Suspicious discontinuities (2020)

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.