Matt Zwolinski, a philosophy professor at the University of San Diego, has responded to Bryan Caplan’s critique of a Universal Basic Income. His defense is deficient.
I’ll highlight three things.
First, on the effect of a UBI on children.
Zwolinski states:
For instance, Bryan argues that cash transfers to parents of young children would be a bad idea, since the fact that such parents require taxpayer assistance is evidence of their irresponsibility, and “they may spend it on alcohol.”
He responds:
But this is a case where Bryan is the one who is not paying enough attention to empirical evidence. We actually know a good deal about how cash transfers affect children. In particular, evidence from the 2021 temporary expansion of the Child Tax Credit shows that cash transfers led childhood poverty to fall to their lowest level on record: 5.2%. When that expansion ended in 2022, child poverty more than doubled almost immediately, rising to 12.4%.
Matt’s response tells us nothing about how cash transfers affect children and shows a misunderstanding of what the federal government’s data on household income show. The data are on household income where there are children present; they tell us nothing about how the income is spent. Take two households with the same income. In household A, the parents spend the money in ways that Matt approves. In household B, the parents spend a huge amount of the income on alcohol. Both show the same income. The income data do not distinguish between the two households.
Matt’s mistake is akin to one that one advocates of government spending often make: We must be doing good things; look at the large amount we’re spending.
Second, on the added cost of a UBI.
Matt considers a lot of versions of a UBI: with seniors but without children or teenagers; with children but without seniors; without seniors or children. He also considers two levels of a UBI: $500/month or $1,000/month. He then quotes from Universal Basic Income: What Everyone Needs to Know, a book that he co-authored with Miranda Perry-Fleischer, a law professor at the University of San Diego:
[T]he cost of a $500 per- person per- month UBI that replaced most current welfare programs in the United States would be roughly 7% of GDP. Government spending in the United States is currently around 38% of GDP, compared to 49% of GDP in Norway and 50% in Sweden. A $500- per- month UBI would keep the ratio of US government spending to GDP below Nordic levels, while a $1,000- per- month UBI would vault us ahead of Denmark (55%) and just behind Finland and France, both of whom clock in at 57%.
There are two things to note. First, the authors don’t tell us what they mean by “most current welfare programs” in the United States. Presumably it would include SNAP (food stamps), TANF (temporary assistance to needy families), and housing subsidies. Would it also include Medicaid? My sense is that it wouldn’t.
Second, and even more important, notice how the authors seem to be at ease with the idea of moving us much closer to European levels of spending. That’s what I found most shocking about their defense of the UBI.
Third, on taxes.
Matt writes:
Note that the cost estimates above assume zero means-testing, either on the front-end or back-end. The net costs of either a Negative Income Tax or a UBI with a phaseout/surtax would thus be considerably lower.
That statement is correct for a phaseout but incorrect for a UBI with a surtax. But the phaseout also has problems.
Let’s look at the phaseout. Assume that a couple with no children would otherwise make $40,000 a year and gets $2,000 a month, which is $24,000 a year. Past the $40,000, there’s a phaseout. It can’t be too steep or we’re back to really poor incentives to make money. So let’s say it’s a loss of 25 cents for every additional dollar earned. That couple will reach a zero subsidy when it gets to $136,000. (It takes $96,000 in additional income to drive the UBI down to zero.) There will be tens of millions of people in that income range getting subsidies. So Matt is right that the subsidy won’t be as large as the no-phaseout subsidy, but it will be substantial.
Also, there will be a 25-percentage-point diminished incentive to work for tens of millions of people. Many of them will be in a 12% federal tax bracket and a 4 or 5% state tax bracket, along with a 7.65% payroll tax bracket. (We really should count much of the employer’s portion but I’ll leave that out.) So that’s a marginal tax rate of 24 to 25%. Add in 25 percentage points and you get a whopping 49 to 50%. In other words, they will net $1 for every additional $2 in income.
In saying that the net cost of a UBI would be considerably lower with a surtax, Matt almost seems to be treating a lump-sum subsidy as equivalent, but in opposite direction, to a higher marginal tax rate. But they aren’t equivalent. When the government is trying to get hundreds of billions of dollars back by imposing probably about a ten-percentage-point increase in marginal tax rates on tens of millions of high-income people, that definitely affects their incentives to work, to buy tax-deductible items (a more expensive house, for example), to buy tax-free municipal bonds (as high-income people did before the 1986 Tax Reform Act), and to hide income.
