There's easily $60,000 of services, utilities, fees, and taxes that you pay when earning $100k, that you get for free or don't have to pay if you earn $0. As @fredophile says, then you still have to add in the direct/indirect costs of going out and earning that money (e.g. childcare for starters), and you can easily gain net-zero or negative benefit all the way up to $100k of household income.

I'm sure people must have researched this extensively, and can give a properly cited cost analysis, but it's something I've been calling the 'middle class crucible'. Until you break out on the other side of $150k household income, the vast majority of your earned income is effectively running on a treadmill. E.g. On the order of 80 cents of each dollar you earn.

Every progressive (means-tested) social support program or tax rate, by definition, is a penalty for working. These programs have grown so big, and phase-out so aggressively in the income curve, it's an incredible trap / attack against the middle class.

Is your list "Medicaid and health insurance credits, SSI, food stamps, EITC, FICA..." things that you have to pay, or benefits you get if your income is $0/yr.? For example, you wouldn't get EITC if you had no income, but you wouldn't get food stamps if you had $100k/yr.

I would argue that it's poor framing to compare a hypothetical family with $0/yr. income to one with $100k/yr. income. You bring up childcare as an example, but when you look at a family making, say, $35k/yr., they're largely unqualified for assistance but childcare is almost certainly out of reach for them. $100k/yr. families are paying for childcare, paying tons of taxes, and buying amazing Christmas gifts.

Because only 20% of Americans even make >= $100k/yr., I don't think you can rightly call them middle class. I'm not sure we should really be concerned for those at that income level, I think it's more imperative to start looking at people working full time but still making < $35k/yr. Is there an upper-middle class treadmill? Yeah sure, I'm not even sure what your argument is, that you're not getting rich? Regardless, a treadmill is much better than the alternatives. You imply that until you make $150k/yr., you may as well make $0/yr. This is really just untrue; probably (depending on number of children) it's untrue until you get down around $20k/yr., which is where you start getting into living wage argument territory.

Finally, I'm with you on progressive taxation. Tax tiers make no sense; we need a (simple) tax function. Problem solved.

> Is your list "Medicaid and health insurance credits, SSI, food stamps, EITC, FICA..." things that you have to pay, or benefits you get if your income is $0/yr.? For example, you wouldn't get EITC if you had no income, but you wouldn't get food stamps if you had $100k/yr.

I edited in; they don't all fully stack or else it would hit well over $100k. So it's a very complicated calculation (why we need a nice D3 app to show how everything interacts!). For EITC, I think it's fair to count the full $5k which you could get by working just a little, against the cost of working 'too much'.

I have not done the math necessary to find the global maxima of public support. Frankly, I'm not sure it's a great idea to make that calculation too easy for everyone to figure out, lest we all start optimizing for it!! Conversely, there are many points in the curve where you are below Net-$0. $63k household income for a family of 4 is probably the global-minima, where you're way below Net-$0.

The cost of working is much worse if, for example, you have a qualifying disability but are not vegetative and know how to code. You then have to choose, just stop working and get $30k, or don't go quietly into the night and forgo the entire $30k of SSDI.

The inverse is usually true. Good food doesn't cost much, it's the garbage food that's expensive. You can easily afford fresh fruits/vegies/meat with food stamps.

> they're likely living in better conditions in a better neighborhood

You can get public housing in Manhattan. Granted it's public housing, but hey, location location location.

> and their health insurance probably gives them more choices than they would have on medicaid.

This is state specific. For New Jersey, it is absolutely the best health insurance to have. You can't even buy the sort of stuff they will cover with almost zero out of pocket.

Medi-Cal is the name of California's Medicaid program, so "Medicaid + Medi-Cal" is just counting the same program twice. Which, if you could actually benefit that way, would probably be fairly generous, but the state actually makes a significant effort to prevent that.

Did you intend to say Medicare + Medi-Cal, perhaps?

But for example, you can pay ~$1000/mo for a family of 4 for "Silver" health insurance and earning > $63k you would have to pay the full amount. Credits pay for almost the entire cost (aka $12,000 of tax-free income from the Fed) if your household income is $33k. So under just one program (ACA), $30k of incremental work disqualifies you from $12k of assistance. And that's for the same exact plan/service.

Then you get below $33k household income and instead of paying thousands for a Silver plan with a $6,000 family deductible, you pay basically nothing and have no deductible for Medicaid / Medi-Cal. That's effectively a $24,000 / year value for a family of 4. [1]

In both cases, you can argue about access to top-specialists for chronic care, but certainly access to acute care coverage is equivalent (i.e. hospitals can't base their ER services based on ability to pay). In many ways Medicaid is better because deductibles are a hell of a lot lower than $13,500 Bronze / $6,000 Silver.

