The reformers estimate that the guaranteed income ought to range somewhere between $3,000 and $6,000 a year for a family of four.
This is no longer merely the proposal of a few starry-eyed private individuals. The National Commission on Technology, Automation, and Economic Progress, established by Congress in 1964, brought in a 115-page report to the President on February 4, 1966, recommending guaranteed incomes for all. And in January of 1966, the President’s Council of Economic Advisers indicated approval of “uniformly determined payments to families based only on the amount by which their incomes fall short of minimum subsistence levels.” This plan, they declared, “could be administered on a universal basis for all the poor and would be the most direct approach to reducing poverty.”
Since then an increasing number of endorsements of the guaranteed income proposal (sometimes under the euphemisms of “income maintenance” or “negative income tax”) have come from private and official sources. In June of 1968 a subcommittee of the Joint Economic Committee of Congress held extensive hearings (which ran in printed form to 720 pages) on “income maintenance programs.” Though a Gallup Poll published at the time showed 58 per cent of those questioned were opposed outright to a guaranteed income, and only 36 per cent were in favor, the overwhelming majority of the witnesses called by the committee favored some form of guaranteed income.
The plan is spelled out and argued in detail in a book called The Guaranteed Income (1966), a symposium of articles by ten contributors, edited by Robert Theobald, who calls himself a “socio-economist.” Mr. Theobald has contributed three of the articles, including his preface.
Of the following three paragraphs, Mr. Theobald prints the first two entirely in italics:
This book proposes the establishment of new principles specifically designed to break the link between jobs and income. Implementation of these principles must necessarily be carried out by the government. . . .
We will need to adopt the concept of an absolute constitutional right to an income. This would guarantee to every citizen of the United States, and to every person who has resided within the United States for a period of five consecutive years, the right to an income from the Federal Government to enable him to live with dignity. No government agency, judicial body, or other organization whatsoever should have the power to suspend or limit any payments assured by these guarantees. . . .
If the right to these incomes should be withdrawn under any circumstances, government would have the power to deprive the individual not only of the pursuit of happiness, but also of liberty and even, in effect, of life itself. This absolute right to a due-income would be essentially a new principle of jurisprudence.
The contributors to this volume have arrived at these extraordinary conclusions not only because they share a number of strange ideas of jurisprudence, of “rights,” of government, and of the true meaning of liberty and tyranny, but because they share a number of major economic misconceptions.
Nearly all of them seem to share the belief, for example, that the growth of automation and “cybernation” is eliminating jobs so fast (or soon will be) that there just won’t be jobs for even the most industrious. “The continuing impact of technical change will make it impossible to provide jobs for all who seek them.” The goal of “jobs for all” is “no longer valid.” And so on.
Ancient Fears of Automation
The fears of permanent unemployment as a result of technological progress are as old as the Industrial Revolution in the late eighteenth and early nineteenth centuries. They have been constantly reiterated in the last 35 to 40 years and as often completely refuted. It is sufficient to point out here that not only has the average unemployment of slightly less than 5 per cent in the last twenty years not been growing, and that two-thirds of the jobless have usually remained so for periods of not more than ten weeks, but that the total volume of employment in the United States has reached a new high record in nearly every one of these years.
Even if it were true, as the authors of the guaranteed income proposal contend, that the American free enterprise system will soon become so productive that more than anybody really wants can be produced in half the time it takes now, why would that mean the disappearance of jobs? And how could that justify half the population’s, say, being forced to work forty hours a week to support the other half in complete idleness? Why couldn’t everybody work only in the mornings? Or half in the mornings and the other half in the afternoons at the same machines? Or why could not some people come in on Mondays, others on Tuesdays, and so on? It is difficult to understand the logic or the sense of fairness of those who contend that as soon as there is less to be done some people must be supported in idleness by all the rest.
