7 ms·

Adapting to Means Testing

36 points by luu 6y ago

SubiculumCode 6y ago
Means testing provides so many of the wrong incentives, and in terms of privacy it is quite intrusive. A big reason that a flat basic income can do social safety net better.
- throwaway201103 6y ago
  Means testing should be simple. The IRS knows your income and number of dependents. Doesn't need to be any more intrusive than that. Giving everyone $X is simply going to increase demand for rent and consumables until we're back where we started. It will be wealth transfer to landlords and retailers via the poor.
  - AnthonyMouse 6y ago
    A means tested phase out of a cash benefit is indistinguishable from a tax. If you had a $12,000 UBI with a 30% phase out up to $40,000 in income, that's the same thing as putting a 30% marginal tax rate on people making less than $40,000. On top of whatever other taxes they're paying. Which is probably not what you wanted if you have a 22% marginal tax rate on people making $50,000, right? What you really want is to forget about the phase out and just combine the UBI with a flat tax, so that the people making less money are paying the same marginal rate instead of a higher one than people who make more money.
    - pmiller2 6y ago
      Flat taxes are incredibly regressive.
      - AnthonyMouse 6y ago
        Flat taxes are regressive on their own. Combine them with a large fixed credit (i.e. UBI) and you can make them as progressive as you want, by increasing the size of the credit, despite having a uniform marginal rate. Also realize that the status quo, counting benefits phase outs as marginal taxes (which they are), is more regressive than a flat tax, because lower income people pay higher marginal rates.
        pmiller2 6y ago
        Then, explain why UBI won't cause inflation.
        AnthonyMouse 6y ago
        Because it doesn't create money. Inflation is the devaluation of currency. A UBI just moves it from one person to another. So one person buys a $60,000 Mercedes instead of a $90,000 Maserati, then three other people buy a $30,000 Model 3 instead of a $20,000 Focus. It's not inflation, you're paying more money in order to get more valuable stuff. You're not bidding on a finite supply of $30,000 cars, if people have more money then they'll just make more of those cars, and more food and restaurants and whatever else people buy. There are very few things in the world that are genuinely scarce and have completely inelastic supply. And for those things, the price might increase. But that's not inflation, it's just supply and demand. You get the same result if the economy improves and wages rise or the unemployment rate goes down. You get the same result from any reduction in income inequality.
        pmiller2 6y ago
        So, the fact that everybody has $X per month extra in my pocket every month, and everybody knows everybody else has $X per month in their pocket isn't going to raise prices? Sorry, but I don't believe it.
        AnthonyMouse 6y ago
        > So, the fact that everybody has $X per month extra in my pocket every month, and everybody knows everybody else has $X per month in their pocket isn't going to raise prices? First, not everybody has $X per month extra -- that exact amount of money comes from somewhere. So someone at the 75th percentile eats in a restaurant six days a week instead of seven and someone at the 25th percentile eats in a restaurant two days a week instead of once, but there is no additional aggregate demand. But more importantly, how are they going to raise prices in a competitive market? If you're selling generic USB cables in competition with a thousand other sellers, and you raise your prices, your competitors are just going laugh at you as they take all your customers by leaving prices the same. Even if 95% of the sellers tried to raise prices, the customers would just sort by price and buy from the 5% that didn't, so there would be a huge incentive to continue to charge low margins and get all that sales volume.
  - ReactiveJelly 6y ago
    > Giving everyone $X is simply going to increase demand for rent and consumables until we're back where we started. It will be wealth transfer to landlords and retailers via the poor. So if tomorrow a miracle occurred and all the poor people got better jobs that paid $X, that would also be a wealth transfer? Why is it better to create $X of jobs than to give $X of cash welfare? Or $X of non-cash welfare?
    - JKolodner 6y ago
      because then the people are generating value in the economy instead of just consuming it; which is objectively better for society. People get paid to do work because it is of value to someone, so the more people who get paid better to do things that other people need done, the better off everyone ends up.
- eli 6y ago
  One doesn’t necessarily lead to the other. You can easily run universal social programs that don’t have means testing. You don’t need to replace them with UBI.
  - AnthonyMouse 6y ago
