On cutoff points

Kevin Milligan muses about a Guaranteed Annual Income, in the process acknowledging at least some economic arguments for universality as part of a tradeoff between cost and progam incentives. But while I'm glad to see the discussion continue, there's room for argument both as to how Milligan characterizes the GAI proposal, and as to what the political results of his mooted plan would likely be.

Here's how Milligan describes his model for a GAI:

The idea of a GAI is quite simple. Everyone receives a transfer from the government of some fixed amount. This transfer is ‘clawed back’ with every dollar of income received. This structure leads to benefits and income that look like the illustrative graph attached to this article, assuming a $10,000 initial transfer and a 25 per cent clawback rate.

Now, there are some very positive aspects of that type of proposal, including in particular the smooth path for benefits at all points on the covered income scale. But there's a serious problem in describing such a program as "universal".

On one hand, such a GAI could be administered separately from the income tax system so that it serves solely to transfer money to people on the basis described by Milligan. But it should be obvious in that case that the program stops well short of universality, with benefits going only to those making $50,000 or less - meaning that there are bound to be issues in creating a large number of people who perceive themselves as not participating in the plan.

On the other hand, the 25% clawback rate could be integrated with the income tax system (which would presumably make for the kind of flat tax that the right would absolutely love). But while that could be seen as "universal" in a sense, it would also loom as a powderkeg due to the complete lack of overlap between people paying into the system and those who receive any benefits from it.

Mind you, I can understand that from an economist's perspective, the best possible system is one which minimizes the number of transfers that take place - making that division look like an ideal outcome. But again, the long-term political ramifications of pitting a class of payors against a class of recipients would make such a plan a recipe for disaster down the road.

Which doesn't mean that a GAI-type system shouldn't receive plenty more consideration (preferably with a smooth benefits curve that never entirely cuts off). But I'd argue that Milligan's GAI falls short of being politically sustainable - and shouldn't serve as anybody's idea of a universal program.