| The dismal science|
“”If we give them the money, we will strengthen their responsibility.
A basic income or citizen's income is a form of transfer payment provided regularly to every citizen by the government. It is somewhat similar to social security, unemployment benefit, or state pension, except everybody receives it whether or not they are in work. In particular, it can be seen as an extension of existing benefit systems, with some advantages and some significant disadvantages.
Despite being widely criticized as an example of socialism, UBI doesn't redistribute ownership of the means of production. It is, however, a wealth redistribution scheme closely related to welfare capitalism.
It has been advocated by various political figures and groups on both the left and right, such as The Green Party of England and Wales on the left, and Charles Murray on the right. It features heavily in the 2020 US presidential election platform of Democrat Andrew Yang, who refers to it as the "Freedom Dividend", as a sort of re-brand to appeal to American voters.
- 1 How it works
- 2 Advantages
- 3 Disadvantages
- 4 Winners and losers
- 5 Specific proposals
- 6 Finland's trial
- 7 Alternatives
- 8 See also
- 9 Notes
- 10 References
How it works
Basically, every week or month you, as an adult citizen of a country, get a check. Or more likely a payment into your bank account. Most proposals suggest it will replace some or all state benefits, including unemployment benefits, pensions, and payments for low-income working people like tax credits and tax-free allowances on income. But proposed levels are significantly below even a full-time minimum wage job (especially one that brings tax credits, etc). The money will come from higher taxes and/or new taxes, so it is essentially a form of income redistribution.
It is simple for the state to administer, with no need for complicated means-testing, and unlike tax credits, employers have nothing extra to fuss over (and your employers don't need to know your personal circumstances). It is easy for people to claim. It is less socially divisive: since everybody receives it there will be no stigma attached. (Maybe.) With the current social security system, people on benefits often lose money when they take up a job because their benefits are removed, meaning they have little incentive to work. It also provides support for non-working parents, carers, and other people who may be unwilling or unable to work but are not fully supported by the existing welfare system.
As well, it encourages a better work-life balance and allows people to do the sort of productive, creative, or socially useful work they want, rather than being shackled to working one or more dead end jobs and struggling to survive on a meager paycheck. These people could also pursue their own educations and study what they want for pure enjoyment's sake. At the same time, it should not be taken to mean that basic income would be a better choice as an alternative to working or even as a good choice in itself. In Spain for example, it has been found that the basic income supplied by the government provided care that is actually below the poverty line.
It's just unfair. It's bad enough that shirkers on benefits are getting my taxes. But you want to give everyone else my money as well, and raise my taxes to pay for it? (This is essentially the objection many people have to all social security benefits.) It provides a disincentive to work because you get money whether or not you work. So why bother?
The economy will collapse and I won't find anyone to give me a massage/cut my lawn/perform Shakespeare/work in my sweatshop. However, people who work will receive more money, and (believe it or not) some people actually like to work. In the case of "performing Shakespeare", many off-broadway stage actors already work for practically nothing, supporting themselves through other jobs; just watch any art house show with fewer people in the audience than the show. Some people even do voluntary work for no money. And the current benefits system is often a disincentive to work: unemployed people who take up a job are sometimes no better off due to reductions in benefits, but if they keep receiving their basic income, it becomes an incentive to work. Nonetheless, while some people may work more, the basic income will almost certainly lead to some people working less. Depending on how you feel about work-life balance, this may be a good or a bad thing. But any basic income requires a certain tax base, so worries about a declining tax base are legitimate (although many people in crap low-income jobs pay little or no income tax).
It takes no account of people's individual needs. Disabled people, people with children, carers, and people in areas with a higher cost of living will all potentially lose out, unless you make the level variable, in which case you lose the advantages that accrue from having a flat rate and everyone eligible. In practice, many proposals include different rates for children and the elderly (see below).
It also costs a lot of money. You're paying every single person in the country a sizeable amount of money, so you need to increase taxes. Which the very rich can probably dodge anyway. A 2012 study in Ireland suggested it could be afforded with a flat 45% income tax rate, although a 1994 study had suggested a rate of 65% would be necessary.
