Subsidizing Incomes

JUST about everybody seems to like the idea of subsidizing incomes. Republican Congressmen, Democratic Congressmen, economists ranging from Milton Friedman to John Kenneth Galbraith, and the Poor People have all proposed plans. So why is there no income subsidy?

Partly it's because different people want an income subsidy for different reasons; partly because they want very different kinds of subsidies. Friedman and the conservatives would like to enact a subsidy as an excuse for axing other welfare programs; while Galbraith and the liberals believe that the poor deserve a greater share of the nation's wealth, and want the government to step in and offset the effects of unequal opportunities.

The economic rationale for the conservative position is sound, once you accept the postulates of free competition as blithely as Milton Friedman does. He argued in National Review last year that:

. . . we now have a governmentally guaranteed annual income in substance though not in name.

Our present de facto guaranteed annual income is a mess. It is expensive and most of the money goes to people who are not by any stretch of the imagination poor. It involves a tremendous bureaucracy, wide-spread intervention into the operation of the market system in areas that have nothing to do with poverty, and inexcusable interferences with the individual freedom and dignity of the truly poor who receive assistance . . .

The last sentence reads like a phrase from an SDS leaflet; the poor resent the restrictions on their behavior, the intrusions into their privacy which they must tolerate to receive welfare benefits. Even the liberals who don't care about economic efficiency join Friedman here; the issue of human dignity makes them allies. However, many liberals suspect that Republican Congressmen, like Melvin Laird of Wisconsin, will try to pass minimal subsidy legislation as a justification for other cuts in welfare spending, leading to a net reduction of aid to the poor. This certainly bothers many moderates and liberals who would otherwise support subsidy legislation, and makes them afraid of doing anything that would legitimize the conservatives' position in the eyes of middle-class voters.

IT is the opinions of those middle-class voters which present the greatest obstacle to enactment of minimum income legislation. Whatever else they do, election-year Congressmen simply cannot let their constituents think that the poor are "getting away" with anything. The portion of the American Middle Class that sees the poor as sloppy, drunken, and lustful, is determined that the poor should pay for their libertine existence with poverty. It sees any attempt to bring the poor up to or near its income level as a threat to its own position. The view is shortsighted, of course. Being poor in America really isn't much fun. But as long as a large group of voters is jealous of its position, Congress must be careful not to give the poor too much.

The marching Poor People have tried to avoid this obstacle by limiting their guaranteed-income proposal to those too young, too old, or too infirm to work. But this doesn't strike at the real problem: the shortage of jobs in America for unskilled or low-skilled workers. When there are jobs, they are usually deficient in either money income or psychic income. Welfare programs and retraining are inadequate, and there is a serious question whether they could ever eliminate poverty.

Even so, a frontal attempt to improve the lot of a large number of unskilled workers by subsidizing their income is bound to anger the middle class unless the legislation seeks, as does the bill proposed by Congressman Laird, to keep the gap between the poor and the middle class large enough to make the middle class feel secure. Most proposals so far do just that. The Poor Peoples' plan tacitly assumes that anyone with an able body should work for his income. So does the Laird Bill, which incorporaties most of Friedman's views on income subsidies.

Laird's plan is a Negative Income Tax, which is not necessarily equivalent to a guaranteed minimum income. With NIT, the government makes up a certain proportion of the difference between a person's earned income and a set base figure. Laird's bill sets the base at $3000 and the proportion at one-half. In a sense, this NIT does guarantee a minimum income of $1500, but for NIT to be a guaranteed minimum income in the proper sense of the word, it should make up the full difference between the income and the base figure. By making up less than the full difference, the bill tries to offer incentives to working and allay middle class fears that millions of people would be satisfied with the base figure instead of their presently low incomes and quit their jobs.

A flat guarantee of a certain base figure probably would have disincentive effects on low-income laborers. Those who had incomes close to the figure would almost certainly quit work (unless several hundred dollars and getting away from wife and family were worth a forty hour week). And because the choice of the base figures may be rather arbitrary, there are bound to be inequities. The problem of equity becomes more acute the closer the base figure comes to the actual amount necessary to maintain a standard of living that could be described as middle class. The position of the middle class worker may be ill-informed, but it is not irrational. If he must work long hours, often at dull jobs, for his living; he may rightly think it unfair to give the same standard of living to someone who is contributing nothing to total production.

The only proposal which stands a chance of pleasing both the middle class and the poor is one that combines a minimum income with an opportunity for a job and an obligation to work. This plan operates under the theory that income guarantee is necessary, but that those receiving it must undertake full-time productive employment. A concurrent elimination of minimum wage laws would permit industry to hire more labor than it can now. The government could offer public works employment as an alternative to unattractive industrial jobs, undertaking projects like slum clearance and cleaning littered highways--projects that require great manpower and little capital investment.

Of course there are problems with a scheme of this type. There will have to be some provision made for families without fathers. Should mothers be required to work? Would this scheme, like any income subsidy, encourage illegitimacy? Since a single male will almost certainly receive, proportionally, more money than the head of a family, how can the plan prevent father and mother from remaining unmarried and receiving separate checks adding to a much larger total?

There are no simple solutions to such problems. No matter what sort of subsidy is enacted, inequities are inevitable and perhaps some people will "take advantage" of the subsidy. The relevant question is not how inequitable an income subsidy will be, but how the equity of that subsidy compares with the present distribution of income. No matter what form a subsidy should take, it would almost inevitably compare favorably.