Tag Archives: income

Were 401(k) Plans Just a Big Mistake?

by ChelseaGaertner Posted on January 3, 2017

Mother Jones

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The Wall Street Journal ran a piece yesterday about the folks who (accidentally) created the 401(k) retirement plan. They aren’t happy with their creation:

Many early backers of the 401(k) now say they have regrets about how their creation turned out despite its emergence as the dominant way most Americans save. Some say it wasn’t designed to be a primary retirement tool and acknowledge they used forecasts that were too optimistic to sell the plan in its early days.

Others say the proliferation of 401(k) plans has exposed workers to big drops in the stock market and high fees from Wall Street money managers while making it easier for companies to shed guaranteed retiree payouts.

The Journal piece is accompanied by the chart on the right, showing the decline of the personal saving rate over the past few decades. It looks pretty bad. Just as old-style pensions were going away, Americans were saving less and less, including their savings in 401(k) accounts. Retirement is now a hellhole, just a grim march from retirement to death subsisting on cat food.

But let me show you another chart. There’s more than one way to save, it turns out. For example, you can build up equity in your home. And as housing prices have risen over the past several decades, so has total personal wealth:

Even this number is down since the 80s, but a drop from 103 percent to 98 percent doesn’t seem all that scary, does it? And it’s worth remembering that housing wealth has long played a role in retirement, as retired homeowners either sell their houses, downsize their houses, or take out a reverse mortgage on their houses.

Now, this hardly tells the whole story. The truth is that there are good and bad aspects to both old-style pensions and 401(k) plans. Here are a few:

Most people vastly overestimate how generous those old-style pensions were. Half of Americans never got them at all, and most of the rest got modest pensions. The exceptions were public-sector workers and some unionized workers.
That said, old-style pensions were most likely distributed a bit more evenly than 401(k) wealth, which is skewed toward the wealthy. But the difference probably isn’t huge. Unfortunately, there’s no reliable data that tells us for sure.
Overall pension wealth hasn’t changed much. It was about 13 percent of total wages in 1984 and it’s about 13 percent today.
Early 401(k) plans largely bypassed the poor and working class. However, changes made in 2006 have increased the retirement saving rate among the young and the low-income. It’s probably the case that more low-income workers are saving for retirement today than ever in history.
401(k) plans are more vulnerable to stock market shocks. However, the 2006 changes included a provision that encourages employers to offer “lifecycle” funds, which become less volatile as workers get older. Hopefully this will become close to universal in the future.
The bottom third of the income spectrum is screwed now and always has been. Neither old-style pensions nor 401(k) plans have ever helped them much, and they rely almost entirely on Social Security. We should increase Social Security payouts for these folks.

I’ve written about this in more detail before, most recently here. Advantages of 401(k) plans over traditional pensions are here. The bottom line is that 401(k) plans aren’t perfect, and we could stand to make more changes to them. I’d like to see hard caps on management fees, for example. Nonetheless, on average, old-style pensions weren’t all that great either, and 401(k)s are getting better. I’m all for further reforms, and I’m all for expanding Social Security for the bottom third. But taken as a whole, 401(k) plans aren’t bad, and as the 2006 reforms continue to make a difference, they’re going to get better.

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Were 401(k) Plans Just a Big Mistake?

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Why Are Children Less Likely to Earn More Than Their Parents These Day?

by JimIrons2455760 Posted on December 12, 2016

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Even by my standards, the blog has been pretty chart heavy lately. I’m not sure why, but I think it’s to take my mind off the unfolding disaster of Donald Trump. Muddling around in Excel seems pretty soothing by contrast.

(I mean, Trump just told us he’s not going to bother with intelligence briefings at all because “I’m, like, a smart guy.” And as near as I can tell, the entire political class of the country hasn’t exploded en masse. WTF is going on here?)

Ahem. You see the problem? So let’s go back to charts. Recently a team of economists led by Raj Chetty finished a groundbreaking bit of census research that compared incomes of parents at age 30 to their children at age 30. What they found was that children who reached age 30 in 1970 were 91 percent likely to have higher incomes than their parents. However, children who reached age 30 in 2010 were only 50 percent more likely to have higher incomes than their parents.