Finally, I’ll just make a point that I saw Bryan Caplan make in a debate on UBI some years ago. He pointed to his father, who is not close to being a libertarian but who strongly objects to putting tens of millions of additional adults on welfare. Bryan said, “Libertarians should be at least as libertarian as my father.”
Two additional points.
First, note that this discussion is happening at a time when we are seeing federal deficits equal to over 5% of GDP for many years. There’s only starting to be a discussion of which programs to cut or pare and which taxes to raise. So advocating a massively expensive new program with accompanying tax increases is irresponsible.
Second, for a detailed look at the case against a UBI that has held up well, check my “A Philosophical Economist’s Case against a Government-Guaranteed Basic Income,” Independent Review, v. 19, n. 4, Spring 2015.
READER COMMENTS
robc
Jan 24 2024 at 10:15am
I have one condition on accepting a UBI, and even then I think its a bad idea: it comes as part of a constitutional amendment banning ALL transfer payments (other than the UBI itslef).
Social security? Zeroed out. Welfare, in any form, zero. Medicare/medicaid? zero. VA benefits…well, that is a payment for service, so not technically a transfer payment, so maybe we can let that slide…maybe.
Foreign aid…thats a transfer payment, it goes to zero. I think we would lose a big chunks of our federal departments in total. Good riddance.
In this case, maybe, just maybe, a UBI would be okayish. $1260 per month per adult, $420 per month per child. Citizens only.
That is based off 2024 poverty levels. It is expensive, but with what we just cut, it might not be THAT expensive. And we just eliminated poverty entirely, the war is won!
My second idea for an okayish UBI, would be based on a Thomas Paine suggestion. Eliminate the transfer payments as above…and each citizen gets a one time payment on their 18th birthday. I would put it at about the median household annual income, so about $75k.
Congrats, that is all you are ever getting from the government, don’t waste it.
robc
Jan 24 2024 at 10:23am
Quick back of envelope calculation, $75k would have been $27,775 in 1987 (when I turned 18). The S&P 500 was 884.19 in August 1987, so that $27k would be about $154k today if invested in that. I may not have properly accounted for dividends, but lets just say I spent those.
Its not enough to retire on by itself, but its a good start. It would nicely supplement my current retirement investments.
robc
Jan 24 2024 at 10:28am
I left out an additional condition…a flat income tax. With that size UBI, it would be very progressive anyway.
At a flat rate of, say, 35%, a family of four wouldn’t pay any tax, net of the UBI, until a household income over $115k.
A single adult would have to make more than $43k before they became a net tax payer.
The child portion would be equivalent to a $14400 child tax credit.
Richard W Fulmer
Jan 24 2024 at 2:30pm
Let’s say that we replace all transfer payments with the UBI as you suggest. Some people, as Caplan observes, will spend the money unwisely. Others will have bad luck. Just ignoring those people and their children is a political non-starter. So, the welfare transfer-payment programs will start creeping back in.
robc
Jan 25 2024 at 8:56am
The constitutional amendment is needed to prevent the creep.
Knut P. Heen
Jan 24 2024 at 10:19am
I would not be strongly against a UBI of $1. An economist should discuss issues at the margin (how much?), not in categories (UBI good or bad?).
David Henderson
Jan 24 2024 at 10:21am
I would agree with you about a UBI of $1.
I’m discussing actual proposals people are making.
steve
Jan 24 2024 at 11:15am
I find it interesting that Brian thinks not having enough money to care for the kids is a sign of irresponsibility. It could be, or it could just be bad luck. Half of the world is below average in skills, IQ or whatever you want to measure. Those people may figure out how thrive and raise kids but if their situation rapidly changes they may not be able to adapt or at least not quickly.
Steve
David Henderson
Jan 24 2024 at 1:54pm
You write:
Wow! What a misstatement! He was saying that some of them would spend it on alcohol.
steve
Jan 24 2024 at 4:12pm
From your piece above.
“since the fact that such parents require taxpayer assistance is evidence of their irresponsibility”
Steve
steve
Jan 24 2024 at 4:19pm
Link to Bryan’s piece where he actually says the above quote.
https://betonit.substack.com/p/the-ubi-is-worse-than-the-status?utm_source=post-email-title&publication_id=820634&post_id=138740325&utm_campaign=email-post-title&isFreemail=true&r=fa7b8&utm_medium=email
Steve
David Henderson
Jan 24 2024 at 4:48pm
Ah, now I see.
