Diluted UBI about to hit reeling LA hard

Louisiana’s problems will multiply as for the next 12 months the nation takes one step closer to a universal basic income.

This week, households with children can start receiving child tax credit monies courtesy of legislation rammed through Congress by its slender majority of Democrats and signed by their own Pres. Joe Biden. It provides $3,000-$3,600 in free (read: from increased taxes or debt) money to upper middle-class and below households per child, depending on age, with monthly installments available for half through the end of the year. Those invested in the idea, such as Louisiana’s Democrat Rep. Troy Carter, already shill it as great policy.

Far from it, and not because it's not a perfect universal basic income, or the idea that every citizen should receive a periodic government cash grant without strings attached. It tapers beginning at about six figures and disappears at a quarter million dollars in income, it only lasts a year with an option to receive the first half of payments in six monthly installments, and obviously the family must have a dependent child younger than 18.

So, call it a temporary semi-universal basic income. As 33,464,000 families in America have children under 18, and almost all of them qualifying on income, this means close to a third of Americans live in households that can take partial or full advantage of the credit – which is refundable, meaning if tax liability doesn’t exceed the credit, the household gets the excess anyway.

A UBI has a number of philosophical and practical drawbacks when used as a supplement to welfare, even as diluted examples operate in public policy. The ordinary form of the CTC is one such, the form to which it will revert next year unless Democrats get their way and extend it further. Set at a lower level and most nonrefundable, a refundable portion exists but much smaller for many fewer people. Thus, for the next year the typical recipient is expected to get twice as much from the credit, almost all the over $2,000 difference from the refundable portion.

Its immediate legacy comes in the form of a reduced incentive to work. Consider someone working at over twice the minimum wage, $15 an hour, with two children under six. That equates to $600 a month, or 40 hours (more, considering paycheck deductions) or about a quarter of a month’s wages. And the lower the wage, the greater the substitution effect. Practically speaking, it means less work and especially at the lowest wage levels.

Which means either business activity slows down because workers become scarcer or business becomes less productive because costs go up. And these cost increases largely get passed on to consumers, which results in higher price inflation (already on the march courtesy of Biden policies), eroding buying power … and then seized upon by Democrats to argue for increasing transfer payments even more and creating a never-ending vicious cycle that promotes dependency with more and more people jumping into the wagon while fewer pull it.

Louisiana particularly is prone to these pernicious effects. It has recovered more poorly than most states from the Wuhan coronavirus pandemic, in part because its economy was geared more towards industries disproportionately impacted by the pandemic, Biden’s war on extractive energy, and Democrat Gov. John Bel Edwards’ needlessly over-restrictive virus policy.

As a result, the latest unemployment rate (May) in the state of 7.2 percent ranked below only several blue state basket cases and (like Louisiana) leisure-industry dependent Nevada. It’s labor force participation rate (May) of 57.1 percent was higher than just a handful of southern and western states. Significantly, only it and Nevada appear in the bottom of both.

Thus, Louisiana not only has fewer able-bodied adults wanting to work than almost any other state, but of that smaller set among the states that wants to they have relatively more difficulty finding work. This perfect storm of able-bodied adults disproportionately sitting out the labor force and lackluster business environment is a recipe for the state’s lagging economy to fall further behind and with that opportunity for citizens.

The institutionalization of a temporary semi-universal basic income will exacerbate these bad trends. Worse, a couple of Democrat big city mayors (LaToya Cantrell in New Orleans and Adrian Perkins in Shreveport) want to implement their own version, doubling down on the deleterious effects. This is the last thing the reeling state needs now, and hopefully Washington Republicans can put a stop to this nonsense next year by blocking any extension.