Dan Mitchell describes how withdrawal of welfare benefits as your income rises can create a tax cliff that discourages the unemployed from seeking more work.
A graphic from British newspaper The Spectator gives this example:
John 21, works 25 hours per week at a gross wage of £5.70 per hour.
Of which 63p in tax/National Insurance and £4.18 in benefits (housing and council tax) is withdrawn.
Net income from work: 89p per hour.
84% of wage is lost in tax and benefit withdrawal!
Read more at How the Welfare State Traps the Poor in Dependency, the British Version « International Liberty.