4 ms·

Perhaps if we weren't subjecting the tens of millions of Americans in the $15,000 - $40,000 income range to effective marginal tax rates of up to 103% [0], we w

Perhaps if we weren't subjecting the tens of millions of Americans in the $15,000 - $40,000 income range to effective marginal tax rates of up to 103% [0], we would see more labor force participation. Between income tax and benefit phaseout, it can literally cost money to get a raise in our system today [1]. [0] https://fullstackeconomics.com/103-percent-the-hidden-tax-rates-of-means-testing/ https://fullstackeconomics.com/103-percent-the-hidden-tax-ra... [1] https://www.heritage.org/taxes/report/effective-marginal-tax-rates-low-income-workers-are-high https://www.heritage.org/taxes/report/effective-marginal-tax... P.S. if you account for need-based financial aid scholarships for college, the situation is even more dire.

maerF0x0 4y ago
IMO this is one of the arguments for dismantling the social bureaucracy and implementing a Friedman like UBI . I highly recommend watching the whole series, but here's a direct clip to the idea ("negative income tax") https://youtu.be/ysf-5MdWDt0?t=1519 https://youtu.be/ysf-5MdWDt0?t=1519
- settrans 4y ago
  I'm familiar with the idea - but the biggest challenge with UBI is not that it's inherently a bad idea (as you note, it effectively adds a negative intercept to the marginal system), rather that it is unlikely to replace welfare systems in a lasting fashion. There are two problems: 1. UBI would be too expensive if it were to replace welfare. You can't just keep the total welfare spending of $1.16T [0] and smear it across the whole population, since that would significantly reduce the support of families receiving welfare today (since you'd be distributing the benefit _universally_). If you wanted to keep the average payout to welfare recipients the same, you would need to dole out $65,200 (the average welfare benefit) to each of the 122 million households in America, balooning UBI spending to nearly $8T, over 1/3 of US GDP. But even that wouldn't be enough, since many families depend on even more welfare benefits, since all we did was pay out the average. Suppose you paid out the 80th percentile instead (for sake of argument, assume that's $90,000), now your welfare bill is $11T, or half of GDP. Needless to say, you'd need a lot of taxes to pay for this, and the US would shoot up to the highest-taxed nation on earth. 2. Even this wouldn't be enough: the same social forces that push to expand and grow the welfare bureaucracy today would continue to exist, and I would expect them to cause the reintroduction of welfare even if abolished under the introduction of UBI. Families receiving direct financial support under UBI could (and would) starve, suffer costly medical expenses, and otherwise need additional support, and thus create demand for welfare afresh. [0] https://www.heritage.org/welfare/report/largest-welfare-increase-us-history-will-boost-government-support-76400-poor-family https://www.heritage.org/welfare/report/largest-welfare-incr...
  - maerF0x0 4y ago
    > you can't just keep the total welfare spending of $1.16T [0] and smear it across the whole population The rhetoric (idk the real stats) is that by unemploying the bureaucracy and allowing those on welfare to choose the best solutions to their problem, they will actually be net richer than by paying a case worker or whatever to dole out the checks, or food stamps etc. I'm not claiming it's true, but just repeating the fullness of the rhetoric that typically gets dropped by people who do not know the history of this flavor of UBI. > starve, suffer costly medical expenses, and otherwise need additional support, and thus create demand for welfare afresh. Any support for this claim? I kind of agree there will always be a need for people who are literally incapable of caring for themselves, perhaps for example might be people with down's syndrome(?)[1] [1] IDK, dont down vote me for the example if you agree with the point that there exists some class of people incapable of caring for themselves even if fully funded.
    - settrans 4y ago
      The thrust of the (financial) problem is that all of those savings, the bureaucracy and the more efficient capital allocation, is completely eclipsed by the massive waste of paying UBI to everyone who doesn't need welfare. If 10% of households receive welfare, you're looking at a 10x increase in outlay (since you're now also paying the 90% who don't need welfare). But to actually replace welfare, you'd need to pay enough to satisfy (almost) everyone, not just the average. This means you need to pay the 80th? 99th? percentile benefit to everyone, since UBI is a flat benefit and you've eliminated all means testing. Assuming your 99th percentile outlay is 150% of the average, you now have to pay 1,500% of your original welfare budget in order to provide the same benefit to the 99th percentile welfare beneficiary (and 1% of people previously on welfare are still worse off). Even if somehow we could afford largess of that magnitude without spiraling into hyperinflation, it's unlikely that the efficiencies of individual capital allocation could overcome anywhere near the 1,400% premium of UBI.
      - maerF0x0 4y ago
        > the bureaucracy and the more efficient capital allocation, is completely eclipsed by the massive waste of paying UBI to everyone who doesn't need welfare I understand your idea. The crux here being neither of us are providing data, just rhetoric.