By the way, Whole Foods takes food stamps. So that's another example where you get straight up cash for not working. Up to $8,400 / year, cash on a debit card, which phases out as household income goes to ~$30k / year (plus allowed deductions) for a family of 4. [2]

If you have a qualifying disability and have to make the choice of giving up work and going on DI, assuming you have the work history credits, it's another up to $31,000 / year of income (not entirely tax-free though). [3]

That's over $60k right there, and there are many more programs to account. It would add up to well over $100k except you can't fully stack all of the programs, e.g. CA SDI payments count against SSDI payments.

I was thinking about making a "how much do you lose by working" micro-site as an excuse to play with D3 and interactive visualization, targeted to residents of California, but the whole thing was too infuriating I haven't mustered the motivation to do it.

[1] - http://www.coveredca.com/shopandcompare/#incomeGuidelines

[2] - http://www.stanworks.com/community-reports/other-services/co...

[3] - http://www.disabilitysecrets.com/how-much-in-ssd.html

Furthermore, your description of the way food stamps work is correct but elides how that "phase out" works. Under current CalFresh guidelines[1], a household of 4 grossing $30K a year would get $98 a month. If they grossed $24K a year that would go up to $218 a month -- an extra $1440 a year, when you work it out, which is to say much less than what they'd net by just making another $6000 a year.

[1]: http://foodstampguide.org/calculating-the-grant-how-much-do-...

In practice, I'd suggest that most of these calculations are going to work out in roughly the same way: yes, you're "losing out" on government assistance by making more money, but the benefits you accrue from actually making more money more than offset that.

  Gross Increase in Income: $6,000
  - FICA:                  ($  918)
  - Fed Income Tax:        ($  900)
  - State Income Tax:      ($  500)
  - Reduced Food Stamps:   ($1,440)
  - Reduced EITC:          ($1,260)  [21% phase out after $23,260]
  - Reduced ACA:           ($ ???)   [Just about to lose Medi-Cal]

Think about how broken this is. At the point in the curve where adding $6,000 in family income could actually be life-changing, the government claws back at least 83% of it?! Fucking A... (sorry, this really makes me mad).

> "$30K of incremental work" is statistically very likely to involve a job with a company that provides health care

I count benefits as part of income. So if part of the increased payroll expense is actually spent by the employer paying for a private health plan (with a high deductible and cost sharing with the employee) that's a huge net-loss for the family versus getting cash income from the employer and keeping their free health care from Medi-Cal. (It makes zero difference to the employer, ACA penalties aside, either way it's a fully deductible business expense)

Edit: I see you gave two examples, $24k vs $30k, and lets say $30k vs $60k. If we do a detailed realistic budget accounting for all costs, credits, programs, etc. you will find "earning $60k" you actually have less money to spend than "earning $30k". You will be net-negative if you have any significant health care expenses at all. It's completely counter-intuitive, and in fact, borderline insane.

While there's a case to be made for that, it's not what most people do -- and it's not what you do for computing benefit eligibility for food stamps, ACA, and other government programs, AFAIK. So I'm not sure you should count benefits as income for this purpose. In principle you're right re: getting cash income instead, but in practice, I'm not sure it's that clearcut.

Re: taxes vs. credits, it would be really interesting to actually work that out. I'm not convinced your take is right, but I'm not convinced my take is right, either. :) I didn't intentionally pick the perfect example; the $24K a year came from typing "2000" into the spreadsheet I downloaded from the CalFresh web site because "3000" was too high to qualify. I didn't actually try any numbers other than 2000 and 2500. But my suspicion remains that most people would be better off actually working than taking assistance programs, both in purely pragmatic terms and in less quantifiable terms -- I've known a fair number of people who make assistance-qualifying incomes but I haven't known a single one who wants to be in that position. (Which is of course anecdotal, but it's still interesting to me.)

(Also, I don't think you can really count every possible credit -- most people can't qualify for disability income, for instance. And the observation I made about not wanting to be in that position is extremely relevant here; I've known a couple people who get permanent disability income and they absolutely do not consider it a good thing. They're making less than they were when they could actually get employment, and that's not getting into unquantifiable but real things like damage to their self-esteem.)

I'm certainly not eligible for it, not even with the most cooperative doctors I could find. So it's not lost income for me.

Also: I hope your Econ 101 class that you tout mentioned the lifetime earnings hypothesis. Based on that, you can't count payroll taxes as lost income, because they contribute to your future social security benefit. So you'd have to adjust your figures to account for that. (And if you say that it won't be there for your generation, you have to put that in expected value terms, not absolutes...)

I agree with SSI and SSDI the pit is very, very deep. The incentive to just give up is extraordinary. You have to willingly forgo tens of thousands of dollars for the pleasure of working. Since trying even just a little bit disqualifies you. And yes, SSI/SSDI eats your soul.

