Evan Soltas asked a question on Twitter regarding whether in-kind benefits (things like government-provided health insurance and food stamps) are better than cash benefits. There are all sorts of arguments about this. Konczal even tried his hand a general theory of this question a while back, which met mixed reception.
I think this question tends to be debated in very confusing ways, largely because people give some special significance to pretax incomes. So they, knowingly or unknowingly, take for granted that poor people are cash poor, and then try to decide what aid to provide them. But really poor people will be cash poor only if we decide to make them that way by adopting certain kind of distributive institutions rather than others.
In my view, the question of in-kind versus cash benefits is best analyzed by imagining two taxing moments:
- Starting with pretax incomes, levy the necessary taxes and provide the necessary cash transfers to arrive at a just cash distribution.
- Starting with the just cash distribution created by step one, levy a second round of taxes in order to fund in-kind benefits.
In practice, we probably can’t do this and may not want to either as it’s a bit unwieldy administratively. But it is worth imagining such a system conceptually. If your argument for taxing people to provide a particular in-kind benefit would fall down if you had to levy the tax at (2), then you (in ideal theory at least) should really support the cash transfer. When you conceptualize the question in this way, I think you end up much less likely to fall into the pretax income fallacy described above.
Now there certainly are times where you would, even after creating the just distribution, want to levy taxes to provide in-kind benefits. The government is very well-suited to provide a variety of universal services that you’d probably want to fund by taxing people, e.g. pensions, health insurance, and other social insurance. There are also of course the usual public goods (but those usually aren’t considered in the cash transfers v. in-kind benefit discussion anyways).