Romney’s child allowance proposal

Mitt Romney has proposed a child allowance of $4200/year for children under age 6 and $3000/year for children age 6 to 17, which is gradually phased out for people making over $200,000 (depending on the child’s age.) It is to be paid for without boosting the budget deficit, by reducing certain other poverty programs and also eliminating certain tax deductions, such as what’s left of the SALT deduction. (This last element is one of my favorite parts of the plan.)

I don’t know enough about the plan to have a firm opinion, but from a utilitarian perspective it seems to have some positive features:

Equity: The net effect is to shift money from the affluent to the poor, which probably results in a significant gain in aggregate utility.  (Yes, we can’t measure utility, but it seems likely that this factor is a net plus.)

Efficiency: It’s hard to say whether Romney’s plan improves or reduces efficiency, and that’s where I’ll focus the rest of the post.  But the mere fact that “it’s hard to say” is a sort of plus for the plan, because the equity considerations seem to be pretty clearly utility improving. With most welfare proposals, greater equity comes at a cost of lower efficiency.  I think it’s fair to say that either Mitt Romney is a very clever guy, or he has smart advisors, or both. At the end I’ll suggest a modification that would boost the equity of the plan, without any clear loss in efficiency.

1. Some conservatives like the fact that these child benefits would boost the birth rate, pointing to the fact that people say they want more children than they actually have.  I don’t share their worry that the birth rate is too low, and I don’t trust polls.  Some conservatives worry that paying poor people to have kids would cause so-called “inferior” people to reproduce.  I also don’t share this worry.  For me, the effect on births is a non-factor.

2.  Work disincentives can come from either the income or the substitution effects.  The substitution effect in Romney’s proposal is small, as parents don’t lose the child allowance until their income rises to well above $200,000.  So on that basis it won’t discourage poor people from getting a working class job.  There is a very mild work disincentive for upper middle class people experiencing the phase-out of the benefit.  The income effect refers to the fact that poor people might no longer work because they feel they can live on the child allowance without working (perhaps combined with other programs like food stamps.)  It seems to me that this disincentive would be quite modest for the size of benefits proposed by Romney.  Still, in net terms there’s probably a mild work disincentive from the issues I’ve discussed thus far.

3.  Many of the other provisions actually boost efficiency.  Several other (inefficient) poverty programs are either reduced or eliminated.  Furthermore, there’s a substantial gain from reducing the complexity of both the welfare system and the income tax system.  Eliminating the SALT deduction also discourages wasteful state and local spending.  So the various provisions that pay for the benefit have a significant positive impact on economic efficiency.

Combining points #2 and #3, I see no clear evidence of either an overall gain or loss of efficiency.  And again, the equity benefits seem pretty clear to me.

One final comment.  Why not make the child allowance fully universal, and then slightly boost the payroll tax (on wage income only) on people making over $200,000 a year to pay for it?  On an equity basis, that would redistribute money from the very rich down to the upper middle class, as people with very high wage income would pay more extra tax than they’d gain from the child allowance, while the opposite is true for the upper middle class—those making modestly above $200,000.

On efficiency grounds, my proposed modification would make the income tax system much simpler, so that’s a net gain.  The increase in the payroll tax rate would be smaller than the implicit marginal income tax during the phaseout range of Romney’s proposal (which mostly applies to people in the $200,000s), so extremely affluent people would face slightly higher MTRs while modestly affluent people would face significantly lower MTRs.  Overall, I doubt there’d be much change in economic efficiency, maybe even an increase.

 

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Sunday assorted links

1. The regulatory, status quo bias in public health commentary: “Do any of the experts arguing that it’s wrong for Americans to demand access to the AstraZeneca vaccine also advise residents of the UK, EU, and 15 other countries to delay taking it until our FDA grants authorization?” 2. Claudia Sahm Substack. 3. People are […]

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David Hume on Ancient Revolutions

The longest essay in the modern edition of David Hume’s Essays  is “Of the Populousness of Ancient Nations,” first published in 1752. The essay aims to discomfort those who lionize the ancients of Greece and Rome, by arguing, in effect, that neither had succeeded in establishing a political order that truly achieved what we today would call the rule of law. That is a mark of “every wise, just, and mild government” (382). The moderns have succeeded better, somehow.

The establishment of the rule of law in an extensive territory would bring prosperity, and prosperity would be reflected in populousness. Thus, Hume uses populousness to assess the ancient world. He argues that ancient Greece and Rome were much less populous than many like to think, and, thus, less prosperous, and less glorious.

Hume proceeds through a number of major aspects of the empirical question of populousness, highlighting the violence, capriciousness, and brutality of ancient society. The first is slavery. He explains why it is wholly detrimental to populousness, and, indeed, this section of the essay (pp. 383-397) is nothing short of an excoriation of slavery.

Next, Hume writes about infanticide and of the “great” families, which he presents as a sort of cult (398), with practices by no means conducive to the raising up of large families.

Next he turns to the “political customs” (400) and “political maxims and institutions” (404), treating a number of facets, including war and revolution. These too, he says, should make us skeptical about claims of ancient prosperity and populousness. About ancient revolutions, Hume writes:

In ancient history, we may always observe, where one party prevailed, whether the nobles or people (for I can observe no difference in this respect) that they immediately butchered all of the opposite party who fell into their hands, and banished such as had been so fortunate as to escape their fury. No form of process, no law, no trial, no pardon. A fourth, a third, perhaps near half of the city was slaughtered, or expelled, every revolution; and the exiles always joined foreign enemies, and did all the mischief possible to their fellow-citizens; till fortune put it in their power to take full revenge by a new revolution. And as these were frequent in such violent governments, the disorder, diffidence, jealousy, enmity, which must prevail, are not easy for us to imagine in this age of the world.

There are only two revolutions I can recollect in ancient history, which passed without great severity, and great effusion of blood in massacres and assassinations, namely, the restoration of the Athenian Democracy by Thrasybulus, and the subduing of the Roman republic by Cæsar. We learn from ancient history, that Thrasybulus passed a general amnesty for all past offences; and first introduced that word, as well as practice, into Greece. It appears, however, from many orations of Lysias, that the chief, and even some of the subaltern offenders, in the preceding tyranny, were tried, and capitally punished. And as to Cæsar’s clemency, though much celebrated, it would not gain great applause in the present age. He butchered, for instance, all Cato’s senate, when he became master of Utica; and these, we may readily believe, were not the most worthless of the party. All those who had borne arms against that usurper, were attainted; and, by Hirtius’s law, declared incapable of all public offices.

These people were extremely fond of liberty; but seem not to have understood it very well. When the thirty tyrants [a pro-Spartan oligarchy installed in Athens after its defeat in the Peloponnesian War in 404 BC] first established their dominion at Athens, they began with seizing all the sycophants and informers, who had been so troublesome during the Democracy, and putting them to death by an arbitrary sentence and execution. Every man, says Sallust and Lysias, was rejoiced at these punishments; not considering, that liberty was from that moment annihilated. (407-408)

Hume goes on to address the security of life and property and the attitudes toward and extent of commerce and trade. He throws salt on ancient accounts that have suggested great populousness, and highlights other ancient remarks suggesting otherwise.

Happiness, prosperity, and populousness depend on the rule of law. Let us hope that it will be there for our grandchildren’s grandchildren to enjoy.

 

 

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