Tuesday, May 20, 2014

Are the Working Poor really Poor? Interesting Question!

If you are among the working poor and collect a number of subsidies and freebies, how much are you really making, effectively, compared to a "middle-class" person?

In my last posting, I made a comment:
"...and by poor, I don't mean someone who is working at a job, collecting food stamps and assistance, and living in subsidized housing - they really aren't poor are they?  Their taxable income may be low, but they have a comfortable lifestyle compared to the really poor or homeless..."
This comment bears expounding upon.   Why?   Because in our country, we tend to measure "poverty" in terms of taxable income, not in terms of effective income - and there is a huge difference between the two.

What do I mean by effective income?   Well, as I noted in another posting, I helped some retired friends with their taxes, and they were embarrassed that they made "only" $44,000 a year.   However, when we got done with their taxes, their tax bill was ZERO - no income taxes (State or Federal) and no Social Security or Medicare taxes (which for me, as a self-employed person, would be 18%!).   I explained to them that in order to have $44,000 in after-tax income, an "employed" person would have to make $50,600 just to cover Federal income tax.   With State and Social Security and Medicare taxes, the amount creeps closer to $60,000.  For a self-employed person?  Maybe $70,000.

And the household median income in the USA is about $51,000.  In other words, they are doing pretty well, solidly in the middle class, and are not "poor" by any stretch of the imagination.   This came as a surprise to them.   But of course, most Americans, even Billionaires these days, feel "put upon" because the media says they should be so.

But this got me to thinking.   What if you were really poor and working a minimum-wage job, like those fast-food workers who thought that a job at McDonald's was a lifetime career?  What would your effective income be, what with food stamps, health care, Obamaphones, Section-8 housing, and other assistance?

It is an interesting question, and one the media fails to ask.   In fact, they tend to look at collecting food stamps as some sign of poverty rather than a means of preventing poverty.   They posit an article about some sad sack with the phrase, "They are forced to collect food stamps!" as if getting free food from the Government was the worst thing on Earth.

A few years back, my income sank so low that I pondered whether I could collect some of this government gravy.   And the answer I found was, "almost" - as having a lot of assets does not preclude one from collecting.  Taxable Income is the only determinate.   And the State food-stamp industry will actually skew the rules to allow you to collect more, by fudging up a fake "heating assistance" program for you.

Let's take an example, using the "Can't live on a minimum wage with a family of four" scenario that the Service Employees International Union likes to tout.  Suppose you have a husband and wife and two children.   And let's assume the irrational proposal that only the husband works and the wife stays home and keeps house.   After all, we can't expect the poor to have dual incomes, right?   Why should husband and wife both work, like middle-class families do?   Well, let's set that aside for the time being.

And let's assume husband has two part-time minimum wage jobs (totaling 40 hours a week), because those heartless bastards in Corporate America no longer hire anyone full-time, so they can skip out on benefits.  And let's assume husband is making the Federal Minimum Wage of $7.25 an hour, even though the minimum wage is far higher in most jurisdictions and moreover, most companies - even hot dog stands - pay more than this, in order to attract good workers.  And let's assume for some weird reason, the husband has never gotten a raise in his life.  Those are all pretty weird assumptions, but that's the way the Union posits things, so let's go with it.

So, we are talking about $14,500 a year in wage income.   That's pretty low, but then again, it is based on the bizarre assumptions in this scenario.

Based on that pitiful income, they would qualify, I believe, if math is correct, for $668 a month in food stamps or "SNAP" benefits for a family of four.  That adds $8016 to their annual income.  This brings their income up to $22,516 a year, a boost of nearly 50% right there.   And quite frankly, $668 a month is enough to FEED a family of four, particularly if, as in our scenario, Mom is staying home all day and can make foods from scratch, rather than sit in front of the television and thaw microwave meals.  (Our budget is under $600 a month for two, but we tend to buy a lot of gourmet foods.  Spending more wisely could stretch this easily to feed a family of four).