But the argument stands even without SSI/SSDI though. Just adding ACA on top of the existing subsidies was enough to almost completely eliminate the incentive to work for practically half of Americans! (median household income: $53,891)

> you can't count payroll taxes as lost income, because they contribute to your future social security benefit.

If only that were literally true!! As usual, a tiny little bit of work each year contributes a lot to your benefits. Everything above that contributes ~1/8th as much. See: http://www.ssa.gov/pubs/EN-05-10070.pdf

I'll summarize: Take your annual earnings each year (up to the FICA max for that year), and adjust for inflation. Take the 35 highest earnings years, and sum them, then divide by 420 (35 * 12). The result is "Step 4". Now look at Step 5:

5a. Multiply the first $816 in Step 4 by 90%. 5b. Multiply the amount in Step 4 over $816 and less than or equal to $4,917 by 32%. 5c. Multiply the amount in Step 4 over $4,917 by 15%. Step 6. Sum the three to find your benefit!

Do you see what they did there?! This is nuts! What does this actually all mean? The net effect?

  15.6% * $10k *  35 = $ 54,600 of FICA taxes ==>  $  816/mo in benefits (5.5yrs till breakeven)
  15.6% * $120k * 35 = $655,200 of FICA taxes ==>  $2,642/mo in benefits (20 yrs till breakeven)

Plug $20,000 (it's a bit more than current-day maximum FICA) per year savings for the next 35 years at even 4% ARR into a calculator... the day you retire you should be looking at $1.35 million dollars in your savings account. At 8% ARR (S&P500) the balance would be $2.8 million.

But they'll pay you inflation-adjusted $2,600 / month. About 1% annually on your 2.8 million. It's. A. Scam. $18,000 / month would be a respectable ROI on that level of investment. In other words, the vast majority of that up to $655k is effectively lost.

I'm not tracking inflation, but since the Wage Base tracks inflation, and payout as well, I can make the point without adding that complexity.

It's like a disease ridden throughout the tax code. The progressive nature is literally everywhere, and it's all designed to apply more and more pressure the more money you make. The problem is, it's all additive, and there are so many layers...

And you can't make the point without disability income. As shown lower down in the thread, your claims are hyperbolic even including DI of $31k!

It's funny..I agree there is a problem here. I just think we need someone intellectually honest to do the numbers properly. And that person is obviously not you.

The 'retained future income' portion of FICO payments, lets say with a 4% discount rate (ARR), is pennies on the dollar even in the best parts of the income curve where your earnings count the most toward achieving benefits.

Using 'danans' numbers he came up with $35k of marginal utility from $115k of household income. Those numbers were obviously overly conservative, but did include an average SSDI of $24k. There are many, many benefits that danans did not include, which I enumerated in my reply downthread, but I'm willing to settle on $35k of utility from $115k of work as a starting point.

Now showing it without SSI/SSDI and just relying on food stamps, Medicaid, EITC, and other means-tested programs you still get horrible outcomes like the $24k - $30k example from 'chipotle_coyote' but I agree it won't be a straight-out loss up to $100k.

But I hear you -- if I believe enough in making an irrefutable point, I should just code up the site and accept pull requests on Github.

I have always shown my math and quoted my sources, so you might not agree with the methodology, but I've tried to be accurate with the numbers, and cite sources of inaccuracy where-ever possible. I'm sorry you found it dishonest.

> it's an incredible trap / attack against the middle class.

If your household is not making $150k you're not middle class though. You're working class. Middle class people don't have to run on a treadmill like that (unless they want to).

For about 25 years after World War II, an anomaly occurred where a young blue collar veteran could go on the GI bill, or alternatively get a unionized job at the factory, and buy a car and a house in the suburbs with a stay-at-home wife who took care of the kids whose college tuition was affordable, along with long-distance one week vacations every year, a solid pension etc. Some people even extended the term middle class to these people, which had previously meant professionals. Because they were living the lifestyle of middle class people.

If anything is clear, it's the eradication over the past 40 years of the idea of extending the term middle class downward from professional households to those making less than $150k a year. This was the working class before World War II and it is the working class now. Even if nowadays it's banging out PHP code or putting Visual Basic widgets together or wiring Cisco switches together instead of going into the mines or soldering parts on an assembly line.

You are simply wrong. There are places below $50k where you might suffer from close to 100% marginal rates, which I view as an enormous problem, but it's not true at higher incomes. Even the 80% figure you quote sounds wrong (and of course I know I shouldn't believe you because you don't even pick a set of numbers and stick to it).

Edit: I see elsewhere in the thread, it's clear that you're not really talking about income.

