Income-Tested Transfer Programs. The Case for and Against

559 Pages·1982·33.469 MB·English

by  Irwin Garfinkel

Income-Tested Transfer Programs
THECASEFORANDAGAINST
A 1979 Conference
FUNDED BY
The Ford Foundation
The Social Security Administration
SPONSORED BY
The Institute for Research on Poverty
The Ford Foundation
The Social Security Administration
This is a volume in the
INSTITUTE FOR RESEARCH ON POVERTY
MONOGRAPH SERIES
A complete list of titles in this series appears at the end of this volume.
Income-Tested Transfer Programs
THE CASE FOR AND AGAINST
Edited by
IRWIN GARFINKEL
institute for Research on Poverty
University of Wisconsin-Madison
ACADEMIC PRESS
A Subsidiary of Harcourt Brace Jovanovich, Publishers
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This book is one of a series sponsored by the Institute for Research on Poverty
of the University of Wisconsin pursuant to the provisions of the
Economic Opportunity Act of 1964.
COPYRIGHT © 1982 BY THE BOARD OF REGENTS OF THE UNIVERSITY OF WISCONSIN SYSTEM
on behalf of the Institute for Research on Poverty.
All rights reserved.
No part of this publication may be reproduced or
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without permission in writing from the publisher.
The views expressed in this book are those of the authors;
they do not necessarily represent the official views of the
institutions with which the authors are affiliated.
ACADEMIC PRESS, INC.
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Library of Congress Cataloging in Publication Data
Main entry under title:
Income-tested transfer programs.
(Institute for Research on Poverty monograph series)
Proceedings of a 1979 conference sponsored by the
Institute for Research on Poverty, the Ford Foundation,
and the Social Security Administration.
Includes bibliographical references and index.
1. Income maintenance programs—Congresses.
2. Public welfare—Congresses. I. Garfinkel, Irwin.
II. University of Wisconsin—Madison. Institute for
Research on Poverty. III. Ford Foundation. IV. United
States. Social Security Administration. V. Series.
HC79.I5IA9 1982 362.5'82 82-8697
ISBN 0-12-275880-3 AACR2
PRINTED IN THE UNITED STATES OF AMERICA
82 83 84 85 9 8 7 6 5 4 3 2 1
List of Figures and Tables
FIGURE 4.1 Demand for medical care for poor voter (Mr. 1) by Mr. 1, by
middle-income voter (Mr. 2), and by rich voter (Mr. 3) under
income-tested provision of medical care 100
FIGURE 4.2 Cost of medical care for three voters—rich (Mr. 3), middle-class
(Mr. 2), and poor (Mr. 1)—under universal provision of medical
care 104
FIGURE 4.3 Costs of medical services as income increases in switch from a
gradual income-tested program to a universal provision of medi-
cal care 108
FIGURE 4.4 Diagrammatic comparison of NIT, CIT, and social insurance
program 132
FIGURE 5.1 Index of social insurance extension 147
FIGURE 5.2 Policy development profile, Germany 154
FIGURE 5.3 Policy development profile, United States 154
FIGURE 5.4 Policy development profile, United Kingdom 155
FIGURE 5.5 Policy development profile, Sweden 156
FIGURE 6.1 Three tax-transfer prototypes: NIT, CIT/G, and CIT/E 181
Three tax-transfer plans analyzed by Betson, Kasten, and Green-
FIGURE 6.2
berg: NIT, CIT/G, and CIT/E 205
FIGURE 6.3 Measures of efficiency 207
FIGURE 6.4 Measures of equity 209
FIGURE 8.1 Fully and nonfully integrated negative income tax (NIT)
regimes 296
xi
xii List of Figures and Tables
FIGURE 11.1 Income transformation function for the status quo 416
FIGURE 11.2 Mean post-fisc welfare ratio for single-parent households minus
mean post-fisc welfare ratio for two-parent households, over the
first eight intervals 418
FIGURE 11.3 Frequency distribution—status quo 419
