The disincentives to work created by government transfer programs can be truly enormous. The chart below, created by Gary Alexander, Pennsylvania Secretary of Public Welfare, shows the relationship between wages and disposable income for a single mother of two living in Pennsylvania.
Notice how, beginning at about $30,000, this woman’s disposable income drops in several steps as she moves up the income scale and becomes ineligible for various benefits. According to this chart, this women is better off earning $29,000 than earning $69,000. The welfare system actually rewards her for turning down a $69,000 per year job offer in order to keep her current job. Those who are concerned about declining social mobility should focus on this problem.
[Chart from Gary Alexander’s presentation at the American Enterprise Institute, July 2012; h/t Zero Hedge, November 27]
And by the way, this is the welfare state that the President wants to keep afloat with higher taxes.