I see how bad the problem is, when we can't even agree what 'income' means. I've been mainly self-employed the last 5 years, and had years of near-$0 income, and other years, better, where I was also paying other employee W-2s and 1099s. Before that, I was W-2 from $50k up to one particularly good year where I max'd out FICA. I've also seen the process of applying for SSDI, SSI, Medi-Cal, food stamps, the whole gambit.

Call me wrong, but please do me the favor of doing the math for yourself and let us follow along with your examples. I thought the $24k - $30k example was a great one. It's the reality for many Americans. I though the $100k example was also fairly straight-forward, minus the FICA confusion.

I don't quite get why companies tend to hide all the payroll costs associated with a W-2 plus full benefits. If cost of an employee is $140k line item on the income statement, I tend to want them to know that, even if it's not all showing up in the direct deposit or on the paystub.

I know exactly how much $0 deductible group health insurance costs in my zip code by age, and I know you can get that all for free by not working. Economically that is income you have to earn (value you have to create for the company) to make up for that loss of benefits. It doesn't come from the magical W-2 benefits fairy. All that money would be actual real income if you didn't lose your guaranteed free Medi-Cal (the best insurance money can't buy) by simply deciding to work full time.

A rigorous financial analysis must count the totality of lost and forfeit benefits. I understand the inclination to bury one's head in the sand to avoid the realization that it's almost literally all-for-nothing but the enjoyment of doing good work. Once you actually get your head above water at around $100k+ of GROSS household income, and you actually see a little bit of real free cash flow, things improve rapidly. Up to that point, it's economically, almost entirely treadmill.

The only reason to keep going is building experience and hopefully getting a raise till you finally crawl out of the hole. It's not too bad in the programming field, even a single breadwinner can get the family there, but statistically, most people will never emerge from the social welfare pit.

[1]... "In its analyses of the distribution of income and taxes, the Congressional Budget Office (CBO) strives to measure income as broadly as possible and thus includes in income some items that people may not usually consider to be part of income. For example, CBO counts taxes paid by businesses as part of household before-tax income; because those taxes are ultimately borne by households in the form of reduced income, CBO adds them to before-tax income in order to measure more accurately what a household’s ability to consume would have been in the absence of those taxes."

[2] CBO intentionally broke it's measure of government transfers after ACA, in their latest report, [because it just looked too bad otherwise] (emphasis added): "CBO recently undertook a more comprehensive analysis of the distribution of federal spending in 2006. Although that study used a similar methodology to the one used in this report, it differed in some important respects, most notably by adjusting the amount of transfer income reported in survey data to match the budgetary totals reported in the Treasury Department’s Monthly Treasury Statements. The data used in this report are not aligned to budgetary totals and, because of underreporting of transfer income in surveys, do not capture the full effects of government transfers on household income."

   Payroll taxes*       = $ 15,300
   Federal income taxes = $  6,500
   CA income taxes      = $  4,000
   ACA Subsidy          = $ 12,000
   Food Stamps          = $  8,000
   EITC                 = $  5,000
   Disability           = up to $30,000 if applicable
   Energy credits       = ???
   Housing credits      = ???
   Waived fees          = ???

Every progressive subsidy is mathematically equivalent to a progressive tax. The $12,000 ACA "tax credit" is actually a $12,000 progressive tax. It's the single largest tax hike against the middle class... possibly ever?

This doesn't even get into the property tax side of the equation, since we're talking direct cost of working, not cost of owning things like houses, and cars. But that's part of the overall conversation of the war on the middle class. [Edit] There are even property tax circuit breakers where you get credits on property tax for earning less, so that should be in the above table. That's separate from housing credits such as means-tested rent control.

Then you can start to pay for the personal costs of actually going out and earning that income.... everything from child care, to transportation, to business clothes, etc.

And then that's still not even counting opportunity costs, e.g. I'm too busy at work, now I have to pay for a plumber, contractor, mechanic, landscaper, take-out dinner, etc. versus doing it on my own time. Think, all the things you could do for yourself in 2,080 hours per year...

* Don't be fooled by the employer hiding half the cost from you.

You can't count it as a cost on you without adding the value of the employer share to your base income.

> Every progressive subsidy is mathematically equivalent to a progressive tax.

Wrong. You've basically made the same error as you did with employer share of payroll tax -- a progressive subsidy is arguably analogous to (but "mathematically equivalent" is still too strong of a term):

1. An addition to your income (whether or not you receive the benefit, maximum or otherwise) equal to the maximum benefit provided, and

2. An additional tax equal to the difference between the maximum benefit and the amount you actually receive.

Its absolutely not even similar, much less "mathematically equivalent", to the latter alone, which is how you presented it.

I agree with you, but I think I did that. I was trying to say $100,000 of payroll expense causes $15,300 of payroll taxes. Then the other taxes, and subsidy phase-outs, pile on from there.

> Its absolutely not even similar, much less "mathematically equivalent", to the latter alone, which is how you presented it.