It will lead to higher prices. As people do not have to work under threat of destitution, employers need to offer 'good' wages and working conditions. However, the consequence of better wages, hours and working conditions is higher prices (as employers compensate for higher labor costs).
It will increase involuntary unemployment. This is less likely: the pool of people seeking work is likely to decrease as people voluntarily leave the labour market or reduce their hours and new vacancies are created. The reduction in income for the rich may reduce jobs for the poor if you believe in trickle down economics. But giving lots of people more money will stimulate demand in other areas.
It will lower wages. Hypothetically, if you need less money you may ask for a lower wage, driving down hourly wages more generally. But a reduction in the pool of unemployed labour is likely to drive up wages. A minimum wage would also help. There is likely to be an increase in low-paid self-employed workers (especially in more creative fields), but that will be their choice. And even if your wages were lowered you might not be poorer because of ... the basic income.
It might also increase inflation. All that extra money flooding the economy.
Less incentive to create jobs as taxes are higher.
Doesn't help people out of poverty if it's too low. The argument could then be made to simply make a basic income targeted at the poverty line which would theoretically solve the poverty problem, but a rebuttal could easily be made to say that such a promise would be very expensive for the government to provide. While basic income has been tested in other countries, it has been shown to vary across nations. For example, in Finland, France, and Italy, while it has helped people, it has also hurt those with unemployment insurance benefits and early retirement pensions. By contrast in the UK, perhaps as a result of Brexit and the brouhaha that ensued, lower income families and people have suffered significantly as the basic income was adjusted to be neutral and universal, rather than a targeted one set to meet people's needs. Even with the UK caveat however, there's still no guarantee that people who also need and receive help from other means won't similarly be hit hard. More studies in the UK have also shown that there are adjusted cases involving tax rates where the middle and lower classes will see little to no change while the upper classes are still hit hard, resulting in a net loss for everyone.
If the argument is instead moved to making a targeted basic income designed to help those who need it, then there would need to be an increase in exchange for government spending. The argument goes that more potential workers would theoretically leave the workforce since they would have their needs provided by a generous basic income. However this last line of thought ignores that things may not be mutually exclusive. As seen below in the disadvantages section, there are some people who like to do certain tasks, payment be damned. Additionally, those living on the poverty line can also be weaned off the basic income as time goes by, eventually leaving behind the basic income altogether.
In light of some of these problems, raising minimum wage as well as the goverment helping everyone to get a job might be the more likely and easier answers. There have been studies that show ultimately, that a respectable minimum wage is far more effective at helping people. As well, there are virtually no downsides to providing people with raising minimum wages to a respectable level that takes into account of peoples' needs.
Winners and losers
|This section requires more sources.|
We can estimate the financial effect on different groups, even though the goal of a basic income is not purely economic, and income is not the only cause of happiness.
- The low-waged, especially those working part-time or casually, will get more money, with a nice payment in addition to their salary. At least in the best of all worlds; however, this gain may be offset wholly or partly by lower wages as employers will be able to rely on basic income to make up shortages in pay packages and/or working hours.
- The otherwise-idle, those not working and not eligible for (significant) benefits, from non-working spouses to idle youths. At least if the basic income scheme is truly universal.
- Start-ups prospective entrepreneurs don't have to worry as much about running out of money, especially if their idea has low capital costs. At least if the basic income model provides more than just a bare minimum of what you need to simply pay your bills.
- The rich, paying higher taxes and only getting a small proportion back. Although this will of course depend on the accompanying taxation schemes. There is also the possibility that employers make it back by being able to offer lower wages and more casual employment because their employees can rely on their basic income to make up the shortfall. Such savings are likely to be paid out to shareholders through dividends and stock buybacks, which primarily benefit those rich enough to derive much of their income from stocks and similar investments.
- Small business owners, reduced labor participation rate, particularly for low-wage jobs, could drive up the cost of staffing a small business. However, if the basic income is merely a sum that will only allow people to just about get by, small businesses will likely see their staffing issues remaining unchanged or even improving as employees become willing to make do with a few hours of work or low wages to supplement their basic income.
