The dependency state (including all dependents both responsible savers and irresponsible government cases) is doomed to failure. I posted previously on why I believe the overall dependent to productive worker ratio is ~4:1 right now. Most of our dependents are funded by siphoning off some of the excess valuable labor of these workers and directing those fruits to the not-currently-working via medicare, medicaid, social security, welfare, SNAP, CHIP, and a host of other transfer payments. So, why do I think the traditional family will destroy this system?
Let’s consider a married doctor and lawyer in a high tax state, let’s call them the Huxtables. Let’s assume that together they are making ~500k each year ($3oo for Heathcliff and $200 for Claire). This puts them in the very top tax bracket of 39.6%. We can add in the NY state income tax of 8.97% and NY City tax rate of 4.25% for a total marginal tax rate of 52.82% (plus property tax, sales tax, and other taxes). That means roughly half of Claire’s income is now going to pay income taxes only, and if she pared back her income by $100k the family’s take home pay would only decline by $50k. Or in other words, when she is considering what her 50 hour/week labor is worth at $200k/year it works out to roughly $40/hour once the 50% tax rate is included. Granted, there are tax exemptions, credits, deductions, and so on, but we are talking ballpark numbers here, and the difference is probably no more than $40 vs $45/hr. Let’s also note that there are expenses associate with Claire’s profession – lawyer’s clothes, lawyer’s car, lawyer’s parties, lawyer’s lunches, etc that likely cost $25-50k per year as well. It might be that Claire choosing to stay home could take $200k out of the family’s nominal income but only have a $50k change in lifestyle (from living on $300 to living on $250), or a marginal family value of $20/hour, and Claire can probably provide at least $20/hour of benefits by staying home. The lost income is not so big a problem for the Huxtables, but it is a critical problem for their community that is absolutely dependent on Claire’s excess earnings.
You see, even as the blue model erodes the family structure it is overwhelmingly dependent on it. There is no way for a blue model to work without a good number of ultra-high dual income households. When the tax rate gets high enough the incentive for the second income diminishes significantly. When Claire decides it isn’t worth her entire life to improve the standard of living by 25% the blue model will suffer an epic failure (at the national level, not just state and local). The current dependency ratio of 4:1 depends on the high income Huxtable family supporting 5 or so outside their family. When that drops by 3 (100k in collected income taxes) there will no longer be enough money to hand out to the masses. The failure will come in a slow decline of tax revenue and a slower growth of per capita GDP due to fewer dual income households – which peaked as a percentage of all households sometime around 1997. Since that time there have been more single parent households, and more dual parent single income households. The amount of earnings of the upper middle class is decreasing in part because more families are deciding it is in their own best interest for one parent to stay home, that the non-economic benefits of a stay-at-home mom outweighs the economic benefits gained under a 50% marginal tax rate (plus FICA). The problem with the blue model is that it is impossible to raise tax rates enough to force Claire back into the workforce. The very best they can do is make Heathcliff reconsider how many hours he wants to work, which only exacerbates the problem further.
So Harry Reid, how do you plan on expanding Obamacare subsidies when Claire decides to stay home?