Universal Basic Income

• Vivalt, Eva, Elizabeth Rhodes, Alexander W. Bartik, et al., 2024, “The Employment Effects of a Guaranteed Income: Experimental Evidence from Two U.S. States,” NBER Working Paper no. 32719, July.

US federal government transfers to the poor discourage work. Effective tax rates (actual tax rates plus decreased benefits) are about 50 percent for married recipients with children living at the Federal Poverty Level (FPL), according to a March 2019 Health and Human Services study. An ironic manifestation of the problem: Washington, DC, has a program to replace federal benefit reductions resulting from high effective tax rates.

For those who dislike the work disincentives of existing social welfare programs, the answer is a Universal Basic Income (UBI). The benefits would not be means tested. Instead, all recipients (plans vary as to whether recipients are all residents, all adults, or just children) would receive a monthly check that would not vary by the market income of the recipient.

The largest randomized trial of UBI has just been completed in the Dallas and Chicago urbanized regions, and this paper discusses the results. The sample population was people ages 21–40 whose total household income did not exceed 300 percent of the Federal Poverty Level in 2019. A thousand individuals randomized into the treatment group received $1,000 per month for three years, while 2,000 participants randomized to the control group received $50 per month. Participants reported an average household income of about $29,900 in 2019, so the experimental group transfers increased household income by 40 percent.

What happened to labor market behavior in the experiment? Those receiving the $1,000 payment were less employed than the controls (72 percent vs. 74 percent) and worked 1.3 fewer hours per week. For every dollar received in UBI payments, total household income excluding the transfers fell by at least 21¢, and total individual income fell by at least 12¢. People worked less and consumed more leisure.

The authors put the following social science spin on the results: “While decreased labor market participation is generally characterized negatively, policymakers should take into account the fact that recipients have demonstrated—by their own choices—that time away from work is something they prize highly.”

OIRA Regulatory Review

• Hemel, Daniel J., 2024, “Redistributive Regulations and Deadweight Loss,” SSRN Working Paper no. 4627139, May.

In November 2023, the Office of Information and Regulatory Affairs (OIRA), a branch of the Office of Management and Budget, issued a revised Circular A‑4 on how agencies that propose significant new regulations should evaluate their costs and benefits. The circular was last revised in September 2003.

The Fall 2023 issue of Regulation contained a Special Section evaluating potential changes to Circular A‑4, including the introduction of equity considerations. Traditional regulatory cost–benefit analysis ignores equity effects, holding those matters are better addressed through explicit tax-and-transfer programs.

New York University law professor Daniel Hemel argues in this paper that an essential component of the economic analysis of tax-and-transfer programs is the efficiency costs (the negative effects on additional work and savings, i.e., deadweight losses) from taxation. If redistributive benefits of regulation are now to be considered in OIRA analyses, Hemel argues, the costs (the regulatory analogy of deadweight losses) also must be considered. This is particularly true because Circular A‑4 instructs agencies to evaluate the benefits of redistribution using a statistic that values increased consumption for the poor very highly. A 40 percent decrease in the consumption of the rich is valued only as 14 percent as costly as the 40 percent increase in consumption of the poor. Hemel concludes, “Agencies should acknowledge that redistribution is rarely costless, and a full benefit–cost analysis cannot consider the benefits of redistribution while ignoring the costs.”

Deposit Insurance and Uninsured Depositors

• Ohlrogge, Michael, 2024, “Why Have Uninsured Depositors Become De Facto Insured?” SSRN Working Paper no. 4624095, May.

In 2023, three of the four largest commercial bank failures in US history occurred. But uninsured depositors took no losses in any of the failures. Since 2008, uninsured depositors have experienced losses in only 6 percent of US bank failures. The Deposit Insurance Fund has accrued costs of $131 billion, yet total losses of uninsured depositors have been only $190 million.