FIGURE 11.4 One- and two-sigma intervals for the post-fisc welfare ratio dis-
tribution of two kinds of households 420
TABLE 1.1 Estimated Benefit Expenditures for Major Income Support Pro-
grams, Fiscal Year 1981 12
TABLE 1.2 Persons in Poverty in Fiscal Year 1980 under Alternative Income
Definitions 13
TABLE 2.1 Respondents Rating the Importance of Various Causes of
Poverty 24
TABLE 2.2 The Causes of Poverty by Country 25
TABLE 2.3 The Factors to Which Respondents Attribute the Blame for
Poverty 26
TABLE 2.4 Americans Agreeing with Attitudes toward Welfare 30
TABLE 2.5 Explanations Given by Respondents of Why Eligible Families Did
Not Apply for Free School Meals 31
TABLE 2.6 Respondents Agreeing with Propositions as Important Explana-
tions of Why Eligible Children Did Not Receive Free School
Meals 33
TABLE 2.7 Respondents in Storrestad Who Granted Assistance to Cases with
Specific Lack Combination 35
TABLE 4.1 Model Income Distribution 119
TABLE 4.2 No Health-Care Program 120
TABLE 4.3 Notched Income-Tested Program 122
TABLE 4.4 Gradual Income-Tested Program 123
TABLE 4.5 Universal Program, Proportional Tax 124
TABLE 4.6 Universal Program, Progressive Tax 125
TABLE 4.7 Subsidy Minus Taxes: Net Position under Alternative
Programs 126
TABLE 5.1 Sequence of Introduction of Social Insurance Programs 145
TABLE 5.2 Relative Chances of Upper-Stratum and Lower-Stratum Youth
Studying in a University 149
TABLE 5.3 Estimated Monthly Income from National Income Maintenance
Programs for Three "Model" Families 159
TABLE 6.1 Predicted Effects of the Alternative Prototypes on Tax Rates and
Incomes in the Absence of Adjustments in Work Effort 183
Percentage of Households with Substantial Increases and De-
TABLE 6.2
creases in Disposable Income in the Absence of Adjustments in
Work Effort 185
TABLE 6.3 Predicted Effects of the Alternative Prototypes on Person Years,
Earnings, and Deadweight Loss 190
List of Figures and Tables xiii
TABLE 6.4 Contribution of Different Family Status Groups to the Effects of
the Alternative Prototypes on Earnings 191
TABLE 6.5 Predicted Effects of the Alternative Prototypes on Disposable In-
comes and Net Transfer Receipts after Adjustments in Work
Effort 194
TABLE 6.6 Percentage of Households with Substantial Increases or De-
creases in Disposable Income after Adjustments in Work
Effort 195
TABLE 6.7 Predicted Effects of the Alternative Prototypes on Income In-
equality and Poverty after Adjustments in Work Effort 197
TABLE 6.8 Summary of Results from the Sensitivity Tests 199
TABLE 6.9 Comparison of Tax-Transfer Plans 210
TABLE 7.1 Tax Rates in Plans Which Reduce the Number of Tax
Brackets 239
TABLE 7.2 Costs of Collecting Individual and Corporate Income Taxes in
Three Countries 251
TABLE 7.3 Administrative Costs of Income Transfer Programs in Three
Countries 253
TABLE 8.1 The Wage and Unearned-Income Distribution 299
TABLE 8.2 The Compensated Wage Elasticity (0) and the Elasticity of Sub-
stitution (σ) 301
TABLE 8.3 Optimal Tax-Transfer Programs for a CES Utility Function with
Variable β and σ 303
TABLE 8.4 Optimal Tax Coefficients for β = 0.98 and σ = 0.5 306
TABLE 8.5 Welfare Losses Caused by Nonoptimal Tax-Transfer Programs
When β and σ Are Variable 307
TABLE 8.6 Welfare Losses Caused by Nonoptimal Tax-Transfer Programs
When β and σ Are Constant 308
TABLE 8.7 Tax Parameters for Optimal Nonfully Integrated Systems and CIT
Welfare Costs 312
TABLE lo.i Estimates of Income Redistribution under Three Forms of Na-
tional Health Insurance for a Family of Four 394
TABLE li.i Log-Mean and Log-Variance of the Status Quo Welfare Ratio
Distribution 419
TABLE 11.2 Dollar Add-On to the Credit for a Single-Parent Household with a