- Unemployed on benefits, those on unemployment, disability, or state pensions, will see little change in their income as most proposed citizen's wages offer only a modest increase. However, depending on the actual rate paid out in a basic income scheme and whether it is accompanied by legislation scrapping other welfare schemes (something that is often the case), some of the recipients might see their benefits cut.
- Middle-earners, who will pay more taxes but receive an additional payment. Those in a couple where only one partner works may well be better off; others may be worse off depending on levels of taxation and basic income.
- Mom and Pop Shops, a special type of small business owners who generally don't employ too many others to begin with. Depending on whom they usually sell to; if they cater to services that poor people use, they may up doing the best of anyone on these lists.
The Green Party of England and Wales and its sister parties in the UK have a proposal for such a system, which will be paid to every citizen. Children will receive a smaller payment paid to their parents. Disabled people and single parents will get a supplement. The government will continue to pay housing benefit as before, but will consider how it may be combined with the citizen's income. In January 2015 they suggested the level would be more than £72.40 per week, the current rate of jobseeker's allowance (unemployment benefit). This proposal was costed at £240bn per year. This compares to a UK social security budget of £251bn for 2013/14, although the basic income would not replace all this spending.
The Greens, unlike most political parties, aren't interested in ever-increasing economic growth, so even if a basic income causes a slump in national output and everybody stays at home, that will probably have environmental benefits.
Other UK proposals
Various UK thinktanks have also considered it. The New Economics Foundation proposed £48 per week and left-wing thinktank Compass suggested £60; both of these would largely be funded by increasing tax paid by low-earners by abolishing the tax threshold (as of 2019, taxpayers in England and Wales pay no income tax on the first £11,850 per year, but putting 20% on that would raise £45 per week). Compass estimated their proposal would have a net cost of £28bn per year. Either payment is a small sum of money to live on, and the changes wouldn't greatly benefit many on low incomes, but it has the advantage of being comparatively affordable for the state.
Social Justice Ireland
A 2012 proposal from Social Justice Ireland proposed €32.30 for children 0-17; €188 for adults of working age, €230.30 for people aged 66-80, and €240.30 for those 80 or over (all per week). Taking into account savings elsewhere, it would have a net cost of €39.21bn per year. This would be funded mainly by a flat income tax of 45%, together with a modified system of employer contributions replacing existing Pay Related Social Insurance which would be abolished.
Another model is Milton Friedman's proposal for a negative income tax (NIT), which he also called a "guaranteed income". Although Friedman was in general opposed to income tax, he suggested that in addition to taxing people whose income was above the tax threshold (with the value of the tax threshold being exempt from taxation, thus taxing the rest), those whose income was below the tax threshold could receive an equivalent amount of money from the government, and those whose income was equal to the tax threshold would neither pay nor receive any tax money, thus ensuring that no one had an income below the tax threshold value. Friedman reasoned this would be much cheaper to administer than the US Social Security bureaucracy alongside that of the other social programs (he hated big government).[note 1] This was experimented with within the US in the late 1960s and early 1970s. The problem was that for many people NIT resulted in a loss of income, and if the government attempted to set the threshold high enough to provide a generous benefit and reward people for working, the level would have to be set so high that half the population was a net recipient. This was deemed unacceptable. A survey of economists conducted in May of 1992 found that only 19% of economists "generally disagree" with the statement "The government should restructure the welfare system along the lines of a 'negative income tax.'", whereas 34.1% "agree with provisos" and an impressive 44.4% "generally agree".
Georgists proposed that all taxes should be replaced with a land value tax (land here broadly defined as all materials, forces, and opportunities found in nature - not made by man) and that part of this tax money should fund a citizen's dividend (being, in effect, a method of profit-sharing in land profits or "rents"). This idea has its origins in the works of Thomas Paine, who proposed it should be funded by an estate tax. These ideas would later be supported by the Kuomintang.
Some socialists propose a similar social dividend to be funded out of the dividends distributed from the profits of publicly-owned companies, which would be distributed among the citizens of a country.
Social Creditors, beginning with C. H. Douglas, believe that there is a gap between purchasing power and prices and that this gap should be filled by a "National (or Consumer) Dividend", to be calculated by a "National Credit Office" using Douglas's complicated formulas.