You are right, they are not "mathematically equivalent", let me try again;

By "progressive subsidy" I mean a declining benefit as you earn more. That is, income from the government which decreases as you earn more. An example is Medi-Cal and ACA subsidies, food stamps, shit we didn't even mention SSI, etc.

By "progressive tax" I mean an increasing tax rate as you earn more. That is, an increasing number of cents out of each dollar in payroll expense is confiscated as you earn more. An example is Federal Income Tax.

The progressive subsidy offsets the benefit of early income, the progressive tax offsets the benefit of later income. The net effect is reducing the vast majority if not all of the the "Realized Family Benefit" from $0 - $150,000 of [household] payroll expense! I mean, it's disgusting to think about that way, but it's the economics of the system we've created.

> I agree with you, but I think I did that.

You did not. Or you calculated the tax wrong, but it looks more like the former than the latter.

> I said $100,000 of payroll causes $15,300 of payroll taxes.

You said when "earning" $100k, you pay $15,300 of payroll tax, you did not say $100k of payroll causes $15,300 of payroll tax -- and interpreting earning in the usual way for such a discussion (i.e., the income shown on your pay stub subject to payroll tax) -- this is exactly correct; at $100k of such income, the total payroll tax (employer + employee share, Social Security + Medicare) is exactly $15,300.

If you are looking at the employer's payroll expense, however, though, that's not $100k, its at least $107,650 (the employee's income subject to payroll tax -- which includes the employee share of the tax -- plus the employer share of the tax.)

Earning $100k to me means providing services worth $100k. It's obvious when it's 1099 or self-employment. On a $100,000 '1099' or Schedule C income you owe $15,300 of payroll tax. I pulled the number straight from Schedule SE, Line 5. You will pay less income tax as a result, due to the 1/2 (e.g. $7650) deduction from income tax on Line 6. (I tried to account for that in my estimated $6500 of Federal Income Tax due, an effective 6.5% rate)

Somewhere along the line the Fed tricked us into subtracting 7.65% off our W-2 compensation before we even see it, and even got us to think we didn't even earn it. It's fully institutionalized now. It's like VAT being baked in and no one thinks they're paying the tax, but they are!

In my earning $100k example, the reported "Compensation" on the W-2 would be only 100,000 / 1.0765 = $92,893. My point is your W-2 is lying. The company is paying $100k for your services, and the IRS has their fingers in it before you even see it.

Anyway, we are arguing a very minor point to a very serious issue. I think I've provided enough numbers that are accurate enough to see the insanity of the whole system. It doesn't really matter when in the "pipeline" the $7,650 is confiscated. It's enough to know that FICA is 15.3% of every dollar up to $117,000 per person, $234,000 per household.

No.

> It's obvious when it's 1099 or self-employment.

Ah, I see what you did -- you made the mistake of thinking that self-employment tax and W-2 payroll taxes are functionally identical, but just the way W-2 reports it is different and misleading. This is decidedly not the case, while the self-employment tax has the same rate as the combined employer + employee share of W-2 payroll taxes, the base value isn't comparable (since the latter is based on W-2 income, while the former is on the total, which is effectively equivalent to W-2 income plus the employer share of payroll tax.)

As a result, the self-employment tax has a greater effective rate than the payroll tax, even though they have the same nominal rate.

> Somewhere along the line the Fed tricked us into subtracting 7.65% off our W-2 compensation before we even see it, and even got us to think we didn't even earn it. It's fully institutionalized now. It's like VAT being baked in and no one thinks they're paying the tax, but they are!

Perhaps, but the problem with your analysis isn't disagreement over who is paying the tax, but it is how you calculated the amount of the tax and what the income is that goes with it. Payroll tax and self-employment tax server similar purposes and have identical nominal rates, but do not have equivalent bases. So, if you make a statement about payroll tax and how it relates to the income it is based on, but your logic is driven by self-employment tax and the income it is based on, the conclusion will be incorrect.

To be clear, yes there is a different convention for quoting the "salary" based on W-2 vs 1099. I agree that saying "$100k of W-2 Salary" is like saying "$109,031 of 1099". In both cases you net $92,350 after payroll taxes.

To your point, the difference in total payroll expense is $1,381. I'm sure my overall point does not sway on $1,381. Yet this difference will be almost exactly offset by the $7650 deduction allowed against Federal income tax!

Bringing me back to, we are saying the same thing, in two different ways.

Sorry everyone for the rat hole, I wish I stated it more clearly at the on-set. I think there's a more important discussion to be had here.

(Note: I edited this about 15 times over 20 minutes since the first 'Submit'. Dragon's response came against an early draft! Sorry D.)

No, its a mathematical fact.

