Saturday Blognado: Taxes and Welfare

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James K

James is a government policy analyst, and lives in Wellington, New Zealand. His interests including wargaming, computer gaming (especially RPGs and strategy games), Dungeons & Dragons and scepticism. No part of any of his posts or comments should be construed as the position of any part of the New Zealand government, or indeed any agency he may be associated with.

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44 Responses

  1. Avatar Tod Kelly
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    says:

    Dude, I am in awe.

    How long will blognado continue?Report

  2. Avatar Jaybird
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    says:

    As much as *I* love the negative income tax, there is very much an undercurrent of “we shouldn’t give people free money!” that still flows through the culture.

    There are still arguments over whether or not food stamps should be allowed to be used for snacks or soda or even for brand names.

    If we started sending out checks to people, for every 99 people who took this money and used it for such things as clothing, school supplies, and better cooking utensils, there would be one person (out of 100) who would spend it at a gentleman’s club or on booze.

    And who do you think would be shown on the evening news?

    Before you know it, there would be “oversight” to protect “the children” and we’d have the money deposited into a particular bank account that could only be cashed out at particular retailers, who only sold particular products, but not snacks, soda, or brand names.Report

    • Avatar James K in reply to Jaybird
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      Unless the owners of those brand names were regular campaign contributors of course.

      I know what you mean though, it’s one of the perennial frustrations of the policy wonk, figuring out how to do an end-run around democracy (the sad part is, I’m only half-kidding).Report

    • Avatar Michael Drew in reply to Jaybird
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      says:

      If you want to do it, why reinforce others’ tendency to over-restrict it by granting that would be inevitable?  After all, that thing you describe is basically the status quo.  You could frame it as you do, saying, “It would be cool if we could do this but people won’t like it, so it’s basically best not to try,” (does that really amount to being for it?), or you could frame tit as, “I know people will have their issues with this, but it really is what we should do, because it’s really much, much better!  Here’s why, and here’s how I address the issues people would likely have with this: ___________.”  You can’t say you’re for something if you’re not willing to advocate for it over at least some folks’ initially-expressed preferences. And it’s not like the junk food/booze objection to cash welfare is so new that it can’t even be functionally addressed until cash welfare is reestablished.  We know it’s coming, and not just as a reaction to news reports.  It can be both anticipated in deliberation about re-establishing cash welfare, and then again confronted when/if it re-arose after/if cash welfare had been re-established.Report

      • Avatar Michael Drew in reply to Michael Drew
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        …Which is not to say I know what to argue to such folks, but then I don’t claim to love the negative income tax, merely to be generally favorably disposed to it.  I would think that saying you’re for something means at least being able to say why you think its benefits will outweigh people’s concerns with it, if not explaining why those concerns are ill-founded.  Which is to say, can we even say we are for this if we don’t have an answer that convinces us about why people should be okay with a bit of their money going to booze and gentlemen’s clubs?  If what leads us to be okay with that outcome isn’t something that we feel comfortable asserting others should agree makes that outcome desirable, then can we conclude we ourselves have any rational basis for loving it?  Are we just granting equal persuasive weight, beyond mere validity, to others’ inclinations in this regard?  And if so, does the fact that we might be ‘for’ something in the abstract have any practical effect? Does this attitude ever lead beyond agnosticism about what we think public policy should be (not just what we’d be okay with it being)?  Does it require conensus for any public policy not based in non-action to ever get made if we say that anyone’s legitimate if unpersuasive objection ought to lead us to abandon advocacy for something we think would be superior?

        I guess the bottom-line question is, do you advocate for the negative income tax, or do you merely love it?  If you don’t advocate for it, what do you advocate for?  Status-quo welfare policy, no welfare, or do you just decline to advocate?  If you decline to advocate (indeed, if you decline to advocate for the national income tax in particular), I guess I’d like to hear much less, close to nothing, in fact, about how much you love the negative income tax.  In fact, you don’t love it because of the backlash you fear it will produce, despite that backlash being unlikely to produce an outcome much worse than the current status quo, and you certainly don’t love it enough to even say you think it should be policy.  I’d like to say that’s not much love.  Do you really hold that it is?Report

      • Avatar Jaybird in reply to Michael Drew
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        says:

        If you want to do it, why reinforce others’ tendency to over-restrict it by granting that would be inevitable?