The French socialist candidate Benoit Hamon also has in his project a basic income. The basic income would first be 535€ and maybe increase to 750, 800 and 1000€. He plans to fund it by closing tax loopholes, fighting against tax evasion, and set a tax on those robots who took er jerbs.
Economist Jordi Randall et. al proposed a basic income proposal for Catalonia. The proposal itself would cost about 3.5bn euros less than the current welfare system. However, in order to ensure that current recipients of welfare receive comparable benefits (read: a top-up to the basic income), the total plan would cost about 3.5 bn euros more than the current welfare system. The system would be funded by a flat ~49% tax -- which, given the payouts, would actually be more progressive than the current system. Overall, they estimate reduced administrative costs of 50%.
In 2016 Swiss voters rejected a basic income plan presented in a referendum: the result was almost 77% against. The initiative as voted upon did not go into details: it did not specify a sum of money or how it would be funded, but supporters of the plan suggested a payment of CHF2,500 (£1,765, US$2,555) to each adult every month. It was estimated that CHF25bn extra would be required to finance the scheme, with proposals to fund it by raising sales tax (VAT) or imposing taxes on financial transactions. An opinion poll suggested that with a payment of CHF2,500, only 2% of people would definitely stop work and 8% would consider it.
In 2018 Swiss filmmaker Rebecca Panian tried to crowdsource US$6.1m to fund an experimental basic income scheme for a village of 1300 people, but only raised $151,000 so that didn't happen either.
In Italy it is a policy of the Five Star Movement, who since the 2018 general election have been in a coalition government with the Northern League. A "citizens' income" scheme is being launched in 2019 but bears little resemblance to classic basic income proposals and is closer to unemployment or social security benefits in other countries. The scheme will payout to working-age adults and pensioners in poor households (based on current income, which must be under EU9,360, and property and assets owned), with a single person getting up to 780 euros per month. However, recipients have to undertake training and take up a job if they are offered one. So it breaks virtually all the principles of basic income schemes.
One Democrat running for president of the United States in 2020, Andrew Yang, has a universal basic income plan called the Freedom Dividend as his most significant policy proposal. The plan would give every citizen over the age of 18 a monthly sum of $1,000 (or $12,000 per year). Yang proposes this plan as both a driver of economic growth and a safety cushion against job automation. It would be granted as a right of citizenship and paid for in part by a 10% value-added tax on businesses.
Yang claims that one rather obvious problem with this proposal, namely how to avoid businesses simply passing on these costs (plus, perhaps, a little markup tagged on) directly to consumers, who will thus end up bearing the actual burden of his VAT increase, is not going to happen because ”[c]onsumers are price sensitive, and the demand for most goods is at least somewhat elastic.” Translation: People just won’t be willing to pay more and if prices do rise people will just buy less. And then, being a tech entrepreneur, Yang simply asserts his faith that good old fashioned American ingenuity will offset price hikes, because ”the increase will, for the most part, be smaller than the VAT as producers find more efficient ways to produce goods and adjust prices to maximize profitability.” The problem here is that the incentive for producers to be more efficient in order to increase profitability already exists and is wholly independent of Yang’s UBI scheme, making this bit of seemingly sage wonkishness completely irrelevant to an argument for or against UBI.
Yang at least makes a nod towards the most potentially egregious inequality aspects of his VAT proposal by wanting to except ”[s]taples such as groceries and clothing,” but not only is this a vague category (just imagine the can of worms it will open in Congress as to what should be accepted as staples). However, while such exemptions will soften the impact of the VAT for those less well off, these will probably still end up bearing the brunt of this new tax, simply because they spend most or all of their income on consumption, as they have little or nothing left for savings/investments at the end of the month.
Yang has also tried to take another sting out of his proposal by explicitly stating that Social Security retirement as well as some disability benefits will stack with the Freedom Dividend: “Under the universal basic income, those who are legally disabled would have a choice between collecting SSDI and the $1,000, or collecting [Social Security Disability Insurance] and [Supplemental Security Income], whichever is more generous.”
