divide gross and net by 24 (or however many pay periods you have each year).
[1]: https://www.irs.gov/publications/p15/ar02.html#en_US_2015_pu...
[2]: https://www.irs.gov/publications/p15a/ar02.html#en_US_2015_p...
What you're describing is tax-withholding. In this situation you would receive the extra tax withheld when you file your tax return, so you're not really having extra tax taken from you. You could also always claim more allowances on your W-4.
My understanding is that this is done so people get consistent monthly payments in the common case. Otherwise people who plan based on their monthly pay at the start of the year might end up in serious difficulty when it suddenly drops. If this results in your being underpaid for whatever reason, it will be corrected at the end of the financial year.