a UBI would be administratively efficient and unobtrusive. It would require no verification of any personal trait or behavior…If the UBI were integrated into the existing federal income tax system, only households with no income at all would receive the full UBI benefit in cash. Those with low-to-moderate incomes would receive part of the benefit as a credit toward income and payroll taxes, and the rest in cash. Those with high incomes would get a tax credit
Pointer from Mark Thoma.
A universal benefit with a zero marginal tax rate is expensive. Dolan says that we could replace $500 billion in means-tested programs, but that only allows for a benefit of around $1600 per person. Next, he proposes eliminating important middle-class tax deductions, including not only the mortgage interest deduction but the IRA deduction and the personal exemption (!), bringing the benefit up to $5200 per person.
Dolan would exempt current social security recipients from the UBI, so that allows $5800 for the remaining UBI-eligibles.
I still prefer the solution of a benefit with a marginal tax rate of something like 20 percent or 25 percent. I also think that having a benefit that only can be spent on “merit” goods–food, shelter, health care, and education–makes some sense. However, I am open to the argument that administrative costs would detract from the approach of trying to limit the benefit to merit goods.
UPDATE: Commenting on Dolan’s piece, Timothy Taylor warns,
The U.S. political system does not excel at replacing complexity with simplicity, and then leaving well enough alone.
The dogs are barking at a tree that has no squirrel !
“However, I am open to the argument that administrative costs would detract from the approach of trying to limit the benefit to merit goods.”
not just administrative costs, but foreseeable public choice perverse consequences
“Just give people money” is a simple Schelling point and something that can be expressed in a simple law in a useful way. Limiting what the money is used for is not simple. The policy in practice naturally ends up being not rule of law but a grant of a significant amount of unaccountable authority to bureaucrats. The mechanisms of democracy (or, for that matter, of various other governmental forms too, but that’s beyond the scope of this argument) function poorly because the policy as enforced ends up too twisty and complicated and misleading to campaign for or against except by necessarily oversimplified soundbites. Generally things get screwed up.
The problem with this is emotional blackmail situations. What are you going to do with someone (especially with kids, but that’s not essential) who blows all their money on gambling or other vice indulgences and is now starving and homeless and sick in the winter? This is not some ridiculous hypothetical; the country has a large number of these individuals – just ask any social worker.
One idea could be to have certain contingency safety-net institutions like homeless shelters and free clinics and the like for just these circumstances.
If an individual is mature and responsible enough to take care of himself and his family and buy those merit goods on his own, then he just gets a check and can spend it on whatever he wants – just like seniors can with their Social Security and pension money, or the disabled can with their checks.
However, if he blows it foolishly and has to beg for additional help, then he goes into the merit-goods assistance program (MGAP) for a limited period. MGAP would be a fail-safe system and like a temporary or probationary halfway house between full adult independence and custodial institutionalization.
With something like MGAP – you avoid most of the administrative costs of a general welfare state, and you avoid obnoxious paternalistic supervision of competent adults, but you also avoid the freezing-and-homeless scenario, and have a way to assist people who aren’t very good at making the best responsible decisions.
It also meet Kristol’s political test which says that the popularity of any welfare program depends in part of how broad-based or universal the program is perceived to be by the general public. It could be that a lot of people that are the beneficiaries of current means-tested programs would also end up in an MGAP, but it would be perceived as only part of the UGI program, from which everyone benefits.
When you say “MGAP would be a fail-safe system and like a temporary or probationary halfway house between full adult independence and custodial institutionalization.” what I envision is something a bit like a college dorm: beds, bathrooms, and 3 squares. Is that about right?
It depends on the situation. It could be like college dorms / military barracks / homeless shelters, etc. for some people. It could just be purchasing vouchers that are limited to merit goods (like EBT / WIC / Section-8 / School vouchers are today). It could be in the form of an ‘allotment’ – that is – a pre-garnishment of the UGI that automatically goes to pay certain priority expenses first – like catastrophic health insurance, or child support.
The point is that there is a problematic gap between a no-questions-asked UGI policy for all adults and the goal of providing everyone with the basic material requirements of a comfortable and signified existence. That gap exists because some adults, for various reasons, and when left to their own devices, will not make decisions that yield minimally acceptable results when measures against that goal.
So, for those problem adults, you need something to fill the gap. MGAP fills the gap (it makes its own catchphrase). If someone takes care of themselves and their family, and stays out of trouble with the law, then they just get a check like Social Security, and they can use it on whatever they choose, because they can be trusted to choose wisely enough.
But if they get themselves into trouble – MGAP fills the gap. They still have recourse, but they’re going to need to accept a kind of probationary or parole period of light-‘supervised release’ or whatever amount of paternalistic restriction they require.
