I do have a problem with give-away programs because they are gamed. Not only that, but they provide artificial incentives for illegal immigration. We ought to follow Gary Becker's idea on immigration, charge for it.
Frank, no need to scream. Make it a simple agreement: the government will take care of your needs, up to 200% of the poverty level, but you must agree to suspend your voting privileges.
FairTax.org.....consumption tax....My favorite story on government giveaways: My wife was waiting in line at the CTA office in Chicago to get her CTA card. The woman in front of her was listening to the CTA person tell her about all the incentives she was getting. Because she qualified based on some metric, she was going to ride for free. A man sitting in the room barged up to the front of the line waving his CTA card. He said, "I want to ride for free." The CTA woman politely took his card, looked at it and returned it. She said, "Sir, you are already riding for free." Apparently, he wanted to get paid to ride.
Exactly. It's better to use UBI to replace these programs all together. It's similar to negative income tax proposed decades ago, and it's much more efficient.
Daniel Patrick Moynihan wrote some wonderful articles on the subject in The New Yorker in the late 1960. Also, multiple taxation of benefits was the prime reason for the income maintenance experiments of the early 1970s.
One thing to remember about these sorts of programs with disincentives: while there may be small rates of fraud, having perfect information as a rational economic agent is a sort of prerequisite for understanding them - have to *know* about them, first. How often does that happen?
But for those who use these programs, there are real social and occupational impairments that prevent most from understanding or finding better options with less negative economic externalities. Maybe that's the technocratic Utopia economics offers in the end. No system will be perfect and there wil be flaws. If only scarcity wasn't an issue.
When people are suffering in real ways, disincentives are the last thing on the mind.
Maybe economics will discover mercy in its normative cocoon. One can dream.
Yes, it'd be ideal if all were perfectly competent and could support themselves with zero cost to governments. But, that's not going to happen unless we all turn into ants and form a mindless hive mind.
The thesis in the 2022 book written by Gramm et al. is simply stated: Poverty in the U.S. is not as dire as the media and the social justice warriors make it out to be. Income transfers by federal and state governments, Gramm et al. contend, level up the income distribution substantially. Additionally, the 2017 income tax code revision lowered the proportion of taxable earned income collected by the IRS on households in the lower income tax brackets. Earned income of $30,000 isn't going to allow the taxpayer to live the life-style of a Hollywood movie star, but if that is the life-style the taxpayer aspires to (and many do) then the motivation is towards remunerative work rather than to reliance on the federal or state dole.
John uses the term "marginal tax rate" in his essay. One might be inclined to observe that he misuses the term, and even grossly misuses the term. Consider the 'affordable housing' subsidy. This subsidy equals the market rent that the program beneficiary would have paid absent the government program and 30% of taxable income that beneficiary is required to pay to the housing authority. At an annual taxable income of $30,120 the 'rent' is $9,036 per year ($753 per month). If the market rent is $1,100 per month for a comparable rental apartment, then the subsidy is $347 per month ($4,164 per year). Assume, with John, that the 'affordable housing' subsidy is marked by a 'cliff' -- earning $30,121 per year disqualifies the occupant from receiving the 'affordable housing' subsidy. What is the 'marginal tax rate' then in John's calculus? It would have to be $4,164 divided by $1, or 416,400%. What level change in earned income would make the 'affordable housing' subsidy recipient indifferent to disqualification for the subsidy? Clearly it must be an increase of $4,164 divided by one minus the combined federal and state marginal income tax rates. Assume that the combined federal and state income tax rates for this individual (or, household) amount to 10%. Then the annual taxable earned income increase to make the tax payer indifferent to the loss of the 'affordable housing' subsidy is $4,627, or an increase in taxable earned income of 15.36%. For a young adult, an improvement of 15.36% in annual taxable earned income is practicable. For an older adult, or a single mother with children under the age of 16 years, an improvement in annual taxable earned income by 15.36% is probably out of reach except under exceptional circumstances. In other words, the subsidies and inter-household income transfers by the federal and state governments are received by individuals and households that need those subsidies and income supplements the most and have the least likelihood of being able to improve their incomes.
Gramm et al. argue that because of the welfare programs and income transfers life in the least wealthy demographic segments is less dire than it would otherwise be without such subsidies and transfers. Ergo, the motivation to increase taxation of the income of wealthy households is lower than it would otherwise be. In short, Gramm et al. argue that increasing the tax burden on high income (high net worth) households is not supportable in light of the current extent of the welfare benefits the lower income (low net worth) households receive, or would receive if those households took advantage of the welfare benefits they are entitled to by law. That is my take on Gramm et al. (2022).