        Primarily because it *WILL* happen (or, if you prefer, I cannot envision a scenario where it does not happen). If you want a recent example, there’s Hurricanes Rita and Katrina (see the docs yourself here).

        It seems to me that I have to either say “I don’t know that it will happen again this time, like the last time” or say “so long as we keep the abuse under an acceptable level, it’ll still be worth it”.

        We shouldn’t underestimate the resentment felt by people who feel that they show up to work and play by the rules in order to give money to people who don’t show up to work and don’t play by the rules who then take that money to use it on tattoos, booze, and hoots. “That’s only a handful of people and that’s an acceptable level of abuse” is an argument that I am willing to run with.

        Do you think that it will fly on a national level? (For the record: I don’t.)Report

        • Avatar Dan Miller in reply to Jaybird
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          It may or may not.  But it definitely won’t if the people who support it are unwilling to argue for it.  National politics isn’t a completely static system.Report

          • Avatar Jaybird in reply to Dan Miller
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            says:

            I don’t know that we get to say that “it may not” if it pretty much has.

            If you’re going into the negotiation saying “we don’t know if there will be a short-sighted person who doesn’t do what we’d like him or her to do”, then you’re going to find yourself cut off at the knees when these people start showing up abusing the system.

            Better to start with saying 8% (or whatever) is an acceptable level of abuse and the important thing is the sheer number of people who are being helped and there’s really nothing to be done about the wasters.Report

            • Avatar Dan Miller in reply to Jaybird
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              says:

              Of course there’s a level of abuse that will be inevitable.  And if asked about it, concede the point.  But it seems like you’re going further, and explicitly raising the point, which is where I get off the bus.Report

        • Avatar Dan Miller in reply to Jaybird
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          says:

          Also, and this is a semi-serious question, but how does one spend money on a hoot?Report

        • Avatar Michael Drew in reply to Jaybird
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          says:

          First, I should say, these are really more my issues than yours.  It’s a coherent enough thing to say you think X would be really good policy but you don’t put much thought into really advocating for it because you don’t think it’s really going anywhere.

          That being said, is, ““That’s only a handful of people and that’s an acceptable level of abuse” the best argument you can come up with?  I mean, is it your argument?  That’s what I’m asking you.  I can’t tell if you’re saying, “Okay, yes, I’m willing to push that argument, and i will even though i don’t think it’s going to go very far, because I’m for this idea.”  If you are, that’s great, but if not I think that’s essentialy not being for it (which is different from thinking something would be ideal policy, or that you love the idea). From the perspective of people who want some degree of an effective welfare system, it’s pretty rich to hear from people who can’t bring themselves to actually be for the best version of one about how much they love such a thing.

          The impression you leave is that you’d like to be for a good welfare state, but darn it, the one you could be for is just too good for the people to accept or else there’s some other reason you can’t actually place yourself in the pro column. And how could we ask you to be for a lesser version than this awesome one you have in mind?  So I’ll ask you again: are you for something else?  You obviously don’t have to be for any welfare system, but then you’re not for any welfare system, and if additionally you’re against the one we have, where does that honestly leave you? If I’m not giving you enough credit for really being for what you say you like here, I would love to hear all about it, loudly.

          Through all this I begin to wonder whether it’s not so much that you don’t want to argue for cash welfare to people who perhaps support welfare conceptually but not if it can be used to buy booze or lap dances, but rather that in practice the place you don’t want to end up in is in arguing for welfare full-stop to people who don’t want there to be welfare, even if, incidentally but not passionately or vocally, you’d be okay if there happened to be this awesome welfare system that popped into place magically or by sudden, unlikely consensus.

