Thursday, December 9, 2010

Stunning "Results" about "Entitlement America"

There's a bogus calculation circulating today claiming that poor folks are making out like bandits due to all of the subsidies they're eligible for. I don't buy it, but neither does Tyler Cowen (who runs on the right side of the economic ideology spectrum):
That's after various government benefits and taxes, but the calculation
seems incorrect to me.  For instance, should the Medicaid and CHIP
benefits of the poorer household actually be valued -- to the user -- at
$16,500 a year?  (Is that number coming from some kind of cost basis? 
If so, is it adjusted for the age of the Medicaid recipients to rule out
nursing home expenditures?)  Is the $60,000 per year family receiving
employer-supplied health insurance?  The assumption seems to be that
they do not.
Of course, the "calculation" also sandbags the tax credits: The EIEC is credited to the 14,000 family, but other tax credits are probably not credited to the 60,000 family. Also, what about retirement contribution matching? Doesn't seem like the "total economic benefit" of the family "earning" 60,000 is being counted (and in particular the portions that are tax-exempt!). Most folks who earn 60,000 have a total compensation (with health and retirement benefits) of upwards of 80,000, about a quarter of which they never even think much about!

Andrew Gelman (who runs on the left side of the spectrum) isn't buying it either, for similar reasons as Kaiser Fung. From the latter:
If we concede that the middle-income person would end up with less
disposable income than the lower-income person, then we'd expect that
the middle-income people will take lower-paying jobs so as to increase
their disposable income. But I have not seen reports of such reverse
social mobility. Theory needs to fit reality. This hole in the theory
needs to be covered.
What's funny about this is that the theorist (Cowen) disagrees on data-related grounds, whereas the statisticians (Fung and Gelman) dispute it on theoretical grounds.

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