Georgia is the latest state to experiment with what’s called a “guaranteed basic income.” It will be interesting to see whether these pilot projects can avoid the same pitfalls as the welfare system they are meant to complement – and whether it might be better to simply replace it.
The principle of Guaranteed Basic Income is that there should be a minimum level of income for all Americans. Those who do not live up to what they earn from their work would receive a taxpayer-funded monthly supplement.
Guaranteed Basic Income programs have been tried in places from Mississippi to California. Two more pilot programs are slated to launch soon in Georgia, stretching from metro Atlanta to the rural southwest corner of the state.
It will be interesting to compare the results of these trials to our welfare system, because of what we have learned about the effects of public assistance on work incentives. Besides the inherent dignity of enjoying the fruits of one’s labor, labor offers long-term earning power that welfare never has and never will have. It is the combination of work and, if necessary, an extra “helping hand” that can help people out of poverty.
But that’s only true if our welfare programs encourage people to work. The highly successful bipartisan welfare reforms of the 1990s instituted work requirements for some public programs. One of the many positive results has been a sustained reduction in the child poverty rate of about 10 percentage points.
However, work incentives are only really effective if they don’t lock people into a pay cap. There is no doubt that our welfare system is failing in this regard.
My friends at the Georgia Center for Opportunity have done as much work on this particular topic as anyone I know. They call the traps built by our system “wellness cliffs,” because of the sudden, sharp drop people experience when they take a small step forward financially.
Here’s how it works: Imagine a single mom with a 2-year-old living in Fulton County earning $28,000 a year, or about double the federal poverty level. The federal benefits she is entitled to – child care subsidies, food stamps, housing stamps, health insurance, etc. – are cumulatively higher than his salary. With an earned income of $28,000, she qualifies for benefits that could bring her effective after-tax income to nearly $61,000.
But if she got even a $500 raise at work, she would start to slide off the edge.
First, she would lose more than $7,400 in food assistance, as well as smaller cuts to child care subsidies, refundable tax credits and housing vouchers. From there, the benefits go down faster than his income goes up.
How much faster? To reach this same income equivalent of $61,000, she would have to earn $68,000 at her job.
That’s right: from a purely financial standpoint, assuming she received all the benefits she was eligible for, just to break even, she would need a raise not of $500, but – get this – $40,000.
Who gets that kind of raise?
Now, a better paid job can also come with other benefits provided by the employer, so that some of the losses can be compensated. But on the face of it, she’d be better off turning down just about any realistic raise, because of the public benefits she stands to lose.
It’s a terrible corner to paint anyone in, but our welfare system does it to millions of Americans every day.
If a guaranteed basic income is to work, it must avoid political misconceptions of our welfare system. Even better, it could replace our welfare system. Clearly, we are already spending enough to push people well above the poverty line (and that’s not even counting the administrative costs of the various programs.). We just do it in a way that is counterproductive and even harmful.
Fix that, and Guaranteed Basic Income supporters might be onto something. Otherwise, they’re just promoting the next in a long line of ideas that are doomed to failure, if well-intentioned.
A native of Dalton, Kyle Wingfield is President and CEO of the Georgia Public Policy Foundation (www.georgiapolicy.org).