Since they qualify for the maximum SNAP benefit, they qualify for a free Obamaphone.  Now, of course, they are not "Obamaphones" but are part of a program that goes back as far as President Reagan, when free landlines were offered to the poor, as they didn't have 911 service.   But you can read the link for more history on that.  The phone is free (a $89 value) and the 250 minutes a month of service is free as well.   A "pay as you go" plan would charge $25 a month for those minutes.  Let's assume they have two phones, which means an additional $50 a month of free phone service, or $600 a year.   Assume the phone lasts five years, and that's another $36 a year in freebies, for a total of $636 a year.  Effective Income is up to $23,152, so far.

I say "so far" because the biggies are not factored in yet - housing and health care.   Housing is a huge expense, of course, and for a middle-class taxpaying working schmuck, it can take 30-50% of your income or more, particularly if you live in a big city.  Some folks spend 60% or more on housing.

Getting subsidized housing is difficult, of course, but it does existSection-8 housing, as I noted in an earlier posting, is something of a scam on the government.  In Fairfax County Virginia, I ran into Section-8 slumlords who invoice the government for 75% of the inflated rent on an apartment or townhouse, knowing full well that the tenant would never pay the remaining 25%.   In effect, the tenant got free housing while the landlord got a free house, both of which were paid for by the government.   Again, the rest of us schmucks pay half our income to rent an apartment or own a condo.   If you qualify for Section-8, well, you might end up paying nothing.

Let's assume our "family of four" (posited by the SEIU) has been on the waiting lists long enough to get this subsidized housing.   How much is the subsidy worth?   Well, that depends on the location.  If it is in a rural area, such housing may be worth only $600 to $800 a month.   However, near the big city, this could be as much as $1500 to $2000 a month.   Let's assume the big city, as the SEIU likes to use the scenario that "a family of four" can't live on minimum wage in the big city.   This adds $1500 a month in rent subsidies to their income.   If they play the Section-8 slumlord game right, they might not pay anything in rent themselves. This adds a cool $18,000 to their annual income, for a total, so far, of  $41,152.  Ouch, that's a lot of money!

Now, let's talk about health care.  In the recent past, this family would have done without ANY healthcare, and would have used the emergency room as their doctor.   Obamacare has changed all that - for the better.   They can go to a real doctor now, and the costs are not borne by the hospital in terms of bad debt to be written off.  This is an improvement over the past.    Since their "taxable income" is so low, they might qualify for a full subsidy for Obamacare.  Using the Kaiser Subsidy Calculator, we can figure out how much subsidy they would qualify for.

This is where it gets weird.   The subsidy calculator that Kaiser uses, states that subsidies are available only for those from 100% to 400% of "the poverty line" (about $25,000 a year) and implies that if you make less than the poverty line you don't qualify for a subsidy.  The tax credits are not available, but instead, medicaid would pick up the slack.   The amount this care is worth depends on where you live.  Using this subsidy calculator for Fairfax County Virginia,  it appears that the premiums for a family of four (husband 33, wife 30, children 8 and 10, all non-smokers) would be worth as much as $825 per month (if the family did make over $25,000 a year, they would get a full subsidy in that amount).   This is an effective benefit of $9,900 a year in health care subsidies.   This is the amount a middle-class family would have to pay for their premiums.   This raises the effective income for this family of four to $51,052, or well above the median income in the United States.

But we are not done yet.   I will not address all the remaining programs they may qualify for - heating subsidies, school lunch subsidies, food banks, and other handouts.   Suffice it to say, if they put their mind to it (and Mom stays home all day long and has time on her hands) they can collect quite a bit more.  They may qualify for TANF or even Social Security SSI.   Some cities have subsidized bus or subway fares.  And it is all based on your taxable income not your effective income.

The next biggie is taxes.   You see, at $14,500 in taxable income, they pay no income taxes to the State or Feds.   They do pay Social Security and Medicare taxes - and the amount they take out of those systems will be far higher, in terms of ratio, than they put in, compared to a middle-class person.  That's a heck of a handout right there, but let's not even calculate that into the mix.  Let's assume they pay 8% in Social Security and Medicare taxes (the employer kicking in another 8%) on that $14,500 in taxable income.    That's $1160 a year in taxes.

