Final NYU Tax Policy Colloquium for 2022: Ariel Jurow Kleiman's Fiscal Impoverishment by Taxation

Yesterday (November 29) we had our last session of the year. Ariel Jurow Kleiman presented a forthcoming law review article, Impoverishment by Taxation, along with a related (but broader) book proposal.

While I don't discuss the sessions as such here because they're off the record, just as a quick word I have high aspirations for them that can be challenging to fulfill entirely in practice. Basically I want to combine a stimulating class that will deeply engage the students with a cutting-edge academic seminar that will enlighten and inform all of the participants (myself and the author included). I felt that this year went well, for reasons that had as much to do with the students, and with other participants in the public sessions, as with anything that I or even the authors brought to the table. 

The sessions have evolved over the years (and indeed decades), reflecting the thing's evolution as an institution but also I suppose my changing goals. I used to be a lot more combative, but the more senior you are the less appropriate this is. (Plus I have grown more agnostic about a lot of things.) I think of myself as trying now to be late-career Chris Paul rather than any-stage Russell Westbrook. This requires a deep, strong, effective, and multi-talented team if it is to succeed, but luckily that is what we've had.

Doing it solo the last couple of years is the other big change. While I've enjoyed and benefited from working with all of my co-teachers, doing it this way does leave more air in the room for others to breathe (if I may mangle the metaphor a bit), along with more time for reflection as a byproduct of our having a new paper every 2 weeks rather than weekly. It also allows students to take the class without making as big a sacrifice of other course needs.

Anyway, on to the paper. In addition to being itself interesting, it also helped round out the semester a bit. Generally the papers all concerned inequality. We had looked at high-end economic inequality, and at gender and racial inequality, so it was very appropriate to shift the focus this time to low-end economic inequality.

This week's paper discusses fiscal impoverishment (FI), which arises when people are made poor (or poorer) by paying federal and/or state taxes in excess of the antipoverty public benefits that they receive. FI arises, despite the US fiscal system's overall progressivity, for 3 main reasons:

1) Our fiscal system is not very generous.

2) It imposes a number of first-dollar taxes (i.e., without a zero bracket or its effective equivalent), such as payroll taxes and retail sales taxes.

3) Its coverage on the transfer side is spotty and gap-filled, for reasons that appear to combine the deliberate with the inadvertent. Hence, within a heterogeneous population of low-income individuals and households, some inevitably miss out, even on such benefits as there are.

Fiscal Impoverishment (FI) as a Measure

Proposed fiscal measures can serve one or both of two purposes: the purely analytical or descriptive, and the rhetorical purpose of helping to motivate policy change. This reflects the "scientist versus moralist" choice in one's scholarship that I discussed here with regard to Stanley Surrey and Boris Bittker.

Thus, consider tax expenditure analysis. Although the distinction it addresses actually lies between distributional and allocative objectives, rather than between "taxes" and "spending" as such, it partly aims (and serves) to provide what is simply a more accurate accounting of what (and in a sense "how much") the government is doing. But it also served, at least in Stanley Surrey's hands, as effectively a hit list of provisions that should be eliminated from the income tax code even if they were permitted to re-emerge somewhere else.

FI likewise combines science with enlightened advocacy. The science part is well-illustrated by the old joke about the statistician who says: "My head is in a block of ice and my feet are on fire. On average, I'm very comfortable."

It's a joke because we know that the statistician is wrong. The distribution of outside temperatures for various body parts matters, not just the average.

By analogy, suppose that the fiscal system's average effects, considered for all income levels together, are progressive, inequality-reducing, and poverty-reducing. Taking that as given, it's worse if we have the accountant's problem than if we don't. For example, suppose that people whose market income lies right at the poverty line gain on average 5% after considering both taxes and transfers. It would be better if each of them gained exactly 5% than if (a) half of them lost 50% of their market income, while (b) the other half of them gained 60%. Declining marginal utility alone would tend to support this normative conclusion, and there may be other grounds, too.

FI is not, however, aimed at simply measuring dispersion, even at the bottom of the income scale in particular. It adds two further premises, each subject to challenge from the standpoint of pure "science," albeit each defensible from the standpoint of enlightened advocacy. They are as follows:

        1) The poverty line is (or should be treated as) discontinuously important. Say that the fiscal system's net effect is to reduce your market income by $1. FI counts this as a violation if the loss pushes you below (or further below) the poverty line, but not if it pushes you from $1 above the poverty line right to it. However, while this claimed discontinuity is open to challenge from a "scientific" standpoint, it allows the FI measure to have a dramatic and salient takeaway that might help to motivate desirable policy changes.