From 1992 to 2007, Federal Deposit Insurance Corporation resolution costs of failed banks averaged 10 percent of failed bank assets. From 2008 to 2022, when uninsured depositor rescues became ubiquitous, average FDIC resolution costs were 18.2 percent of failed bank assets, an extra $45 billion in additional resolution expenses. Only about $4 billion was transferred to uninsured depositors. The remaining $41 billion was compensation to banks that acquired the failed banks.

In this paper, New York University law professor Michael Ohlrogge argues that Congress should specify that bids for failed banks only include offers for the insured deposits of banks, plus whatever portion of a bank’s assets (loans) a bidder wishes to acquire. After a winning bidder has been determined, the winner could then determine whether it wishes to use its own money to fully compensate uninsured depositors. In this way, if compensating uninsured depositors does indeed preserve enough franchise value to make the cost worthwhile, then the winning bidder can take that action. But the FDIC would not be able to preferentially choose bids simply because they will make uninsured depositors whole.

Property Taxes

• Schleicher, David, 2024, “Your House is Worth More Than They Think: The Strange Case of Property Tax Assessment Regressivity,” SSRN Working Paper no. 4838224, May.

Yale law professor David Schleicher (who co-authored an article on zoning in the Fall 2015 issue of Regulation) has written an interesting review of recent literature about the property tax. Within jurisdictions, relatively expensive properties are underassessed relative to the prices for which they are actually sold, and relatively inexpensive properties are overassessed. Homes in the bottom decile of prices—i.e., the cheapest 10 percent of houses—face an effective tax rate that is more than double what homes in the top decile pay in the same jurisdiction. He coins the phrase Property Tax Assessment Regressivity (PTAR) to describe this phenomenon.

What should we make of PTAR? In the first 15 pages of the paper, Schleicher provides a concise review of the political economy scholarship on property taxes and zoning. In the 1970s, Johns Hopkins University economist Bruce Hamilton argued that zoning turns the property tax into something like a per-capita “head tax,” a price mobile residents pay to buy government services. If local governmental assessment practices declare that inexpensive properties are worth more for tax purposes than they actually are, and that expensive properties are worth less for tax purposes than they actually are, property taxes become more like a head tax even if zoning and other land use tools alone do not completely eliminate intra-jurisdictional changes in housing prices.

Nineteenth century political economist Henry George argued that a tax on land value (rather than buildings) was an efficient tax because it could not be avoided and thus was also like a head tax. If PTAR is caused by a failure of assessors to consider the increased value generated by improvements, it would make the property tax more Georgist. But the empirical literature finds that PTAR is driven by underrating how much the value of a property depends on its neighborhood and block. The tools assessors use to control for neighborhood are too crude to capture block-to-block differences in access to amenities that affect prices. To the extent this is correct, assessors do not adequately assess land and overassess improvements. Thus, PTAR likely makes the property tax less Georgist.

The ownership of a particular home in a particular place is exactly the opposite of diversifying one’s wealth. Dartmouth economist William Fischel argues NIMBYism arises because of the lack of housing wealth diversification and the lack of a market for home value insurance. Schleicher defines insurance in this context as property taxes and assessments rising and falling with real property values. PTAR implies this relationship is attenuated. PTAR reduces the insurance benefits of the property tax.

Schleicher considers PTAR reform. An important insight is that the redistribution of wealth created by more accurate assessments would make multifamily housing more contentious because those units’ property taxes per resident would be lower for the same public services. Under PTAR,

jurisdictions avoid engaging in redistribution from existing residents even if new construction of denser housing leads to a decline in per capita property values. Removing this fiction would create greater pressure among residents inclined to stop redistribution to do so the old-fashioned way—by keeping poorer people out of the jurisdiction entirely. The costs of limiting housing construction on the broader economy are extremely large. So too are the costs of residential segregation by income. One may wish this were not the case—I wish it were not the case!—but if ending PTAR means more NIMBYism, less housing construction, and more segregation, it might be very harmful.