Yet more of Yang’s odd hedging/fudging of what kind of public assistance you’d be eligible for alongside (or have to give up in favour of) the Freedom Dividend is evident in this curious assertion: “Even some people who receive more than $1,000 a month in SSI would choose to take the Freedom Dividend because it has no preconditions.” A positive spin would focus on the Freedom Dividend as an antidote to the hounding of recipients of public assistance via endless tests, controls and demands for documentation, but you hardly have to be a senior devil’s advocate to point out that it also may be a way to cut people’s benefits by giving them an “easy” alternative, similar to how some people may be taken in by “no documentation needed” loans with sky high interest rates, despite qualifying for significantly cheaper, ordinary bank loans.
Exacerbating the issues of eligibility for other forms of public assistance and the potential for Yang’s VAT to cause price hikes is that the Freedom Dividend’s rate, while sounding attractive, is actually just below the 2018 federal poverty level for a single person household (which is $12,140 annually, except for Hawaii and Alaska where it’s even higher).
From 1974 to 1979, the federal government of Canada and the provincial government of Manitoba teamed up to try out a basic income experiment, called "Mincome". It was cancelled in 1979 by the progressive conservative government and Manitoba and the conservative federal government due to budget constraints. Despite being widely referred to as an example of UBI, the plan was much more comparable to a negative income tax, as you had to be apart of a poor household to receive anything[note 2] and as your income increased your benefits decreased, but not at a level where earning more would become unprofitable. Specifically, a family with no income from other sources would receive 60% of the low-income cut-off, which varied by family size, every dollar received from other sources would reduce benefits by fifty cents, and all benefits were indexed to the cost of living.
There was never an official report of the results issued, however, various academics and researched have come to publish work relating to the experiment's results, particularly focusing on its impact on work, health, family, education, and general human welfare. The literature has generally found improvements in health; both physical, as work-related accidents decreased and hospital admissions fell by 8.5%, and mental, as there was a reduction in rates of psychiatric hospitalization and in the number of mental illness-related consultations with health professionals; and education, as more high school students went on to complete grade 12. The impact on working hours were minimal, as results of a study conducted by University of Manitoba economists Derek Hum and Wayne Simpson showed working hours dropped one percent for men, three percent for married women, and five percent for unmarried women.
Finland completed its basic income trial on 2000 citizens in 2019 in the first experiment of its kind in Europe. Researchers found that while basic income boosted happiness, it failed to noticeably increase employment.[note 3] The economist leading the trial said this was not a surprise for economists, given that the jobless tend to have few marketable skills, health issues or decision-making problems. The Organization for Economic Cooperation and Development (OECD) warned that implementing such a scheme nationwide requires higher taxes, which could upset voters, and might even increase poverty. While Swiss voters rejected it in 2016, Italy plans to introduce a "citizens' wage" in April 2019.
A number of other systems have been devised to provide additional income to low-paid workers which have a similar but more moderate effect. Tax credits were introduced in the UK by Tony Blair's Labour government to replace benefits for low-paid families; they use the payroll of low-paid workers to offer a supplement to salary. However, these are not automatically granted: taxpayers must cross the desired tax credits in the tax declaration. This was experimented with in the US in the late 1960s and early 1970s (with the NIT experiments); in order not to encourage idleness it was only paid to workers, not the unemployed; these experiments gave origin to the Earned Income Tax Credit (EITC).
Likewise, a minimum wage acts as a form of guaranteed income, but only for those working full-time, and it places the burden on employers rather than the state.
A third proposal, even closer to the basic income model than the other two and offered in many European countries, is the guaranteed minimum income (not to be confused with NIT), which is an amount of money offered to those who can't for some reason enter the job market and aren't covered by any other welfare program. However, there are three key differences: it's not granted automatically, one must apply for it; it's supplementary, not a substitute, for welfare programs; and, some countries who adopted this model have also implemented "socially useful work" requirements in exchange for receiving the money.
Yet another proposal is the life salary, proposed by the french economist Bernard Friot, a member of the PCF, the communist party of France. The idea is that everyone at the age of 18 would get a salary of 1500€ every month, and there would be a wage ceiling of 6000€. There would be four levels to this salary, the last being 6000€, and one could get to the upper level by proving his contribution to the GDP.