The proliferation of social benefit programs is conditioned on the proliferation of federal and state government departments set up to administer and deliver such benefits. Absent those federal and state government departments, social welfare must depend on philanthropy and religious institutions. The net effect on John's "marginal tax rate" is unchanged. Social welfare benefits are constrained by the availability of funding, whether from federal and state government coffers or from private and religious sources. There will always be some form of 'cliff' relative to income or household wealth regardless of the design of the social welfare benefit program(s). Welcome to the real world.
In considering "intersecting disincentives", the reader should note that the Whitehouse (Biden, J., president) has replaced the 2003 OMB Circular A-4 with a completely revised 2023 OMB Circular A-4 that reflects a 'progressive agenda' perspective framed in the 'whole of government' doctrine favored by the Biden administration. Cass R. Sunstein describes this as "The Economic Constitution of the United States" in a free-access paper published in AEA's "Journal of Economic Perspectives", Vol. 38, Issue 2, Spring 2024 found at https://www.aeaweb.org/atypon.php?return_path=/doi/pdfplus/10.1257/jep.38.2.25&etoc=1
UBI could fix this. But the bureaucracies (mostly unionized) that run those programs have enormous power, and politicians like to point to their achievements in helping the needy. And many politicians - either confused, or taking advantage of public confusion, branded cash giveaways to low-income people (which exacerbate this marginal effect) as "universal basic income."
Anyway, add to your list Palo Alto's parking permits - $50/year if you make less than $50,000/year; $900 if you make $50,000 or more. And especially free marijuana to low-income Berkeley residents. Medicare Income-Related Monthly Adjustment Amounts (IRMAAs) are a stepwise marginal tax. The phase-in for income tax on Social Security multiplies the Federal marginal rate by 1.85 in certain ranges (AGI up to $107,600/year for a single retired person, $194,800 for a married couple) - my effective Federal marginal tax rate is 1.85*22=40.7%.
I have no problem with any of these give-away programs, disincentives or not - BUT ONLY WITH THE CAVEATE THAT RECIPIENTS LOSE THEIR RIGHT TO VOTE!
I do have a problem with give-away programs because they are gamed. Not only that, but they provide artificial incentives for illegal immigration. We ought to follow Gary Becker's idea on immigration, charge for it.
Frank, no need to scream. Make it a simple agreement: the government will take care of your needs, up to 200% of the poverty level, but you must agree to suspend your voting privileges.
FairTax.org.....consumption tax....My favorite story on government giveaways: My wife was waiting in line at the CTA office in Chicago to get her CTA card. The woman in front of her was listening to the CTA person tell her about all the incentives she was getting. Because she qualified based on some metric, she was going to ride for free. A man sitting in the room barged up to the front of the line waving his CTA card. He said, "I want to ride for free." The CTA woman politely took his card, looked at it and returned it. She said, "Sir, you are already riding for free." Apparently, he wanted to get paid to ride.
This makes an interesting case for moving the welfare system onto a universal basic services model which has no disincentive cliff edges.
Exactly. It's better to use UBI to replace these programs all together. It's similar to negative income tax proposed decades ago, and it's much more efficient.
Daniel Patrick Moynihan wrote some wonderful articles on the subject in The New Yorker in the late 1960. Also, multiple taxation of benefits was the prime reason for the income maintenance experiments of the early 1970s.
One thing to remember about these sorts of programs with disincentives: while there may be small rates of fraud, having perfect information as a rational economic agent is a sort of prerequisite for understanding them - have to *know* about them, first. How often does that happen?
But for those who use these programs, there are real social and occupational impairments that prevent most from understanding or finding better options with less negative economic externalities. Maybe that's the technocratic Utopia economics offers in the end. No system will be perfect and there wil be flaws. If only scarcity wasn't an issue.
When people are suffering in real ways, disincentives are the last thing on the mind.
Maybe economics will discover mercy in its normative cocoon. One can dream.
Yes, it'd be ideal if all were perfectly competent and could support themselves with zero cost to governments. But, that's not going to happen unless we all turn into ants and form a mindless hive mind.
This is why conservatives like a UBI provided that it *replaces* all of these programs
Yes, it's effectively the same as the negative income tax proposal.
The thesis in the 2022 book written by Gramm et al. is simply stated: Poverty in the U.S. is not as dire as the media and the social justice warriors make it out to be. Income transfers by federal and state governments, Gramm et al. contend, level up the income distribution substantially. Additionally, the 2017 income tax code revision lowered the proportion of taxable earned income collected by the IRS on households in the lower income tax brackets. Earned income of $30,000 isn't going to allow the taxpayer to live the life-style of a Hollywood movie star, but if that is the life-style the taxpayer aspires to (and many do) then the motivation is towards remunerative work rather than to reliance on the federal or state dole.