          Biting a bullet about one’s own actual views now and then – real talk – can be a good thing.  I want to be set straight in really any way in which I’m not being fair here, because I’d prefer any more clear position than the kind of suspended-animation, I-could-but-can’t approach we’re getting thus far from you.

          And yes, I’m using you as an example – I don’t have anything particularly riding on you yourself making this adjustment.  Feel free to tell me to just bug off; your position is what it is.  It’s just that I’m having trouble understanding what it is.Report

          • Avatar Jaybird in reply to Michael Drew
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            says:

            There are a number of dynamics at work here and it seems to me that the least interesting one is whether or not I like one more than another.

            I like the idea of a Negative Income Tax.

            I, personally, think an end to the War on Drugs is more likely.

            Let’s look at the unlikely thing though. The first thing that I have to note is that if we sell it as a welfare system overhaul it’s dead before we start. It seems less likely to pass than the PPACA did and that only barely passed by the skin of its teeth. This will have to be sold as an overhaul of the tax system in its entirety. Welfare will have to barely, if at all, be mentioned. “Fairness” will have to be hammered… which means that we’d pretty much have to get rid of any and all deductions. This includes the mortgage deduction. (Most folks would stop talking right now.) This also includes any and all charitable deductions. (Most of the rest would stop talking there.)

            Now we’ve got the problem of how to give money to people. We know that only people who make X/year or less get money, right? Are we just going to send them this money in a lump sum or are we going to disburse it over a year? $200/week is very nice if it’s something that you could count on rain or shine… and, if I’m not mistaken, there’s at least one person out there who is saying that $200/week would *EASILY* pay for health insurance (*GOOD* health insurance!) and maybe, instead of giving people money, we could take that money and buy them health insurance instead. Or help out schools in the area. Educated children will grow up to *NOT NEED* the $200/month, after all. It’d save money in the long term. And so on. And so now we’re no longer talking about a tax simplification/reform scheme but talking about health care and education.

            At this point I’m inclined to go back to caring about the war on drugs.

            It seems to me that both constituencies have a lot of inclination to say that we shouldn’t just give people money… with the “Welfare Queen” people over here saying that they’ll just spend it on steaks and the “Oh Those Poor People” people saying that the money should be spent on their behalf for what’s good for them both arguing that even if we could reform the tax code top to bottom (something that hasn’t been done since Reagan/Rostenkowski).

            Again, for what it’s worth, I’m a fan.

            But I think that ending the War on Drugs is more likely.Report

    • Avatar A Teacher in reply to Jaybird
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      So why not work that into the system at the get go?  Yes it is generally better to say “here’s money; do what you think is right with it” but if the purpose of the money is to go towards helping someone move off of the “free money” program, why not structure it to go that direction?

      Or rather, “here’s 10,000.  Do what you want.  BUT if you spend it at a grocery store you get a 5% bonus.  Oh, and if you spend it on non-name brand foods or on natural foods vs processed you get a 10% bonus.  If you spend it at a thrift store you get a 50% bonus.”

      Rather than penalize or limit, you incentivize by giving bonuses.  Heck you could probably find private philantropies willing to do matching funds or the like and thanks to political pressure you could probably stop McD’s from doing the same.

       Report

  3. Avatar david
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    A negative income tax at lower levels implies even higher marginal tax rates.

    A flat benefit accomplishes approximately the same effect without the high MTRs, particularly if you already define your negative income tax to include non-workforce adults at zero wage.Report

  4. Nob Akimoto Nob Akimoto
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    I’m too lazy to check right now (and hopefully James K has links to data) but has anyone actually modelling what revenue projections would look like under the Friedman plan, versus say one indexed to the federal poverty rate or the other?