    You could, but why would you? All those programs do is create economic distortions and inefficiency. If you give people housing vouchers, it inflates housing costs and prevents people who need things other than housing more than they need housing from getting what they need. If you give people money and they need housing, they buy housing; if they need something else, they buy something else.
    - ReactiveJelly 6y ago
      Right. Money is political power, and it's as fungible as power can be. UBI / NIT is saying, "Let's give power directly to poor people."
roenxi 6y ago
Wealthy people are either going to pay for their services directly, or pay through their taxes. On the other hand trying to tax money out of poor people is rather pointless, strategically speaking. Or desperate. People with no money can't effectively support a modern industrial state - we need industrialists, high-paid labour and craftspeople. So from that perspective it isn't at all clear to me why the government needs to treat some citizens differently than others. The approach advocated in this article makes sense. As long as everyone gets an opportunity, the situation is fair.
- AnthonyMouse 6y ago
  There is a dangerous consequence from charging lower marginal rates to people with less money -- it creates a perverse incentive for Congress. Because it means that if they cause a rich person (paying 30%) to make a dollar, Congress gets $.30. But if they cause a poor person (paying 10%) to make a dollar, Congress gets $.10. Worse, if they adopt any policy that would transfer a dollar from a rich person to a poor person (e.g. promoting small businesses that would compete with larger ones), they would lose $.20. And Congress wants to have more money to spend, so this perversely impacts their policies. What you want is for lower income people to be paying lower effective rates but not lower marginal rates. Which you can achieve by giving everyone a large fixed credit to start with and then using a uniform marginal rate for everyone.
  - jakelazaroff 6y ago
    Doesn’t this work out roughly the same? Say your credit covers the first $100,000 of income. Congress still has an incentive to shift money away from people making less from that amount, since it won’t add tax revenue unless it pushes them over the threshold.
    - AnthonyMouse 6y ago
      Suppose everybody gets a $12,000 credit (i.e. a UBI) and then everybody pays a universal 30% marginal rate. If you make $20,000, your effective tax rate is -30% -- it's negative, you got more than you paid. If you make $60,000, your effective tax rate is 10%. If you make a million dollars, your effective tax rate is 28.8%. This is what you want, progressive effective rates. But anybody who makes a dollar, the government gets 30%. If growth of small businesses transfers a trillion dollars from billionaires to the working class, there is no reduction in government revenue. If growth of small businesses adds a trillion dollars of new value the economy, Congress "profits" just as much as adding a trillion dollars solely to Microsoft, so they wouldn't have the incentive to prefer the latter. Worth pointing out that we don't actually have low marginal rates on the poor as a result of benefits phase outs -- the lowest marginal rates in practice are paid by the middle class. And then we unsurprisingly get federal policies that destroy the middle class to the benefit of billionaires and international corporations.
klipt 6y ago
> Intentionally destitute grandparents planning to go on Medicaid adopting their college-ready grandchildren. Wouldn't severing the parental relationship make it harder for parents to pass property to their kids when they die?
- pmiller2 6y ago
  Why would it? You can legally include any number of family members in a will as heirs, including zero. If you want to specifically exclude individual family members as well, you can do that, too.
- jcrites 6y ago
  Probably not, though I'm not an expert on this. Your will can pass your property to anyone you designate, and even aside from wills you can place assets in trust for beneficiaries like your children.
eli 6y ago
You don’t need to change or limit Medicaid payments to make this work. Just give it to everyone. Yes, the wealthy will have a benefit that they “don’t need” but that’s not actually a problem. A simpler program is more efficient and easier to administer. And if the wealthy have even a small stake in how the program is run they may hesitate to make cuts to it. It is entirely possible to pay for health care for everyone with modest tax increases - taxes that will be instead of insurance premiums for most people.
- ReactiveJelly 6y ago
  And if the wealthy have a benefit they don't need, we take it back with taxes. Maybe it really is that simple. For me, cheaper premiums are not even the selling points of universal healthcare. It's selfish hedonism: It's emergencies - No tax will exceed 100% of my annual salary, so why should a surprise medical bill I couldn't possibly avoid (T-boned when I had the right-of-way and thought I looked for cross traffic?) bankrupt me? It's uncertainty - Sure I'm middle-class now, but what if software really is in a bubble, and I'm broke in 15 years? Voting for my own interests has to include voting for things that _could_ plausibly happen in my future, not just what's happening to me this week. And it's the social graph of private charity. If my friend is a little worse-off than me, should I be guilted into donating money to their medical costs? I'm nowhere near the philanthropist class. Why should it fall on me? Not having a safety net punishes middle-class people who care about their not-middle-class friends and family. Paying with taxes is much fairer - No surprises, no desperate clinging to my job, and no guilt.
