The dumbest idea in liberal policymaking that refuses to die

Death to phase-ins

Money as a lure.
(Image credit: Illustrated | Tetiana Lazunova/iStock, frikota/iStock, MaksimYremenko/iStock, vectorplusb/iStock)

One of the worst neurotic tics in liberal policymaking has an extremely boring name: the phase-in schedule. It refers to how programs like the Child Tax Credit pay nothing to people who have no labor income, but phases in as people make more money working. For instance, a new proposal from Leonard Berman of the Tax Policy Center for an expansion of the Earned Income Tax Credit would double someone's labor income up to a benefit level of $10,000, after which it would plateau infinitely.

Phase-ins are perhaps the single most idiotic and unjustifiable idea in the entire liberal policy toolkit, and that is saying a lot. They must be killed.

The first and biggest problem here is that phase-ins deliberately exclude the poorest people in the country. Poverty in the U.S. is overwhelmingly caused by people being unable to work, because capitalist institutions only distribute income to workers and owners of capital. As a result, a huge super-majority of poor people are either children, students, disabled, unemployed, or caring for someone else. Berman bizarrely calls his idea a "universal" EITC, but in reality requiring labor income to claim it renders the population most in need of help ineligible. It's a moral atrocity.

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Second, phase-ins make programs less effective, more complicated, and more expensive to administer. You need both a surveillance bureaucracy, to make sure people in the phase-in zone aren't claiming improper benefits, and an education program, to get eligible people aware of the benefit. All that means spending money on administration instead of benefits — while others don't get the benefit at all. About 20 percent of people who could get the existing EITC do not (though it is a lot more complicated than Berman's proposal, to be fair).

There is not even the meager benefit of increasing labor supply. For a while it was thought that a big expansion of the EITC in the '90s boosted the labor force participation rate of single women with children, but as the People's Policy Project's Matt Bruenig writes, new research shows this was almost certainly a fluke. Multiple other state-level EITC expansions did not have this effect, and it's hard to imagine regular people understanding its hideously complicated eligibility schedule anyway. In any case, encouraging single mothers to work without universal free child care in place is not necessarily a good thing. Too many mothers already are forced to leave their kids in their cars or dangerous cheap daycare centers because they must work.

It's not hard to guess where phase-ins come from. Basic capitalist ideology, from the days of David Ricardo to neoliberal thinkers today, requires that "'you shall earn your bread in sweat' — unless you happen to have private means." In this framework, welfare income is assumed to be less legitimate than labor income, and poverty is assumed to be always caused by laziness or a lack of skills. Therefore, paying welfare to people who do not work at all will only encourage shirking. This kind of thinking has long had a death grip on the ideology of both parties — witness President Clinton, who sounded just like Paul Ryan in 1996 when announcing that his welfare reform bill would help poor people earn "a paycheck, not a welfare check."

Even after welfare reform was revealed as a catastrophic disaster, liberals are still timidly excluding poor people from their welfare proposals. It's pathetic.

This policy discussion desperately needs an injection of social-democratic confidence. The Nordic countries demonstrate beyond question that a clean, efficient welfare state is built on straightforward, universal programs. Poor people get the goodies they need, and there is little need for surveillance and education because everyone is automatically eligible. Distributional issues, like rich people benefiting too much from any program, are dealt with in the proper way — in the tax code. Instead of cutting the rich out of every program individually (costing lots of money and effort), their taxes are just nudged up across the board. The resulting programs are politically stronger, far simpler to explain and sell, and far easier to administer.

The United States, by contrast, has by far the worst welfare system in the rich world. Our obsession with obscure tax credits and fear of simple welfare payments makes it both meager, full of holes, and extremely expensive — costing nearly as much as Sweden's welfare state in percentage of GDP while offering nowhere near the benefits. If we could redirect existing spending in sane ways, America would be a much better place to live. Let's start by destroying the phase-ins.

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