Josh wrote: ↑Sun Nov 26, 2023 9:39 am
Ken, did you read what mike said? If you have 1 or more kids, EITC is often more than payroll taxes including the employer's share. It is rather obvious to see this if you look at the EITC tables. Let's look at an example for a married couple with 4 children where Dad makes $13/hr and mom stays at home (this is a real life example of someone I go to church with). I'm using the 2022 data below since some of the 2023 data isn't published yet. (2023 EITC will be even more generous since it's indexed to CPI.)
First of all, the refundable part of the child tax credit is $1,600, so that's $6,400 right off the bat.
EITC at $26,000/yr with 3 dependents is $6,935.
Federal withholding on $26,000 is $0. The employee's share of FICA (OASDI & Medicaid) is $1,989; with the employer's share $3,978. (The scenario would be almost identical if this person were self-employed and making $14/hr.). State taxes in my state would be $480. Net paycheck $23,531 or about 9% of their gross pay (not a significant amount).
So the person has an income of $26,000 yet after refundable tax credits will net $36,866 (not including the value of welfare benefits). That's over $10,000 more than their gross pay, or an approximately 40% boost. It is
extremely doubtful that anyone is paying 40% of their income in property taxes and sales taxes. For the example above, he doesn't own a home, but if he did his property tax would be around $1,200 a year. Let's also assume they spend 100% of their leftover money on taxable sales. So $35,666 times 6.25% = $2,250 in sales taxes. Now their net pay (that they can spend on taxable things, AFTER paying federal, state, payroll, property, and sales taxes), is $33,436. That's still $7,436 more than they earned.
And... that's also more than the EITC, which you claimed is welfare. So even without EITC, they're still netting $501 extra, so their effective tax rate (before EITC) is -1.9%. Or with EITC, -29%. That's a pretty good deal.
Now let's get back to including welfare money... EBT food stamps for a family of that size are around $1,443 (it's currently more but I'm not sure where to look that up). Let's assume one of the children is below the age of 2 (which happens to be the case for this family). WIC includes a food cash benefit of $75. That's about $18,216 a month in food benefits, which is effectively like cash, since everybody buys groceries (or they should). Food isn't taxable in Ohio, so it doesn't affect my sales tax calculation above. Now they're netting an extra $25,662 a year. And of course no income tax is owed on any of this.
Let's take into consideration the value of PIPP, which pays for your heat and A/C by paying for your gas and electric bill, fixed at 10% of your taxable income. We already know what that is at $26,000, so that's $2,600 per year. Actual typical electric and gas expenses around here are $150 and $150 each (averaged out for the year), so that's a net benefit of $1,000 per year. There is also an intangible benefit to never needing to worry about how much electricity you use, leaving windows open in the winter, blasting the A/C in the summer, and setting the thermostat to 75 F in the winter if you feel like it. But I won't include that. Now we're netting $26,662 a year.
ACP Internet/phone is $30/month (which is the typical cost of Internet or for a usable phone plan). By income eligibility this also makes them eligible for Lifeline, which gets them another phone line, so they can have 2 phone lines with Internet on one of them usable as a hot spot (very reasonabe for a family with 4 children), or 1 free phone and free home Internet. Lifeline is worth $30/month. So that's another $720 a year, total now $27,382.
This family doesn't live in Section 8, and their rent is $700/month, but they aren't really paying a market rate (and they are facing needing to move soon since the owner of their trailer wants to sell the trailer; their current landlord cut them a deep break on rent to try to help them out a bit). Typical rent for the square footage they have, yard, number of bedrooms and bathrooms is $1,200/mo around here. Their gross pay is $2166 a month. Section 8 fixes your rent at 1/3 of income, so that would be a payment of $722. Whether Section 8 or their current landlord, that's a subsidy of $478/mo, or $5,736. Total benefit now $33,118. (My sales tax assumption above assumed rent is taxable, which it isn't, so my estimates are conservative here.)
Dependent-care benefits in Ohio pay up to $50 per child per day for daycare. In this household mom doesn't work, other than on weekends, but the net daycare benefit could be as high as $52,000. I won't include this benefit because earning more money reduces he amount of benefits you're eligible for.
Now let's get to the biggie: Medicaid. Medicaid is much, much better coverage than an Affordable Care Act plan. But let's just compare to an Affordable Care Act plan plus the average Ohio's family out of pocket medical expenses. (Under Medicaid, you pay zero out of pocket and don't deal with deductibles, virtually every hospital or provider is in network, and so on.) This particular family qualifies for Medicaid for all 6 household members, and includes adult dental. I picked the cheapest ACA plan that included adult and child dental, which was $1,608 per month. Total benefit now $52,414. (The very cheapest plan was $1,200.)
The deductible on that plan was $15,000 (ouch) and total out of pocket max $18,000 (double ouch). United Way (see
https://www.unitedforalice.org/househol ... obile/ohio) estimates the out of pocket spending on health care for a family with 2 children at $796 per month. I happen to know this family's medical expenses this year basically consisted of the cost of a normal healthy hospital birth. Various sources dated around 2020 - 2021 agree the out of pocket for that is around $3,000. It's probably higher now, but we'll just go with that. Total benefit now $55,414.
In short:
A $13/hr job for a family of 4 children results in
direct extra cash of $10,000. No net taxes are paid. Their gross pay is $2167 per month. They spend (in cash) $2786 per month
after paying sales and property tax (net $2,570 after fixed electric/gas bill amount). The total additional benefits added u[ to $4,617.
So let's conclude:
1. A family of 4 earns $13/hr with one wage earner.
2. They can spend (in cash) $2,570 per month. No worries about rent, food, medical expenses, Internet, heat fixed at $108 a month, electric bill fixed at $108 a month.
3. The amount of benefits they receive is $4,617 per month.
4. Total "after tax" income plus benefits per month: $7,187, or $86,000 per year.
A family of 4 children earning $100,000 in income isn't eligible for much of anything other than some minor ACA subsidies, and their take-home pay after taxes would be $87,821.
So...
A family of 4 earning $13/hr effectively is living at the same as a family of 4 earning $100,000 a year.
Ken, I hope this detailed analysis was helpful for you.