“An Absolute Right”
But that is precisely the contention of the advocates of the guaranteed annual income. These handout incomes are to be given as “an absolute constitutional right,” and not to be withheld “under any circumstances” (Theobald’s italics). This means that the recipients are to continue to get this income not only if they absolutely refuse to seek or take a job, but if they gamble the handout money away at the races or spend it on prostitutes, pornography, whiskey, cigarettes, marijuana, heroin, or whatnot. They are to be given “sufficient to live in dignity,” and it is apparently to be no business of the taxpayers if a recipient chooses nonetheless to live without dignity, and to devote his guaranteed leisure to gambling, dissipation, drunkenness, debauchery, dope addiction, or even a life of crime. “No government agency, judicial body, or other organization whatsoever should have the power to suspend or limit any payments assured by these guarantees.” This is surely a “new principle of jurisprudence.”
Unrealistic Cost Estimates
How much income do the guaranteed-income advocates propose to guarantee? They differ regarding this, but practically all of them think the government should guarantee at least what they and government officials call the “minimum maintenance level” or the “poverty-income line.” The Social Security Administration calculated that the 1964 poverty-income line for non-farm individuals was $1,540 a year. A non-farm family of four was defined as poor if its money income was below $3,130. The Council of Economic Advisers calculated that by this standard 34 million, or 18 per cent, of our 190 million 1964 population were living in poverty. This is in spite of the $40 billion total spent in welfare payments, of which it estimated that $20 billion (in the fiscal year 1965) went to persons who were, or would otherwise have been, below the poverty-income line.
The official “poverty-income line” is constantly rising, and in spite of the smaller number of persons officially estimated to be poor, Federal payments to them have been rising even faster. According to President Johnson’s annual budget message of January 29, 1968, “there remain about 29 million poor. In fiscal year 1969, Federal outlays which aid persons below the poverty line (for example, a family of four with an annual income under $3,335) are estimated to total $27.7 billion. This represents an increase of $3.1 billion over fiscal year 1968 and $15.2 billion over 1963.”
How much would a guaranteed-income program cost the taxpayers? This would depend, of course, on how big an income was being guaranteed. Many of the income-guarantee advocates think that a guarantee merely of the poverty-line income would be totally inadequate. They appeal to other “minimum” budgets put together by the Social Security Administration or the Bureau of Labor Statistics, some of which run up to nearly $6,000 for a family of four.
One of the contributors to the Theobald symposium makes the following estimates of the cost to the taxpayers of different guarantees:
For a “minimum maintenance” level of $3,000 a year: total cost, $11 billion a year.
For an “economy” level of $4,000: $23 billion a year.
For a “modest-but-adequate” level of $5,000: $38 billion a year.
These figures are huge, yet they are clearly an underestimate. For the calculations take it for granted that those who could get government checks to bring their incomes to $3,000 or $5,000 a year, as an absolute guarantee, without conditions, would continue to go on earning just as much as before. But, as even one of the contributors to the Theobald symposium, William Vogt, remarked: “Those who believe that men will want to work whether they have to or not seem to have lived sheltered lives.”
Who Would Do the Work?
Vogt goes on to point out, with refreshing realism, how hard it is even today, before any guaranteed income, to get people to shine shoes, wash cars, cut brush, mow lawns, act as porters at railroad or bus stations, or do any number of other necessary jobs. “Millions of service jobs are unfilled in the United States, and it is obvious that men and women will often prefer to exist on small welfare payments rather than take the jobs. . . . If this situation exists before the guaranteed income is made available, who is going to take care of services when everyone can live without working—as a right?”
Who is, in fact, going to take the smelly jobs, or any low-paid job, once the guaranteed income program is in effect? Suppose, as a married man with two children, your present income from some nasty and irregular work is $2,500 a year. Comes the income guarantee, and you get a check in the mail from the government for $900. This is accompanied by a letter telling you that you are entitled as a matter of unconditional right to the poverty-line income of $3,400, and this $900 is for the difference between that and your earned income of $2,500. You are happy—for just a day. Then it occurs to you that you are a fool to go on working at your nasty job or series of odd jobs for $2,500 when you can stop work entirely and get the full $3,400 from the government.