Why the decline? To demonstrate the answer, I have two charts for you. Here they are, with explanations below:

The chart on the left shows mean real incomes over the past eight decades. The orange lines indicate a guesstimate of standard deviation as a proxy for income inequality. If I keep that standard deviation constant through the years (at about one-third of income), the number of children we’d statistically project to have higher incomes than their parents goes down from 91 percent to 74 percent. The decline is due to the fact that incomes are growing more slowly than they used to.

The chart on the right is identical, except it uses the figures that Chetty’s team came up with based on real-life parents and children. The number of children who actually have higher incomes than their parents declined from 91 percent to 50 percent.

In other words, although some of the effect is due to slow income growth, much more of it is due to something else. And that something else is growing income inequality. Here is Chetty’s chart (note that he uses birth years rather than age-30 years):

The dotted green line shows what reality would be like if income inequality hadn’t gone up. The dotted pink line shows what reality would be like if incomes had continued to grow at their postwar rate. They both make a difference, but income inequality makes a bigger difference.

Now then, since Chetty has a perfectly good chart, why did I bother producing a different one? And not just different, but arguably more confusing than Chetty’s. It’s because I was a little skeptical of Chetty’s results and wanted to work out some things for myself. Gotta do something to keep from thinking about Donald Trump, after all.

But when I was done, my statistical guesses matched Chetty’s empirical figures pretty closely. So I shrugged, and then, having done all this work, I figured I might as well share it. Maybe it just makes things more confusing or maybe it helps. Who knows? But I have to do something to keep from jumping off a ledge, don’t I?

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Why Are Children Less Likely to Earn More Than Their Parents These Day?

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New Study Says Rising Inequality Is Killing the Economy

by RayIokkidgk Posted on September 29, 2016

Mother Jones

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Non-rich people tend to spend 100 percent of their income, or close to it. Rich people don’t. They spend, say, 50 percent of their income and save the rest. This difference is called the “marginal propensity to consume,” and it seems like it might be a problem if income inequality is rising. The problem is that as rich people get a larger share of total income, total consumption goes down. Here’s an example:

The question, of course, is how big the MPC effect is. Several years ago I investigated this and concluded that it really wasn’t very big. It seems like it should be, but it just wasn’t.

Today, however, Larry Summers directs our attention to a new IMF paper that suggests MPC actually does have a big impact. The authors look at two effects. First, as middle-income families fall into lower income groups, they spend less. Second, as a larger share of income goes to the rich, average MPC goes down. Both of these effects reduce total consumption, which in turn acts as a drag on the economy. Here’s the relevant chart:

MPC alone reduces consumption by nearly 2 percent, or roughly $200 billion per year. This is still not a gigantic effect, but it’s noticeable. And when you add in the direct spending effect of income polarization, it’s closer to $400 billion per year. That means we’re losing a lot of consumption—which we need—and gaining a lot of capital—which we don’t. The world is so awash in capital these days that you can (literally) hardly give it away.

Now, the authors use some novel estimating techniques in their paper, which is why they come up with a stronger effect than previous studies. The folks with PhDs will have to fight over whether they’ve done their sums correctly. But if they have, it means that increasing income inequality is a lot more than just a matter of unfairness. It’s also a real drag on economic growth.

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New Study Says Rising Inequality Is Killing the Economy

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Hillary Clinton Wants to Raise Taxes on Wealthy Heirs

by Jim Thorpe Posted on September 23, 2016

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Hillary Clinton has proposed an increase in the estate tax:

Democratic presidential candidate Hillary Clinton would levy a 65% tax on the largest estates….generate $260 billion over the next decade, enough to pay for her plans to simplify small business taxes and expand the child tax credit….The Clinton campaign changed its previous plan—which called for a 45% top rate—by adding three new tax brackets and adopting the structure proposed by Sen. Bernie Sanders of Vermont during the Democratic primaries. She would impose a 50% rate that would apply to estates over $10 million a person, a 55% rate that starts at $50 million a person, and the top rate of 65%, which would affect only those with assets exceeding $500 million for a single person and $1 billion for married couples.

