Basic income

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If we give them the money, we will strengthen their responsibility.
—Milton Friedman[1]

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.

It has been advocated by various political figures and groups such as the The Green Party of England and Wales.[2] It features heavily in the 2020 US presidential election platform of Democrat Andrew Yang, who refers to it as the "Freedom Dividend",[3] because that name makes it sound cooler to American voters.


How it works[edit]

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.

Advantages[edit]

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.[4][5]

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.[6] 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.

Disadvantages[edit]

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.[4] 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). (While the first two arguments typically come from the right-wing, this is a valid argument even for bleeding-heart liberals.)

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.[5]

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[7] (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 money flooding the economy. Maybe in the short term, yes, but the money supply would stabilise. [8]

Benefits for the rich! There is the rather loathsome notion that a basic income is something that should help everyone instead of only the poor, including the richer folks that for obvious reasons do not need it. A universal basic income as opposed to a targeted basic income which goes out of its way to help certain parties, reduces the power of basic income and as such, fails to help those who actually need it.

Less incentive to create jobs. While it allows the proliferation of lousy jobs unable to provide a living wage, that the idea of basic income actually removes the responsibility of government to provide good, stable jobs in return. Instead of addressing the root problem, basic income would just be trading one poison for another. However, the state would need to raise a lot more money and therefore would have a powerful incentive to increase tax revenues by promoting employment and economic growth.

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.[9]

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.[10] 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.

Finally, it's a strategy for serfdom for the poor, something to sucker in well-meaning progressives to promote conservative and libertarian ideals in the long run. The people you'd think least likely to advocate basic income have come outright supporting it. As in, think Charles Murray and Milton Friedman. They wholeheartedly advocate basic income on the condition that it would remove any food stamps, Medicaid, and more programs since now, the person receiving basic income could no longer think of themselves as a victim and would have to pull themselves up by the bootstraps as it were. Adding insult to injury is that for these same reasons, bigtime CEOs have also come out in favor of basic income. With all these programs removed, where would aid come from? Why, from the private man of course. Those that don't make it won't make it, and those who can, do, personal circumstances be damned. With the 1% still in charge of so much power and having come in favor of basic income, it might be hard or outright impossible to separate what is hoped for and what would actually happen, especially knowing how said BI could be a static amount not adjusted to for example inflation, thus the receivers would lose purchasing power in the long run. While there is potential adjustment, it will take a lot of work to make it right. Most notably, however, is how just a basic income and no other welfare program to speak of would be much easier to target by corporations and the like than those others much more rooted that were eliminated by it, meaning they'd have much easier to lobby for its reduction and/or lack of updates as mentioned above, or even its elimination (and remember how in this case there'd be no other floaters that would help)[11].

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[12].

Winners and losers[edit]

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.

Winners[edit]

  • The low-waged, especially those working part-time or casually, will get more money, with a nice payment in addition to their salary.
  • The otherwise-idle, those not working and not eligible for (significant) benefits, from non-working spouses to idle youths.
  • Start-ups prospective entrepreneurs don't have to worry as much about running out of money, especially if their idea has low capital costs

Losers[edit]

  • The rich, paying higher taxes and only getting a small proportion back.
  • Small business owners, reduced labor participation rate, particularly for low-wage jobs, could drive up the cost of staffing a small business.

Unaffected?[edit]

  • 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.
  • 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.

Specific proposals[edit]

UK Greens[edit]

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.[6] 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.[13] 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[edit]

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.[14]

Social Justice Ireland[edit]

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.[5]

Milton Friedman[edit]

Another model is Milton Friedman's proposal for a negative income tax (NIT), which he also called a "guaranteed income".[15] 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 in 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.[16][17]

Georgists and socialists[edit]

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 KuomintangWikipedia's W.svg.

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 Credit[edit]

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.

French elections[edit]

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.

Catalonia[edit]

Economist Jordi Randall et. al proposed a basic income proposal for Catalonia.[18] 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%.

Switzerland[edit]

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.[19][20]

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.[21]

Italy[edit]

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 pay out 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.[22][23] So it breaks virtually all the principles of basic income schemes.

Finland's trial[edit]

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 2] 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.[24]

Alternatives[edit]

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.

See also[edit]

Notes[edit]

  1. 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 favor 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.
  2. 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.

References[edit]

  1. Stanford scholar explores pros, cons of ‘basic income’. Stanford News. August 8, 2018.
  2. The Greens endorse a universal basic income. Others need to follow, Jonathan Bartley, The Guardian, 2 Jun 2017
  3. https://www.yang2020.com/policies/the-freedom-dividend/
  4. 4.0 4.1 See the Wikipedia article on Basic income.
  5. 5.0 5.1 5.2 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
  6. 6.0 6.1 Policy: Economy, Green party, October 2015
  7. http://www.princeton.edu/~joha/publications/Haushofer_Shapiro_Policy_Brief_2013.pdf
  8. https://medium.com/basic-income/wouldnt-unconditional-basic-income-just-cause-massive-inflation-fe71d69f15e7
  9. A Basic Income Guarantee does not reduce poverty Bill Mitchell, May 31 2017
  10. A Basic Income Guarantee does not reduce poverty Bill Mitchell, May 31 2017
  11. A basic income guarantee is a neo-liberal strategy for serfdom without the work Bill Mitchell, April 5 2017
  12. Reducing income inequality Bill Mitchell, August 8 2016
  13. Green party outlines plan for basic citizen's income for all adults, Patrick Wintour, The Guardian, 18 January 2015
  14. Universal basic income 'could be funded by reversing welfare cuts', The Guardian, 18 Mar 2019
  15. 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.
  16. The Other Milton Friedman: A Conservative With a Social Welfare Program, Robert H Frank, New York Times, 23 November 2006
  17. Negative Income Tax, Jodie T Allen, Library of Economy and Liberty
  18. 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.
  19. Switzerland's voters reject basic income plan, BBC, June 5, 2016
  20. A basic income for all – the issue before Swiss voters, swissinfo, April 18, 2016
  21. 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
  22. [1], Bloomberg, Jan 28, 2019
  23. The Italian Citizens' Income Reform Part 1: The Measure Against Poverty And The Welfare In The EU, Forbes, Feb 7, 2019
  24. Finland's basic income trial boosts happiness but not employment. Reuters. February 8, 2019. Accessed February 13, 2019.