Suspicious discontinuities (2020)
Hard cutoffs in tax rules, welfare programs, tuition aid, and subsidies can create “welfare cliffs” where earning a bit more money leaves people worse off, so many rationally limit income or game timing and accounting to stay below thresholds. Commenters extend this idea of “suspicious discontinuities” to elections, sports, pricing, and online ratings, where human preferences for round numbers and poorly designed rules leave visible spikes and gaps in otherwise smooth distributions. Much of the debate centers on whether these cliffs are the result of political choices, administrative convenience, or deeper ideological views about welfare, and whether solutions like sliding scales or universal/UBI-style benefits would reduce perverse incentives without excessive complexity.
Tax & Welfare Cliffs / “Welfare Trap”
- Many examples of hard cutoffs: tuition grants, ACA subsidies, Medicaid/CHIP/TANF thresholds, childcare subsidies, housing support, UK and Argentine tax regimes, and UK child benefit and income tax bands.
- People report:
- Turning down shifts, raises, or promotions.
- Structuring business spending (e.g., buying farm machinery) or rental timing to stay under cliffs.
- Being ineligible for mortgage relief or grants despite struggling, because they were just above a line.
- Several note extreme effective marginal rates (sometimes >100%) once loss of benefits and tax are combined.
- Some argue these cliffs are politically convenient: easy to explain, cheaper on paper, and create “welfare cheat” narratives when people fall off.
- Others emphasize implementation complexity: sliding scales across many overlapping programs can still produce high effective marginal rates, just spread out instead of sharp cliffs.
Means Testing, Bureaucracy, and Access
- Commenters describe complex, time‑consuming application and recertification processes; missed payments and delays can derail schooling or childcare.
- Those who fully exploit programs often have high bureaucratic skill and time, which many poor people lack.
- This is cited as a major argument for universal or near‑universal schemes (UBI or negative income tax) with simple tax-based clawbacks.
Proposed Solutions and Disagreements
- Popular ideas:
- Replace most targeted welfare with UBI or negative income tax; recover cost through a flat or progressive tax schedule.
- Legally require that net income never fall when gross income rises.
- Replace hard cutoffs with gradual phase‑outs.
- Critics worry about UBI cost, labor disincentives, and feasibility; supporters counter with:
- Offsetting elimination of existing programs and admin overhead.
- Ability of tax design to avoid cliffs.
- The current system already discourages work more for the poor than for the rich.
- Broader political arguments emerge over government competence, “starve the beast” strategies, corporate welfare, and inheritance; some propose very high or even 100% inheritance taxes, others see that as economically destructive.
Other Discontinuity Examples
- Behavioral or institutional rounding shows up in:
- Election result histograms (e.g., Russian tallies at round percentages).
- Real estate appraisals often matching contract price.
- Rent levels and car prices clustering at “nice” numbers.
- Chess ratings, sports age cut-offs, and marathon times clustering around round thresholds.