Association for Public Policy Analysis & Management

Recent social policy discussions in the United States have shown a renewed interest in the potential for an income guarantee as part of a modern safety net. Given increases in income inequality and volatility, as well as labor market trends toward automation and globalization, an economic floor for American citizens could be an opportune complement to the existing safety net, particularly as an expansion on the equalizing benefits of the Earned Income Tax Credit (EITC). In this study, we simulate alternative designs for an income guarantee policy as well as potential financing mechanisms. Using the Current Population Survey’s Annual Social and Economic Supplement (ASEC) along with measurement adjustments from Urban Institute’s Transfer Income Model (TRIM), we describe the poverty impact using the Supplemental Poverty Measure, and we show the distributional effects of the policy after financing in order to compare the relative progressivity of various scenarios. The income guarantees considered range from $250/month per non-elderly citizen (under age 65) to $1000/month per adult citizen (ages 18-64), and the gross costs of these options is in the range of $700 billion to $2 trillion, respectively. The guarantee can optionally phase out at higher incomes or be counted as taxable income. In our main specifications, we begin by eliminating redundancies within the tax code such as the personal exemptions (currently repealed until 2026), child tax credits, and personal deductions. Any remaining costs would then be paid for by an income tax, carbon tax, or a value-added tax (or a combination thereof). Income tax simulations are estimated using Tax-Calculator, an open-source project that is calibrated with the National Bureau of Economic Research’s Taxsim module. Using Tax-Calculator allows us to customize tax policy parameters as well as to model behavioral responses to earnings with respect to taxation, and we repeat these simulations for tax law in years 2018 through 2026 with a base five-year sample of ASEC data for years 2011-2015. Lastly, we evaluate the economic efficiency of income guarantee policies using efficiency weights proposed by Hendren (2017), which combine Kaldor-Hicks-type adjustments while accounting for the marginal cost of funds given redistributional taxation. Income supports, especially in the case of the EITC, have historically received bipartisan support, and the evidence in this study may provide a clear direction forward in considering feasible policies for an income guarantee as part of the wider safety net.