Summary
We support a Guaranteed Basic Income that is designed to replace most means-tested wealth transfer programs; e.g. the Earned Income Tax Credit, the Child Tax Credit, Supplemental Nutrition Assistance Program, Section 8 Housing Assistance programs, Supplemental Security Income, and Temporary Assistance for Needy Families (formerly AFDC).
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Background
Andrew Yang drew attention to the concept of a Guaranteed Basic Income (GBI) during the Democratic presidential primaries in 2020. The idea has been around for a long time and has a surprisingly large ideological range of support. Martin Luther King, Jr. was a proponent and so were Milton Friedman (Nobel Prize winning economist) and Richard Nixon.
Yang’s reason for favoring a GBI was that automation and globalization were moving too fast to allow workers to acquire the necessary skills to adapt to a changing job market. King’s reasoning was that it was the most effective way to eliminate poverty. Friedman’s was that means-tested welfare programs created a disincentive for work and required a large and expensive bureaucratic infrastructure to administer them. Richard Nixon’s proposed plan (1969) actually passed in the House but never made it to a vote in the Senate.
Our reasons for supporting a GBI are closer to King’s and Friedman’s than Yang’s. The problem with means-tested welfare programs, like the ones mentioned above in the summary, is that they create the equivalent of a high marginal income tax rate for poor people, because the participants become ineligible for these benefits if they seek employment or more highly-compensated employment. Since employment is the bottom rung in the escalator to a middle-class life, means-tested welfare programs trap their recipients and prevent upward mobility. The Earned Income Tax Credit was intended to offset this trapping effect, but because it, too, fades as income rises, it continues to act as a disincentive to upward mobility.
Another reason for favoring the GBI is that the administration of means-tested welfare programs is expensive and creates opportunities for exploitation. Yang’s proposal gave people the option of accepting the GBI or remaining with the current means-tested programs. Unfortunately, this version does not provide the cost savings that total replacement offers.
Some proponents of the GBI think of it as a simple add on to existing means-tested welfare programs (Yang was not in this group). Viewed as an add on program, it is too expensive to be plausible and fails to provide the incentive and administrative cost benefits that attracted Friedman to the idea.
Some people object to the idea because they think that it will provide a disincentive to work. There have been a number of experiments with the concept, in the U.S. and elsewhere, and this does not appear to be the case. Conceptually, the opposite should be the case.
Some people object to the idea of guaranteeing the benefit to everyone, regardless of income. The idea of Bill Gates or Mark Zuckerberg receiving the benefit just seems offensive to them. If the GBI is taxable income this ought to be a minor concern, since, in those cases, more than half of it will be taxed away through federal and state income taxes. In addition, the after tax income will simply be taxed again (at 35%) as part of their estate when they die. The nice thing about having no means test is ease of administration. It is conceivable to have a higher tax rate at very high income levels, specifically for this benefit. If the income level at which the higher tax rate on the GBI begins is high enough, it should not have any significant disincentive effects and it would not require any additional bureaucracy.
It is unlikely that a GBI would replace all means-tested programs. In some cases means-tested programs are intended to benefit children, for example programs for health care for pregnant women and children. If we lack confidence that parents will spend the GBI funds for the benefit of their children, we may want to retain these programs. We feel, however, that programs like SNAP (Food Stamps) should be replaced by the GBI, because as “near money” they are fungible and it is debatable that they have a materially beneficial impact on nutrition for the poor when compared to a cash payment.
We would oppose adjusting these benefits for the cost of living by location.
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