  - an_opabinia 6y ago
    Another way of looking at it is, because the average person cannot afford both (1) catastrophes like being hit in a car and becoming disabled, (2) accidentally disabling someone with their car, the underlying problem is still income inequality.
    - AnthonyMouse 6y ago
      That problem in particular is completely solvable by insurance.
gorgoiler 6y ago
What is the moral basis for any process of means testing to include one’s blood relatives? There surely cannot be one. Like so many policy decisions, it is simply another way for those in power to shirk the responsibility of actually collecting enough taxes to pay for the things we need. To do so would mean increasing income tax, a concept completely anathema to electioneering. For University in particular — a part of one’s life that should involve physical and emotional separation from the nest — it is infantilizing and disingenuous to treat undergraduates as legal adults on the one hand, and daddy’s-girls (with access to daddy’s wallet) on the other. This is how it felt, for me.
sien 6y ago
Anyone interested in Means Testing and the impact on policy needs to read up about Australia. Start with this article : https://www.businessinsider.com.au/why-having-the-best-social-welfare-system-in-the-world-matters-to-australia-2016-10 https://www.businessinsider.com.au/why-having-the-best-socia... From the article: "Figures published by the advanced-country OECD put us second-lowest of 29 countries, with only Switzerland spending less. Government in the US makes up 38% of the economy. In most developed countries, government is over 40% of the economy. In eight advanced nations, government is over 50% of the economy. A targeted welfare system means Australians pay a lot less tax than citizens in most rich nations." Australia has universal health care. Australia has a pretty good education system and fairly low taxes. Australia's system is far from perfect. But it is pretty good and it uses means testing and targeting of welfare extensively.
- djrobstep 6y ago
  Australia's welfare system isn't "pretty good". It's terrible. Targeting simply means more stigma towards poor folks, and narrower political support. Less targeting is actually better if you want more redistribution, more equality, broader political support, and less stigma. Welfare shouldn't be simply a last-resort safety net for the most unfortunate, it should help everybody live a smoother, easier life. The means-tested pension is particularly bad - all it does is result in people restructuring their finances to hack the means-testing measure, and make average people obsessed with "super" (privatized retirement accounts) instead. Key thing to remember is that welfare "spending" isn't "spending" or "costs" in the sense that eg buying a fighter jet is. It's just redistribution - so tax "churn" or low "targeting" doesn't really matter.
specialist 6y ago
> ...what you end up with is something that looks a lot like the tax code. Which makes me think we should generally just approach this sort of problem with taxes: provide a basic version for free and raise taxes to pay for it. Banks loan money, paid back with interest. Governments spend money, paid back with taxes. Government spending is really just a loan. With two big advantages: Governments can operate on longer time scales. Governments can exclude rent seeking "share holders" from transactions.
- nmca 6y ago
  It's hard to see what you're getting at here; the sets of people that pay are not the same.
  - specialist 6y ago
    You're right that it's not always clear how government investment benefits society. Maybe some day we'll have the technology to keep track of it all. Like ubiquitous micro payments for every form of transaction. The ultimate accounting system. Or we could all just be satisfied that healthy governmental revenues in the aggregate is good enough. For government work.
- Gibbon1 6y ago
  Also governments have less of an principal agent problem than other entities. A typical US corporation would be considered utterly banana republic corrupt if it were a government.
cowsandmilk 6y ago
The affordable housing one is fun. The sole time I applied for an affordable apartment in Cambridge, MA; my application was rejected because I didn’t make enough money. This is despite the apartment costing a couple hundred less than what I was paying in market rent. I likely would still not have won the lottery for the apartment, but it showed the system really was not designed well for many of us scrounging out a living as the city was moving towards a $100k cap on income for affordable units

