District of Columbia releases policy analysis for basic income

“Approaches and Strategies for Providing a Minimum Income in the District of Columbia”

Two years ago, spurred by the fight for $15 movement, DC Council-member David Grosso commissioned a report by the Office of the Budget Director to answer three questions:

  1. What is the cost of living in the District for various households?
  2. How are households impacted by existing in-kind transfer programs?
  3. What would be the impact of a DC-wide universal cash transfer program?

The report was released on 27 February 2018 [Announcement, Full report]

The report finds that a universal cash payments via a refundable tax credit to the Federal poverty level has negligible impact on employment and existing federal payments for means-tested programs. However, they question the economic feasibility of a basic income at DC’s cost of living, which they estimate at 450% of the Federal Poverty line.

The Basic Income Podcast covered the release on their 1 April 2018 episode, “Analyzing Basic Income Models in Washington DC.” There has also been some local news coverage.

Computation of Unmet Need

TL;DR: DC safety net is insufficient for adults. Passible for families with children IF they bring in sufficient income to fully qualify for EITC/CTC AND actually receive all the in-kind benefits for which they are eligible.

The report shines in Section 1 (Income Needed to Afford Basic Necessities in the District of Columbia), where the research team systemically deconstructs the cost of living in DC for three prototypical households: 1x adult, 1x adult + 1x child and 1x adult + 2x children.

The computation of Unmet Needs (Cost of Living — Safety Net) in “Appendix 2: Needs Assessment of Three Fictional D.C. Households” — backed by the detailed factor analysis of housing healthcare, childcare, etc. in Section 1 — is an impressively concise statement of the current mean-tested, in-kind dominated welfare state.

Damning for single adults.

Passable for families with children with two massive caveats:

  • Households bring-in sufficient income to fully qualify for means-tested programs like the EITC (earned income tax credit) and CTC (Child Tax Credit) AND
  • Households actually receive benefits from the many disparate means-tested programs.

Unfortunately, in practice, means-tested work requirements attached to the EITC and CTC mean that the households most in need for assistance, do not qualify for the most substantiative cash grants available.

Unfortunately, in practice, the labyrinth of silo’d social safety net programs are difficult to navigate, producing poverty traps with every asset requirement and every interaction of income phase-out requirement.

Basic Income simulations

TL;DR: Pay attention to Simulation 1, their model of a Negative income tax worth 100% of the Federal Poverty Level and costing $380M. Take Simulation 2 as a worst-case scenario. Simulations 3 and 4 are for 450% the Federal Poverty level, so they probably aren’t the droids you’re looking for.

The study puts forth 4 simulations for basic income in the district.

Simulation 1: Negative income tax worth 100% of the Federal Poverty Level

Simulation 2: Guaranteed minimum income to 100% of the Federal Poverty Level + 100% of recipients drop-out of workforce

Simulation 3: Guaranteed minimum income to 450% Federal Poverty Level, the cost of living estimate developed in Section 1

Simulation 4: Simulation 3 + 100% drop-out of workforce.

Simulation 1, brings everyone in the District above the Federal poverty line for $380M, no reduction in federal assistance, small reductions in employment and small reductions in GDP. Note that the EITC has a work requirement, while Simulation 1 does not. Households with no income would still be eligible for the refundable credit.

I would be caution is interpreting the small reductions in employment and GDP. Most pressingly, they do not model the increase in aggregate demand from a net transfer from wealthier households, with a lower marginal propensity to consume, to poorer householders with a higher marginal propensity to consume. The Roosevelt Institute’s macroeconomic model of the US, which included the stimulation to aggregate demand [summary, report], takes this effect into account.

Simulation 2 assumes a 100% work reduction for recipients. Take the $710M cost as worse-case scenario. A 100% work reduction is predicated on 100% wage loss at the margin. In practice, if funded by personal income taxes, households would keep most of their marginal earned income even if they benefited from a GMI. The delta to status quo would be the increase in DC personal income tax to fund the GMI, not a 100% cliff at 100% the Federal Poverty line.

Simulations 3 and 4 take a UBI of 450% the Federal Poverty line, far in excess of what most folks argue for in the near term. Given the magnitude of the transfers, I would question to what extent the assumptions of the underlying model still hold, as well as emergent 2nd and 3rd order effects such as economic migration.

Gross vs net cost

Thankfully, the authors do not conflate net cost (amount of transfers) with gross cost (number of households * UBI payment), as elaborated in many other places. Compare Table 17 (gross cost) with Table 18 (net cost).

For example, at 100% of the Federal poverty line, there is an 18x difference between the gross cost ($7000M) and the net cost ($380M).

Gross cost
Net

Conclusion

The report is a breathe of fresh air and step in the right direction for state and local UBI policy analysis.

The large think tanks have largely ignored systematic policy analysis of UBI, and where they have (Roosevelt and a niche example with Niskanen), they have focused in aggregate at the Federal level.

State and local government do not need to wait for the Federal government to work towards universal basic income, especially as they concern incremental improvement and expansion of the existing social safety net.

UBI need not be a seemingly insurmountable $500-900B Federal question, but rather a $100M town question or $25B state question.

Just as groups like Whole Washington are taking health into their own hands, with or without the Federal government, so to can state and local governments with respect to economic security.

Education, advocacy, and yes policy analysis — all tools in the arsenal for a more equitable future.