But but but, capital formation! Where will the American economy manage to dredge up any capital if we raise taxes on billion-dollar estates? Plus, as the straight shooters at the Wall Street Journal editorial page point out, there’s inflation. Using current dollars, a decade from now that top rate of 65 percent will apply to married couples with a mere $900 million in taxable assets. Surely we can’t be serious about this?

And how many people does this affect? Well, in 2014 there were a grand total of 223 estates worth $50 million or more. Given the power-curve nature of income, this suggests that there were maybe, oh, five estates worth $500 million. That’s something on the order of a thousand rich kids who will have to pay 15 percent more than the current top rate and maybe a dozen or so who would pay 25 percent more. Those dozen or so would inherit a mere $350 million instead of $600 million. That’s a grim fate, to be sure, but I suppose they’ll manage to soldier on.

As for all those farmers and family businesses who will be devastated? Forget it. There aren’t any—unless you consider the Trump Organization to be a small family business.

As with most policy proposals in this campaign, this is more for show than anything else. A Republican Congress won’t take up the estate tax again. Still, it’s designed to show whose side Hillary Clinton is on, and it does a pretty good job of that.

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Hillary Clinton Wants to Raise Taxes on Wealthy Heirs

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Obamacare’s Latest Problem is Real, But Not Fatal

by VeroniqKimball Posted on August 31, 2016

Mother Jones

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Here’s a funny thing. Conservatives have spent the past five years pointing to a long litany of alleged problems with Obamacare and gleefully predicting that each of them would lead to its downfall. They never did, either because the problems weren’t even problems, or because they were pretty small beer and didn’t really have any effect. Nonetheless, every month or two brought yet another harbinger of doom for Obamacare.

So you’d think they’d be over the moon at the moment, now that Obamacare really does appear to be facing a serious problem. Even liberals are worried about large insurers like Aetna and United Healthcare abandoning the exchanges, leaving some regions with only a single monopoly insurer. But conservatives aren’t really saying much about this. It’s kind of odd.

Maybe it’s because they’re all too freaked out by Donald Trump. I don’t know. Still, there are some who are noticing the problem and predicting the eventual demise of Obamacare. Here’s Megan McArdle:

Unfortunately, while basically everyone in the country thought that the U.S. health care system was as messed up as a party-school group house on graduation day, most people actually liked whatever coverage they had. That created a political bind: No reform could pass if it seemed to shrink any of the existing major markets in any significant way. Expanding everything would cost a boatload of money and make taxpayers freak out, so the architects of Obamacare finessed this problem with a combination of:

Opaque rules.
Disingenuously optimistic promises such as, “If you like your plan you can keep it.”
Weak versions of unpopular measures needed to make the law work, such as paltry penalties for failing to buy health insurance.
Not touching the wildly inefficient profusion of programs.

All that stuff is what has left Obamacare where it is. The dishonesty was exposed. The weak versions of European measures failed to encourage the behavior changes needed to make the system work. And the fact that every other program was left in existence, largely untouched, created new ways for patients and consumers to game the rules to get maximum reimbursements for minimum expenditure.

None of these are actually operational problems with Obamacare except for the third one. But here’s the thing: last year was the first time people actually got hit in the face with the prospect of a penalty for not having insurance. And McArdle is right: it was too small to motivate people to change their behavior—especially all those young healthy folks that insurers want. $325 for a single adult just wasn’t enough.

But this year the penalty was $695. Next year, it will be either $695 (plus a bit for inflation) or 2.5 percent of your income. For someone making, say, $30,000, that’s $750.

Is that enough? Hard to say. If your income is low, it’s more than the cost of insurance, so you might as well just get the insurance. If your income is a little higher, then it’s true that you can save money by just paying the penalty. But the net cost of insurance is probably only about $1,000 more than the penalty. Once this starts to sink in, a lot of young folks are probably going to conclude that for a hundred bucks a month they might as well sign up.

