Not a Surprise

Here is an interesting analysis which shows that universal benefits cost less than those which are means tested. This won’t make a difference, of course, because a the Republicans are dedicated to eliminating those benefits completely, and the Democratic Party is dedicated to supporting the lifestyles of the petty bureaucrats who administrate these means tests.

It does mean that when progressives lobby for any improvement to the social safety net though, they should be less amenable to compromising on means testing:

In 1998, Walter Korpi and Joakim Palme published “The Paradox of Redistribution and Strategies of Equality: Welfare State Institutions, Inequality, and Poverty in the Western Countries.” The paper aimed to tackle the argument that targeting welfare programs to those with low market incomes reduces inequality and poverty more than not targeting them in that way.

In their response, Korpi and Palme accept the basic math of the “targeting efficiency” claim, but argue that it fails to consider the political effects such targeting has on support for increasing the size of the welfare budget. If (1) big, non-targeted welfare states reduce inequality and poverty more than small, targeted welfare states, and (2) targeting causes welfare states to be small, then (3) targeting is actually worse for inequality and poverty than not targeting.

………

But Korpi and Palme’s paper makes a key mistake that few have taken note of. In fact, once this mistake is understood, the whole argument of the paper and the discourse it spawned becomes moot.

Korpi and Palme accept the idea that, for a given welfare budget, targeted programs reduce inequality and poverty more than non-targeted programs. This claim is not true and the seemingly irrefutable math underlying it is based on accounting games.

My preferred way to dissect the “targeting efficiency” argument is to imagine two people sitting at a table, one an advocate of non-targeted programs (aka universalism) and the other an advocate of targeted programs (aka means-testing). A piece of paper is given to each of them with the following challenge:

  • Design a tax policy that raises exactly $100 billion of revenue. No additional taxes allowed.
  • Design a cash welfare program for kids that costs exactly $100 billion. No additional spending allowed.
  • The tax and welfare policy combination that reduces poverty and inequality the most wins.

The universalist, being a universalist, naturally decides to take the $100 billion, divide it by the number of kids in the society, and then pay out the resulting dollar amount to every kid. Based on the universalist’s math, this is equal to $3,000 per kid.

The means-tester, being a means-tester, takes a different approach. Rather than providing $3,000 to each kid, the means-tester decides to provide $6,000 per kid except that kids living in families earning more than $50,000 per year will receive 5 cents less than the $6,000 benefit for every dollar they earn beyond $50,000.

After a few minutes, each reveals their welfare policy to the other. The means-tester starts to smile and states triumphantly that his welfare policy provides twice as much benefit to poor and low-income kids as the universalist’s welfare policy. Since the universalist and means-tester have the same tax policy, this difference in the welfare policy makes the means-tester the winner of the challenge.

After seeing the means-tester’s welfare policy, the universalist immediately begins to revise both of his policies. He adds a second line to his tax policy that says “5% surcharge tax on earnings beyond $50,000 for tax units with children, up to $6,000 of tax per child.” He changes his welfare policy so that the $3,000 per kid benefit is increased to $6,000 per kid.

Of course, that 5% reduction in benefits for families making more than $50K is a tax just as much as is the tax that the universal policy proposes.

Both are using the power of the state to extract an identical amount of money from exactly the same people.

Of course, our polity does not view it that way. In their view, one is a tax, and one is a spending reduction, and it is this illogical and false position, what Stephen Colbert would call, “Truthiness,” that drives our political discourse.

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