At that point, it seems like the easiest solution would be to set up something that’s somewhere between a dorm and a hostel. A safe place to sleep (though you may have a roommate), three hot meals a day (cheap but nutritious), and you can come and go as you please, few questions asked.
In my less charitable moments, I suspect that the primary reason that our welfare state doesn’t take such a form is that it would be too simple and efficient.
I would prefer a system like that backstopping a modest UBI to any other transfer/welfare/safety net system I have ever heard described.
Giving people money means that they can directly spend on what they think they need most – even if what they think they need most is a little stress relief, the form of a beer, or a joint, or a movie rental.
Straight cash also has the advantage of ensuring of ensuring that the money actually gets to the nominal beneficiaries, rather than arbitrageurs who profit by converting “merit” goods into cash.
Recalling this article:http://www.nationalreview.com/article/367903/white-ghetto-kevin-d-williamson/page/0/1
“It works like this: Once a month, the debit-card accounts of those receiving what we still call food stamps are credited with a few hundred dollars — about $500 for a family of four, on average — which are immediately converted into a unit of exchange, in this case cases of soda. On the day when accounts are credited, local establishments accepting EBT cards — and all across the Big White Ghetto, “We Accept Food Stamps” is the new E pluribus unum – are swamped with locals using their public benefits to buy cases and cases — reports put the number at 30 to 40 cases for some buyers — of soda. Those cases of soda then either go on to another retailer, who buys them at 50 cents on the dollar, in effect laundering those $500 in monthly benefits into $250 in cash — a considerably worse rate than your typical organized-crime money launderer offers — or else they go into the local black-market economy…”
Your example makes the opposite point you think it does for most people. If people are, with some difficulty, inefficiently converting money meant for food into harmful meth now, how much worse would it be if you just handed them cash?
The “what they think they need most” bit is a bit of Libertarian absolutism that unfortunately is at odds with imperfectly rational and weak-willed human nature. The small barrier of effort in fencing and the low ‘exchange rate’ between EBT and drugs or alcohol or prostitution or gambling is not perfect, but it is a definitely burdensome and annoying enough ‘nudge’ that it ensures most people use most of the money on food instead of vice.
Yes, people will use the small amount of public benefits meant to keep them fed to spend on meth instead. That’s a problem, not something to which the average net taxpayer is likely to be indifferent since they are willing to prevent a family from becoming truly destitute, but not subsidize an irresponsibly individual’s addictive indulgences. Observe the recent scandals about misuse of welfare benefits at casinos and strip clubs and liquor stores.
Voters care about meeting other people’s basic physiological needs and those of their minor children, not about giving them whatever thrill they happen to want at the moment.
Furthermore, those of us who would like to argue for greater public generosity towards the poor need the political top-cover of being able to claim that the money is necessary to fulfill basic human necessities and has positive results on life outcomes. Pure cash grants will guarantee outrageous scandals like the above, which will undermine public support in the same way that the prospect of being a welfare-magnet to the world also undermines support for open immigration.
The exchange rate is ~50%. For $500 in federal aid, recipients are getting $250 and arbitrageurs are likewise getting $250. This is, frankly, a pretty massive subsidy to foodstamp-accepting business.
Despite the poor exchange rate, huge amounts of aid money is getting laundered in this way. This isn’t a scandal, this is business as usual on a pretty large scale. So even though the ‘nudge’ is more like a shove, it isn’t working.
As you point out, this example isn’t that rare – stories about EBT and welfare benefits being used at casinos, strip clubs, liquor stores, and (now) marijuana outlets in CO crop up on a reasonably regular basis. This isn’t surprising, as humans have a long history of giving up ‘basic human necessities’ for happiness in a variety of ways.
To the extent that this is about the “need the political top-cover of being able to claim that the money is necessary to fulfill basic human necessities”, what you’re claiming is that in order to be able to persuade voters to support (or even tolerate) the welfare state, you need to be able to lie about it’s justifications and effectiveness.
If the goal of transfer payments is to alleviate the pain of poverty (both temporary and persistent), it seems reasonable to allow the recipient to make the survival/happiness tradeoff at whatever level they see fit.
On the other hand, taking the choice away from them turns the impoverished into some kind of morality pet for the rest of us. The implicit goal of such a scheme is not to make the poor better off, but to make those paying in feel better about ‘helping’.
I also suspect that giving cash would be substantially more effective at helping people to escape poverty. Cash can be saved by those who have the ability, invested in things that increase access to work but are not generally considered merit goods because they are also common luxury goods or money sinks (e.g. vehicles, celluar phones).
Giving cash also implicitly confers an increased responsibility (for using that cash well), and I think the psychological effect of that is widely underestimated. People are more likely to behave responsibly and rationally when they are given choices, and behave carelessly or spitefully when they are denied choices. Encouraging people to develop the habit of making choices deliberately is a major part of helping them escape the habits of poverty.