Hey, two out of three ain’t bad!
Narayana Kocherlakota, president of the Federal Reserve Bank of Minneapolis from 2009 to 2015, is prescribing public policy panaceas to rescue the U.S. economy from the doldrums of the coronavirus pandemic.
If you remember, last time he encouraged the Fed to adopt subzero interest rates. Now he is advocating for tax cuts – and a universal basic income.
He writes:
Eliminate sales tax.(1) Every three months, as long as the unemployment rate exceeded 5%, the government would grant states that reduce sales taxes to zero an amount equal to their quarterly sales tax revenue in 2019. This would cost about $350 billion a year. Keynesians would like it because it encourages spending, by making goods and services cheaper now than in the future (in a way similar to an interest-rate cut). Non-Keynesians would like it because, in their view, it would allow businesses to charge higher prices and hence offer higher wages, drawing people back into jobs.
Eliminate employee payroll taxes.(2) Workers would be free of their portion of the payroll tax until the unemployment rate fell to 5%. This would cost about $500 billion per year. Keynesians would see it as putting more spending money in people’s pockets. Non-Keynesians would see it as an inducement to work, because less of the money would go to taxes. From the non-Keynesian view, the lower tax rate would mean that anyone who is non-employed would be more willing to accept a given wage offer. (The policy could be scaled up in magnitude by making the employee-side payroll tax negative.)
Introduce a temporary uniform basic income. Every adult, regardless of income, would receive $2000 every three months until the unemployment rate declined to 5%. This would cost about $2 trillion per year, and would represent more of a compromise (meaning that neither group would be completely happy with it). Keynesians would like putting money in the hands of the poorest households, which are most likely to spend it — but less excited about giving it to wealthier households that are more likely to save it. Non-Keynesians would prefer it to unemployment benefits, because it’s less likely to keep people away from work(3) — they get the cash whether or not they’re employed.
The first two are reasonable and should be permanent. The third one? Not so much. The U.S. government can’t even afford its current multi-trillion-dollar spending schemes, let alone another multi-trillion-dollar boondoggle waiting to happen.
If a universal basic income substituted the entire welfare state, then perhaps that would be preferable. But that is not what leftists are advocating. They want a UBI that complements the current system, with a couple of changes to show their good faith.
Let’s just leave everyone alone and give the public back their money.
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