Greg Mankiw has great credentials as a political economist, including a two year stint as the chairman of George W. Bush's council of economic advisers so his insights on economic affairs are not to be scorned. A post from his blog on Wednesday on the perverse incentives facing the working poor is very worthy of consideration. Thanks to Economix for the lead.

Basically Professor Mankiw points out in our zeal to collect taxes from the working poor and to end transfers such as housing aid, food stamps and - Wonks Anonymous adds - medical assistance we make the transition from full dependence to earned independence hellish and frustrating.

The graph below shows take home pay less taxes and lost aid on the vertical axis and earned income on the horizontal axis. Note that the take home pay is flat or worse from about $15,000 to about $30,000. You work hard and the only benefit that you get is fewer forms to fill out and fewer visits to case workers.

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The chart above (source, via Kling) illustrates this phenomenon. It shows income after taxes and transfers as a function of earned income. Notice that as earned income rises from about $15,000 to $30,000, income after taxes and transfers is roughly flat. Indeed, it could even fall. The bottom line: If you are poor, the government is inadvertently ensuring that you have little incentive to try to improve your condition.

Professor Mankiw has great hopes that President Obama will do something about this. So does Wonks Anonymous who believes that some increases in the earned income tax credit and a loosening of the income standards for various program, including high quality subsidized child care and state funded medical insurance would do the trick.

Wonks Anonymous is, however, curious to understand why this mover and shaker in the Republican brain trusts should wait to make this excellent proposal until a Democratic administration is in office.

Could it be that the political wing of Professor Mankiw's party has spent the past eight years attacking the earned income tax credit and demonizing the working poor?  Certainly the Republican base now considers the Earned Income Tax credit to be a giveaway to illegal aliens and the working poor to be the modern equivalent of welfare queens. Certainly it would now be the equivalent of political suicide for a Republican to take on the base on this issue.

So Professor Mankiw hopes that President Obama will take this one on, although one expects that he will be cheering very quietly from the safety of his Harvard office.