I was focusing on the alcohol quote. I resign immediately as an expert on Bryan Caplan’s writing. 🙂
steve
Jan 24 2024 at 5:42pm
I am not sure anyone can be an expert on his writings. At least from my POV he veers from brilliant insightful stuff to weird, whackadoodle. Think he tries too hard to be different.
Steve
Kevin
Jan 25 2024 at 4:39pm
Isn’t “a sign of irresponsibility” consistent with “it could just be bad luck”? Saying that X isn’t a sign of Y doesn’t imply that X is conclusive proof that Y. So, saying that X is a sign of Y is consistent with saying that X could be not Y.
David Henderson
Jan 27 2024 at 10:27am
Good point. I missed that nuance. “A sign of” is just that–a sign. It doesn’t mean it’s conclusive.
vince
Jan 24 2024 at 1:55pm
A discussion of UBI isn’t complete without addressing the cliff effect, which traps much of the poor in poverty. I’m referring to the version of UBI that replaces welfare and does not phase out. (Including UBI in taxable income is a phase out of sorts, or at least a phase down.)
Roughly, assume 160 million workers and 25% of households making total money income less than $35,000. Those households probably qualify for some type of welfare and face the cliff effect. That’s 40 million workers who lack incentive to make more money. If the cliff effect were removed and each worker made an additional $20,000 per year, GDP would increase by $800 billion. If taxes on all UBI payments–including millionaires–were $200 billion, UBI pays for itself. That ignores the additional benefit of the self respect gains and everything that goes with it.
David Henderson
Jan 24 2024 at 2:18pm
I’ll have to work through your numbers, but this one I don’t understand. You write:
But the estimates are–and even Zwolinski admits this–that for the most pared-down UBI of $500 per month, the net additional spending is well over $1 billion annually. So $200 billion in taxes doesn’t come close to paying for a UBI.
vince
Jan 24 2024 at 2:41pm
My point, right or wrong, is that the $800 billion net UBI outlay would be offset by $800 billion in new production. The $200 billion is an assumed tax revenue on $2 trillion in UBI payments, which assumes the UBI is included in adjusted gross income. The $2 trillion of UBI itself is offset by $1 trillion in elimination of welfare.
We really need a serious study on the benefits of removing the cliff effect.
vinc
Jan 24 2024 at 2:00pm
Actually, a couple making $40k per year is in the 12 percent federal bracket, and will remain in that bracket for the next $68k of income.
David Henderson
Jan 24 2024 at 2:06pm
You’re right. I made the mistake at looking at single taxpayers rather than married taxpayers filing jointly.
David Henderson
Jan 24 2024 at 2:09pm
Change made.
vince
Jan 24 2024 at 2:01pm
Actually, a couple making $40k per year is in the 12 percent federal bracket, and will remain in that bracket for the next $68k of income.
David Seltzer
Jan 24 2024 at 2:23pm
Doesn’t the concept of UBI have some similarity to the welfare state’s transfers and taxes “decoupling of low‐income households from the workforce”? The Myth of American Inequality. 2017. In the average bottom‐quintile household, total government transfers amount to $45,489 compared to $4,908 in earned income. It seems the incentive for able-bodied workers to remain out of the workforce is strong. Would the same apply to a UBI? Assuming a marginal tax rate of 20%, in order to earn $45,489, the pretax earning would be $50,543 or about $25 dollars and hour. An apprentice heating and A/C mechanic makes $25 an hour. Government transfers don’t offer incentives to acquire self-sustaining skills.
vince
Jan 24 2024 at 2:47pm
Exactly. The point of UBI is to remove the disincentive and replace it with dignity. How much is that disincentive really costing not only in income but in human costs such as drugs and despair? Where are the studies?
David Seltzer
Jan 24 2024 at 3:30pm
“Exactly. The point of UBI is to remove the disincentive and replace it with dignity. How much is that disincentive really costing not only in income but in human costs such as drugs and despair? Where are the studies?” I can’t speak to an individual’s “dignity.” As to the cost of drugs and despair, I don’t know. Do you? If an able-bodied person makes the rational trade-off between getting gov assistance, vis a vis incurring the cost of acquiring skills that will benefit them to the point of significantly increasing the present value of future earnings, they will probably do so. To be fair, the pros and cons of UBI will be debated ad infinitum.
robc
Jan 25 2024 at 9:00am
How does the UBI remove the disincentive?
