Ways to Improve Welfare: Guaranteed Income

One of the main problems with a welfare system (or “safety net” as it’s now more commonly called), is that the incentives can often work against the person on the system, rather than for it.  The point of a welfare system is to help those who need it, but not to enable them.  Many studies, such as this one by CATO, find that those on welfare often face huge tax burdens the moment they go off of welfare, incentivizing some to remain on the system, and can lead to problems like this.  This is a problem that is acknowledged on both sides of the aisle.  So, how can it be fixed?  Some advocate simply doing away with the welfare system as a whole.  I used to hold such a view, but I’m not sure it’s really feasible.  Others try to fix the system through the legislative process, but that tends to lead to confused and often contradictory policies (for example: minimum wage legislation reduces the quantity demanded for workers but the EITC increases it.  The two essentially cancel each other out).

Here is what I propose: guaranteed income for all adults.  This would be in lieu of, not in addition to, the current system.  So, scrap everything: Social Security, SSI, food stamps, WIC, minimum wage, etc etc, and replace it with a guaranteed income that falls as one’s income increases.

Let me try to explain how this would work with some contrived numbers:

Every adult is guaranteed an income of at least $10,000/yr.  If s/he get a job that pays them $3,000/yr, they now get $7,000/yr from the government.  If they get a raise that pays them now $5,000/yr, their government check is now $5,000.  If they make $10,000+, they get nothing.

I believe this would solve many of the problems with the current US welfare system, such as the disincentive to work or the fact that even billionaires get Social Security.  Is it ideal?  No.  But it certainly would be a step up from the current system, and I think both Republicans and Democrats could get behind it (although perhaps not as it would take away much of their power to hand out special interests).

10 thoughts on “Ways to Improve Welfare: Guaranteed Income

  1. Your idea is very similar to the Milton Friedman negative income tax. However, your plan still has the negative work aspect in it. If I can work to earn $3000 in a year and that $3000 comes off my $10,000 guaranteed income, why should I even bother to work.

    It would probably be a better plan if one would lose 25% to 33% of the guaranteed income for every dollar they earn, that way, there is a bit of incentive to get one’s ass in gear, because there will be extra money coming in. Any higher and the cost of working, plus extra taxes would make the income not worth getting.

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      • As an unemployed high school dropout with no skills, I had some trouble with the math, so I asked my granddaughter who is in 4th grade for some help. Here’s what she came up with:

        I can can work part time 20hrs/wk at the current Federal min wage, for an income of $10,000/year ($7,250 + $2500 Murphycare.), or I can stay home and get paid $10,000 in Murphycare. My choice is obvious.

        I can work full time and earn $14,500/yr (actually $4500/yr) which means I am working for $2.25/hr, or I can stay home and visit econ blogs all day . Forty hours (plus my commute and get-ready time), seems like a lot of time spent for only $90. I’m pretty sure I’ll choose to stay home.

        I would prefer to work, as I believe most people would, but Murphycare is just too much of an attraction, so here’s my plan: I will work for my brother-in-law for $6/hr cash ($12,000/yr) AND claim $10,000 in Murphycare. That’s $22,000/year.

        What do you think?

        I didn’t ask my granddaughter to calculate income and payroll taxes, but that would have tipped the scales even further.

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  2. Forgetting the ethical/moral implications of forced redistribution, of good intentioned, one-size-fits-all policies for diverse individuals, and of policies that would completely distort the market for labor, I believe there would be a huge disincentive to take a job that pays less than the guaranteed minimum income. In at least one state (Massachusetts), the unemployment system already works like this. Every dollar you earn over a certain threshold while collecting unemployment reduces your unemployment benefits by that same amount.

    Think of it this way: if it takes someone 100 hours per month to earn 10,000 a year at around $8.25 per hour, why would anyone work those 100 hours when they could instead be watching Netflix and working in their garden for the same benefit?

    0 hours/month = $10,000 per year
    100 hours/month = $10,000 per year
    150 hours/month = $15,000 per year

    Working 100 hours per month essentially pays you $0 per hour. You don’t gain or lose anything.

    In order to earn an extra $415+ per month (an extra $5k per year), you’d have to work 150 hours each month! That means those 150 hours are only really worth about $2.76 hour in added benefits to you, whereas under the current system, they’re worth about $8.25.

    I’m no economist but, respectfully, this idea stinks. 😦

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      • Of course! That’s what this is all about after all 🙂 Personally, I speak from experience, having regrettably taken unemployment benefits after losing my job. It was one of the worst decisions I ever made and made me really question the system.

        But I do agree to some extent — IF we’re going to have a welfare state, certainly streamlining things would be best.

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  3. Jon

    At one time in our history, before government shouldered them aside, voluntary organizations and mutual aid societies did a pretty good job of helping those who needed a “safety net” In my view they would do so again if allowed. Families understood that they, not Uncle Sam, were responsible for members who needed help.

    It seems ironic that those who most loudly disagree, claiming that the market wouldn’t provide enough of that public good, are themselves the ones who spend the most time and money volunteering to help others. At least that’s been my experience at CD.

    And let’s NOT forget the ethical/moral implications of forced redistribution.

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  4. @Peter

    When in was younger, UE insurance definitely promoted sloth. I would get about $200 a week and with no real expenses, living at home, it was more than enough.

    Now, I still collect when I am unemployed, but with UE covering less than a quarter of my monthly costs, I still need to find a job quickly. So it isn’t a hindrance any more. I am unemployed often because I do contract work, but have been getting better about finding the next position. This time the gap was a week.

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  5. I came here from the link you posted on Cafe Hayek.

    This plan contains the same fatal flaw of many of the current welfare programs. Which is that it represents a 100% marginal tax rate on income under $10,000. This is obviously a dis-incentive for anyone making less than $10,000 to work harder.

    The proper way to implement this scheme is to give *everyone*, regardless of their income, a check for $10,000 per year. That’s right, billionaires get it too. This would be 1099 income, and taxable (everyone should have a stake in paying taxes). If you earn $10,000 from a job, you get a total of $20,000.

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