    Of course, we’d also have to make sure capital gains are taxed as ordinary income…hmm.Report

    • Avatar James K in reply to Nob Akimoto
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      says:

      I haven’t seen anything like that for the US, though I have for New Zealand.  The key here is to realise that by playing with the deduction and the tax rate you can make the thing fiscally neutral, the issue is only what the tax rate has to be to make it work.Report

      • Nob Akimoto Nob Akimoto in reply to James K
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        says:

        I’m not, admittedly, particularly interested in making it fiscally neutral. I’m more interested in seeing if it can be an efficient way to raise about ~20-25% GDP as tax revenue. (Maybe 32% if we’re going to remove all state/local taxes and instead have some of this income tax go to those organizations)

        I might take a really back of the envelope calculation using income quintiles and share of household income later… I’m just trying to think of a way to do this that’s practical.

        By household probably makes more sense than by individual, and using a poverty rate measure as deduction measure sounds as good as any.Report

  5. Avatar BSK
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    Who is taxed? Everyeone? Everyone over 18? Do children have their salaries combined with their parents on one return? A family of five with no employment can’t live on $10K. Nor do they deserve $50K, as this risks creating a perverse incentive to have more kids.

    I like the idea, thoug might argue to tweak the numbers a bit. But I think you’d have to figure out how you are taxing family units.Report

    • Avatar Brandon Berg in reply to BSK
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      says:

      Really, that’s a major problem with any welfare system. How do you make sure children are taken care of without subsidizing their parents’ irresponsible reproductive choices? Short of taking the children away, which has its own set of problems, there doesn’t seem to be a good answer.Report

      • Avatar BSK in reply to Brandon Berg
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        says:

        I’m sure there IS a way to do it.  And no matter what you do, some people are going to abuse the system.  But such is life.  In JB’s example, I’d gladly take the 1 guy in the club and the 99 making better lives for themselves.  Unfortunately, many people would look at the lone dreg and declare the program an utter failure.Report

        • Avatar Brandon Berg in reply to BSK
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          says:

          Right, but that’s begging the question. If it’s 99:1, then I agree that it’s pretty clearly a good thing. But I don’t expect that it will be anywhere near 99:1.Report

      • Avatar A Teacher in reply to Brandon Berg
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        says:

        Except that we see reproduction as a right.  Everyone is entitled to having as many kids as they want.  And anyone saying otherwise is a jackbooted brownshirt.

        Which is problematic when you have people who make the choice to add children (setting asside abortion and birth control debates and focusing only on choice children) without having the means to care for them.  Whether or not it happens, it is also that 1% that will get the headlines.

        If we have 99% of families making it work and 1% with more mouths than they can feed, that 1% will be used to increase payouts/ reform the system/ whathave you.

        Unless we ~want~ to say that the state/ society/ the people can limit how big your family gets…..

         Report

        • Avatar BSK in reply to A Teacher
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          says:

          Teach-

          Please do not read my concerns as an argument in form of any limitations on child having.  Far from it.  Just a concern about how to structure such a plan.  I’m less concerned about people “gaming the system” and more concerned about how to come up with a fair plan.

          For instance, my wife and I make a combined $150K, with a $60K/$90K split.  If we were treated as one tax unit, we’d pay $50K and get back $10K.  If we were treated as two, I would pay $20K and get back $10K and my wife would pay $30K and get back $10K of her own.  It’s the difference between paying $40K and $30K in taxes on the same level of income.Report

    • Avatar James K in reply to BSK
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      That is a tricky issue, and I’m not 100% sure how to deal with it.Report

  6. Avatar Brandon Berg
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    The downside is large though – it is expensive to run (carrying on my example from above multiply $10,000 by the number of adult sin the United States, and you’ll see what I mean).

    It wouldn’t actually cost that much. Anybody making more than $30,000 per year pays it all back. And since people making $30,000 or less aren’t paying much in taxes anyway under the current system, it’s not clear that this would result in a worse fiscal situation overall.

    My main concern regarding a system like this is that it might normalize idleness. Right now there’s a stigma associated with being on welfare. But if we just cut everyone a check, there might not be as much of a stigma associated with choosing just to live on that instead of working. And thus more people might opt to do that.

