It’s Not How Much You Earn; It’s How Much You Control

by | Jan 21, 2013 | The Economy, Weekly Column | 3 comments

Man's Hands Signing DocumentOwning a home is part of the American Dream. Financial experts tell us owning a car is better than leasing. And who would think of not owning the clothes you wear? The concept of “that’s mine” runs so deep it’s probably hardwired into our brains. To prove it, just try to take a toy away from a two-year-old.

On the other hand, the control of an asset is often more valuable than ownership. If you could lease a new $25,000 car for one dollar a month for 10 years, do you really care if you don’t own it? Absolutely not.

Or take a middle-aged tenant with a lifetime lease on a property subject to rent controls who pays rent at a tenth of current market rates. Who has the more value from that asset, the tenant or the owner? Clearly, the tenant has a valuable leasehold interest that in some cases could be worth more than the ownership interest.

If we can have regular access to something, whether it’s using a beach house through a home swap, sharing power tools, or renting a trailer to haul a piano, we don’t need to own it. Often, we’re financially ahead not to own it.

Can this same concept apply to the income you receive? It may. For some people, having access to benefits and services they don’t “own” through their earnings may be the better deal. This is the conclusion Gary Alexander, Secretary of Public Welfare for Pennsylvania, reached in a paper called “Welfare’s Failure and the Solution.”

He published a chart showing the government benefits that accrue to single mothers. Alexander states, “The single mom is better off earning gross income of $29,000 with $57,327 in net income and benefits than to earn gross income of $69,000 with net income and benefits of $57,045.”

According to Alexander, benefits that accrue in Pennsylvania to a single mom with two preschool children, who earns $29,000, include health insurance for her children ($5,000), various childcare benefits ($15,000), housing ($6,000), and food ($2,300). A single mom earning $69,000 doesn’t qualify for any of these benefits and actually takes home $182 less than the mom earning $29,000.

A chart in Alexander’s paper with even more serious implications illustrates that 110 million privately employed workers in the US now support 88 million welfare recipients and government workers. This trend is not economically sustainable. While the government can print all the money needed to fund the 88 million, inflation becomes a huge concern. If inflation and taxes continue to climb, at some point, the producers/taxpayers may say “enough.” They will either choose to become recipients instead of producers, or they might relocate themselves and their skills to a country that rewards productivity and incentive.

The financial blog ZeroHedge.com published an article on this topic on November 27, 2012. The piece calls it a “painful reality in America” that “for increasingly more it is now more lucrative—in the form of actual disposable income—to sit, do nothing, and collect various welfare entitlements, than to work.”

This is a difficult subject to raise. I am sure my inbox will fill with unhappy emails from folks who will miss my point and others who will give me illustrations of those less fortunate who legitimately depend on welfare.

However, the painful long-term costs and consequences of welfare is one of the essential topics we need to talk about if we are to solve our nation’s fiscal problems. If our representatives come to depend more for reelection on those who receive tax funds than those who provide tax funds, we will only dig ourselves further into debt.

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