36 points by luu 6y ago

Means testing provides so many of the wrong incentives, and in terms of privacy it is quite intrusive. A big reason that a flat basic income can do social safety net better.

throwaway201103 6y ago
Means testing should be simple. The IRS knows your income and number of dependents. Doesn't need to be any more intrusive than that. Giving everyone $X is simply going to increase demand for rent and consumables until we're back where we started. It will be wealth transfer to landlords and retailers via the poor.
- AnthonyMouse 6y ago
  A means tested phase out of a cash benefit is indistinguishable from a tax. If you had a $12,000 UBI with a 30% phase out up to $40,000 in income, that's the same thing as putting a 30% marginal tax rate on people making less than $40,000. On top of whatever other taxes they're paying. Which is probably not what you wanted if you have a 22% marginal tax rate on people making $50,000, right? What you really want is to forget about the phase out and just combine the UBI with a flat tax, so that the people making less money are paying the same marginal rate instead of a higher one than people who make more money.
  - pmiller2 6y ago
    Flat taxes are incredibly regressive.
    - AnthonyMouse 6y ago
      Flat taxes are regressive on their own. Combine them with a large fixed credit (i.e. UBI) and you can make them as progressive as you want, by increasing the size of the credit, despite having a uniform marginal rate. Also realize that the status quo, counting benefits phase outs as marginal taxes (which they are), is more regressive than a flat tax, because lower income people pay higher marginal rates.
      - pmiller2 6y ago
        Then, explain why UBI won't cause inflation.
        AnthonyMouse 6y ago
        Because it doesn't create money. Inflation is the devaluation of currency. A UBI just moves it from one person to another. So one person buys a $60,000 Mercedes instead of a $90,000 Maserati, then three other people buy a $30,000 Model 3 instead of a $20,000 Focus. It's not inflation, you're paying more money in order to get more valuable stuff. You're not bidding on a finite supply of $30,000 cars, if people have more money then they'll just make more of those cars, and more food and restaurants and whatever else people buy. There are very few things in the world that are genuinely scarce and have completely inelastic supply. And for those things, the price might increase. But that's not inflation, it's just supply and demand. You get the same result if the economy improves and wages rise or the unemployment rate goes down. You get the same result from any reduction in income inequality.
        pmiller2 6y ago
        So, the fact that everybody has $X per month extra in my pocket every month, and everybody knows everybody else has $X per month in their pocket isn't going to raise prices? Sorry, but I don't believe it.
        AnthonyMouse 6y ago
        > So, the fact that everybody has $X per month extra in my pocket every month, and everybody knows everybody else has $X per month in their pocket isn't going to raise prices? First, not everybody has $X per month extra -- that exact amount of money comes from somewhere. So someone at the 75th percentile eats in a restaurant six days a week instead of seven and someone at the 25th percentile eats in a restaurant two days a week instead of once, but there is no additional aggregate demand. But more importantly, how are they going to raise prices in a competitive market? If you're selling generic USB cables in competition with a thousand other sellers, and you raise your prices, your competitors are just going laugh at you as they take all your customers by leaving prices the same. Even if 95% of the sellers tried to raise prices, the customers would just sort by price and buy from the 5% that didn't, so there would be a huge incentive to continue to charge low margins and get all that sales volume.
- ReactiveJelly 6y ago
  > Giving everyone $X is simply going to increase demand for rent and consumables until we're back where we started. It will be wealth transfer to landlords and retailers via the poor. So if tomorrow a miracle occurred and all the poor people got better jobs that paid $X, that would also be a wealth transfer? Why is it better to create $X of jobs than to give $X of cash welfare? Or $X of non-cash welfare?
  - JKolodner 6y ago
    because then the people are generating value in the economy instead of just consuming it; which is objectively better for society. People get paid to do work because it is of value to someone, so the more people who get paid better to do things that other people need done, the better off everyone ends up.
eli 6y ago
One doesn’t necessarily lead to the other. You can easily run universal social programs that don’t have means testing. You don’t need to replace them with UBI.
- AnthonyMouse 6y ago
  You could, but why would you? All those programs do is create economic distortions and inefficiency. If you give people housing vouchers, it inflates housing costs and prevents people who need things other than housing more than they need housing from getting what they need. If you give people money and they need housing, they buy housing; if they need something else, they buy something else.
  - ReactiveJelly 6y ago
    Right. Money is political power, and it's as fungible as power can be. UBI / NIT is saying, "Let's give power directly to poor people."

