Wednesday, July 20, 2016

Identical Choice between Universal Basic Income and Means Testing

Consider your choice between two policies:

A. A universal transfer of $10,000 to every person, financed by a 20-percent flat tax on income.

B. A means-tested transfer of $10,000. The full amount goes to someone without any income. The transfer is then phased out: You lose 20 cents of it for every dollar of income you earn. These transfers are financed by a tax of 20 percent on income above $50,000.

Most people choose (B), but when you think it through, no matter how much you make you're paying and receiving the same no matter which policy you have.

Greg Mankiew