Reappraisal of Negative Income Tax and Employment-Subsidy Approaches to Reforming Welfare

摘要

This paper reappraises the Negative Income Tax (NIT) and unemployment - subsidy approaches to welfare reform. There is a growing recognition that job - guarantee programs command more popular support than income - guarantee programs. In a 1972 national poll, 72 percent of the respondents favored a guaranteed job plan, while only 38 percent favored a guaranteed income plan. Given the political difficulties associated with undertaking grand reforms and improvements in the current system, some analysts now favor an incrementalist strategy. They argue that relatively minor changes in the food stamp and AFDC (Aid to Families with Dependent Children) programs and adoption of national health insurance would bring about a reasonable NIT - oriented transfer system. But opponents of this strategy cite the current system's high administrative costs, horizontal inequities, and excessive complexity, and continue to press for a complete overhaul. Whereas the case for a complete overhaul remains strong, the NIT strategy has become questionable. New drawbacks to NIT include the following: the increasing extent of income - conditioning has made the cumulative tax rate problem more serious; a generous NIT with a 50 percent or higher tax rate might raise unemployment by worsening the inflation - unemployment tradeoff in a manner similar to the effects of unemployment insurance; and planned NIT income guarantees are inequitable in according similar treatment to 1 - parent and 2 - parent families. Therefore, an unemployment subsidy (ES) approach has become more attractive. For instance, the program JOIN (jobs and income plan) would offer one special public job or a wage subsidy in another job to every family or single individual. The public job wage would be slightly above the minimum wage, with JOIN's income component applying only to 1 - parent families with children under 14 years. These families also could receive a cash grant. The introduction of JOIN would coincide with the recommended shift from personal deductions to refundable credits. Other advantages of this program are detailed. In 1975, if this program had been in effect, a family of 4 would have been assured a guaranteed income of $4,600 for a net budget cost of $9 billion. Tabular data and references are included.