So the government would, in fact, have to pay out a tremendous sum. In addition, the program would create idleness on a huge scale. To predict this result is not to take a cynical view, but merely to recognize realities. The beneficiaries of the guaranteed income would merely be acting sensibly from their own point of view. But the result would be that the more than one-seventh of the population now judged to be below the poverty line would stop producing even most of the necessary goods and services it is producing now. The unpleasant jobs would not get done. There would be less total production, or total real income, to be shared by everybody.
The Shifting “Poverty Line”
But so far we have been talking about the effect of the guaranteed income on the recipients whose previous incomes have been below the poverty line. What about the other six-sevenths of the population, whose incomes have been above it? What would be the effect on their incentives and actions?
Suppose a married man with two children found at the end of a year that he had earned $3,500? And suppose he found that his neighbor, with the same-sized family, had simply watched television, hung around a bar, or gone fishing during the year and had got a guaranteed income from the government of $3,400? Wouldn’t the worker begin to think that he had been something of a sap to work so hard for a mere $100 net, and that it would be much better to lead a pleasantly idle life for just that much less? And wouldn’t the same thing occur to all others whose earned incomes were only slightly above the guarantee?
It is not easy to say how far above the guarantee any man’s income would have to be for this consideration not to occur to him. But we would do well to remember the following figures: The median or “middle” income for all families in 1966 was $7,436. The median income for “unrelated” individuals was $2,270. People with these incomes or less, i.e., half the population, would be near enough to the guarantee to wonder why they weren’t getting any of it.
Someone Must Pay
If “everybody should receive a guaranteed income as a matter of right” (and the italics are Mr. Theobald’s), who is to pay him that income? The advocates of the guaranteed income gloss over this problem. The money, they tell us, will be paid by the “government” or by the “State.” “The State would acknowledge the duty to maintain the individual.”
The State is a shadowy entity that apparently gets its money out of some fourth dimension. The truth is, of course, that the government has nothing to give to anybody that it doesn’t first take from someone else. The whole guaranteed-income proposal is a perfect modern example of the shrewd observation of the French economist, Bastiat, more than a century ago: “The State is the great fiction by which everybody tries to live at the expense of everybody else.”
Rights vs. Obligations
None of the guaranteed-income advocates explicitly recognizes that real “income” is not paper money that can be printed at will, but goods and services, and that somebody has to produce these goods and services by hard work. The proposition of the guaranteed-income advocates, in plain words, is that the people who work must be taxed to support not only the people who can’t work but the people who won’t work. The workers are to be forced to give up part of the goods and services they have created and turn them over to the people who haven’t created them or flatly refuse to create them.
Once this proposition is stated bluntly, the spuriousness in all the rhetoric about “the absolute constitutional ‘right’ to an income” becomes clear. A true legal or moral right of one man always implies an obligation on the part of others to do something or refrain from doing something to ensure that right. If a creditor has a right to a sum of money owed to him on a certain day, the debtor has an obligation to pay it. If I have a right to freedom of speech, to privacy, or to the ownership of a house, everyone else has an obligation to respect it. But when Paul claims a “right” to “an income sufficient to live in dignity,” whether he is willing to work for it or not, what he is really claiming is a right to part of somebody else’s earned income. What Paul is asserting is that Peter has a duty to earn more than he needs or wants to live on so that the surplus may be seized from him and turned over to Paul to live on.
What the guaranteed-income advocates are really saying, behind all their high-sounding phrases and humanitarian rhetoric, is something like this: “Look, we find ourselves with this wonderful apparatus of coercion, the government and its police forces. Why not use it to force the workers to pay part of their earnings over to the non-workers?”