Does it matter if you get the tranfer payment in the form of SNAP or straight cash? Both will provide a disincentive to work (although maybe less of a disincentive since there is no cliff, but that isn’t the disincentive being discussed here).
vince
Jan 25 2024 at 12:18pm
As David Seltzer wrote, it’s a tradeoff over losing government assistance. Snap ends, cash doesn’t. What’s the marginal compensation to work? I’ve come across numerous people who won’t work past a certain level of income solely to preserve benefits. It’s an important topic. Where are the studies?
Matthias
Jan 24 2024 at 8:01pm
Countries, like the US, already have income taxes (and others) and they already have various welfare benefits.
Both taxes and welfare tend to be means tested. Even a ‘flat’ income tax means a flat proportion of your income is taxed, not a constant dollar figure.
One problem is that all those systems come with their own means testing. That’s (A) wasteful, and (B) often uncoordinated, so that effective total marginal taxes on poor people can be quite high. Higher than on richer people who are past the phase outs or cliffs.
My minimalist ‘UBI’ proposal:
Fiest, unify the means testing into a single regime (eg re-use the IRS in the US), and provide a clear overview of the effective marginal rates.
So far we haven’t changed any payments for anyone. This is just a technocratic administrative reform.
Second, (optional) look at the phase outs and cliffs and remove the worst perverse incentives. Especially whenever the effective marginal rate goes above 100%. (Note: this step has changes net payments for many people, but it would be a good idea on its own, even without any of the other reforms.)
Third, (optionally ans purely for cosmetis) remove all phase outs and cliffs in the welfare programs and replace them with the equivalent income tax band adjustments. (Note, this doesn’t change any net payment to anyone. It’s another technocratic, purely administrative reform.)
Voila: you now have something that you can technically call a UBI system.
Later on, you can eg have some political discussions about tweaking with the curve of marginal rates (including the lump sum at 0 income that is equivalent to the UBI itself.)
Note that the last step is what David and Bryan etc are so discussing. But it happens already entirely within the UBI system, whose minimalist introduction only required completely sane and innocuous steps.
(For the record, I think a much more important discussion to be had is about abolishing or at least greatly lowering income taxes and capital gains taxes and replacing them with land value taxes, or at least with property taxes.
I know Bryan managed to nitpick land value taxes, but even taking his critique of search costs into account, even he would probably admit that the dead weight losses from capital gains taxes and income taxes are a lot worse than for land value taxes (or even property taxes).)
Emma
Jan 24 2024 at 9:04pm
David,
I’m curious about the disincentive effect of say, a 26% vs. 40% marginal tax rate. Is there any study or model we can get our hands on to have an idea of its actual size or impact on working hours?
Thank you for your consideration!
Michael Sandifer
Jan 24 2024 at 9:18pm
This was an exceptionally weak case for UBI. It doesn’t even seem to need rebutting.
I favor Friedman’s negative income tax. Ideally, have it replace nearly all other social spending, including the ACA, Medicaid, and Medicare, though politically, that’s a non-starter. Probably would have to at least replace those healthcare programs with a much cheaper high deductible insurance program that covers catastrophic care.
The money for a negative income tax is there, if we want to spend it. It’s just a matter of priorities.
john hare
Jan 25 2024 at 4:37am
I think my take on this is called steelmanning. Not sure if I understand the term correctly when I take this off on a tangent. It may be necessary to delete this comment.
Fix many of the problems with being able to live on less money such that welfare of various stripes becomes unnecessary.
There was mention recently of Toyota selling a stripped down truck new for $10,000.00, but only in other countries. Here a new truck starts at several times that. A minimum car should be even less, not to mention electric bikes and such as a means to get to work.
Make it possible to rent places much smaller and cheaper than currently possible. There was discussion recently of single room rentals being banned in many areas. Along with regulations on mobile homes and site built housing driving costs through the roof. Minimum rents locally have roughly quadrupled in the last three decades.
Make it possible for me to hire and work people that are outside the accepted norms. To keep insurance, I have to drug test which moves many out of the work force. Accept that some people are not wanting regular work and somehow make it possible for them to work by the day. Many of the concrete finishers several decades back worked for cash and just “caught days”. Two or three days a week paid their bills.
I think working from the other end would make many of the redistributions unnecessary.
Matthias
Jan 25 2024 at 6:13pm
Minimum wage laws are part of the reason you can’t offer this deal. A deal, ‘ok, you put in only a small effort, for a small payment.’
Similarly for other mandatory benefits.
The original campaigners for minimum wage legislation were very upfront about their desire to exclude people ‘outside of the norm’. They explicitly wanted to make it illegal for them to underbid the people inside the norm.
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