Thursday, October 18, 2007

The McGovern-Clinton Demogrant

John Hinderaker thought this idea was awful:

McGovern ran on a far-left platform that included a proposal that at the time was deemed risible - the "demogrant." The demogrant program was simple: the federal government would write a check for $1,000 to every American … But the demogrant has returned! Today, Hillary Clinton unveiled her own demogrant proposal: every newborn American baby will get a birthday present from the federal government in the form of a $5,000 check … It occurred to Scott that Hillary's proposal is basically a demogrant, adjusted for inflation. Out of curiosity, he went here and did the math. The result was striking. McGovern's $1,000 in 1972 was worth, in 2006 dollars, $4808.90. Add a few bucks for 2007, and Hillary's baby present is a dead ringer for the demogrant proposal that was laughed off the stage in 1972!

Guess which conservative economist gave this idea some support?

Greg Mankiw directs us to a paper by Jon Gruber and Emmanuel Saez entitled The Elasticity Of Taxable Income: Evidence And Implications. Greg emphasized this portion of their paper:

the optimal system for most redistributional preferences consists of a large demogrant that is rapidly taxed away for low income taxpayers, with lower marginal rates at higher income levels.

He adds:

If I were a redistributionist, here is what I might propose: A large fixed payment to every citizen, paid at the beginning of every month, financed by a proportional tax on consumption, such as a value-added tax.

When Senator Clinton floated her demogrant, Greg wrote:

The big problem with U.S. fiscal policy is that, over the years, politicians of both parties have voted for unfunded entitlements for the elderly, which will (unless scaled back) result in substantially higher taxes on future generations … How might this be funded? There are only three groups that could be asked to pay for the new entitlement with higher taxes (or lower benefits): the current elderly, those currently of working age, or the same future generations who are getting the new benefit and are slated to pay for existing unfunded entitlements. Which group do you think Senator Clinton has in mind?

It’s a fair question – but it does seem, the demogrant is not such a crazy idea if it is done in a fiscally neutral way. Of course, fiscal neutrality never stopped the GOP candidates for President from advocating tax cuts.


Anonymous said...

It's not a demogrant. A demogrant is a transfer of a fixed amount of cash to all persons. Mankiw is referring to a negative income tax, of Milton Friedman/James Tobin vintage.

The Baby Bond is an Individual Development Account. It's not a check or a demogrant. It's an account that grows over time. You can't touch it until later. The dual rationale is a) it advances equal opportunity, and b) knowledge of the account, perhaps coupled with conditions for its liquidation, can promote constructive individual behavior and a sense of well-being.

Ackerman and Alstott in the Stakeholder Society motivate a BB type scheme in a very convincing way.

-- u know who

Anonymous said...

Another point -- in principle the demogrant is an annual transfer.

Anonymous said...

The idea of direct cash payments to citizen families is surprisingly alive, and apparently doing well, in the form of the FairTax Act of 2007 - which would do away with the income tax (individuals and business), theIRS, tax returns by non-business-owning individuals, and replace these, and other taxes, with a national consumption tax paid by consumers, once upon a new retail purchase. Some believe that the income tax must fail, and that enactment of the FairTax must occur in order to stave off economic catastrophe.