Lack of Understanding
We can still believe in the sincerity and good intentions of these people, but only by assuming an appalling lack of understanding on their part of the most elementary economic principles. “This book,” writes Robert Theobald, “proposes the establishment of new principles specifically designed to break the link between jobs and income.” But we cannot break the link between jobs and income. True income is not money, but the goods and services that money will buy. These goods and services have to be produced. They can only be produced by work, by jobs. We may, of course, break the link between the job and the income of a particular person, say Paul, by giving him an income whether he consents to take a job or not. But we can do this only by seizing part of the income of some other person, say Peter, from his job. To believe we can break the link between jobs and income is to believe we can break the link between production and consumption. Goods have to be produced by somebody before they can be consumed by anybody.
Claimants to Be Trusted, Taxpayers to Be Examined
One reason for the agitation for an unconditionally guaranteed income is the dislike of some social reformers for the “means test.” The means test is disliked on two grounds: that it is “humiliating” or “degrading,” and that it is administratively troublesome—“a comprehensive examination of means and resources, applicant by applicant.” The guaranteed-income advocates think they can do away with all this by using the “simple” mechanism of having everybody fill out an income tax blank, whereupon the government would send a check to everybody for the amount that his income, so reported, fell below the government’s set “poverty-line” minimum.
The belief that this income tax mechanism would be administratively simple is a delusion. Before the introduction of the withholding mechanism, before the reporting requirements for payments made to individuals in excess of $600 in any year, and the still more recent requirements for the reporting of even the smallest interest and dividend payments, the income tax was in large part a self-imposed tax. The government depended heavily on the taxpayer’s conscientiousness and honesty. To a substantial extent it still does.
The government can check the honesty of individual returns only by a random or arbitrary sampling process. It is altogether probable that more evasion and cheating go on in the low income tax returns than in the high ones—not because the big-income earners are more honest, but simply because their chances of being examined and caught are higher. The amount of concealment and falsification that would be practiced by persons trying to get as high a guaranteed income as possible would probably be enormous. To minimize the swindling the government would have to resort to the same case-by-case and applicant-by-applicant process as it does to administer current relief, unemployment insurance, and Social Security programs.
Is a means test for relief necessarily any more humiliating than the ordeal that the taxpayer must go through when his income tax is being examined—when every question he is asked and record he is required to provide implies that he is a potential crook? If the reply is that this inquisition is necessary to protect the government from fraud, then the same reply is valid as applied to applicants for relief or a guaranteed income. It would be a strange double standard to insist that those who were being forced to pay the guaranteed income to others should be subject to an investigation from which those who applied for the guaranteed income would be exempt.
In short, to prevent the worst scandals and injustices, even by the standards of the guaranteed income’s advocates, some test of need would be inescapable. If we fixed things so that there was no loss of dignity or self-respect whatever in being idle and taking a handout, then there would be no gain in dignity or self-respect in working and earning one’s own living. It goes without saying that any need test or means test should be administered without any unnecessary infringement of the privacy or dignity of the person or family concerned, but such a test would still have to be at least as careful and thorough as a typical income tax examination.
Comparison with the income tax may also remind us of some of the real complications that the guaranteed-income and “negative-income-tax” proposals gloss over. Some of these complications were almost accidentally brought out by Dr. Joseph A. Pechman, director of economic studies for the Brookings Institution, in his testimony of June 13, 1968, before a subcommittee of the Congressional Joint Economic Committee. It is important to keep in mind that Dr. Pechman was testifying in favor of the guaranteed income, but was earnestly considering some of the “anomalous situations” that might arise under it.
“For example,” he pointed out, “an individual owning $100,000 worth of IBM stock receives cash dividends of less than $1,000 annually.” Should such a person, if this were his only income, receive, say a $2,-400 a year annual handout to bring his family’s income up to the $3,400 poverty-line level? Even Dr. Pechman was inclined to think not. But he did apparently think that an individual who received only $1,000 from not more than $25,000 worth of bonds or stock (or other assets of the same market worth) should get this supplementary income.
Most of us, I think, would question this judgment. Among the dissenters, I am confident, would be the man who had received only $1,000, but entirely in wages, and the man who had received $3,401 during the year, also entirely in wages—neither of them with any capital assets to speak of, and certainly not a nest egg of $25,000.