Departing from the idea of guaranteeing income, are the schemes that focus on a public job guarantee to offset the potential lack of demand for labour in the private sector. This would be a sort of permanent system akin to some of the New Deal and similar initiatives used to combat unemployment during the Great Depression. One proponent of this (a fierce critic of basic income schemes), Australian MMT economist, Bill Mitchell, argues that a job guarantee would act as a macroeconomic stabiliser and that because work tends to be important for one’s self esteem, simply “parking” citizens on basic income may have negative psychological effects.
- Cloward-Piven strategy, a doomed-to-fail proposed manner to implement this idea in the USA, repurposed by wingnuts as a conspiracy theory.
- Contributive income
- There is a legitimate criticism of social programs' bureaucracy and the number of programs itself: it's that they're many, not universal and sometimes impose heavy requirements, so that there are a number of people who need help but aren't covered by any existing program and, for the others, there can be heavy interventionism in their daily lives and loss of privacy for the recipients in favour of program administrators. Sometimes, in case a recipient gains another source of income (e.g. a job), (s)he will lose the right to be in the program so that there can be loss of income in real terms.
- Canada does not have an official poverty measure as the United States does. What is often used in place of one is the low-income cut-off measure (LICO) as recorded by Statistics Canada.
- That is, it did no worse than the normal incentive systems for the unemployed, such as having to regularly report to various government agencies, and to go through mandatory vocational training.
- Stanford scholar explores pros, cons of ‘basic income’. Stanford News. August 8, 2018.
- The Greens endorse a universal basic income. Others need to follow, Jonathan Bartley, The Guardian, 2 Jun 2017
- See the Wikipedia article on Basic income.
- Basic Income – Why and How in Difficult Economic Times: Financing a BI in Ireland, Seán Healy, Michelle Murphy, Seán Ward and Brigid Reynolds, Social Justice Ireland, 2012
- Policy: Economy, Green party, October 2015
- A Basic Income Guarantee does not reduce poverty Bill Mitchell, May 31 2017
- A Basic Income Guarantee does not reduce poverty Bill Mitchell, May 31 2017
- Reducing income inequality Bill Mitchell, August 8 2016
- Green party outlines plan for basic citizen's income for all adults, Patrick Wintour, The Guardian, 18 January 2015
- Universal basic income 'could be funded by reversing welfare cuts', The Guardian, 18 Mar 2019
- First proposed by Juliet Rhys-Williams in her dissent from the Beveridge Report and also proposed by Henry Hazlitt (as "tapering subsidy"), who would later relent.
- The Other Milton Friedman: A Conservative With a Social Welfare Program, Robert H Frank, New York Times, 23 November 2006
- Negative Income Tax, Jodie T Allen, Library of Economy and Liberty
- Is There a Consensus Among Economists in the 1990's?
- Arcarons, Jordi, et al. "Feasibility of Financing a Basic Income." Basic Income Studies, December 2014, vol. 9, iss. 1-2, pp. 79–93. Google Scholar, doi:10.1515/bis-2014-0005.
- Switzerland's voters reject basic income plan, BBC, June 5, 2016
- A basic income for all – the issue before Swiss voters, swissinfo, April 18, 2016
- A Swiss filmmaker tried to raise $6 million for a basic-income experiment that would have given residents up to $2,570 a month, Business Insider, Dec 5, 2018
- , Bloomberg, Jan 28, 2019
- The Italian Citizens' Income Reform Part 1: The Measure Against Poverty And The Welfare In The EU, Forbes, Feb 7, 2019
- Yang2020: What Is Universal Basic Income?
- See our article on FairTax for a discussion of these issues
- Sraders, Anne: What Is the 2018 Federal Poverty Level in the U.S.?, The Street, September 4, 2018
- The Town With No Poverty. Evelyn L Forget. February 2011. University of Manitoba.
- Economic Response to a Guaranteed Annual Income: Experience from Canada and the United States
- Finland's basic income trial boosts happiness but not employment. Reuters. February 8, 2019. Accessed February 13, 2019.
- A search for “basic income” on his MMT blog yields a slew of critical entries on the topic.
- Mitchell, Bill [Employment as a human right], June 29, 2017
- Mitchell, Bill, Work is important for human well-being, September 14, 2016