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It Really Is More Expensive to Give Everyone $1 Than to Give Some People $1


July 28, 2023

In a piece from last year, Matt Bruenig of the People’s Policy Project argues (in the title of the piece) “Universal Benefits Cost Less Than Means-Tested Benefits.” He lays out his central claim in the following passage:

Korpi and Palme accept the idea that, for a given welfare budget, targeted programs reduce inequality and poverty more than non-targeted programs. This claim is not true and the seemingly irrefutable math underlying it is based on accounting games.

It sounds like Bruenig is saying that giving $1 to 1 person is more expensive than giving $1 to 300 million people. 

How does he arrive at this conclusion? In his piece, he sets up a task of reducing child poverty and inequality by raising no more than $100B of tax revenue. He lays out two strategies. Both raise $100B from the richest families. So the only difference is how the revenue is spent. In the targeted/means-tested strategy, kids with family income under $50,000 get the same benefit, but it phases out for richer kids. In the universal strategy, everyone gets the same amount, and an additional tax on income above $50,000 is applied such that the new tax rate is the same as the phaseout rate in the targeted strategy. 

Bruenig thinks these strategies both “cost” the same amount, and since it’s cheaper to administer the new tax than it would be to administer the phaseout, the universalist program is cheaper.

Lest you think that the universalist’s new tax violates the rules that only $100B may be raised, Bruenig argues that the targeter’s phaseout is actually a tax. What both strategies really do is provide a universal benefit and then tax it away gradually for families above $50,000 in income, just in different ways. But that’s clearly wrong. The new tax is an additional tax. It makes no difference that all families see the same net change in income under both strategies, which is the point Bruenig wants to emphasize (and which is true). The fact of the matter is that the additional tax revenue could have been used to increase the targeted benefit rather than making the targeted benefit universal. That would reduce poverty and inequality even more. There is no corresponding way to increase the generosity of the targeted benefit under the phase-out strategy that is limited to $100B in revenue.

It’s true that using the additional taxes to expand the generosity of the universal benefit would leave the taxed families worse off than in the original two scenarios. It’s just as true it would leave the targeted families better off. And Bruenig’s original task was to reduce poverty and inequality. 

Bruenig’s cleverness tricked not only himself here, but a sizable number of other people on Twitter. For over 24 hours, people told me that I just didn’t understand that a phased-out benefit and a taxed universal benefit are the same thing from the perspective of the individuals involved. I tried to persuade them (not always articulately) that I understand this perfectly well, but that in raising additional taxes to fund universalism, there is an opportunity cost in that additional funds can be spent in other ways than making a targeted benefit universal. They can be used to make the targeted benefit more generous, or they can be used for highways or to wage war or whatever. 

And, yes, it’s true that there is an equivalency between phaseouts and tax rates. Imagine we start with a targeted, phased out benefit and expand to a universal benefit by eliminating the phaseout. Clearly, there would be a cost to doing this. Other spending could be cut or the government could borrow. Or the government could raise taxes—in any number of ways, not simply recreating the phaseout via an equivalent tax. All of these options involve costs in moving from targeting to universalism.

There is no getting around opportunity costs—around trade-offs. $300M will always be greater than $1. There is no such thing as a free lunch.