But this is only one of a score of major difficulties raised by the simplistic proposal for a guaranteed income. The income tax mechanism would be irrelevant to the real problem with which the guaranteed-income advocates profess to be concerned. For the applicants would presumably be reporting last year’s income, which would have no necessary relation to their present need. An applicant’s income in the previous year or other previous period might be much higher or much lower than it is today. The process would not meet present emergencies, such as illness or temporary loss of employment. The guaranteed-income payment might either come too late or prove unneeded or excessive.
When such difficulties are pointed out to them, the guaranteed-income champions quickly improvise amendments. Revised income estimates for the current year might be made quarterly, say. But to meet the cash needs of the officially designated poor, the government’s payments would have to be made monthly or even weekly, and in the month or week in which the actual need existed, not later. The guaranteed-incomers have now started to talk of monthly revisions of income estimates, of payments of arrears, of reimbursements to the government for overpayments, etc. Putting aside the question of how realistic it is to talk of getting 30 million poor to return overpayments made to them, we have only to think of the administrative nightmare of payment adjustments, examinations, verifications, and so on, of this “simple” income tax plan.
The Insistence on Cash
A word needs to be said at this point, also, about the insistence of the guaranteed-income advocates that the government make its relief payments in cash. They rest this insistence on a spurious libertarian argument. The only trouble with the poor, they smilingly argue, is lack of money. We should therefore give them this money, and not attempt to dictate how and on what they should spend it (let alone give them relief in kind), because we should not interfere with their liberty to spend their government cash but “let them make their own mistakes.”
The trouble with this argument is that it is precisely because so many of the poor have shown an incapacity for knowing how to spend as well as how to earn money that they suffer as many of the pangs of poverty as they do. Cash is the very last thing to be given to a compulsive gambler, a drunkard, or a drug addict. As soon as he has gambled the money away, or spent it on whiskey or heroin, is the government to telegraph him more? But if it doesn’t, how is it to see that he and his family get proper nourishment, or that he has enough left over for the rent, or that his family are decently dressed, or that his children are properly educated? This is the kind of central problem that must arise if all the poor are to be indiscriminately handed cash incomes, not only regardless of whether they are willing to work or not, but of whether or not they show any responsibility or common sense in what they spend the money on.
I recently found an encouraging sign that a turn of thought may be coming on this subject, at least in England, and that some people may begin to recognize that our forefathers’ policies with regard to relief were not the result merely of blindness and cruelty. In its leading editorial of September 7, 1968, the London Daily Telegraph wrote:
The trouble is that if the poorest are too well cared for by cash handouts from the State they may never have any incentive to get their feet on the next rung of the economic ladder. So why not give them, say, food, fuel, and clothes for their children in kind rather than everything in cash? There would then be the assurance that the help was being properly directed. And if the recipients were not well pleased with such paternalism, they would have the incentive to work instead. Some such radical rethinking is long overdue.
Let me add that the argument that we must respect the liberty of the poor by giving them handouts solely in cash is spurious from still another standpoint. It overlooks the liberties of the industrious and prudent people from whom money is being either withheld or seized, in order to pay the cash handouts. It makes no sense to preserve the “liberty” of the irresponsible at the expense of the liberty of the responsible.
Old Subsidies Never Die
One of the main selling arguments of the guaranteed-income advocates is that its net cost to the taxpayers would not be as great as might appear at first sight because it would be a substitute for the present “mosaic” or “rag bag” of measures designed to meet the same goal—Social Security, unemployment compensation, Medicare, direct relief, free school lunches, food stamp plans, farm subsidies, housing subsidies, rent subsidies, and all the rest.
Neither the record of the past nor a knowledge of political realities supports such an expectation. One of the main selling arguments in the middle Nineteen Thirties, first for unemployment insurance and later for Social Security, was that these programs would take the place of and eliminate the need for the various relief programs and payments then in existence. But in the last thirty years these programs have continued to grow year by year with only minor interruptions.