Nonworking Parent under Plan II 420
TABLE 12.1 Characteristics of Simulated System Models to Provide Benefits
for the Aged 456
TABLE 12.2 Guarantee, Cost to the Nonaged, and High-Income Replacement
Rate 464
TABLE 12.3 Budget Costs and Percentage Changes in Tax Rates 466
TABLE 12.4 Mean Adjusted Income of Aged Individuals by Quintile 468
TABLE 12.5 Mean Adjusted Incomes of Married Persons, Widows, and Wid-
owers by Quintile—Variable Cost Case 471
TABLE 12.6 Mean Adjusted Income of Aged Individuals by Quintile—The
XIV List of Figures and Tables
Two-Tier Model with Full Participation in the Bottom-Tier
Program 473
TABLE 12.7 Guarantees—Simulations without the Retirement Test and with-
out the Expansion of the Income Tax Base, Variable Guarantee
Case 474
TABLE 12.8 Mean Adjusted Income of Aged Individuals by Quintile—Simu-
lations without the Retirement Test and without the Expansion of
the Income Tax Base, Variable Guarantee Case 475
TABLE 12.9 Mean Adjusted Income of Aged Individuals by Quintile—The
Status Quo Model with a 50% Tax Rate on Unearned Income in
the Bottom-Tier Program 477
TABLE 12.10 Characteristics of Simulated Income Support Systems for the
Aged 483
Contributors
Numbers in parentheses indicate the pages on which the authors' contributions begin.
HENRY AARON (212), Senior Fellow, The Brookings Institution, Wash-
ington, B.C. 20036, and Professor of Economics, University of
Maryland, College Park, Maryland 20742
BRIAN ABEL-SMITH (325), Professor of Social Administration, University
of London, London, England WC2A 2AE
VERNON L. ALLEN (47), Professor of Psychology, University of Wiscon-
sin-Madison, Madison, Wisconsin 53706
KENNETH J. ARROW (319), Joan Kenney Professor of Economics and Pro-
fessor of Operations Research, Stanford University, Stanford, Cal-
ifornia 94305
DAVID BERRY (449), Graduate Student, Department of Economics, Uni-
versity of Wisconsin-Madison, Madison, Wisconsin 53706
DAVID BETSON (175), Research Affiliate, Institute for Research on Pover-
ty, University of Wisconsin-Madison, Madison, Wisconsin 53706
JOHN BISHOP (59), Research Affiliate, Institute for Research on Poverty,
University of Wisconsin-Madison, Madison, Wisconsin, and Asso-
ciate Director, Research Division, National Center for Research in
Vocational Education, Columbus, Ohio 43210
EVELINE M. BURNS (344), Professor Emeritus, Columbia University
School of Social Work, New York, New York 10027
xv
xvi Contributors
JUDITH H. CASSETTY (432), Assistant Professor of Social Work, University
of Texas at Austin, Austin, Texas 78712
JAMES COLEMAN (67), Professor of Sociology, University of Chicago, Chi-
cago, iJiinois 60637
PETER DIAMOND (314], Professor of Economics, Massachusetts Institute
of Technology, Cambridge, Massachusetts 02139
ANTHONY DOWNS (117], Senior Fellow, The Brookings Institution, Wash-
ington, D.C. 20036
IRWIN GARFINKEL (1, 291, 449, 495], Professor of Social Work, and Re-
search Affiliate, Institute for Research on Poverty, University of
Wisconsin-Madison, Madison, Wisconsin 53706
EDWARD M. GRÄMLICH (204), Professor of Economics, University of Mich-
igan, Ann Arbor, Michigan 48104
DAVID GREENBERG (175), Economist, SRI International, MenJo Park, Cal-
ifornia 94305
ARNOLD J. HEIDENHEIMER (141), Professor of Political Science, Wash-
ington University, St. Louis, Missouri 63130
GEORGE JAKUBSON (405), Graduate Student, institute for Research on
Poverty, University of Wisconsin-Madison, Madison, Wisconsin
53706
CHRISTOPHER JENCKS (89), Professor of Sociology, Northwestern Univer-
sity, Evanston, Illinois 60201
RICHARD KASTEN (175), Staff Economist, Office of Income Security Pol-
icy, Department of Health and Human Services, Washington, D.C.