It will be a few years before we know for sure. In the meantime, it’s clear that insurers screwed up pretty badly in their initial estimates of how much it would cost to insure the typical Obamacare pool. They shoulda listened to the CBO. Still, here’s the thing I don’t get: the obvious response to insurers losing money is twofold. First, some insurers will abandon the market. Second, the surviving insurers will probably raise their prices. This is how competitive markets work. It’s messy and inconvenient, but in the end it all settles down.

The only thing that would prevent this is some kind of death spiral, as rising prices cause even more healthy people to stop buying insurance and instead just pay the penalty. This isn’t impossible. But prices won’t rise at all for low-income buyers, and are capped at 9.5 percent of income for most others. So there’s a limit to just how far this can go, even in theory.

Maybe I’m letting partisan views blind me to the scope of this problem. But I think this is a problem that Obamacare will survive. Prices will go up over the next couple of years. My guess is a rise of around 20-25 percent or so. As the penalties sink in, more young people will sign up. The most efficient insurers will remain in the market and become profitable. And yes, there will probably be individual counties here and there that have only one insurer, or even no insurers in a handful of cases.

In other words, it won’t be health care nirvana. But it will work. The end is still not nigh.

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Obamacare’s Latest Problem is Real, But Not Fatal

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Don’t Worry Super-Rich, Paul Ryan’s Tax Plan Still Has Your Back

by GrazynaMcWilliam Posted on June 24, 2016

Mother Jones

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House Republicans rolled out a roadmap for tax reform Friday that drastically cuts corporate taxes and benefits high-income taxpayers—but not nearly as much as the plan proffered by the party’s presumptive presidential nominee, Donald Trump.

House Speaker Paul Ryan unveiled the GOP proposal—the sixth and final policy blueprint that the House GOP has issued this month under Ryan’s direction—at a news conference in Washington. The plan would slash corporate rates from the current 35 percent to 20 percent and lower the top individual rate from 39.6 to 33 percent. (Trump has proposed cuts to 15 and 25 percent, respectively.) The blueprint also eliminates the estate tax, long a target of Republicans in Congress, and lowers the tax rate on income from investments.

“The way I’d sum it up is: We want a tax code that works for the taxpayers—not the tax collectors,” Ryan said. “We want to make it simpler, flatter, fairer…Make it so simple that the average American can do their taxes on a postcard.”

Since taking the House in 2011, Republicans have repeatedly promised to overhaul the tax system, which hasn’t seen a major update since 1986. But they have stumbled over a political roadblock: Every major deduction or tax credit has a devoted constituency who would be enraged were it to be eliminated. The last comprehensive Republican proposal was submitted in 2014 by retired Rep. Dave Camp (R-Mich.), former chairman of the House Ways and Means Committee. His scheme varied significantly from the new blueprint. It lowered the corporate rate to 25 percent rather than 20 percent and cut the top individual rate just to 35 percent, while at the same time sacrificing popular deductions on charitable giving and mortgage interest. It failed to attract much support within the party and never received a vote.

The new blueprint is more circumspect, maintaining the mortgage and charitable deductions, as well as the Earned Income Tax Credit, a key poverty-fighting tool, and a deduction for spending on higher education. It leaves it to the Ways and Means Committee to reform these programs. Otherwise, the plan makes an effort to simplify the system, replacing itemized deductions with a higher standard deduction and eliminating most business tax breaks. It also reduces the number of income tax brackets from seven to three.

It is not yet clear whether the plan would add to the deficit. But as Howard Gleckman of the nonpartisan Tax Policy Center writes, “It is hard to imagine how these tax cuts could pay for themselves.” The House GOP’s scheme is bound to cost less than Trump’s tax cuts. Experts estimate that the presumptive nominee’s plan would shrink revenues by $9.2 trillion over 10 years, forcing draconian cuts in government spending.