Now, so far, we've added up $51,052 in effective income for this family.   If that was wage income and they had to pay for all the free shit they get in life, their taxes would be pretty hefty.   With a 15% Federal Income tax, plus about 7.5% in State Taxes  ($2649.24 according to the formula), they would have a pretty hefty combined State and Federal tax bill of  $10307.04.   We could add in the missing Medicare and Social Security Taxes (about $2924.16) but since I didn't calculate deductions, we'll call that a wash.

This brings the effective income up to $61,359.04, or solidly in the middle class.   This is about the amount of money you or I would have to earn in wages in order to have the equivalent lifestyle of this hypothetical family.

It is a pretty scary and amazing calculation.

Now, I am sure there are some Nit-Pickers out there who will point out that I didn't carry the 1 or that I rounded off to the nearest half-cent.   Go ahead, Nit-Pick all you want.   But do the whole math on the whole thing and come up with your own numbers and the rationale behind them.  You may come up with a lower number - or a higher one.   But it will still be quite an astounding number.

And no, just "not counting" a subsidy is not allowed in this game.   That's not Nit-Picking, that's just lying.   And we're not going to lie to ourselves here, are we?

And bear in mind, I made some pretty generous assumptions here - that the wife is not working, that the husband is making only the minimum wage, that he is working only 40 hours a week (and not the 50-60 that many middle-class people work).    Odds are, they are making $8-$10 an hour if they are near any populated area (the Burger King in Crystal City, Virginia was paying $8 an hour back in the 1990's, so I can only imagine what they pay now!).

(I am also assuming that these folks are not working any "under the table" jobs where they are paid in cash.  This is not counted toward taxable income and does not affect their subsidies at all.  Many Latino immigrants work in housecleaning and lawn care jobs, where they are paid in cash by their employers, and do not report this income.  This adds a lot to effective income, to be sure!)

In other words, this idea that people are "going hungry" in America, or that the working poor have it really, really bad, is not necessarily true.   If you work the system and get the subsidies, you could end up fairly well off.   Not rich by any stretch of the imagination, but well-fed, clothed, housed, and provided with health care.   And all by working a pretty mindless job for not many hours a week.

But of course, most of the working poor are like you and I, and want more out of life than just the minimum.  And many work longer hours or more jobs, so they can have nicer stuff (like a big television, Cable TV, and a car).   In many households, there are a number of adult children or other relatives who also work, adding money to the household income.   Very few are the single-breadwinner working 40-hours a week supporting a family of four, which is the insane hypothetical posited by the SEUI.

The Unions are calling for a raise in the minimum wage to an astounding $15 an hour.   That's $30,000 a year, if you are paying attention.   That's a 50% raise for people making $10 an hour.  That may sound like a good deal, but bear in mind that if you make that much money, you may lose your Federal Subsidies - or have them reduced.   Moreover, you may have to pay a lot more taxes than you did in the past.

But in a way, maybe that makes sense, if you think about it.   As I noted in an earlier post, food stamps, housing assistance, Obamaphones, and other government handouts to the working poor are not only a subsidy to the poor themselves, but to their employers as well.   Wal-Mart and McDonald's can pay minimum wage to their employees, as the government, in effect, subsidizes the wages of the working poor.  It turns out that Welfare for the poor is also Corporate Welfare as well.

If a McDonald's employee made $30,000 a year full-time, and had benefits (including health care), he would end up paying a lot of taxes and the amount of "free" stuff he would get from the government would dwindle down to nothing.  And once he started paying lots of taxes, well, he might just start voting Republican.   The horror!

Both sides on this debate fail to realize that they may be arguing against their own best interests.   The fast-food worker who argues for a $15 wage doesn't realize that he may be worse off as a middle-class taxpayer than as a working poor collecting free swag from Uncle Sugar.   The businessman on the other hand, fails to realize that paying $15 an hour would take his employee above the "poverty line" and thus disqualify him for handouts - which in turn would reduce the Federal budget and lower his taxes.

If the SEUI wants to sell an increase in the minimum wage, that is the argument they should use - getting people off welfare and off the dole.   It would sell a lot better than the idea of burger-flippers making as much as a machinist or a welder.