    I don’t think that there’s a lot of overlap between the kind of people who go on welfare and the kind of people who do high-productivity work. So the upside is that maybe we can get some members of the underclass to start working at relatively low-productivity jobs. But the downside is that maybe some people who would have had blue-collar or professional jobs are going to opt for slacking, if not permanently than at least for a few years. I could be wrong, but it seems to me that the downside potential is greater.Report

  7. Avatar BlaiseP
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    The b in Friedman’s y=mx+b is the usual sticking point.

    If state welfare is to work in any meaningful sense, it ought to act as a good long runway.

    At the beginning of someone’s career, we’d hope to see that runway give them enough air under their wings to get their first job.   Connecting people to jobs ought to be part of the welfare system.

    A wage earner lands on the runway when he’s out of work, gets a new job and uses the runway to get aloft again.

    If we want to keep people productive, make that runway nice and long and orient it into the prevailing winds, so they can take off again.   Counterintuitively, the best way to keep people off the welfare rolls is to keep the runway in operation:  if you don’t, they get trapped on the ground.   If the runway is too short, you’ve created a Poverty Pit.Report

  8. Avatar Roger
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    says:

    James,

    I think it is a splendid idea. The chronically unemployed could be required to put in time at a volunteer organization of some type at some point if too much dependency develops.Report

    • Avatar BlaiseP in reply to Roger
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      says:

      Ecch, there’s always this tendency to push the unemployed into some virtuous activity.   It seldom works.   It’s the problem of Richelieu and the Rope, only applied to volunteer orgs.

      In the days of Richelieu, the poor of France were set to making rope.   France was then competing with Britain for dominance and sailing ships required miles of rope.  This edict damned near bankrupted every legitimate rope maker in France and they petitioned the King.   Richelieu was summoned and realized his error:  for every worthwhile job done in the public sphere, one job in the private sector is lost.

      But, you’d say, these aren’t real jobs.   That’s true.  Problem is, how do you get someone to work for nothing when his only motivation is to continue receiving his unemployment check?  Such a worker is worse than nothing.   Who will manage him?   What would he do that the other volunteers aren’t doing?    Why not just enlist the unemployed into chain gangs and make them dig ditches, or put them in the military?Report

  9. Avatar Pierre Corneille
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    says:

    I imagine one potential disadvantage could be that more people might resort to black market labor, or working off the books, in order to ensure they get their $10k plus whatever they can earn on the sly.  Perhaps this already happens, but I suspect it’s at least possible a negative tax might encourage more.Report

  10. Avatar Matty
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    says:

    I recently read of an alternative that sounds kind of similar but possibly simpler to administer. Everyone, for whatever value of everyone you are using, is given  $10,000  year cash as a single block payment from the government then all other income is taxed starting at $0, i.e no lower threshold. Would I be right in thinking this would have much the same effect as a negative income tax with a $10,000 threshold and if not what are the differences?Report

  11. Avatar Liberty60
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    There are plenty of ways to “reform” the tax code and make it simpler and more fair. The economic world is awash in flat tax proposals, fair tax proposals, Cut, Cap and Balance, 9-9-9, Five Dollar Footlong, Flip, Flop and Fly,  among others.

    However, the tax code is as it is precisely because powerful interests want it that way. Each and every clause in the thousands of pages is watched over jealously by hawk eyed lobby groups.

    I’m not suggesting futility or despair; only that the main stumbling block is not to devise a clever or brilliant tax system, but to break the stranglehold that self-interest has upon our current political system. We don’t have an economics problem, we have a political problem.

    If people accept that every tax decision should be made on the grounds of “will my taxes go up or down?” and further, that we accept that taxes are to be avoided at all costs, then the tax code will remain exactly as it is.

    We have the classic Prisoners Dilemma, except that the lesson we have learned is that every man should look out for his own self and the greater good is for chumps.Report

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