Tuesday, July 19, 2005

UBI, OP, FP, EITC, and more

Regarding my post on universal basic income (UBI), Isaac writes:
if you had such a program, you could easily distribute checks to everyone because you would have had to have raised taxes on everyone a whole hell of a lot to fund the damn thing; sure people at the top would come out on net far worse off, and for people in the middle it would probably be a wash, but you could still send them a check;
If you are going to raise taxes in some progressive manner to fund the $5,000 check, then this becomes exactly equivalent to an earned income tax credit (EITC). It is just framed differently. Then:
Second, making it universal would also make it cheaper and more transparent: administrative (and monitoring) costs of a universal program like this are really quite minimal;
True, sending a check to every person in the United States sounds simple, but I suspect there'd be a lot of pain involved. You'd have people collecting checks for the dead, faking births, that sort of thing. The EITC uses a bureaucracy already in place, the IRS. Means-testing is as simple as looking at the person's tax return. Of course a broader program, extended to even those without income, would require that they file tax returns as well. Finally:
The optimal policy here is some sort of means-tested program. Politically, however, you can't get a program passed that is prima facie redistributive, takes money from top to give to bottom.
Au contraire. After all, we already have an EITC and a progressive tax system. I think that expanding the EITC is far more politically feasible than raising taxes considerably and creating some other program. If I may quote Bob Kuttner:
Liberals like it because it subsidizes wages and reduces poverty. Conservatives like it because it cuts taxes and uses the tax system rather than a programmatic bureaucracy to help the poor. Both sides like it because it rewards work rather than idleness and keeps families together. Score one for "beyond left and right."
It's so much more fun, however, to think about the optimal policy, rather than the feasible policy. Isn't that what it means to be a policy wonk as opposed to a politico?
I agree, thinking about the optimal policy is a lot more fun. And it's useful because it provides a direction in which to drag government. But after you've solved your model for the optimal policy, solve it for expected effects over a distribution of actual policies. Besides, good things often come out of looking for feasible policies. Hayek writes:
In the development of Keynes' thought it is possible to distinguish three distinct phases. First, he began with the recognition that it was necessary to reduce real wages. Second, he arrived at the conclusion that this was politically impossible. Third, he convinced himself that it would be vain and even harmful. ... His political judgement made him the inflationist, or at least avid anti-deflationist, of the 1930s. [emphasis Hayek's]
And thus The General Theory. Of course, Hayek says this disapprovingly. More on that later.


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