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Don’t Worry Super-Rich, Paul Ryan’s Tax Plan Still Has Your Back

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Is Bernie Sanders Just the Latest Goo-Goo Candidate?

by ReganRojas Posted on May 2, 2016

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Jonathan Chait argues that the appeal of Bernie Sanders isn’t truly rooted in his ideology:

It is certainly true that Sanders pushed the debate leftward, by bringing previously marginal left-wing ideas into the Democratic discussion….But to understand the Sanders campaign as primarily a demand for more radical economic policies misses a crucial source of his appeal: as a candidate of good government.

American liberalism contains a long-standing tradition, dating back to the Progressive Era, of disdain for the grubby, transactional elements of politics….Candidates who have fashioned themselves in this earnest style have included Adlai Stevenson, Eugene McCarthy, George McGovern, Jimmy Carter, Gary Hart, Jerry Brown, Howard Dean, and Barack Obama. These candidates often have distinct and powerful issue positions, but their appeal rests in large part on the promise of a better, cleaner, more honest practice of politics and government.

I’ve made much the same argument myself, so you’d think I’d agree with Chait. But after hearing from a lot of pissed-off Bernie supporters over the past few days, I’m not so sure anymore. For example, here is Ryan Cooper explaining why non-Boomers like Bernie’s ideas:

Though I can’t speak for everyone, I’d wager that young people are attracted to those ideas because they know what it’s like to graduate with a crushing load of student debt or to have a baby in a country with no paid leave but which also expects both parents to work full-time. Or maybe they can just feel that the bottom half of the income ladder is getting a raw deal. They’re not idiots in thrall to a political charlatan.

I’ve gotten an awful lot of responses like this. The gist is usually a combination of (a) my “statistics” about the state of the economy are totally bogus, and (b) I’m too fat and contented to understand what life is like for anyone less fortunate than me. But here’s the thing: most of these responses seem to come from folks who themselves have student debt or low incomes. There’s nothing wrong with that, and I’d fully expect these folks to appreciate Bernie’s message. But they’re not arguing for good government, they’re arguing for policies that would help them personally. That’s your basic transactional politics, no matter how you dress it up.

POSTSCRIPT: I think Cooper is very, very wrong about the history of health care reform too, but I’ll leave that for another time.

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Is Bernie Sanders Just the Latest Goo-Goo Candidate?

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Here’s Why I Never Warmed Up to Bernie Sanders

by SarahMarquardt Posted on April 29, 2016

Mother Jones

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With the Democratic primary basically over, I want to step back a bit and explain the big-picture reason that I never warmed up to Bernie Sanders. It’s not so much that he’s all that far to my left, nor that he’s been pretty skimpy on details about all the programs he proposes. That’s hardly uncommon in presidential campaigns. Rather, it’s the fact that I think he’s basically running a con, and one with the potential to cause distinct damage to the progressive cause.

I mean this as a provocation—but I also mean it. So if you’re provoked, mission accomplished! Here’s my argument.

Bernie’s explanation for everything he wants to do—his theory of change, or theory of governing, take your pick—is that we need a revolution in this country. The rich own everything. Income inequality is skyrocketing. The middle class is stagnating. The finance industry is out of control. Washington DC is paralyzed.

But as Bill Scher points out, the revolution that Bernie called for didn’t show up. In fact, it’s worse than that: we were never going to get a revolution, and Bernie knew it all along. Think about it: has there ever been an economic revolution in the United States? Stretching things a bit, I can think of two:

The destruction of the Southern slave economy following the Civil War.
The New Deal.

The first of these was 50+ years in the making and, in the end, required a bloody, four-year war to bring to a conclusion. The second happened only after an utter collapse of the economy, with banks closing, businesses failing, wages plummeting, and unemployment at 25 percent. That’s what it takes to bring about a revolution, or even something close to it.

We’re light years away from that right now. Unemployment? Yes, two or three percent of the working-age population has dropped out of the labor force, but the headline unemployment rate is 5 percent. Wages? They’ve been stagnant since the turn of the century, but the average family still makes close to $70,000, more than nearly any other country in the world. Health care? Our system is a mess, but 90 percent of the country has insurance coverage. Dissatisfaction with the system? According to Gallup, even among those with incomes under $30,000, only 27 percent are dissatisfied with their personal lives.

