A single benefit usually has an appropriate incentive structure, but a lot of people get multiple benefits -- even from different levels of government (local, state, federal) -- and adding up phase-outs in different systems can result in marginal phase-outs rates above 100%. It's hard to avoid that entirely given that we want to have a lot of transfers to the bottom of the income distribution while phasing those out by roughly the median. It would be easier to avoid phase-outs above (say) 80% of marginal income is we only had federal and state aid as predictable money transfers, but for various reasons we provide a lot of transfers in-kind or with limited authorized uses. Those limitations aren't necessarily wrong, but they do mean that transfers aren't fungible, so there's an incentive to provide transfers for other "good" uses, and that diversity is what makes it hard to bound the marginal phase-outs for everyone.

This does happen in Finnish tax system. Your tax rate (percent with one decimal) is calculated based on your annual gross income. Rates are supposed to be calculated smoothly, and they are certainly calculated for each individual separately.

In reality they are step functions. It is surprisingly common to have people refuse promotions because if would put them above an income tax threshold, bump up their rate, and end up with less money after taxes in the end.

The UK tax system is far from fair but at least it has clear brackets: income above threshold X is taxed at rate Y.

I agree, but almost everyone today can use a computer or smartphone. They can type in their income, and the computer can calculate it, providing them an average number of what their percentage of actual taxable income was- I think Turbo Tax and other software might do something like this.

They don't have to understand how it works to do their own taxes.

You might just be taking people too literally.

I've heard the same thing -- if they take a job they will lose money. What they really mean is that if they take a job (trade time for money), they will lose some of the pension they have already earned. This is a real economic loss (even if they might have a few more bucks at the end of the week) to say nothing of their lost time.

This isn’t a very satisfying explanation to me. I mean, the idea of a cliff causing bad incentives is extremely widely understood (to the point where people under progressive taxation policies avoid taking overtime because they misunderstand the policy and believe the cliff to be there).

I wonder why we don’t define these things in terms of logistic functions or something. That’s high school or at least first semester college math, right?

Not if you assume people could understand basic math, such ... oh, any continuously valued polynomial ....

I hear this explanation a lot but I think it's a convenient fiction. Lawmakers, at least in the US, don't seem to write their own legal texts very often. Sometimes they don't even read them [1]! Congress has no problem producing monstrously complicated laws, in any case.

I think it's likely that politicians and their funding sources have found ways to profit off of these discontinuities. The infamous Medicare "donut hole" [2] was arguably a "benefit discontinuity" of the sort mentioned by the author and pharmaceutical companies profited off of it (more than a hypothetical Medicare structure without a donut hole, not relative to the spending cap that replaced it—which profits them even more).

[1] https://www.pennstatelawreview.org/penn-statim/dont-be-silly... (2013) ...which argues that this is a good thing!

[2] https://www.medicalnewstoday.com/articles/what-is-the-medica...