roenxi 6y ago

Wealthy people are either going to pay for their services directly, or pay through their taxes. On the other hand trying to tax money out of poor people is rather pointless, strategically speaking. Or desperate. People with no money can't effectively support a modern industrial state - we need industrialists, high-paid labour and craftspeople. So from that perspective it isn't at all clear to me why the government needs to treat some citizens differently than others. The approach advocated in this article makes sense. As long as everyone gets an opportunity, the situation is fair.

AnthonyMouse 6y ago
There is a dangerous consequence from charging lower marginal rates to people with less money -- it creates a perverse incentive for Congress. Because it means that if they cause a rich person (paying 30%) to make a dollar, Congress gets $.30. But if they cause a poor person (paying 10%) to make a dollar, Congress gets $.10. Worse, if they adopt any policy that would transfer a dollar from a rich person to a poor person (e.g. promoting small businesses that would compete with larger ones), they would lose $.20. And Congress wants to have more money to spend, so this perversely impacts their policies. What you want is for lower income people to be paying lower effective rates but not lower marginal rates. Which you can achieve by giving everyone a large fixed credit to start with and then using a uniform marginal rate for everyone.
- jakelazaroff 6y ago
  Doesn’t this work out roughly the same? Say your credit covers the first $100,000 of income. Congress still has an incentive to shift money away from people making less from that amount, since it won’t add tax revenue unless it pushes them over the threshold.
  - AnthonyMouse 6y ago
    Suppose everybody gets a $12,000 credit (i.e. a UBI) and then everybody pays a universal 30% marginal rate. If you make $20,000, your effective tax rate is -30% -- it's negative, you got more than you paid. If you make $60,000, your effective tax rate is 10%. If you make a million dollars, your effective tax rate is 28.8%. This is what you want, progressive effective rates. But anybody who makes a dollar, the government gets 30%. If growth of small businesses transfers a trillion dollars from billionaires to the working class, there is no reduction in government revenue. If growth of small businesses adds a trillion dollars of new value the economy, Congress "profits" just as much as adding a trillion dollars solely to Microsoft, so they wouldn't have the incentive to prefer the latter. Worth pointing out that we don't actually have low marginal rates on the poor as a result of benefits phase outs -- the lowest marginal rates in practice are paid by the middle class. And then we unsurprisingly get federal policies that destroy the middle class to the benefit of billionaires and international corporations.

klipt 6y ago

> Intentionally destitute grandparents planning to go on Medicaid adopting their college-ready grandchildren. Wouldn't severing the parental relationship make it harder for parents to pass property to their kids when they die?

pmiller2 6y ago
Why would it? You can legally include any number of family members in a will as heirs, including zero. If you want to specifically exclude individual family members as well, you can do that, too.
jcrites 6y ago
Probably not, though I'm not an expert on this. Your will can pass your property to anyone you designate, and even aside from wills you can place assets in trust for beneficiaries like your children.

eli 6y ago

You don’t need to change or limit Medicaid payments to make this work. Just give it to everyone. Yes, the wealthy will have a benefit that they “don’t need” but that’s not actually a problem. A simpler program is more efficient and easier to administer. And if the wealthy have even a small stake in how the program is run they may hesitate to make cuts to it. It is entirely possible to pay for health care for everyone with modest tax increases - taxes that will be instead of insurance premiums for most people.