Like it or not, you don’t build a revolution on top of an economy like this. Period. If you want to get anything done, you’re going to have to do it the old-fashioned way: through the slow boring of hard wood.

Why do I care about this? Because if you want to make a difference in this country, you need to be prepared for a very long, very frustrating slog. You have to buy off interest groups, compromise your ideals, and settle for half loaves—all the things that Bernie disdains as part of the corrupt mainstream establishment. In place of this he promises his followers we can get everything we want via a revolution that’s never going to happen. And when that revolution inevitably fails, where do all his impressionable young followers go? Do they join up with the corrupt establishment and commit themselves to the slow boring of hard wood? Or do they give up?

I don’t know, but my fear is that some of them will do the latter. And that’s a damn shame. They’ve been conned by a guy who should know better, the same way dieters get conned by late-night miracle diets. When it doesn’t work, they throw in the towel.

Most likely Bernie will have no lasting effect, and his followers will scatter in the usual way, with some doubling down on practical politics and others leaving for different callings. But there’s a decent chance that Bernie’s failure will result in a net increase of cynicism about politics, and that’s the last thing we need. I hate the idea that we might lose even a few talented future leaders because they fell for Bernie’s spiel and then got discouraged when it didn’t pan out.

I’ll grant that my pitch—and Hillary’s and Barack Obama’s—isn’t very inspiring. Work your fingers to the bone for 30 years and you might get one or two significant pieces of legislation passed. Obviously you need inspiration too. But if you don’t want your followers to give up in disgust, your inspiration needs to be in the service of goals that are at least attainable. By offering a chimera instead, Bernie has done the progressive movement no favors.

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Here’s Why I Never Warmed Up to Bernie Sanders

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Chart of the Day: Hillary and Bernie Duke It Out on Soda Taxes

by LJZGregory Posted on April 23, 2016

Mother Jones

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Finally we have a real difference between Hillary and Bernie. Hillary supports Philadelphia’s proposed tax on sugary drinks of 3 cents per ounce. Bernie doesn’t. “A tax on soda and juice drinks would disproportionately increase taxes on low-income families in Philadelphia,” he said on Thursday.

Clearly this requires data. First off: how much of this tax would be passed on to consumers? The conventional wisdom is that most of it would, but a recent study out of Cornell suggests the real pass-through is much lower. The authors looked at prices of sugary drinks in Berkeley, which passed a 1-cent soda tax in 2014, both before and after the tax was implemented. Then they compared this to the before-and-after price of the same drinks in San Francisco, which voted in favor of a soda tax but not by the supermajority it required. The net difference is shown in the chart below:

The Snapple outlier is unexplained. Apparently 100 percent of the tax got passed through to Snapple addicts. But for most sugary drinks, only a fraction of the tax was passed through. Overall, after doing a bit of fancy math, the authors conclude that an average of 22 percent of the tax was passed through for Coke and Pepsi products.

So how would this affect Philadelphia? A Gallup poll confirms Bernie’s general concern: low-income consumers are more partial to sugary drinks than high-income consumers, who prefer diet drinks. A recent NIS study concluded the same, and put some numbers to it. Using their data, I figure that a low-income family of three buys about 3,000 ounces more sugary soda per year than a higher income family. If 22 percent of the 3-cent tax is passed through, that’s 0.66 cents per ounce, or about $20 per year for the entire family.

So yes, this is a regressive tax. On the other hand, it’s also a pretty small tax, and the potential benefits are large if it cuts down on consumption of sugary soda and thus reduces the incidence of diabetes—a disease that’s especially widespread among low-income families. But does it? Since we have virtually no real-world experience with this, nobody knows for sure.

So make up your own mind. It’s possible to calculate a ballpark estimate of how much a soda tax would amount to, and although it’s regressive, it’s pretty modestly regressive. But we have no idea whether it would accomplish anything. We can only try and find out.

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Chart of the Day: Hillary and Bernie Duke It Out on Soda Taxes

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Is It Finally Time For a UBI?

by Leesa78508779713 Posted on April 20, 2016

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UBI is having a moment. Not a big moment, mind you, but a moment nonetheless. Why?

