An approach to wiping out American poverty

There are growing discussions about the viability of Universal Basic Income as a way to combat poverty and to stimulate new types of economic growth (i.e. startups and small business). But in any of these conversations, we quickly get to the question of how to pay for UBI. The default answer (and a non-starter for most fiscal conservatives) is that it requires some sort of wealth redistribution mechanism such as increased taxes. Which is why this treatment of the topic by Dylan Matthews, writing for Vox, is so interesting.

If you’re not willing to entertain big tax increases, then you should be thinking about a negative income tax. That’s the term used for a universal basic income that tapers off with income. So a negative income tax of $10,000 for adults and $5,000 for children, and a 50 percent phaseout rate, for example, would offer a family of four with $0 in earnings benefits worth $20,000; if they started earning $10,000 in wages, the benefits would fall to $15,000, for a total income of $25,000; by the time they earned $40,000 in wages, they’d be getting no basic income payment at all. A negative income tax is just a UBI financed in part by a somewhat regressive tax on the first chunk of earnings people make, and because of that tax, its net price tag is much lower.

A negative income tax sidesteps the issue with UBI of paying people a basic income who don't need it - like paying Warren Buffet a basic income on top of his massive wealth.

Wiederspan, Rhodes, Shaefer, 2015 In an absolute must-read paper for anyone interested in the basic income debate, the University of Michigan’s Jessica Wiederspan, Elizabeth Rhodes, and Luke Shaefer estimated the cost of the US adopting a negative income tax large enough to wipe out poverty. To be conservative and get a high-end cost estimate, they assume that such a program would discourage work substantially.

Okay, so the cost of people not working is factored into the program. Check.

Despite that, they find that a household-based negative income tax, set at the US poverty line and with a 50 percent phaseout rate, would cost $219 billion a year. That’s almost exactly the same as the combined cost of the earned income tax credit (which supports the working poor), Supplemental Security Income (itself basically a negative income tax but only for the elderly and disabled), food stamps, cash welfare, school meal programs, and housing subsidies. You could swap those programs out, put a guaranteed income in their place, and wipe out poverty entirely.

And there we have it. This analysis shows that if we use the money we're already paying on programs for the poor, we could eradicate poverty in our country. Seems like a good thing to do.