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 Taxes and Tax rates

Economic cost to a person of an action is a measure of decrease of pleasure needed to achieve the action. Cost includes non-monetary items such as tiredness from being at a job.

Many taxes are paid for the income. The amount a worker receives after all taxes are paid is called disposable income. The amount of money employer pays for employment (including all taxes) is called payroll expense. Total income tax is payroll expense minus disposable income. FICA taxes, although not officially called "income tax", from economical point of view have the effect of an income tax. Because of deductions and exemptions, poor people usually do not pay the official income tax. However, they pay 6.20% of their income as the social security tax and 1.45% as Medicare tax for a total of 7.65%. (Source: "2000 social security") Not appearing on a tax form for the employee is the matching contribution of the employer (7.65% of the income of the employee) for a total of 2*7.65%/(100%+7.6...

... middle of paper ...

...l people, and to fund positive externalities (including public goods). The welfare will promote efficiency and will reduce human suffering. In several decades, it should cause elimination of poverty in the United States and eventually full satisfaction of basic human needs on Earth.

Works Cited

"2000 Social Security FICA Tax Rates". Online. Internet. Accessed: May 5, 2001. Available: http://fsc.fsonline.com/portal/ss-2000.html

"An Introduction about the Food Stamp Program". Online. Internet. Accessed: May 7, 2001. Available: http://www.fns.usda.gov/fsp/MENU/ABOUT/ABOUT.HTM

"Basics of Public Housing". Online. Internet. Accessed: May 1, 2001. Available: http://www.law.emory.edu/PI/ALAS/pubbasics.html

Case, Karl E., Fair, Ray C. Principles of Microeconomics. Fifth Edition. Upper Saddle River, New Jersey: Prentice Hall, 1999.

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