20036
JONATHAN R. KESSELMAN (215), Associate Professor of Economics, Uni-
versity of British Columbia, Vancouver, British Columbia V6T 1Y2,
Canada
ROBERT J. LAMPMAN (164), Professor of Economics, and Research Affili-
ate, Institute for Research on Poverty, University of Wiscon-
sin-Madison, Madison, Wisconsin 53706
JOHN LAYSON (141), Graduate Student, Department of Political Science,
Washington University, St. Louis, Missouri 63130
ROBERT I. LERMAN (444), Senior Research Associate and Adjunct Lec-
turer, Florence Heller Graduate School for Advanced Studies in
Social Welfare, Brandeis University, Waltham, Massachusetts
02254
STEPHEN H. LONG (367], Assistant Professor of Economics, The Maxwell
School, Syracuse University, Syracuse, New York 13210
KEMPER MORELAND (291), Assistant Professor of Economics, Eastern
Michigan University, Ypsilanti, Michigan 48197
Contributors xvii
ALICIA H. MUNNELL (481), Vice President and Economist, Federal Re-
serve Bank of Boston, Boston, Massachusetts 02210
RAYMOND MUNTS (449), Professor of Social Work, University of Wiscon-
sin-Madison, Madison, Wisconsin 53706
LARRY ORR (129), Director, Office of Technical Analysis, Office of the
Assistant Secretary for Policy, Evaluation, and Research, Depart-
ment of Lahor, Washington, D.C. 20210
BENJAMIN I. PAGE (136), Associate Professor of Political Science, Univer-
sity of Chicago, Chicago, Illinois 60637
JOHN L. PALMER (367), Senior Fellow, Urban Institute, Washington, D.C.
20037 (on leave from the federal government]
JOSEPH A. PECHMAN (282), Director, Economic Studies Program, The
Brookings institution, Washington, D.C. 20036
LEE RAINWATER (19), Professor of Sociology, Harvard University,
Cambridge, Massachusetts 02138
MARTIN REIN (351 J, Professor of Urban Studies, Massachusetts institute
of Technology, Cambridge, Massachusetts 02139
EARL R. ROLPH (285), Professor of Economics, University of California,
Berkeley, Berkeley, California 94720
EFRAIM SADKA (291), Senior Lecturer in Economics, Tel Aviv Univer-
sity, and Research Affiliate, institute for Research on Poverty, Uni-
versity of Wisconsin-Madison, Madison, Wisconsin 53706
ALVIN L. SCHORR (55J, Professor of Family and Child Welfare, School of
Applied Social Sciences, Case Western Reserve University, Cleve-
land, Ohio 44106
FELICITY SKIDMORE (405), Editorial Consultant and Director of Special
Projects, institute for Research on Poverty, University of Wiscon-
sin-Madison, Madison, Wisconsin 53706
LAWRENCE H. THOMPSON (487), Director, Office of Research and Statistics,
Social Security Administration, Washington, D.C. 20009
GORDON TULLOCK (97), University Distinguished Professor, Virginia
Polytechnic institute, Blacksburg, Virginia 24601
HAROLD W. WATTS (405), Professor of Economics and Director of the
Center for the Social Sciences, Columbia University, New York,
New York 10027
HAROLD L. WILENSKY ( 166), Professor of Sociology, University of Califor-
nia, Berkeley, Berkeley, California 94720
BARBARA L. WOLFE (400), Associate Professor of Preventive Medicine
and Economics, and Research Affiliate, institute for Research on
Poverty, University of Wisconsin-Madison, Madison, Wisconsin
53706