ReactiveJelly 6y ago
And if the wealthy have a benefit they don't need, we take it back with taxes. Maybe it really is that simple. For me, cheaper premiums are not even the selling points of universal healthcare. It's selfish hedonism: It's emergencies - No tax will exceed 100% of my annual salary, so why should a surprise medical bill I couldn't possibly avoid (T-boned when I had the right-of-way and thought I looked for cross traffic?) bankrupt me? It's uncertainty - Sure I'm middle-class now, but what if software really is in a bubble, and I'm broke in 15 years? Voting for my own interests has to include voting for things that _could_ plausibly happen in my future, not just what's happening to me this week. And it's the social graph of private charity. If my friend is a little worse-off than me, should I be guilted into donating money to their medical costs? I'm nowhere near the philanthropist class. Why should it fall on me? Not having a safety net punishes middle-class people who care about their not-middle-class friends and family. Paying with taxes is much fairer - No surprises, no desperate clinging to my job, and no guilt.
- an_opabinia 6y ago
  Another way of looking at it is, because the average person cannot afford both (1) catastrophes like being hit in a car and becoming disabled, (2) accidentally disabling someone with their car, the underlying problem is still income inequality.
  - AnthonyMouse 6y ago
    That problem in particular is completely solvable by insurance.

gorgoiler 6y ago

What is the moral basis for any process of means testing to include one’s blood relatives? There surely cannot be one. Like so many policy decisions, it is simply another way for those in power to shirk the responsibility of actually collecting enough taxes to pay for the things we need. To do so would mean increasing income tax, a concept completely anathema to electioneering. For University in particular — a part of one’s life that should involve physical and emotional separation from the nest — it is infantilizing and disingenuous to treat undergraduates as legal adults on the one hand, and daddy’s-girls (with access to daddy’s wallet) on the other. This is how it felt, for me.

sien 6y ago

Anyone interested in Means Testing and the impact on policy needs to read up about Australia. Start with this article : https://www.businessinsider.com.au/why-having-the-best-social-welfare-system-in-the-world-matters-to-australia-2016-10 https://www.businessinsider.com.au/why-having-the-best-socia... From the article: "Figures published by the advanced-country OECD put us second-lowest of 29 countries, with only Switzerland spending less. Government in the US makes up 38% of the economy. In most developed countries, government is over 40% of the economy. In eight advanced nations, government is over 50% of the economy. A targeted welfare system means Australians pay a lot less tax than citizens in most rich nations." Australia has universal health care. Australia has a pretty good education system and fairly low taxes. Australia's system is far from perfect. But it is pretty good and it uses means testing and targeting of welfare extensively.

djrobstep 6y ago
Australia's welfare system isn't "pretty good". It's terrible. Targeting simply means more stigma towards poor folks, and narrower political support. Less targeting is actually better if you want more redistribution, more equality, broader political support, and less stigma. Welfare shouldn't be simply a last-resort safety net for the most unfortunate, it should help everybody live a smoother, easier life. The means-tested pension is particularly bad - all it does is result in people restructuring their finances to hack the means-testing measure, and make average people obsessed with "super" (privatized retirement accounts) instead. Key thing to remember is that welfare "spending" isn't "spending" or "costs" in the sense that eg buying a fighter jet is. It's just redistribution - so tax "churn" or low "targeting" doesn't really matter.

specialist 6y ago

> ...what you end up with is something that looks a lot like the tax code. Which makes me think we should generally just approach this sort of problem with taxes: provide a basic version for free and raise taxes to pay for it. Banks loan money, paid back with interest. Governments spend money, paid back with taxes. Government spending is really just a loan. With two big advantages: Governments can operate on longer time scales. Governments can exclude rent seeking "share holders" from transactions.

nmca 6y ago
It's hard to see what you're getting at here; the sets of people that pay are not the same.
- specialist 6y ago
  You're right that it's not always clear how government investment benefits society. Maybe some day we'll have the technology to keep track of it all. Like ubiquitous micro payments for every form of transaction. The ultimate accounting system. Or we could all just be satisfied that healthy governmental revenues in the aggregate is good enough. For government work.
Gibbon1 6y ago
Also governments have less of an principal agent problem than other entities. A typical US corporation would be considered utterly banana republic corrupt if it were a government.

cowsandmilk 6y ago

The affordable housing one is fun. The sole time I applied for an affordable apartment in Cambridge, MA; my application was rejected because I didn’t make enough money. This is despite the apartment costing a couple hundred less than what I was paying in market rent. I likely would still not have won the lottery for the apartment, but it showed the system really was not designed well for many of us scrounging out a living as the city was moving towards a $100k cap on income for affordable units