maerF0x0 4y ago

IMO this is one of the arguments for dismantling the social bureaucracy and implementing a Friedman like UBI . I highly recommend watching the whole series, but here's a direct clip to the idea ("negative income tax") https://youtu.be/ysf-5MdWDt0?t=1519 https://youtu.be/ysf-5MdWDt0?t=1519

settrans 4y ago
I'm familiar with the idea - but the biggest challenge with UBI is not that it's inherently a bad idea (as you note, it effectively adds a negative intercept to the marginal system), rather that it is unlikely to replace welfare systems in a lasting fashion. There are two problems: 1. UBI would be too expensive if it were to replace welfare. You can't just keep the total welfare spending of $1.16T [0] and smear it across the whole population, since that would significantly reduce the support of families receiving welfare today (since you'd be distributing the benefit _universally_). If you wanted to keep the average payout to welfare recipients the same, you would need to dole out $65,200 (the average welfare benefit) to each of the 122 million households in America, balooning UBI spending to nearly $8T, over 1/3 of US GDP. But even that wouldn't be enough, since many families depend on even more welfare benefits, since all we did was pay out the average. Suppose you paid out the 80th percentile instead (for sake of argument, assume that's $90,000), now your welfare bill is $11T, or half of GDP. Needless to say, you'd need a lot of taxes to pay for this, and the US would shoot up to the highest-taxed nation on earth. 2. Even this wouldn't be enough: the same social forces that push to expand and grow the welfare bureaucracy today would continue to exist, and I would expect them to cause the reintroduction of welfare even if abolished under the introduction of UBI. Families receiving direct financial support under UBI could (and would) starve, suffer costly medical expenses, and otherwise need additional support, and thus create demand for welfare afresh. [0] https://www.heritage.org/welfare/report/largest-welfare-increase-us-history-will-boost-government-support-76400-poor-family https://www.heritage.org/welfare/report/largest-welfare-incr...
- maerF0x0 4y ago
  > you can't just keep the total welfare spending of $1.16T [0] and smear it across the whole population The rhetoric (idk the real stats) is that by unemploying the bureaucracy and allowing those on welfare to choose the best solutions to their problem, they will actually be net richer than by paying a case worker or whatever to dole out the checks, or food stamps etc. I'm not claiming it's true, but just repeating the fullness of the rhetoric that typically gets dropped by people who do not know the history of this flavor of UBI. > starve, suffer costly medical expenses, and otherwise need additional support, and thus create demand for welfare afresh. Any support for this claim? I kind of agree there will always be a need for people who are literally incapable of caring for themselves, perhaps for example might be people with down's syndrome(?)[1] [1] IDK, dont down vote me for the example if you agree with the point that there exists some class of people incapable of caring for themselves even if fully funded.
  - settrans 4y ago
    The thrust of the (financial) problem is that all of those savings, the bureaucracy and the more efficient capital allocation, is completely eclipsed by the massive waste of paying UBI to everyone who doesn't need welfare. If 10% of households receive welfare, you're looking at a 10x increase in outlay (since you're now also paying the 90% who don't need welfare). But to actually replace welfare, you'd need to pay enough to satisfy (almost) everyone, not just the average. This means you need to pay the 80th? 99th? percentile benefit to everyone, since UBI is a flat benefit and you've eliminated all means testing. Assuming your 99th percentile outlay is 150% of the average, you now have to pay 1,500% of your original welfare budget in order to provide the same benefit to the 99th percentile welfare beneficiary (and 1% of people previously on welfare are still worse off). Even if somehow we could afford largess of that magnitude without spiraling into hyperinflation, it's unlikely that the efficiencies of individual capital allocation could overcome anywhere near the 1,400% premium of UBI.
    - maerF0x0 4y ago
      > the bureaucracy and the more efficient capital allocation, is completely eclipsed by the massive waste of paying UBI to everyone who doesn't need welfare I understand your idea. The crux here being neither of us are providing data, just rhetoric.