Rethinking Welfare

Are we subsidizing the poor or subsidizing labor costs?

Katy Levinson
Jul 21, 2017 · 4 min read

It is clear that the labor practices of many companies rely on the welfare system. This could be modeled as having the taxpayer pick up the tab for some of the labor costs of companies. It is surprising that more people, and particularly more libertarians, do not object to this form of market interference.

The situation has become aggressive, with companies such as McDonalds now running dedicated systems to help employees, including full-time employees, register for welfare benefits.

We frequently defer to companies and give them government support because they are “job creators.” It is interesting that they are both penalized for serving this function through payroll taxes and simultaneously incentivized to take additional taxpayer money by employing labor practices which pass their labor costs on to the welfare system.

Welfare in some form is a financial benefit to many people who never receive benefits. Unless you want hospitals to withhold care until they verify the patient can pay for the treatment, not everybody who receives treatment will be able to pay for treatment. If welfare does not pick up these costs, these bills will go unpaid. That cost of unpaid bills is transferred back onto society in the form of raised healthcare costs. This means that so long as you’re treating everybody before verifying they can pay, our society will pay the cost for people who can’t afford treatment regardless of if we have welfare.

Withholding treatment until patients prove they can pay is an unacceptable solution for everybody. There are many medical situations in which withholding care for even seconds matters. That means that withholding treatment until we are sure people can pay would directly decrease the quality of health care for everybody.

Once we are committed to treating people who come into the emergency room immediately, the question is how to bring down the costs of unpaid bills. While not all preventative care is a cost savings, there is a strong evidence that many procedures, such as Cochlear implants for profoundly deaf children, save society money in the long run. There are non-medical interventions which work too. Colorado had dramatic success and is estimated to have saved $5.85 in Medicaid alone for every dollar it spent on a free birth control program.

The only people who do not benefit from lower healthcare costs are those who are so rich that healthcare costs do not matter. Given the costs of healthcare in America, these people are likely to be at least multi-millionaires if not billionaires.

Now that we have established that some form of welfare is a benefit to many people who do not receive benefits, the question is who should pay for it. Currently, that cost is passed back on to taxpayers directly. This means that taxpayers are subsidizing companies whose labor practices rely on welfare. That is a financial incentive for companies to rely on welfare. That is similar to making incentives against creating jobs which pay employees decent wages because those companies have to compete with the companies relying on welfare.

One alternative to our current welfare model would be to pass the welfare costs of a company’s labor practices back onto that company. Employers could be taxed an amount which represents the cost of the welfare benefits for which their employees are eligible. The costs of part-time employees who work multiple jobs to hit full time work could be pro-rated, and you could exempt employees who do not work a certain number of hours a week across all jobs. Medical costs would need to be amortized to prevent discrimination against individuals with health problems. If child welfare costs were handled this way, they would need to be amortized over childless individuals as well.

There are several benefits to this solution. One is that, unlike minimum wage increases, this solution is not undermined by inflation, and should not directly contribute to it either. Another is that only companies which rely on our welfare system to function will be negatively impacted by this solution. Most importantly, we will remove some incentives for using labor practices which rely on welfare.

This program can not directly replace all welfare. If employers are billed only for the labor costs they are passing onto welfare, that system does not directly handle the costs of disability, unemployment, job training, social security and benefits for people who are unable to find work. However, it could be used to subsidize those costs if we decide we want to add punitive component. This would mean charging employers who push labor costs onto the welfare system more than the benefits cost and putting the additional money into other welfare programs. This changes the situation from ending subsidies for labor practices which rely on welfare to punishing employers for operating this way. That would give the companies which do not rely on welfare for labor costs an advantage.

It is true that removing government interference with labor market practices would change what business models are financially viable. That is the point. The structure which exists is abusive, and it is time for a new one.

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Thanks to Ali Sajid Imami

Katy Levinson
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