        2) Market income is normatively meaningful as a baseline. FI addresses, not where one stands relative to the poverty line after considering taxes and transfers, but how that placement compares to where one stood considering only market income. This seemingly invites the usual Murphy-Nagel critique of market income as lacking normative relevance given (for example) markets' dependence on government's existence and role. Plus FI looks separately just at the fiscal system, and combines the effects of what one might consider separate sovereigns given our federal form of government. But these "scientific" objections do not prevent FI from offering useful and salient information about how fiscal instruments that we can conceptualize separately and change as we like are affecting things.

The paper's discussion of FI also raises a host of interesting measurement issues. It relies on the federal poverty line, based not on a conviction that it is canonically correct but rather as a placeholder that one could separately adjust or replace if one liked. I do think that the measure ought to be regionally adjusted for price-level differences, whether or not actual fiscal rules should be so adjusted, given that it does indeed cost more (say) in NYC than Biloxi to pay for food, rent, heating, etcetera. And there are also measurement issues relating, e.g., to Medicaid benefits and to the accrual during one's working years of expected Social Security retirement benefits. Without seeking to cover all that here, the paper offers cogent arguments for including, say, SNAP benefits that help one to afford the needed calories but not, say, the value to a given individual of national defense protection or a nice park across the street.

As an extension, the paper's arguments might also support measuring what I call regulatory impoverishment. Suppose, for example, that a minimum wage increase leads to an increase in low-wage workers' aggregate income, but that this comes (as it might not) at the price of net job loss. Or suppose that, while there is no net job loss, the increase causes some of the jobs to shift from people in low-income households to (say) high school and college students in high-income households. This is an example of information that would be highly relevant to a policy assessment, and that aggregated information misses.

BROADER POLICY IMPLICATIONS 

        1) How could fiscal impoverishment be reduced? - The most obvious and straightforward approach would be to make the fiscal system more generous towards those at the bottom. However, stating it that way would miss the main takeaway of FI analysis, which pertains to how the fiscal system treats some low-income individuals and households much less favorably than others, leading to adverse effects on some in the face of heterogeneity. 

The main groups that the paper identifies as being disadvantaged on the transfer side today, and thus facing most of the FI, are as follows: the undocumented, childless households, the unemployed, and those whose use of extended kinship relationships (e.g., with cousins or neighbors supplying unpaid care) prevents them from qualifying under child-focused rules. For each of those groups, there are indeed arguments out there for disfavoring them. These arguments are worth noting, in terms of the underlying substantive debate that FI encourages, even though I happen to disagree with each of them.

The undocumented: Here we obviously face issues of immigration policy, which, even in the absence of white supremacist racism, would require analyzing how broadly (or not) we want to limit the fiscal system's generosity, along with access to US wage levels, to those who arrive or stay without being authorized.

Childless households - While I have thought for a long time that US fiscal rules (e.g., for the EITC) are often insufficiently generous to childless households, there are clearly reasons for providing additional benefits to households that have minor children, whose welfare is therefore at stake.

The unemployed - Here we get into such longstanding debates as those concerning TANF work requirements, the UBI vs. EITC approaches, and so forth. I tend not to favor conditioning benefits on having a job (it's like providing reverse insurance for the winners of the job search lottery), but there are arguments for doing so, pertaining e.g. to claims about both externalities and internalities.

Extended kinship relationships - It seems clearly anomalous, and perhaps "unintended," for various childcare benefits to be denied to people because their use of extended networks to provide childcare (in lieu of just the parents plus paid providers) causes them to fall outside the eligibility rules for particular benefits. But there is an underlying administrative issue of needing to direct benefits to the right people (i.e., those who would be most likely to use them on the kids' behalf). So there may be design challenges to think through here even if current law unnecessarily falls short.

    2) Relationship to support for universal basic income (UBI)

From the standpoint of avoiding FI that results from households' heterogeneity across various benefit design dimensions, the obvious answer would seem to be providing a generally available and unconditional UBI. So if FI troubles you that's a point in favor of UBI, and if you favor UBI that may help to make FI seem a salient and relevant measure.

But even if one supports UBI (which is my own inclination), I wouldn't be overly driven by FI as such in determining what the benefit level should be. That might instead be better driven by the standard policy tradeoffs regarding the distributional and incentive effects that it would have if it were set (and funded) at various alternative levels.

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This wraps up my blogposts on the NYU Tax Policy Colloquium for fall 2022. But we'll be back, with blogposts from me after each public session, at the same time and place next year.