Basic Income and Negative Income Tax: Alternatives to Means-Tested Benefits
Reform options abound for the Stoa resolution choice: “One of the proposed Stoa resolutions: The United States federal government should substantially reform one or more of its means-tested benefits programs.”
A key problem and expense with any current or proposed means-tested benefit program is the challenge of doing the testing. Means testing takes time, effort, expense and bureaucracy, as well as requiring incentives and information not easily generated or gathered.
Businessdictionary.com defines means-tested:
Benefits that are available only to individuals whose income is below a certain level. For example, in the U.S. food stamps are a means-tested benefit. They are available only to low-income families.
Well, how to federal officials determine whether a family’s income is low enough to qualify? Federal officials can check employer data received by the IRS, but that can’t count cash income from informal work people receiving means-tested benefits may receive. So federal agencies pass new income regulations and hire more investigators.
Alternatives to means-tested benefits include a Negative Income Tax (NIT). This
The Concise Encyclopedia of Economics article, explains:
In its purest form a NIT promised a revolution in American social policy. Gone would be the intrusive and costly welfare bureaucracy, the pernicious distinctions between “worthy” and “unworthy” recipients, the perverse disincentives for work effort and family formation. The needy would, like everyone else, simply file annual—or perhaps quarterly—income returns with the Internal Revenue Service. But unlike other filers who would make payments to the IRS, based on the amount by which their incomes exceeded the threshold for tax liability, NIT beneficiaries would receive payments (“negative taxes”) from the IRS, based on how far their incomes fell below the tax threshold.
Finland is experimenting with another alternative to means-tested benefits: a guaranteed minimum income. This Guardian article, “Even in Finland, universal basic income is too good to be true,” explains:
That idea has been around for a very long time (at least since the aftermath of the first world war), attracting support from both left and right. Versions have been supported by economists as divergent as Friedrich Hayek (who inspired Margaret Thatcher) and Tony Atkinson (who didn’t). Another variant was part of the Green party’s general election manifesto.
Perhaps the most widely advocated version is the proposal for a UBI – unconditional basic income – to replace most existing social security benefits. A UBI is an income provided without conditions to every adult and child (or, in some versions, only citizens) to provide at least a subsistence level of resources. It is not means-tested, although it is subject to income tax. It is usually assumed to provide an equal payment to everyone, with a special rate for children.
1) A Basic Income Guarantee would be much better than the current welfare state.
Current federal social welfare programs in the United States are an expensive, complicated mess. According to Michael Tanner, the federal government spent more than $668 billion on over one hundred and twenty-six anti-poverty programs in 2012. When you add in the $284 billion spent by state and local governments, that amounts to $20,610 for every poor person in America.
Wouldn’t it be better just to write the poor a check?
Each one of those anti-poverty programs comes with its own bureaucracy and its own Byzantine set of rules. If you want to shrink the size and scope of government, eliminating those departments and replacing them with a program so simple it could virtually be administered by a computer seems like a good place to start. Eliminating bloated bureaucracies means more money in the hands of the poor and lower costs to the taxpayer. Win/Win.
This page offers a description and short LearnLiberty.org video on the the basic incom reform proposal: “Freedom: Benefits of a Basic Income vs. Welfare.“
The US federal government spends well over six hundred billion dollars a year on welfare spread across more than a hundred and twenty different programs.
When you add in spending at the state and local level, total welfare spending in the United States amounts to over a trillion dollars a year. That’s over $20,000 for each and every poor person in the United States. Sounds great, right? …