> I agree that if all you consider is the verbal, "I'll pay you $100k W-2" is actually agreeing to a payroll expense of (at least) 7.65% more than saying, "I'll pay you $100k 1099". But companies don't set salaries that way!

Its not a matter of how companies set salaries, its a matter of the mechanics of the calculation of the tax.

Granting for now your argument that total payroll expense for a W-2 employee is comparable to total payment to a contract employee that must pay their own self-employment income, and considering (for simplification) only W-2 income and payroll taxes in payroll expense for the W-2 worker:

For a W-2 employee with a $107,650 total payroll expense, they will have a $100,000 W-2 income, and $15,300 in payroll taxes (employee + employer share), and (excluding any issues which make W-2 payroll tax income different from W-2 income tax income) $100K in income-taxable income

For a 1099 contractor paid $107,650, they will have $16,470.45 in self-employment taxes and (excluding any other issues which make self-employment tax income different from income tax income) $99,414.77 in income-taxable income (due to the income tax deduction for half of the self-employment tax.)

> We pay employees based on the total cost of payroll. That was my point way up there about Macro Econ 101.

Self-employment taxes and payroll taxes bear a different mathematical relationship to total expenses to the party paying the employee. This is completely orthogonal to any argument about whether, in the case of the W-2 employee, they effectively bear the cost of the employer share of the payroll tax in the form of depressed nominal wages, as well as bearing the cost of the employee share.

> I can easily make up the difference by the higher Fed Income Tax rate (due to missing the $7650 deduction),

The W-2 employee doesn't really miss the deduction for half of the self-employment tax that the self-employed worker gets, since the income which pays half of their payroll tax isn't part of their taxable income to start with.

> local taxes, property taxes,

Local taxes and property taxes tend not to be directly income-contingent (and tend to be regressive in net effect), so they probably hurt your point rather than helping it.

> To your point, the difference in total payroll expense is $1,381. I'm sure my overall point does not sway on $1,381. Yet this difference will be almost exactly offset by the $7650 deduction allowed against Federal income tax!

Why would you compare the difference in payroll expense to the deduction against Federal income tax? What are you trying to get at with that? It doesn't make sense to talk about that.

Also, on your current numbers, the deduction the 1099 worker gets (half of the self-employment tax) is more than that ($8,340.87 vs. $7,650), but it still leaves the 1099 worker with a higher income subject to income tax than the W-2 worker, so it doesn't "make up" for anything -- the actual total tax difference between the two is greater than the additional payroll tax paid by the 1099 worker, since the 1099 worker will also pay greater income tax, all other things being equal.

- You can't subtract the opportunity cost of not working from your income when you make $115k, because you've made the decision to work and earn that salary. - The EITC is for people who work (hence the "earned" part). If you chose to go exclusively on govt assistance, your max EITC is $11 for a family of 4: http://www.irs.gov/uac/Newsroom/Earned-Income-Tax-Credit-Do-...

- I don't doubt that there is a measurable amount of disability insurance abuse, but the fact remains that you probably have a disability that prevents you from doing child care. The poor still often have to pay for childcare. In any case, the average annual benefit for a family of 4 comes to about $24k, not $30k: http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/

Subtracting the opportunity cost of not working from vs working at 115300k muddies the comparison. It's more sensible to compare the two scenarios separately:

115300-15300(payroll tax)-6500(fed tax)-4000(CA tax)-8000(foodstamp equivalent food cost)-2600(typical employee cost for PPO-health program)= 78900

vs.

12000(ACA)+8000(food stamps)+11(per EITC comment above)+24000(per disability citation above) = 44011

Even this comparison isn't apples to apples. In the $100k figure, are you accounting for the employer paid portion of health-insurance (and the lower rates that those in a employer-negotiated plan pay?), any tax-free employer retirement plan contributions, and other pre-tax benefits (DCAP, flex-spending account, employee health insurance contributions?). If you own a home, are you accounting for the mortgage interest and property tax deduction?

I do agree with one sliver of your argument: making financial progress on $100k income is challenging for a family of 4 in VERY high cost-of-living places such as the Bay Area, where that remaining 79k easily gets eaten up by childcare, housing, food, transportation, etc.

Is the standard of living on the $115k salary equivalent to that of a family of 4 on govt assistance? I don't know, but I doubt it, and I would bet on the latter's standard of living being significantly worse. Neither situation is easy street.

EDIT: wording. EDIT2: formatting

Actually, only half (the employer share) is.

Whether or not that's true, that's already reflected in you showing the full cost of payroll taxes (employee + employer share) as an expense to the employee. What you failed to do is show all of the income that pays that expense (including the money from the employer that goes directly to paying the employer share) as part of the income from which that cost was being paid.

> The good news for all the self-employed boot-strapping startups out there; STOP paying yourself. It's the absolute worst use of your company's cash.

