Welfare’s upside-down incentive: You get more when you work less.

Does our $927 billion–per–year welfare state discourage the poor from seeking work? Does it cause them to shun pay hikes? Does it, in short, create dependency?

This may be the most intractable problem afflicting the welfare state. With a renewed interest in the Clinton-era welfare reform and President Obama’s recent announcement that he would ignore its famously successful work requirements, understanding the relationship between welfare and work is more important than ever.
Our 80 or so federal welfare programs are designed so that benefits phase out as incomes rise. Fair enough. After all, the government’s generosity must end somewhere. Neither Warren Buffet nor the typical middle-income family should receive even one dollar of food stamps or other welfare assistance, right?
But this feature of welfare — the necessity of phasing out benefits as incomes rise — brings a serious moral hazard. In many cases, economists have calculated, welfare recipients who enter the work force or receive pay raises lose a dollar or more of benefits for each additional dollar they earn. The system makes fools of those who work hard.

Read more: http://www.nationalreview.com/articles/313429/keep-pay-raise-i-can-t-afford-it-michael-g-franc