On the safety net, his Expanding Opportunity plan says,
It should always pay to work. But fixing these incentives is no easy task. To phase out benefits more slowly would mean to subsidize millions of middle- and even upper-income families; in other words, it would be prohibitively expensive. But lowering the effective marginal tax rate at the bottom of the income scale by reducing the amount of aid would mean deep cuts for the most vulnerable.
Suppose we are talking about cash assistance. You can pick two of the following three characteristics:
1. Enough money for people with no income to be able to obtain basic needs, such as food and medical care.
2. Low implicit marginal tax rates, meaning that as people earn their own income, their cash benefits phase out slowly (or not at all).
3. Low overall budget cost.
What Ryan is saying is that he will leave it up to the states to deal with these trade-offs. His thinking is that if aid is administered locally through community and non-profit agencies, those institutions can attach the appropriate conditionality to receiving aid. If someone is able to work but does not seek or accept work, the agency can cut that person off. It is harder for a remote Washington agency to make the determination of who is trying to find work and who is not.
These local providers also can customize aid. As Ryan puts it,
it makes little sense to provide a household with a consistent stream of SNAP benefits when what the household may need most is reliable transportation to and from work. Giving providers this kind of flexibility will allow them to intervene early on with targeted benefits in cases where short-term assistance can prevent someone from falling into deeper poverty.
I strongly agree with Ryan that conditionality and customization ought to be applied at the local level, not the Federal level. However, my own view is that only some income assistance should be conditional and customized. I would like to see the Federal government provide assistance that depends on income but is otherwise unconditional. I think that the government assistance should phase out at a low rate of, say, 20 percent or 25 percent as an individual’s earnings rise.
My thinking is that this federal assistance might not be sufficient to satisfy condition (1). State and local governments would fill in the “needs gaps.” They would do so by looking carefully at individual household situations, attaching conditions and customizing.
Ryan would address the issue of Federal income assistance by expanding the Earned Income Tax Credit (EITC) so that it covers childless workers. Also, he writes,
another potential area of reform should focus upon EITC simplicity and delivery. If families received
the credit with their paychecks, the link between work and the EITC would be that much clearer.40 This reform
would also allow low-income to keep more of their money if it could reduce improper payments (which
amounted to $13.3 billion in fiscal year 2013 alone); they wouldn’t have to rely on tax-preparation firms to get
the credit. The most recent attempt at creating a periodic EITC was through the Advance EITC, which
experienced low take-up rates and extremely high rates of fraud and noncompliance.43 This proposal, therefore,
would direct the Treasury Department to investigate further how to provide a work-based tax credit that may
appear on a worker’s paycheck.
Finally, I commend Stephanie Mencimer of Mother Jones for offering a serious, informed critique of what I am calling conditionality and customization. She concludes,
the safety net today really doesn’t deliver the kind of customized service that Ryan thinks it should. It’s just too expensive, too hard to provide on a large scale, and in the end, not all that more effective than simply giving people money they need to keep the lights on until they can get back on their feet on their own.
Read the whole thing. Pointer from Tyler Cowen. Again, I think that some assistance should be customized/conditional, and funded at the state and local level. Federal assistance should look more like straight cash, with crude, simple rules.