Let me remind the reader of some of the comparisons of welfare expenditures in the preceding chapter. In spite of the Federal Social Security program, the amount of public aid alone paid out by the States and localities has grown from $3.3 billion in 1935 to about $46 billion in 1968. The Federal Government estimated the number of people on direct relief in the fiscal year 1969 at 8.8 million, or 60 per cent more than the number twelve years ago. “Federal Aid to the Poor” tripled in nine years from $9.5 billion in i960 to $27.7 billion in fiscal 1969. And when we throw in Social Security and all the rest, the total annual welfare costs that fall on the Federal Government, States and localities combined come to the staggering total for fiscal 1969 of more than $114 billion.
So we may expect not only that the guaranteed income would be thrown on top of all existing welfare payments (we can expect a tremendous outcry, plus demonstrations and riots, against discontinuing any of them), but that demands would arise for constant enlargement of the guaranteed amount. If the average payment were merely the difference between an assumed “poverty-line” income of, say, $3,400 and what the family had earned itself, all heads of families earning less than $3,400 would either quit work or threaten to do so unless they were given the full $3,400, and allowed to “keep” whatever they earned themselves. And once this demand was granted (in an effort to avoid the wholesale idleness and pauperization that would otherwise occur), the people whose earnings were just above the government minimum, or less than twice as much, would point out how unjustly they were being treated. And the only “logical” and “fair” stopping place, it would be argued, would be to give everybody the full minimum of $3,400 no matter how much he was earning or getting from other sources.
Anyone who thinks such a prediction far-fetched need merely recall how we got into the present system of paying everybody over 72 Social Security benefits regardless of his current earnings from other sources, and paying benefits to every retired person over 65 regardless of the size of his unearned income from other sources. By the same logic, the British government pays comprehensive unemployment, sickness, maternity, widowhood, funeral and other benefits, and retirement pensions, regardless of need or the size of the recipient’s income. The demand for universal “childrens’ allowances” or “family allowances” is also based on this logic.
Incentive Undermined
I should like to return here to the question of incentives. I have already pointed out how the guaranteed-income plan, if adopted in the form that its advocates propose, would lead to wholesale idleness and pauperization among nearly all those earning less than the minimum guarantee, and among many earning just a little more. But in addition to the erosion of the incentive to work, there would be just as serious an erosion of the incentive to save. The main reason most people save is to meet possible but unforeseeable contingencies, such as illness, accidents, or the loss of a job. If everyone were guaranteed a minimum cash income by the government, this main incentive for saving would disappear. The important habit of saving might disappear with it.
The more affluent minority, it is true, also save toward a retirement income in old age or for supplementary income in their working years. But with the prevalence of a guaranteed-income system, this type of saving also would be profoundly discouraged. This would be certain to mean a reduction in both the nation’s capital accumulation and the investment in more and new and better tools, plants and equipment upon which all of us depend for increased national productivity, increased real wages, more lucrative employment, and economic progress in general. We might even enter an era of net capital consumption. In other words, the long-term effect of a guaranteed-income plan would be to increase poverty, not to reduce it.
It is important to point out that to be concerned with the destructive effects of a guaranteed-income program on the incentives of people to work and save, is not to pass a wholesale moral judgment on the present poor. We must avoid on the one hand the sweeping assumption, sometimes made by conservatives, that the poor have no one to blame for their poverty but themselves, and yet resist on the other hand the frequent sweeping “liberal” assumption that all the poor or jobless are poor or jobless “through no fault of their own.” The only realistic presumption is that some people are poor or jobless through no fault of their own, that some are poor or jobless entirely through fault of their own, but that the great majority are poor or jobless through various complicated mixtures of misfortune and personal mistakes or shortcomings.
