We can get rid of the disincentive entirely by not decreasing benefits. If everyone gets, say $500 dollars a month, no matte what income level, and start paying taxes on the first dollar earned, there is never a point where earning another dollar is made not worth it by the negative tax*.
There are other benefits as well. There will be no additional incentive to work under the table. Fraud would be irrelevant because everyone gets it and can always count on it. If you lose you job or get hours changed no need to change payments. The only time the payments would change is when you reach 18 and when you die. Simple.
*There will still be plenty of situations where extra work will not be worth it due either monetary costs or time value, but the tax will not have a direct effect on that.
This is a good plan if the ‘negative tax’ is really a sales tax deduction prepayment. Put a sales tax on all sales. I mean all. Groceries, clothes, rent, real estate, stock, everything. Establish the national standard of living and its cost per month, and the amount of money to cover the sales tax for maintaining that standard of living is delivered monthly to every citizen, from the day you are born, to the day that you die. For minors, that money would go to a parent or guardian. Any adult of sound mind could specify the person they want the money to be delivered to. It isn’t welfare, but it means everybody gets some money at the start of every month. If you are out of work, you are not dead broke. It doesn’t replace all social programs, you can’t live on it. But it means we can afford a reasonable sales tax (which could be in excess of 20%) without undo hardship on the middle class.
I first heard of this theory proposed by Ray Kurzweil. While it has things going for it, I worry about the implementation difficulty given that it doesn’t (by design) even try to disincentivize not-working. That won’t sit well with certain political factions.
Incidentally, the “negative tax” idea to me is more intriguing than the “citizen salary” approach (as I’ve heard your described scenario called) for debate purposes primarily because it was strongly supported by a conservative economics icon. I was kinda hoping to see Sam Stone and the like in here.
See, I think “replacing social programs” is one of the primary draws of this kind of scheme–the goal being to end up with the same amount of money disbursed to the needy while reducing the overhead. Any payout that eliminates subjective criteria to receive the cash (like yours) qualifies, IMHO, but without the “reduces the overall budget” and “reduces/eliminates incentives to stay on welfare” hooks, the whole idea is much less likely to gain any appreciable traction.
I don’t want to hijack your thread. But I’m not exactly proposing the same thing. I think that it’s better to attack the need for social programs, and this would be part of the way to do that. It only overlaps with your concept in that we know that nobody goes dead broke right away. The cost of living per person might be $10,000 per year, with a 20% sales tax rate, meaning a family of four would receive $666 dollars at the beginning of each month. A loss of a job, or other emergency condition wouldn’t create the level of hardship that it does currently. No it’s enough to live on when there is a 20% sales tax, but it helps people along, and reduces the number of people who have to be considered for social programs in the first place.
But to address your plan directly, I’m afraid that in order to largely replace social programs, you will deliver to people enough money to be a disincentive to work.
The problem we face is a future where there may be constant high levels of unemployment because technology makes people too productive. Eventually, we will have to deal either with that problem, or the problem with life becoming very dull because nothing is changing.
It does less to reduce incentives to work than the plan you proposed. Every additional dollar you earn is more money. As has been pointed out, no matter how you tweak there will always be situations where the reduction of benefits will make working just a little bit more not worth it. You can minimize it by making the whole thing complex, or eliminate it by making it simpler. The only people who have no incentive to work are those that value the no work situation and can get by on the base payment. But that is the same in either case.
nods As I said, the plan I proposed is mostly interesting to me because it’s got a seal of approval from the type of conservative you wouldn’t expect to be advocating for cash payouts to random poor folks.
Now I’m wondering if there is a way to tweak the variables so as to avoid or minimize the points on the curve where it’s not viable to work just a little more, or move them so low as to be generally irrelevant–by which I mean, if the tipping point where there is less incentive to work is between 1-5 hours a week instead of 25-29, then it’s probably not going to stop anyone while maintaining the feature (working harder gets you more subsidies to a point) that makes the plan somewhat appealing to the kinds of people it wouldn’t ordinarily appeal to.
My wife is a clinical social worker at a hospital. At least here in California she could open a private counseling practice, work for an insurance company, or even a school.
I plugged the numbers the OP gave us into Excel and looked at the figures as total income divided by earned income. If a family earns $5000, then their ending income will be 270% of their earned income or $13,500 and earning $10,000 will get a family a final income of 160% of their earnings.
Part of the problem is that for every $1000 more you earn, the government gives you $500 but the precentage of total to earned income starts out so high it is not worth it. Federal minimum wage is $7.25/hr. Working 20 hours part-time earns $7540/yr and full time is $15080/yr. Looking at total income:
Sitting on ass all day = $11,000
Part-time = $14,770
Full-time = $18,540
So having to put on pants, miss my stories and work part time only gets me an extra $3770/yr or just over $300/mo. That probably makes a difference for a low-income family but now take into account transportation costs (don’t assume they can take a bus to work) and child-care cost if a single parent and now they are working for maybe $100-$200 a month. Even if they work next door and the other parent takes care of the kids, they are effectively earning $3.675/hr. Is it worth it? But full-time is definately worth it right? Effectively, it works out to $7540/yr and the effective hourly income is still only $3.675/hr.
