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March 28, 2006

Redistributionism by Any Name

Joe Katzman at Winds of Change links to a proposal I've seen linked elsewhere, to replace the welfare state by direct redistribution of money to all adults, rather than filtering the money through welfare programs. On the one hand, the plan would have a salutary effect in reducing the size (if not the cost) of government, because fewer administrators would be needed. On the other hand, such a proposal would not succeed in the long run, because it does nothing to alter the incentives.

There are a couple of problems that I have with the proposal. First, I think (from a brief look) that his numbers on crossover and long-term costs do not include inflation indexing. Let's face it: such a plan must include inflation indexing to be at all meaningful to most people. Otherwise, in 20 years, the grant will be half the size (in purchasing power) that it would be at the beginning, and that's hardly a way to pay for a retirement.

Second, the US poverty guidelines put poverty level at $9570 for one person, plus a little more (about $3200) for each additional person. So the proposal would eliminate poverty, at least for intact families in the continental US and with fewer than 3 children. Except that poverty would then get redefined, so that anyone who only had their government grant plus some other defined number would be considered in poverty. Social statistics like these are not made to conform to reality, but to allow promotion of a particular agenda. If terms need to be redefined in order to continue to pursue that agenda, then they will be redefined. In this case, the redistributionists, who would be greatly emboldened by such a program, would not be satisfied, but energized. Thus the demands to equalize wealth by force would not abate, but intensify. If $10000, why not $20000? If $20000, why not $40000? We wouldn't want anyone to be poor, would we?

Third, there are close to 300 million Americans. This means that we would need 3 trillion dollars to provide this amount of money to each American. In 2003, there were more than 130 million individual tax returns filed, but only 89 million of them were taxable, and those would be the people paying the money that feeds into that $10000 per adult. But it's actually worse than that, because people who pay less than $10000 in taxes would be, on net, getting more than they're paying. That crossover point appears to come somewhere around $45000, if I'm reading the spreadsheet correctly.

Let's say that we decide to make this administratively trivial, and have the money disbursed as part of tax collection and refunds. So you simply deduct $10000 for your tax bill, regardless of any other factors. A person paying no taxes at all would thus get the full $10000 back, while a person paying $100000 in taxes would instead pay $90000. (Actually, less than that, as he appears to be phasing this out after a while.) But hey, since that's already what people are paying in taxes, aren't we just more or less rolling the (currently separate) taxes for Social Security and Medicare/Medicaid into the general income tax? So we're effectively raising the income tax rate by the amount needed to make up for getting rid of the taxes dedicated to particular programs.

This really, in effect, is just a flat (or nearly flat) negative tax scheme, and those are hardly new proposals, dating at least back into the 1960s.

But the real problem is that this proposal doesn't actually address the cause of poverty. In fact, I don't believe that it's possible to address the causes of persistent poverty in the United States without being labeled as, at best, cruel. Here I go being cruel, then: people are, by and large, stupid. Once one excludes the relatively few who really cannot work due to reasons entirely beyond their control (the profoundly handicapped, particularly the profoundly mentally handicapped; the persistently ill; and so on), the remainder of persistently poor people (say, who stay in poverty for more than ten years) largely fall into a few categories: people who are addicted to drugs or alcohol, women who have children at a very young age and do not marry the father, people who do not want to work at the available jobs, people who are unwilling to move to where there are jobs from where there are no jobs, and people chronically unable to take care with their money.

The plan as proposed even recognizes this, by forcing some of the grant to be set aside for health care, and some for retirement and so forth. So allow me to make a prediction of what would happen if this plan were adopted: people who are desparate for cash would take $5000 (or less) now rather than wait for the $10000; people who are addicted would spend as much of the money as they could get at on their addictions; people who do not want to work or do not want to move where the jobs are would continue to act just as they are acting now, and would not gain significant additional income because they are probably getting the same or more now through various poverty alleviation programs.

Now, being the kind and compassionate (if sometimes deeply misguided) people that we are, how long do you think that it would take before there were redistributionist poverty alleviation programs to take care of the people who squandered the $10000 they were given?

So there are some benefits to the plan over what we are doing now, particularly for people who are actually responsible with their money, and especially because it would be hard for Congress to roll into the general fund money that the Treasury has disbursed. But in the end, it would fail to truly alleviate poverty and to provide for all people's retirements and health care, and so additional programs would be tacked on. And then we're right back where we started. The problem is not with the welfare programs, but with the welfare mentality.

Posted by jeff at March 28, 2006 3:36 PM

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Posted by: Dan tdaxp at March 28, 2006 6:10 PM