Love Letter to the IRS
Free Enterprise without Poverty, by Leonard M. Greene, New York: Norton, 1981, 191 pp., $12.95.
With the beginning of a new fiscal year last October, once again politicians, bureaucrats, and the media had focused on the intractable problem of welfare and especially on the dependent class that the government's policies have created. An article by Robert Pear in the New York Times on September 26, for instance, quoted the prediction of a Congressional Budget Office analysis "that the Administration proposals might cause one-third of working welfare recipients to leave the labor force": because of new eligibility rules, these recipients would lose more than they could make from jobs.
There have been proposals to require mothers of small children to look for work and proposals to refuse welfare to anyone who owns $1,000 worth of personal property. This book has a more ambitious proposal, one endorsed by conservative Sen. Barry Goldwater, liberal NAACP Executive Director Benjamin Hooks, and neoconservative Sen. Daniel Patrick Moynihan, who was one of the most active proponents of President Nixon's attempt to institute a guaranteed annual income, the Family Assistance Plan.
In 134 pages of text aimed at the general reader and an almost impenetrable 49-page appendix, "An Analysis of a Taxable Demogrant"—with tables and figures on the expected fiscal impact of his suggestion—Leonard M. Greene proposes a variant on the guaranteed-income idea, which he claims will solve the inherent work disincentives of previous versions. Greene, an economist and mathematician who is the president and founder of the Institute for Socioeconomic Studies, calls his proposal the Graduated Income Supplement. Under the name "Fair Share," it was partially adopted by Sen. George McGovern in his presidential campaign—the suggestion that everyone in the United States be given a $1,000 grant originated with Mr. Greene.
The Graduated Income Supplement, he proposes, would be given to every individual in the country, replacing all welfare benefits, and would be liable to taxation. Thus, it would encourage people to work "by allowing money that is earned to serve as a supplement to welfare benefits rather than as an outright replacement for them." It could abolish the existing duality of systems (welfare and free enterprise), eliminate what Martin Anderson calls "the poverty wall" that penalizes a welfare recipient who gets a job, and perhaps even save the taxpayer money.
How would it do all this? By bringing everyone under the munificent, the glorious, the efficient IRS. "Administratively, the Internal Revenue Service could replace the welter of agencies and battalions of bureaucrats now employed in administering income-support programs, especially welfare," Greene writes. "The IRS is today generally considered to be far more efficient than are agencies concerned with the administration of welfare. Each year it processes tens of millions of returns and collects and pays out billions of dollars. Because of the widespread belief in the efficacy of its enforcement system, the United States has one of the most efficient tax-collection systems, based mainly on voluntary action." And, he adds, "Administration by the IRS would be simple. Few changes in existing IRS procedure would be needed. It would have to institute monthly reports and payments for the long-term poor."
It is hard to figure out the basis on which Mr. Greene makes his forecasts. He presents no figures on the numbers of various bureaucrats; and his suggestion is to implement the supplement plan in a gradual way—cash out in-kind programs piecemeal and replace them with, one supposes, small supplements. Yet, he says sweepingly, the plan can be self-financing: "Any additional costs under the Graduated Income Supplement would be offset by the considerable savings that could be realized from the elimination of the welfare bureaucracy and the agencies concerned with making a host of other payments." As the Urban Institute in Washington, D.C., said of the claim that President Carter's welfare reform proposal, Program for Better Jobs and Income, would reduce the number of federal and state welfare personnel, "[T]he basis of this estimate is unknown."
Such is Mr. Greene's admiration for the IRS that he thinks the "most attractive aspect" of the idea of a negative income tax (Milton Friedman's proposal that the most efficient way to disperse welfare funds would be for everyone below a certain income level to receive tax money instead of paying it) is that "it would be integrated into the tax system." His main argument for the supplement seems to be that it would integrate the entire population into the free-enterprise system by making everyone a taxpayer. "Use of the same tax rates for the poor that are used for wage earners would provide a universal work incentive. By having one system for all people, we would free the poor from the demoralization that comes with being on the dole." In Greene's view, the present tax rates provide the best of all possible incentive systems:
The integration of all income transfers into the tax system will result in the elimination of elements of the current system which discourage work, because it will provide a simple and fair method of reducing payments as income is earned. After all, we attempt to set income tax rates so that they will not destroy incentives among wage earners.
The book contains some telling examples of welfare inequities and some valuable summaries of the flaws in several other welfare reform plans, as well as historical notes on what went wrong with the McGovern welfare proposals. But little of Greene's information will be new to people who have read Martin Anderson's 1978 book, Welfare, a book that Henry Hazlitt—himself no slouch as a critic of the concept—has labeled "the definitive refutation" of the idea of a guaranteed income, and a book that is nowhere mentioned in Free Enterprise without Poverty. And Greene's uncritical acceptance of the present policies and procedures of the IRS is not only objectionable on moral and civil-liberties grounds, but even on the ground of accuracy.
Free Enterprise without Poverty is promoting the message that our tax system itself can be a welfare reform plan, a message that apparently is impressing some of those interested in the politics of welfare reform. Martin Anderson, now an advisor to President Reagan, had something to say about that in Welfare, too. He pointed out that the marginal tax rates on earned income today, because of the combinations of exemptions, multiple tax liabilities, deductions, and tax credits, "has been so distorted that a graph of the marginal tax rates looks more like a side view of a roller coaster than a professional chart. If the marginal tax rate structure that results from the interaction of all the deductions, exemptions, and special credits were spelled out as one comprehensive reform plan," Anderson concluded, "it would be dismissed as self-evident nonsense." Apparently he overestimated American politicians.
Joan Kennedy Taylor is publications director at the Manhattan Institute.