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News Link • Domestic Policy

When Work Doesn't Pay For The Middle Class

• Forbes
 At $120,000 she would pay $16,500 a year more in federal and state taxes, wouldn't qualify for the five-year $12,000-a-year cut in her mortgage payments she's applying for and would be eligible for $19,000 a year less in need-based college financial aid.

For decades there has been debate about how to help the poor without discouraging work, saving or marriage. Yet with almost no notice just such disincentives have crept up the income ladder, observes economist C. Eugene Steuerle, a former Treasury official and expert on the taxation of families. At first blush it would be hard to argue with anything that might help Lederman get back on her feet. Mortgage relief? The voters clamored for it. Scholarships for less-prosperous students? Everyone wants poor kids to get the same chances in life as rich ones. Add up all these good intentions, though, and you get some perverse incentives.

Work isn't the only middle-class virtue that is getting punished. The system penalizes savings, too--not just through taxes, but also through programs that reward debtors, the profligate and college families that show up at the financial aid office with empty pockets. Yet another series of tax and benefit rules penalizes marriage.

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