Perhaps its worse for your company, OTOH, it mitigates the risk to you should the company -- as many do -- fail, since in that case you will have forgone labor income for equity in the failed firm.

I run a business, from my perspective the meaningful number is the total payroll cost for the employee. Taxes are taken before it even leaves my pocket and goes to the employee, and then more and more taxes by the time the employee finally sees it. You can't waive away the taxes just because the law says you can't show the true tax burden on the pay stub.

> Opportunity Cost

There are real, direct, added costs to choosing to work. It's reasonable to subtract those from salary when trying to calculate the net benefit of working. Just like there's an opportunity cost for waiting in line for bread. It's a real thing.

> $115300 -> $78,900 vs. $0 -> $44,011 (for a gap of $35k)

First, you can't take home quite $78,900 on $115,300 -- you've shifted up income but haven't adjusted taxes accordingly. From my perspective that employee is earning more like $140,000 (you can't just waive away the cost of paying for all those benefits that otherwise would be provided free by the government, just because they are taken out of your earnings before you see them).

Second, you can't just count $100 / pay period as the cost of insurance. It's the full cost of the plan (up to almost $24k / year for Platinum insurance for a family of 4) that has to be paid every two weeks at payday. Benefits are tax advantaged income, income paid out before you see it, but income all the same. If you are self-employed all this becomes obvious, but if you've never worked outside a W-2 the true cost is very much hidden out-of-sight.

Employer group insurance plans are more expensive than individual plans, which are obviously way more expensive than free means-tested plans. Going from $0 -> $30k you lose about $8k of value from losing Medi-Cal and going to the Cost-Shared Silver Plan. Going from $30k -> $60k you lose another $12k of subsidies. "Total actuary value" of having Medi-Cal is around $20k / yr for a family of 4. So if you are at $0 income, it's not just +$12k for ACA subsidies, it's more like +$20k for Medi-Cal since it's comparable coverage to a Platinum plan.

Third, yes the EITC phases-in and phases-out, it doesn't mean it's not a cost you pay for earning more. It's a curve and it's not a straight line, but it's still a real refundable tax credit that is clawed back as earnings increase over $24k. I agree it's impossible to maximize all benefits concurrently, it's a very complex equation with local and global minima/maxima. One day I really hope to be able to program it and put in on GitHub.

> Making financial progress on $100k income is challenging

So very true! Even per all your numbers, which are way more conservative than mine... the 'net benefit' to the family of earning "$115,300" of income (~$140k payroll) is only $35,000 !! (the gap)

And if you dig deep into all the assistance available, start counting things like income-based rent control, income-based property tax limits, income-based car registration fees, income-based electricity bills, etc.... you can easily erode that $35k down to more like $15k.

Isn't that just astounding?! Starting at $140k of employee payroll expense, by the end of the year you've only added $15k of net cash benefit to the family?!

As they say, "What the actual fuck!"

While grandparent made an error of including both halves of the payroll tax, when only the employer share should have been added, the point is that employer share (while it can be considered "income" of a sort that goes directly into paying payroll taxes), isn't taxable income subject to any other taxes, so properly counting it as part of the "income" number if you are counting the whole payroll tax (including employer share) as part of the tax expense doesn't shift up the taxes, it just correctly accounts for the income that goes with the taxes originally presented.

I don't want to argue the mechanics of taxation on W-2 vs 1099! I was totally happy to accept 'danans' much more conservative numbers because we still end up with a maximum of $35,000 net benefit from $115,300 of compensation!

This is, with danans math, which is adjusted from mine by not even counting;

  Employer portion of health care cost
  Employer share of FICA
  Excluding direct employment costs
  Excluding indirect opportunity cost
  Use average disability payment, instead of max
  Exclude SSI payments
  Exclude rent control
  Exclude property tax circuit breakers (21 states, not CA)
  Exclude EITC

Like I said, the only way to properly calculate all this is to code it all up and chart it. But the laws are insanely complex (we've proven that just now, right?) I don't think anyone has ever tried.

http://marginalrevolution.com/marginalrevolution/2013/07/aid...

This is a point that's not fundamentally liberal or conservative. Both sides should be interested in improving programs that have gratuitous barriers to work.

The problem is that it's going the be impossible to get an agreement on the solution. Conservatives would take this as an opportunity to slash disability benefits and walk away. Liberals would look toward new government programs.

EDIT: Here's a conservative think tank advocating the EITC as an alternative to a minimum wage hike: http://www.aei.org/publication/earned-income-tax-credit-does...

