The cash transfer treatment tested in SIME/DIME, as in the previous income maintenance experiments, consisted of a series of negative income tax plans. A negative income tax is simply a cash transfer program in which there is (a) a maximum benefit (called the guarantee) for which a family is eligible if it has no other income and (b) a rate (called the benefit reduction or tax rate) at which the maximum benefit is reduced as other income rises. The combination of a guarantee and a tax rate defines an income level (called the breakeven level) at which the benefit falls to zero. Families whose incomes rise above this breakeven level no longer receive benefits, although they retain program eligibility and regain benefit entitlement should their income fall below the breakeven level at some future date.
In all the experiments, more than one version of the negative income tax treatment was tested. This was to provide information on how behavioral responses might differ as program structure varied — making the results useful for predicting response to a wide range of cash transfer plans. Table 1 shows the plans tested: three guarantee levels and four tax rates, combined in such a way as to produce 11 negative income tax plans in all. The three guarantee levels for a family of four in 1971 dollars were $3,800, $4,800, and $5,600.(1) The dollar guarantee levels varied with family size (as does the poverty line) with larger families qualifying for higher guarantee levels under a given NIT plan. In the three earlier income maintenance experiments, only constant tax rates were tested (that is, tax rates that remained the same for every level of family income below the breakeven). SIME/DIME tested two constant tax rates: 50% and 70%. In addition to constant tax rates, however, SIME/DIME also tested two declining tax rate schedules. These rates were 80% and 70%, respectively, for the first $1,000 of non-experimental income and then declined by 5 percentage points for each additional $1,000 of non-experimental income.(2)
Table 1. Negative Income Tax Plans Tested in SIME/DIME
|Initial Guarantee(1)||Tax Rate|
|50 percent||70 percent||70 percent
1. 1971 dollars.
A major point to keep in mind about the cash transfer plans tested is that they constituted a rather generous benefit range compared with transfer programs now in place or contemplated in most policy proposals. The SIME/DIME treatments averaged out to a negative income tax plan with a maximum benefit for those with no other income of about 115% of the poverty line and an effective marginal tax rate of about 50%. (The effective marginal tax rate was this low because families assigned to the declining tax plans typically face rather low marginal rates). With respect to breakeven level (that is, the income level below which experimental families receive positive benefits), 88% of the two-parent families had breakeven levels above 150% of the poverty line, and 58% were above twice the poverty line. For female-headed families the proportions were 83% and 43% respectively.(3)
The relative generosity of the average benefit received by experimental families as compared with the average received by the control group can be seen in Table 2, which shows the average amount of experimental and other transfers received over the course of the experiment, expressed in 1971 dollars.(4) It should be noted that, over the life of the experiment, there was a rising income trend among the families independent of the experiment, leading to a decline for both groups in the percentage of families with incomes low enough to receive transfer benefits of any kind.
Table 2. Average Transfers Received by SIME/DIME Families
[In 1971 dollars]
|Experimental Groups||Control Groups|
|Sample Size(1)||Average Transfer||Sample Size||Average Transfer|
|Year||Single Female Heads|
1. The sample sizes for the 5-year sample are in parentheses.
|Note: For experimental families, the transfer total includes SIME/DIME payments plus AFDC, AFDC-UF, and bonus value of food stamps as reported in interviews. For control families, the transfer total includes AFDC, AFDC-UF, and the food stamp bonus value reported in interviews. The husband and wife sample sizes differ because of family splits.|
|Source: Final Report, Volume 1, Part III, Chapter 4, Tables 3.1 and 3.2.|