Now for the perverse part. If you try to increase the basic effective income level (let’s say 75% of poverty), you reduce the effective pay increase to 25% (if you earn $1000 you only get $250 of it) so now our part-time worker gets $1885/yr more than not working and the full-time worker gets $3770/yr more yielding an effective payrate of (wait for it) $1.8125/hr. If you want to increase the value of pay, you actually decrease the subsidy people get (which does make sense). So is the subsidy is 30%, the effective income is 70% (for every $1000 more you earn, you take home $700 of it and only lose $300) but now the income for someone not working is only $6600.
I think Saint Cad hits on the main problem with the plan - you have to design it such that the minimum is both high enough avoid true poverty and low enough to encourage work. That’s not such an easy thing to do in reality.
There seems to be a misunderstanding about how welfare presently works. Unless you’re disabled or 62+, you won’t qualify for anything but housing, food stamps and Medicaid if you’re childless (except unemployment benefits, perhaps, and even then only temporarily).
Since there’s a 10+ year waiting list for Section 8 housing in most places, all you’re likely to get is $200 a month in food stamps and basic medical care. If you’re lucky, maybe you have someone to live with who won’t make you pay rent from your non-existent income.
People who don’t work under those circumstances are either (1) parents, or (2) almost certainly incapable of working.
Yeah, not a lot of consideration for the opinions of the 75% or more of the population who’d be paying into this scheme.
The fundamental problem, as I see it, isn’t that it discourages work for some portion of the sub-threshold population, it’s that it would essentially pay out unearned cash to some person, and then expect them to make informed and wise decisions with it for things like medical care, housing, food, etc… in lieu of targeted programs such as WIC, Section 8, Medicaid, etc…
It seems pretty clear that a large percentage of the poor don’t make good decisions when it comes to cash- in my limited experience, there seems to be a certain windfall mentality- if you have it, you spend it on something. Most people who save for the future, work hard and are motivated enough about not being poor probably accomplish that through the ways that most non-poor people’s forebears did- hard work, saving and emphasis on education for their children.
That’s why I think this plan is not a great idea; it would effectively be an income supplement which would probably be pissed away on non-essential stuff, and they’d go to the emergency room anyway. I (and millions of other Americans) don’t want to have our money taken to pay for that.
OK, I think I’ve read every post and I am still not seeing a true answer to my original question - what do you do with the people who chose not to work? If you are going to give them free money for merely existing, and even more money for every child they have, as well as free education, health care and whatever else I’ve missed, you are going to have a fairly significant number of people who are not going to bother to work, or are going to supplement their income by illegal means. Do you propose just supporting them, generation after generation?
The current U.S. “welfare” system of “Cash Assistance” has a federal* lifetime* limit of 5 years. 3 years without a request for an extension and some very detailed looks at your life. Someone who has exhausted their 5 years is never ever eligible for the system again. They can receive SNAP or Medicaid, but not actual money. The days of the mythical welfare queen are over. During the time one is using Cash Assistance, one must adhere to strict rules, such as showing up for mandatory job training and job fairs, applying to each and every job suggested by the social worker whether or not it is desirable, providing proof that one is applying to other jobs (quantity varies), and in some cases doing mandatory volunteer work of 20 hours a week. I’ve met some people working harder on Cash Assistance than ever in the workplace. They prayed for jobs, so they could actually have some “time off”. (There are no sick days or days off for mandatory volunteerism without a doctor’s note around here.)
This scheme sounds better and cheaper all around, but I don’t think people will go for it. Too many people are so concerned about the possibility that someone else will get “more than their fair share” of the pie, they miss that most of the pie has been eaten by the top 10%. A few more levels of progressive taxation, like people making from the poverty line to 50,000 pay 10%, people from 50 to 100k pay 25%, or some such, and upward to the taxation levels of the 1950s for the top tiers, and I’d be content. Also, get rid of the whole married filing jointly, head of household, married filing separately, single taxpayer thing. Each child can only be claimed by one adult. Parents need to discuss who claims which child(ren). Each adult must file taxes. All income, regardless of source or type, is income. Regrettably, it makes too much sense, and would never happen.
Ultimately, yes. Lessening structural disincentives will cause, in my opinion and the opinion of some leading conservative economists, more people to make incremental improvements in their work situation when they can do that without fear of suddenly dropping off a “whoops, no more food stamps/welfare/AFDC/medicaid/whatever” plateau. The only way to do this is to make welfare less subject to a million tiny rules and judgements.
If someone is sufficiently satisfied with a 2/3 of poverty-level standard of living that they won’t make ANY effort at getting a job, I contend there is nothing you can do to make them get one short of just letting them starve, beg, or steal. I think it’s against our nation’s best interests to have starving criminals being created, regardless of they themselves are to blame.
The “welfare queen” was always somewhere between a myth and a tiny fraction of the population. The goal of this scheme is to remove the barrier that makes a poor person say “I COULD take a second job, but then I’d lose food stamps and housing credits. I’d better just stay with the one.” Under this proposed structure, that person can say “I’m taking in more money every hour I work, even if the marginal benefit isn’t quite as great as it could be, there’s no reason for me to not get out there and bust ass.” The folks who’d gain illegal income are already doing that now, and the IRS will continue to catch them as possible.
A question implied by your post: What ought we do with people who refuse to work NOW? Let them starve? Arrest them and put them in workhouses? Please don’t answer “private charity will provide” because that’s not a guarantee.
This is my general experience with the population of “people on welfare” as well–most of them are not there by choice, and will not just sit on their duff. Sitting on your duff doesn’t get you a new TV, or pay for cable, or whatever–and it won’t under the system proposed in the OP either.