Everyone is eligible for SSI but pays the least (maximum $733 / month federal, some states add a small amount). Someone on SSI whose parent has enough qualifying working quarters can switch to SSDI at 1/2 of the benefit the retiree would be eligible for at full retirement age. This currently tops out at around $1400 / month. Finally, if you yourself have worked enough qualifying quarters (6-20 depending on age) and become disabled you may be eligible for primary SSDI. These top out at around $2600 / month, but average much less. An additional benefit of SSDI, is that after two years a recipient becomes eligible for Medicare.

[0] https://en.wikipedia.org/wiki/Flexicurity

Simplified analysis, goal is situation C. Let's say my monthly welfare income is $1000.

A. I start earning $200. My welfare decreases by $200. Why don't I just stay on welfare?

B. I start earning $200. My welfare decreases by $300. I've lost $100, a penalty for working.

C. I start earning $200. My welfare decreases by $100. I now have an incentive to work. Over time, this leads to a future situation where I gradually earn much more than I could ever with welfare.

Also consider: What if I find $1000 sufficient to live on? What about $1100?

[1] http://en.wikipedia.org/wiki/Earned_income_tax_credit

I start earning $200. My welfare decreases by $200. My expenses increase by $100 (transportation to/from work, childcare while at work, clothes specifically for work, etc).

Once you realize that work usually has more costs than just time A and B become the same.

These things don't happen overnight--there will be many years as the class of jobs that you're talking about becomes slowly less well-regarded, until when they disappear no one will care.

Example #1: A couple of weeks ago, my brother, an orthopedist, had a 26-year-old man come in for an ankle sprain. In the course of working up the ankle -- mildly sprained, no problem -- he found that the patient doesn't work and is on 100% disability. Why? Because of acne. Yes, acne. Apparently when he was 19 or 20 he had such severe acne that someone deemed him unable to work and he was approved for 100% disability. Even though his skin now is perfectly clear, with some minor acne scarring the only remaining blemish, this man will likely never work a day in his life -- he will be drawing a disability check from the government for the next 60 years.

Example #2: Another brother is a police officer. Or was. He recently retired, at age 52, and now will draw a $70,000/year pension for the next few decades, which is a separate but related issue. But he tells me that -- even though he didn't personally take advantage of this ploy -- it is routine for retiring police officers and firefighters to go to "friendly" doctors and have those doctors certify them as disabled so they can get disability checks in addition to their pensions. It's called "taking the disability topper" or "getting DA'd."

Worse, there is no solution is site. Who is going to arrest these crooked cops? Other cops? They're on the take as well.

>He recently retired, at age 52, and now will draw a $70,000/year pension for the next few decades

Illinois has a pension crisis we can't get out of because of this. These union handouts and insane pensions that are 100% unaffordable. Right now every man, woman, and child in Illinois owes $26,000 in taxes to pay these pensions out. Who is going to pay this stuff?

The fraud burden typically lies with the agency that's cutting the checks. Other agencies (IRS, SEC) deal with fraud in their specific areas and do not rely on police except the very specific step of arresting the individual, which in these cases may never happen.

<< About 600 Long Island Rail Road retirees will lose their disability benefits after a federal agency voted last week to halt the payments, amid a sweeping investigation into what prosecutors have called a major disability fraud scheme, according to agency documents and officials.

The agency, the United States Railroad Retirement Board, which over more than a decade granted disability benefits to hundreds of railroad retirees based on fraudulent medical evidence with little scrutiny, took the action on Thursday during a five-minute meeting at its headquarters in Chicago. The vote approved procedures under which the board will cut off the benefits, which, officials said, are costing the agency $2 million a month. >>

A bunch of the people involved have gone to prison over this fraud:

<< The first terminations came several weeks after the doctor who submitted what prosecutors have said was the bogus medical evidence underlying the applications of the roughly 600 retired railroad workers pleaded guilty in federal court in Manhattan to fraud and conspiracy. The doctor, Peter J. Ajemian, told the judge in January that the retirees were not in fact disabled. …

Dr. Ajemian, who was sentenced to eight years in prison, is among 24 people — including retirees, another doctor and two facilitators — who since 2011 have pleaded guilty to federal charges resulting from of the investigation. Charges against eight other people indicted in the case are pending, and the investigation by the F.B.I. and federal prosecutors in Manhattan, officials have said, is continuing. >>

http://www.nytimes.com/2013/07/02/nyregion/600-long-island-r...

The solution of course is transparency. Stop treating police as holier than thou. They're just government workers. "Trust but verify" works wonders for keeping people honest. Good people as well as bad, because it removes temptation.

Would disabled veterans be reflected in these numbers?

http://www.ibtimes.com/va-stops-releasing-data-injured-vets-...

Which I think uses these numbers:

http://www.publichealth.va.gov/epidemiology/reports/oefoifon...

Which are the numbers of veterans that accessed VA facilities for health care, not the numbers of veterans that were injured (disabling injuries are one of the major eligibility factors for the VA, but there are other veterans that would also be eligible for VA services).