These mixtures differ in each case, ranging from those in which misfortune predominates to those in which personal shortcomings predominate. If we must simplify, we come back to the old Victorian distinction between the “deserving” and the “undeserving” poor. People today are justifiably reluctant to state the distinction in moral terms. Nevertheless, the distinction between those who are trying to cure their poverty by their own efforts, and those who are not, is vital for any workable solution of the problem of poverty. The central vice is that they ignore this distinction. The result of all the guaranteed-income and “negative income tax” schemes is that these schemes would destroy incentives on a wholesale scale, and therefore have the opposite of their intended effect.
It is not merely the effect of guaranteed-income proposals in undermining the incentives of those earning less than the guarantee that we need to be concerned about, but the effect of such proposals in undermining the incentives of those much further up in the income scale. For they would not only be deprived of the benefits that they saw millions of others getting. It is they who would be expected to pay these benefits, through the imposition upon them of far more burdensome income taxes than they were already paying. If these taxes were steeply progressive in proportion to income, as is probable, they would discourage long hours and unusual effort.
It is difficult to make any precise estimate of the effect of a given income tax rate in discouraging or reducing work and production. Different individuals will, of course, be differently affected. The activities of a man whose whole income comes in the form of a single salary from a single job will be differently affected than those of a surgeon, a doctor, a writer, an actor, an architect, or anyone whose income varies with the number of assignments he is willing to undertake or clients he is willing to serve.
What we do know is that the higher income tax rates, contrary to popular belief, just don’t raise revenue. In the 1969 fiscal year, individual income taxes were estimated to be raising $81 billion (out of total revenues of $136 billion). Yet the tax rates in excess of 50 per cent have been bringing in less than $400 million a year—less than 1 per cent of total income tax revenues and not enough to run even the present government for a full day. (In other words, if all the personal income tax rates above 50 per cent were reduced to that level, the loss in revenue would be less than about $400 million.) If these rates above 50 per cent were raised further, it is more probable that they would raise less revenue than more. Therefore, it is the income tax rates on the lower and middle incomes that would have to be raised most, for the simple reason that 80 per cent of the personal income of the country is earned by people with less than $20,000 gross incomes.
Poverty for All
It is certain that high income tax rates discourage and reduce the earning of income, and therefore the total production of wealth, to some extent. Suppose, for illustration, we begin with the extreme proposal that we equalize everybody’s income by taxing away all income in excess of the average in order to pay it over to those with incomes below the average. (The guaranteed-income proposal isn’t too far away from that!)
Let us say that the present per capita average yearly income in the United States is about $3,000. Then everybody who was getting less than that (and would get just that whether he worked or not) would, of course, as with the guaranteed-income proposal, not need to work productively at all. And no one who was earning more than $3,000 would find it worth while to continue to earn the excess, because it would be seized from him in any case. More, it would soon occur to him that it wasn’t worthwhile earning even the $3,000, for it would be given to him in any case; and his income would be the same, whether he worked or not. So if everybody acted under an income equalization program merely in the way that seemed most rational in his own interest considered in isolation, none of us would work and all of us would starve. We might each get $3,000 cash (if someone could be found to continue to run the printing machines just for the fun of it), but there would be nothing to buy with it.
A less extreme equalization program would, of course, have less extreme results. If only 90 per cent of all incomes over $3,000 were seized and people could keep 10 cents of every “excess” dollar they earned, there would of course still be a tiny incentive to earn a little more. And if everyone could keep 25 cents out of every dollar he earned above the $3,000, the incentive would be slightly higher.
But every tax or expropriation must reduce incentives to a certain extent. The effect of the guaranteed-income proposal would be practically to wipe out incentives for those earning (or even wanting) no more than the guarantee, and greatly to reduce incentives for all those earning or capable of earning more than the guarantee. Therefore the guaranteed income would reduce effort and earning and production. It would violently reduce the national income (measured in real terms). And it would reduce the standard of living for the taxpaying five-sixths of the population. The government might be able to pay out the specified amount of guaranteed dollar “income,” but the purchasing power of the dollars would appallingly shrink.
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