A Reform to Correct Inefficiency of the Current Welfare System

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A Reform to Correct Inefficiency of the Current Welfare System

The United States of America is a rich country with gross domestic product per person (GDP per capita) equal $26,980 as of 1995 (Case and Fair, page 522). However, many people live in poverty, and some are without homes. The government (both federal and state) pursues an inconsistent policy of rhetorically encouraging work while at the same time paying welfare to only those who do not earn much money from work, and by spending much of its budget on transfer payments, yet not giving any money to some homeless people. The paper resolves the inconsistency by providing a system that encourages useful work while reducing and eventually eliminating poverty.

Examination of
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Marginal income tax rate can be defined as the additional income tax divided by increase in income. If such definition were used, marginal income tax for the poor would be about 15%, which is quite low.

However, such calculation does not count the loss of welfare benefits to the person. In real terms, marginal tax rate is 1-(change of total economical income due to work)/(change in payroll tax expense). Because the total income is much more relevant than the distribution of income by source, the definition in this rather than the previous paragraph should be used.

Income is best defined through the equation: increase in net worth = income -consumption. Net worth is assets (not counting one's body) minus liabilities. Consumption refers to all spending including waste. (Case and Fair, page 433)

Defined this way, income includes welfare benefits such as social security receipts, temporary assistance to needy families, unemployment compensation, reduced medical cost due to Medicare and Medicaid, need-based public housing at sub-market costs, food stamps, and college need-based financial aid.

Welfare as Taxes
Welfare benefits that are not monetary still provide subjective utility and, thus, are counted. For example, while food stamps are not dollars, they provide

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