John uses the term "marginal tax rate" in his essay. One might be inclined to observe that he misuses the term, and even grossly misuses the term. Consider the 'affordable housing' subsidy. This subsidy equals the market rent that the program beneficiary would have paid absent the government program and 30% of taxable income that beneficiary is required to pay to the housing authority. At an annual taxable income of $30,120 the 'rent' is $9,036 per year ($753 per month). If the market rent is $1,100 per month for a comparable rental apartment, then the subsidy is $347 per month ($4,164 per year). Assume, with John, that the 'affordable housing' subsidy is marked by a 'cliff' -- earning $30,121 per year disqualifies the occupant from receiving the 'affordable housing' subsidy. What is the 'marginal tax rate' then in John's calculus? It would have to be $4,164 divided by $1, or 416,400%. What level change in earned income would make the 'affordable housing' subsidy recipient indifferent to disqualification for the subsidy? Clearly it must be an increase of $4,164 divided by one minus the combined federal and state marginal income tax rates. Assume that the combined federal and state income tax rates for this individual (or, household) amount to 10%. Then the annual taxable earned income increase to make the tax payer indifferent to the loss of the 'affordable housing' subsidy is $4,627, or an increase in taxable earned income of 15.36%. For a young adult, an improvement of 15.36% in annual taxable earned income is practicable. For an older adult, or a single mother with children under the age of 16 years, an improvement in annual taxable earned income by 15.36% is probably out of reach except under exceptional circumstances. In other words, the subsidies and inter-household income transfers by the federal and state governments are received by individuals and households that need those subsidies and income supplements the most and have the least likelihood of being able to improve their incomes.
Gramm et al. argue that because of the welfare programs and income transfers life in the least wealthy demographic segments is less dire than it would otherwise be without such subsidies and transfers. Ergo, the motivation to increase taxation of the income of wealthy households is lower than it would otherwise be. In short, Gramm et al. argue that increasing the tax burden on high income (high net worth) households is not supportable in light of the current extent of the welfare benefits the lower income (low net worth) households receive, or would receive if those households took advantage of the welfare benefits they are entitled to by law. That is my take on Gramm et al. (2022).
The proliferation of social benefit programs is conditioned on the proliferation of federal and state government departments set up to administer and deliver such benefits. Absent those federal and state government departments, social welfare must depend on philanthropy and religious institutions. The net effect on John's "marginal tax rate" is unchanged. Social welfare benefits are constrained by the availability of funding, whether from federal and state government coffers or from private and religious sources. There will always be some form of 'cliff' relative to income or household wealth regardless of the design of the social welfare benefit program(s). Welcome to the real world.
Bottom line is that we live in societies that reward poverty and dependency on politicians.
In considering "intersecting disincentives", the reader should note that the Whitehouse (Biden, J., president) has replaced the 2003 OMB Circular A-4 with a completely revised 2023 OMB Circular A-4 that reflects a 'progressive agenda' perspective framed in the 'whole of government' doctrine favored by the Biden administration. Cass R. Sunstein describes this as "The Economic Constitution of the United States" in a free-access paper published in AEA's "Journal of Economic Perspectives", Vol. 38, Issue 2, Spring 2024 found at https://www.aeaweb.org/atypon.php?return_path=/doi/pdfplus/10.1257/jep.38.2.25&etoc=1
2023 OMB Circular A-4 : https://www.whitehouse.gov/wp-content/uploads/2023/11/CircularA-4.pdf
2003 OMB Circular A-4 : https://obamawhitehouse.archives.gov/omb/circulars_a004_a-4/
UBI could fix this. But the bureaucracies (mostly unionized) that run those programs have enormous power, and politicians like to point to their achievements in helping the needy. And many politicians - either confused, or taking advantage of public confusion, branded cash giveaways to low-income people (which exacerbate this marginal effect) as "universal basic income."
Anyway, add to your list Palo Alto's parking permits - $50/year if you make less than $50,000/year; $900 if you make $50,000 or more. And especially free marijuana to low-income Berkeley residents. Medicare Income-Related Monthly Adjustment Amounts (IRMAAs) are a stepwise marginal tax. The phase-in for income tax on Social Security multiplies the Federal marginal rate by 1.85 in certain ranges (AGI up to $107,600/year for a single retired person, $194,800 for a married couple) - my effective Federal marginal tax rate is 1.85*22=40.7%.