UBI stands for Universal Basic Income, and it’s just what it sounds like. It guarantees everyone, rich and poor alike, a certain minimum cash income and replaces the alphabet soup of current welfare programs. No more food stamps. No more Section 8. No more unemployment compensation.

On the right, UBI got a boost a few years ago from Charles Murray, who championed the idea in his book In Our Hands: A Plan To Replace The Welfare State. On the left, the rise of Bernie Sanders has given it a bit of new momentum, even though it’s not part of Bernie’s campaign platform. It’s also gotten some attention thanks to planned experiments in Finland and the Netherlands, and a referendum for a national UBI in Switzerland this summer. On his Freakonomics podcast last week, Stephen Dubner suggests it’s “an idea whose time finally may have come.”

So what are the pros and cons? Here’s a quick, extremely non-exhaustive rundown.

THE GOOD

#1: A UBI eliminates bad work incentives.

There’s a problem inherent with all means-tested welfare benefits: they phase out as you make more money. Suppose you make $15,000 per year, and above that point you lose 50 cents of welfare benefits for every dollar you earn. This means that working more hours or taking a more challenging job doesn’t pay much. On net, a raise of $5,000 per year only gets you $2,500 of actual compensation. This reduces the incentive to work harder in order to escape poverty. But a UBI is different: Since you continue to receive a UBI no matter what your income, it has no effect on work incentives.

#2: A UBI reduces admin costs.

Means-tested programs all have to be administered, and that costs money. A UBI reclaims nearly all of that. The government just sends out a monthly check to every citizen, and that’s it. Admin costs are minuscule.

#3: A UBI allows the poor to live freer lives.

Poor people no longer have to endure a demanding gauntlet of welfare offices and complicated forms. They don’t have to prove their income is low, or that they have kids, or that they’re actively looking for work. Nor do they have to accept only the specific forms of welfare the government feels like giving them. They just get a check every month, and they can spend it as they please.

THE BAD

#1: It costs a fortune.

A reasonable UBI would probably amount to about $10,000 per year, which works out to a total cost of $3.2 trillion. Of course, we’d also eliminate lots of welfare payments, so the net cost would be less than that. But even accounting for that, it would probably require the federal income tax to be doubled or tripled. That’s a pretty tough sell.

#2: It can’t replace everything.

You can—barely—live on $10,000 per year. But that won’t pay for health care. It won’t pay for public schools for our kids. We’ll still have to keep some welfare programs around even with a UBI. On the plus side, as long as these programs are universal, they generally retain the benefits of a UBI: low admin costs and no bad work incentives.

#3: What about children?

This is tricky. Option A is to simply include them like everyone else. But this provides a substantial incentive to have children in order to get their UBI, and that’s not something most voters are likely to accept. Option B is to give children a smaller UBI than adults. But would that be enough to provide for them properly? Nobody wants kids to suffer because their parents are poor. How do you ensure that?

#4: What about the elderly?

Should retirees be folded into the UBI? If so, their pensions would be quite a bit lower than they are now. If not, we’d basically be guaranteeing a higher UBI for old people than for young people. Would that seem fair to most people?

#5: Money is a sadly vulnerable commodity.

It’s an unfortunate but painful truth that poor people are often vulnerable to having cash taken away from them. It can be stolen, of course, but more likely it’s simply confiscated by someone they’re living with. This is obviously a problem with earnings of all kinds, but one advantage of existing welfare programs is that it provides a minimum floor to this. A drunk and abusive husband can’t take away your Section 8 voucher or your food stamps or your Medicaid in order to blow it on beer and smokes.

This is just the briefest outline. And it may be that in the near future we no longer have much choice about this anyway. As robots take away more and more jobs, a UBI may be the only realistic answer to a nation full of robots that can replace low-skill workers at almost no cost. If we get to a point where a substantial number of people flatly don’t have the skills to perform any job for any wage, what are we going to do? The most likely answer is that we’ll end up with a UBI whether we like it or not. And that makes it worth thinking about right now.

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Is It Finally Time For a UBI?

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