Upward-mobility Grants, 9/23
how I might re-brand the UBI
Phil Gramm and John Early write,
Real government transfer payments to the bottom 20% of household earners surged by 269% between 1967 and 2017, while middle-income households saw their real earnings after taxes rise by only 154% during the same period. That has largely equalized the income of the bottom 60% of Americans. This government-created equality has caused the labor-force participation rate to collapse among working-age people in low-income households
Means-tested transfer payments drive people out of the labor force in two ways, through an income effect and a substitution effect. First, they enable people to consume without working. Second, they tax away most of the earnings that poor people get from working, creating an incentive to substitute away from working.
In 2017, among working-age households, the bottom 20% earned only $6,941 on average, and only 36% were employed. But after transfer payments and taxes, those households had an average income of $48,806. The average working-age household in the second quintile earned $31,811 and 85% of them were employed. But after transfers and taxes, they had income of $50,492, a mere 3.5% more than the bottom quintile. The middle quintile earned $66,453 and 92% were employed. But after taxes and transfers, they kept only $61,350—just 26% more than the bottom quintile.
Suppose we replaced the means-tested transfers, including Medicaid, food stamps, and other programs, with <s>Universal Basic Income</s> Upward Mobility Grants. A household would receive $2500 for each person in it. Every household would receive the grant, regardless of income. This would not meet households’ consumption needs, so that people would want to work. And because the grant does not go away when somebody works, households do not face the high tax rate that the working poor face currently.
The Upward Mobility Grant still might discourage work by the income effect. But it does not have the additional substitution effect against work that is embedded in our current system of means transfers. It is because they do less to deter work that I call these Upward Mobility Grants. Our current system severely retards the upward mobility of poor people who are willing and able to work.
There are some households where people cannot work, or they have very expensive needs—perhaps a child with a severe medical condition. Those households would be better off with means-tested transfers instead of Upward Mobility Grants. I would propose addressing the needs of those households with supplemental income from charities or local governments. Organizations within a community are better equipped to monitor the needs and the behavior of recipients in that community.
My challenge to commenters: before you attack the UBI (or Upward Mobility Grants), defend the current system of means-tested entitlements.
I love the idea. It might take some time to scale up the local charities. The LDS church’s Fast Offerings program would be an ideal model, if we can find a way to scale it. Funds are donated and used locally, but extra funds flow through the global church system to where they are needed. No overhead because it is run by volunteers in an existing org created for other purposes. Very low corruption because it relies on morality-tested bishops and funds are mostly given to people whose situations and needs are well known - boots on the ground everywhere. I would much rather have organizations like this in charge of caring for the needy than the government. Not sure if it could happen politically.
As is the fate of many family groups, you often end up with some marginally functional members that you try to help keep their heads above water. In my case two are not blood relatives, but we effectively inherited the responsibility to provide assistance. With both being on disability and other benefits, the insanity of the means tested welfare systems becomes apparent.
People with the capacity to fully handle the attendant bureaucracy of our system are people that are smart enough to function just fine on their own and game the system. The people who truly need the help and are the most marginal are the people who the bureaucracy is most likely to screw over. Little errors become major problems like one of our cases where he had an part-time janitorial job and they gave him a pay increase with minimum wage increase, which shoved him above some cut-off and his benefits were cut off. It took months of interactions with the bureaucrats and cutting back the "part time" to get him back on the payment roles. He couldn't have got through the system on his own.
My sisters "effective" family member ended up with requiring a "special needs trust" to be able to maintain his basic support. The cost to set-up and maintain the trust used a non-insignificant percentage of his inheritance from my sister.
The complexity of the present system benefits the "smart" person who understands the bureaucracy and rules, but the truly marginal among us must depend upon others. There seems to be no thought of the observation that people abilities have a distribution and the people on the bottom 20% of mental capacity overlap with the people on the bottom 20% of the income distribution. We are demanding that these people with limited capacity work their way through bureaucracy that the median person (or even top 10% without support staff) would have trouble with.