Policy Shop: Transferring Cash to Poor People at the Local Level

New post at Policy Shop. Excerpt:

The real fascinating case, then, is the Montgomery County EITC. Because most local governments do not have their own income tax, a local EITC program seems impractical. But Montgomery County has gotten around this problem by piggybacking off of Maryland’s state EITC program. When a Montgomery County resident receives money from the state EITC, they get an additional EITC payment courtesy of Montgomery County (currently the additional payment is 72.5% of the state’s EITC payment). The state administers all of the disbursement and the county simply reimburses it for the costs.

Given the small-time nature of many local governments, this model seems like the kind of thing local activists concerned about inequality and poverty could actually replicate in many places other than Montgomery County. When you start to think about what you can actually do on a local level to advance economic justice — a far more difficult project than many realize — setting up a local EITC program should probably be near the top of your list.

Read the rest at Policy Shop.

Policy Shop: Is a Universal Basic Income Really Utopian?

New post at Policy Shop. Excerpt:

Moreover, a UBI is not unprecedented. It has been successfully implemented in a number of developing countries, including recently in rural India and Namibia. Additionally, the U.S. actually has a deep-cover UBI program that we call Social Security. It’s only for old people, so it obviously falls short of universal, but it is more or less a UBI for old people. And it has been super-effective: in the 35 years after 1960 — that being the year that Social Security payments began to rise significantly — we cut our elderly poverty rate from 35 percent to 10 percent, a 72 percent reduction.

Read the rest over at Policy Shop.

Just Give Everyone Food Stamps

The right-wing is getting riled up about food stamps, again. Sean Hannity even dedicated an entire hour to the food stamp program last week, with predictable messaging about how it is exploding and a scourge on the country. While the purpose of this manufactured outrage is to get rid of or dramatically shrink the food stamp program, I think a better move is to go in the opposite direction and just give everyone food stamps.

Before we get into that, some facts might be helpful. To be eligible for food stamps, your household needs to have a gross monthly income that is no more than 1.3x the poverty line, and a net monthly income that is no more than poverty line. For a family of four, that is a gross monthly income of $2,498 and a net monthly income of $1,921. Those that are eligible receive monthly benefits that vary based on how much need they have, and the average benefit last year was $133.41/month per person. The people on this program are hardly living large. Additionally, the program does not cost that much. Last year, the program cost $74.6 billion, which was 0.47% of GDP.

With that out of the way, we can get into why universal food stamps would be such a great idea. First, universal food stamps would make administration of the program so much simpler. Instead of having to detail all of your finances and long, complicated lists of deductions to get food stamps, the universal food stamp sign-up form would have only one question: are you a person? If you check yes, you get food stamps. If you check no, you still get food stamps. Simpler administration saves money that is spent figuring out whether people are sufficiently poor, which frees it up for more productive uses.

Second, when food stamps are universal, people will not lose benefits as they make more money, which means they will not have any incentive to avoid doing so. The way food stamp benefits are currently computed, every $1 increase in monthly income causes you to lose $0.30 in monthly food stamp benefits until you reach the cutoff point and lose benefits altogether. This means food stamp recipients face a marginal tax rate of 30 percent! That is not good for anyone, and so we should just get rid of the means-testing altogether, which a universal food stamp program would do.

Third, a universal food stamp program is totally affordable. Using the most recent population estimates and a $200/month per person benefit, we can calculate that the program would cost around $757 billion per year, or 4.8% of GDP. Of course, calling this a cost is a bit misleading: the money is really just being moved around. We would have to bump taxes to pay for it, but that tax revenue would get shot right back out for people to spend. The only direct losses would be the costs of administering the program.

Of course, once we have gone this far, it is fair to wonder why exactly the universal food stamp program should give out food vouchers instead of cash. Even the current food stamp program faces those objections. Indeed, a universal cash program would probably be better. After all, since money is fungible, food stamps are already basically cash. Getting food stamps allows someone to replace some of the money they were spending on food with the food vouchers, and thereby free up that money for other expenditures. Giving out money directly would be no different, and would also eliminate the “fraud” in the system, where “fraud” just means people explicitly trading food stamp credits for money instead of using the fungibility of money to do it in the indirect way the program allows.

