Charles Murray’s book of that title is almost ten years old. It is relevant to the idea of a universal benefit.
For a universal benefit, I propose something like $6000 for each adult in a household and $4000 for each child. Murray proposed $10,000 per adult and zero per child.
Murray described the program as a cash grant. I describe it as flex-dollars that can only be used for “merit” goods, meaning health care, food, housing, and education.
Each of us presumes that people will purchase health insurance. I am explicit that catastrophic health insurance would be mandatory.
I propose something like a 20 percent marginal tax rate, or phase-out rate, for the universal benefit. Murray proposed a 20 percent marginal tax rate for incomes between $25,000 and $50,000, with a zero marginal tax rate otherwise. (This is a tax rate that specifically reduces the benefit, and it is over and above existing income and payroll taxes.)
So a single adult with zero income would get $10,000 under Murray’s plan, $6000 under mine. At $25,000 income, you still get $10,000 under Murray’s plan, only $1000 under mine. At $50,000 and up you get $5000 under Murray’s plan, but at $30,000 and up you get zero under mine.
A household with two adults, two children, and zero income gets $20,000 under either plan. If each adult earns $25,000, then the household gets $20,000 under Murray’s plan (because it looks at individual income, not household income) and $10,000 under mine. If each adult earns $50,000 (and up), the household still gets $10,000 under Murray’s plan. If each adult earns $50,000, the household gets $0 under my plan.
With a universal benefit, I have suggested replacing the EITC, food stamps, housing subsidies, unemployment insurance, and Medicaid with a single benefit. Actually, think of Medicaid as two programs–one for nursing homes, the other for health care. I would leave the nursing-home piece alone.
What Murray proposed in addition was to replace all of Medicaid, as well as all of Medicare and Social Security. That means that some of the benefit would have to go toward self-financing health care when you get old and self-financing some of your retirement (instead of Social Security, an adult over 65 would continue to receive Murray’s $10,000, but not my flexible benefit). Since the average person will incur about $100,000 in medical expenses after age 65, self-financing would require about $2000 a year to be saved, because it is hard to earn a return above the rate of health care cost growth. I would say that, conservatively, someone would want to save an additional $1000 per year to fund additional consumption after retirement.
After applying phase-out rates (what I am calling the marginal tax rate) and deducting the cost of self-financing medical care and additional consumption in retirement under Murray’s plan, this is how the two ideas compare:
| Type of Household | Income per adult | Murray benefit | My benefit |
|---|---|---|---|
| Single Adult | $0 | $7000 | $6000 |
| Single Adult | $25,000 | $7000 | $1000 |
| Single Adult | $50,000 | $5000 | $0 |
| Two Adults, Two Kids | $0 | $14,000 | $20,000 |
| Two Adults, Two Kids | $25,000 | $14,000 | $10,000 |
| Two Adults, Two Kids | $50,000 | $4,000 | $0 |
Some remarks:
1. Suppose that catastrophic health insurance costs $1500 per adult and $500 per child. In that case, Murray would leave a household of four with zero income with just $10,000 per year to spend on food, housing, non-catastrophic health expenses, and everything else.
2. Murray’s plan is more generous to all but the very poor who have children. He wants people to bear the full financial burden of having children, and if that burden feels particularly heavy for the poor, this has the virtue of giving them an incentive to avoid having children.
3. Murray’s plan has a lower marginal tax rate (zero) for those earning $25,000 a year or less. The upside of this is that it really strengthens the incentive to work. The downside is that it raises the budgetary cost considerably.
4. Murray’s plan reverts to a zero marginal tax rate for those earning $50,000 or more. As far as I can tell, the main reason he wants to do this is that he thinks the additional $5000 will encourage high-income mothers to stay home with their children. I do not find this particularly persuasive, and I think you want a much stronger argument given how much this raises the cost of the plan.
5. The 18-21-year-old gets nothing in Murray’s plan. He clearly says he wants to get rid of college subsidies, so it seems to me that he wants to drop these folks into the labor pool in the expectation that they will learn to swim.
6. Keep in mind that under current policy, many low-income households face effective marginal tax rates of 100 percent or higher. That is, they are better off with something less than full-time, year-round work. That disturbs Murray and it disturbs me. It is possibly a source of a large share of social pathology.
You might find Ed Dolan’s plan useful. He separates healthcare since average cost exceeds $6000, but finds $6000 possible outside of it.
Thanks for the pointer!
A great way to sell a guaranteed income to conservatives would be to package it with a proposal to abolish the income tax. Heck, no income tax for low-income households could be very popular in general.
So, a possibility could be to get rid of the income tax for household incomes less than $100K with a general consumption or sales tax of, say, 20-30% (Scott Sumner says it’s possible to make it progressive), but which excludes those ‘merit’ goods and services, just as many states exclude groceries and medications.
A great example is Washington State, with no income tax, but a high sales tax which excludes food and prescription drugs. The marginal tax rate for an extra dollar of income is always 0%, so plenty of incentive to work, and if you want to save it instead of consume it, it is like an automatic quasi-IRA.
You could still explicitly require catastrophic health insurance to be paid for out of the guaranteed grant. But after that’s taken care of, I imagine your typical low-income family with a good sense of bourgeois priorities will spend their early dollars filling up on merit goods, and then gradually shift into taxed, non-merit goods as they get richer. Again, non-merit consumption is going to get taxed substantially (combining local, state, and fed taxes), so there is also an incentive to save.
Let’s take your family of four scenario, with benefit at $20K and catastrophic health insurance at $4K. But this time with a consumption tax and no phase-out. It could look like this.
Earned Income / Total Income / Cat. Ins. / Merit Goods / Non-Merit / Saving
0 / 20,000 / -4,000 / -16,000 / 0 / 0
10,000 / 30,000 / -4,000 / -25,000 / -500 / -500
20,000 / 40,000 / -4,000 / -30,000 / -3,000 / -3,000
30,000 / 50,000 / -4,000 / -32,000 / -7,000 / -7,000
If they pay a tax of 20% on non-merit consumption, then their marginal tax rates for each additional $10K of income were 1%, 5%, 8%, … eventually approaching the nominal rate for high levels of income and consumption.
“Each of us presumes that people will purchase health insurance. I am explicit that catastrophic health insurance would be mandatory.”
If one presumes this and one presumes the government will provide an allowance to every citizen then there is a simpler solution: Simply enroll American into a catastrophic health care plan! Voila, as of June 25 2014 every American is insured against catastrophic medical costs. To plagiarize Staples: That was easy.
Of course what are catastrophic medical costs? Who decides? Who administers the coverage? Oh crap, now we have the same questions and lack of answers that we already have! Oh well, at least it was a great idea until we had to actually implement it.
I still wonder why “conservatives” think it will work for the government to give people money and then dictate how that money should be spent. Either people have freedom and experience the consequence of their choices or they do not. Any dictation of what people should spend money on, whether the money is given to them or they earn it themselves, destroys liberty.
“Each of us presumes that people will purchase health insurance. I am explicit that catastrophic health insurance would be mandatory.”
Surely, this could be a “light” form a mandatory, where a set amount of the benefit is reserved for paying for a catastrophic-coverage policy. The penalty for not buying one is that you don’t get to use that part of the benefit.
Max
I like your plan better overall but remembering what Mike Munger says about it being hard to give money away, in that you often end up paying people to do something (i.e. stand a street corner with their hand out, fill out forms etc.), I think it is a bad idea to increase the money for children.
Good healthy children are really very cheap to raise, but bad or unhealthy children can be very expensive and heart rending to raise, so we should be careful to not pay poor people to take the risk of having more children.