The Many Faces of Means-Testing
By Bryan Caplan
Isn’t a Universal Basic Income just another name for a negative income tax, such as Tax = -$10,000 + .3*Income? If so, isn’t a Universal Basic Income means-tested by definition?
The answer to the first question is Yes. UBI is just Milton Friedman’s negative income tax in new packaging.
The answer to the second question, however, is more equivocal. The UBI is means-tested in the weak sense that your net payment falls with income. But the UBI dispenses with many other traditional forms of means-testing. Most notably:
1. Means-testing by age. Most welfare states prioritize children and the elderly. The implicit theory is that, unlike prime-age adults, the very young and the very old are unable to provide for themselves.
2. Means-testing by dependents and marital status. Most welfare states prioritize single moms with minor children. The implicit theory is that single moms have reduced opportunities to work due to their family responsibilities.
3. Means-testing by health. Most welfare states prioritize the disabled. The implicit theory is that they’re not healthy enough to work.
4. Means-testing by job history. Most welfare states prioritize people who recently lost their jobs over people who have never worked, or lost their jobs a long time ago. The implicit theory is that the short-term unemployed are unlucky, while the long-term unemployed are lazy.
If your UBI proposal includes factors like these in its formula, it’s very hard to see what makes it a UBI.
If your UBI proposal dispenses with most or all these factors, then it is a distinctive reform indeed. But “distinctive” is a far cry from “good.”
Advocates correctly note that dropping multi-faceted means-testing reduces moral hazard: If your monthly payment doesn’t depend on your health, you have no reason to fake bad health.
But there is also an gargantuan disadvantage: Dropping multi-faceted means-testing greatly increases the number of eligible recipients. If perfectly able-bodied, childless adults are eligible for free money, plenty will take it – and many won’t work at all. Taxes on remaining workers have to rise to pay for them. This probably won’t create a “UBI death spiral,” but a milder sloth spiral definitely kicks in, especially over the longer run as stigma against idleness erodes. And the burden of supporting able-bodied non-workers is also very likely to cut into funding for the more deserving poor.
Frankly, given the bleak long-run fiscal forecast for the U.S., I’m baffled that anyone with libertarian sympathies takes the UBI seriously. The welfare state is already unsustainable, largely because our means-testing by age and health isn’t stringent enough. The elderly may have trouble working now, but since they had a lifetime to save for their own retirements, few of the indigent elderly are victims of circumstance. And given the huge long-run rise in the share of U.S. adults on disability despite rising health and less strenuous jobs, its clearly far too easy to plead disability.
What’s especially strange is that the bleak long-run fiscal forecast makes old-school libertarian austerity more relevant than ever. Why are so many libertarians running away from our core ideas when conditions are nearly ripe for mainstream America to finally listen to us?