The universal food stamp program — or universal cash program — would seem to be a sure winner. It will make administration easier, eliminate fraud, avoid the means-testing marginal tax rate problems, and give everyone assistance, not just the sufficiently poor. For a family of four, the program as described above would provide $9,600 of supplemental income each year, which would be a huge boon to their economic security and comfort, especially the poorest families.

Policy Shop: Cash Benefit Programs Are Not Really Government Spending

New post at Policy Shop. Excerpt:

Cash benefit programs are simply distributive institutions: they, along with our other economic institutions, determine which individuals get to spend money and how much. The government does not spend money on a cash benefit program, it just channels it to someone who spends it. The only coherent objection that can be raised against such a program is that the people the money is channeled to should not be entitled to spend it, that the money should actually be spent by other people. But this is a purely distributive argument. It is not a government spending argument, not even slightly. We should treat objections to cash benefit programs for what they actually are: complaints about the economic distribution that those programs usher in, not complaints about government spending.

Read the rest at Policy Shop.

Transfers really do work

A transfer is a cash (or cash-like) benefit that governments just distribute out to certain (or all) people. The United States has a variety of transfer programs. The Earned Income Tax Credit transfers money to low-income workers and their families. The Child Tax Credit transfers money to households with dependent children. SNAP transfers food vouchers to low-income people. Social Security transfers money to the retired. And so on.

It should be mentioned from time to time that transfers really do work. For instance, take a look at this fun, interactive post from last year showing how much transfers reduce the poverty rates in OECD countries. The short is that they reduce poverty rates a ton, and countries with the lowest post-transfer poverty rates tend to get there through substantial transfer programs.

A recent USDA report highlights the effects of a temporary increase in the amount of SNAP (aka food stamp) transfers. In 2009, the ARRA temporarily increased SNAP benefits by an average of 17 percent. The program is notoriously stingy, so this was not a dramatic increase. The highest possible increase was for families of four with a net monthly income of $980. Those families saw their benefits increase from $294/month to $374/month, a 27.2 percent increase. If such families ate three meals a day for a 30-day month, these expanded benefits would provide them $1.04 per person per meal.

The USDA tracked the impact of this benefit expansion on food insecurity. A food insecure household is one that has limited or uncertain access to food. People who skip meals because they cannot afford food, do not know whether they will have money for food in the coming days, and so on are food insecure. To determine the impact on food insecurity, the USDA modeled what food insecurity would have been without the benefit increase based on past data. Because 2009 and the years subsequent were in the throes of a massive recession and economic downturn, that model predicted a substantial rise in food insecurity.

That substantial rise did not come. Against the model’s baseline, food insecurity significantly decreased for the SNAP-eligible:

The percentage of likely SNAP-eligible households that were food insecure was 2.2 percentage points lower than expected in late 2009, after adjusting for changes in income, employment, other household characteristics, and food prices. The corresponding improvement for very low food security was 2.0 percentage points.

The improvements in food security rates in 2009 correspond to about 530,000 fewer food-insecure households and 480,000 fewer households with very low food security than would have been expected considering economic and demographic changes from 2008 to 2009. These represent reductions of about 8 percent and 17 percent, respectively.

The USDA went on to do the same modeling and sampling for households that were just above the SNAP cutoff, i.e. households who did not get benefits but were close to getting them. Those households saw no decrease in food insecurity. In fact, those households had rates of food insecurity higher than the model predicted even when taking into consideration the state of the economy.

This is all to say that transfers clearly do work. There were a half million fewer food-insecure households and a half million fewer very food-insecure households over the last few years owing to a fairly modest boost in transfers. We can easily do more of these transfers and we clearly should.