Great Discussion on Unconditional Basic Income
Friday, December 26, 2014
"Cash transfers can work better than subsidies"
"Providing people with a modest basic income instead of subsidies would save public revenue
With oil prices falling, it was perhaps a good time to fade out fuel subsidies. All subsidies are inefficient and distortionary, and most are regressive. The same could be said of costly public works schemes as well.
By contrast, the debate on direct benefit transfers has moved into a more sensible phase, with the posturing criticism of a couple of years ago rather muted. In that context, perhaps it is time for a more dispassionate discussion.
This month my colleagues and I are publishing a book based on two pilot schemes conducted in Madhya Pradesh, in which thousands of men, women and children in nine villages received a modest basic income, paid each month, in cash, unconditionally, for 18 months.
The effects were evaluated by a series of surveys, comparing what happened to the recipients with what was happening to thousands of non-recipients in 13 other villages. The amount of money provided was modest, about a third of subsistence. But what we wanted to find out was whether, as scornful sceptics had claimed, people would waste the money or by contrast be able to use it rationally to improve their lives.
We made sure to issue no guidance as to how to spend the money. The only insistence was that recipients should open bank or cooperative accounts within three months of starting to receive the monthly payment. This showed that financial intermediation can be achieved effectively when there are incentives to do so. No less than 96 per cent of all recipients had opened accounts by the end of three months.
“Surveys conducted among people in Madhya Pradesh's villages, who received a modest basic income as cash transfers, showed that beneficiaries were quite capable of making rational decisions that improved their lives”
As for the claim that villagers would waste the money, the evidence gathered through three rounds of detailed surveys showed that people were quite capable of making rational decisions that improved their lives and their communities.
Some critics claim India could not afford to provide all its citizens with a basic income. That conveniently overlooks the fact that a vast amount is spent on schemes that never reach the intended beneficiaries. Every informed policymaker and social scientist knows that.
Providing people with a modest basic income instead of subsidies would actually save public revenue. We know that most of the money spent on the Public Distribution System is wasted, leaving villagers to rely on stale wheat or rice. The system also acts as a deterrent to local food production. Of course, if the state throws vast amounts at even a chronically inefficient scheme, some of it will get through. But it is dumb.
Be that as it may. What the pilots have shown is something we had not fully anticipated. Unlike subsidies or public works, the basic income transfers have the potential to be transformative. If the government is setting up a Policy Commission in which one of the four pillars is to focus on Direct Benefit Transfers, it should start by considering this point.
Effects of basic income
The point is that the basic income has three types of effect. First, it improves personal and community welfare. The evidence from the pilots showed improvements in child nutrition, schooling attendance and performance, health and healthcare, sanitation and housing. It also has desirable equity outcomes, since it benefitted women more than men, the disabled more than others, the least secure and lowest income groups more than others.
However, what should please my fellow economists is that it also stimulates growth. While discussing economic growth, there is a tendency to concentrate on corporations and big industrial sectors, and to see villages as zones of stagnation. However, in the villages receiving the basic incomes, economic activity increased, new small-scale businesses sprung up, work and labour increased — contrary to critics who claim that giving people cash would induce idleness — and more equipment and livestock were bought.
Although child wage labour declined, the overall increase in work and labour was shown by way of a shift from casual wage labour to more secondary activities. Other studies have tended to concentrate on people’s main activity. Had we done that, we would not have picked up the phenomenon that, in a rational risk-reducing way, households tended to diversify into more secondary activities.
The key point here, however, is that the cash transfers should not be depicted simply as welfare expenditure. That is bad economics and poor accounting.
Yet it is the third dimension that really makes the policy transformative. One way of putting it is to say that the emancipatory value of the basic income is greater than the monetary value. Money itself is a scarce commodity in Indian villages, and, as with any scarce commodity, this drives up the price. Moneylenders and landlords can easily put villagers into debt bondage and charge exorbitant rates of interest that families cannot hope to pay off.
What we found is that many recipients used the cash to make savings, putting themselves in a better position to avoid highly costly short-term borrowing in emergencies. In effect, the liquidity lowered their cost of living and reduced the monopoly power of the moneylenders. Indeed, in a survey of impressions after the pilot had ended, several respondents told us that the only people who were unhappy about the experiment had been the moneylenders. How tragic.
The emancipatory effect helped make the welfare and growth effects more sustainable. So, the scheme had a combination of positive effects, not just one.
Now, government should be encouraged to make haste slowly. Launch several pilots in a few low-income areas in which the design could vary. There are good reasons for believing that making cash transfers universal within communities would save money in administrative and other costs, and induces more positive economic and social outcomes than selective or targeted schemes. Among other reasons is that they induce collective action for community benefits.
It is also important to consider the potential role of intermediary non-government bodies. They can play a strong role in encouraging beneficial outcomes and help overcome the tendency for vulnerable people to remain vulnerable.
Above all, however, policymakers should learn to trust people whom they claim to serve. A growing danger in social policy is that it will veer towards social engineering, through sophistry and tighter conditionalities. Freedom matters, and so does the challenge of transformation."
Source
http://www.thehindu.com/opinion/op-ed/article6665676.ece
With oil prices falling, it was perhaps a good time to fade out fuel subsidies. All subsidies are inefficient and distortionary, and most are regressive. The same could be said of costly public works schemes as well.
By contrast, the debate on direct benefit transfers has moved into a more sensible phase, with the posturing criticism of a couple of years ago rather muted. In that context, perhaps it is time for a more dispassionate discussion.
This month my colleagues and I are publishing a book based on two pilot schemes conducted in Madhya Pradesh, in which thousands of men, women and children in nine villages received a modest basic income, paid each month, in cash, unconditionally, for 18 months.
The effects were evaluated by a series of surveys, comparing what happened to the recipients with what was happening to thousands of non-recipients in 13 other villages. The amount of money provided was modest, about a third of subsistence. But what we wanted to find out was whether, as scornful sceptics had claimed, people would waste the money or by contrast be able to use it rationally to improve their lives.
We made sure to issue no guidance as to how to spend the money. The only insistence was that recipients should open bank or cooperative accounts within three months of starting to receive the monthly payment. This showed that financial intermediation can be achieved effectively when there are incentives to do so. No less than 96 per cent of all recipients had opened accounts by the end of three months.
“Surveys conducted among people in Madhya Pradesh's villages, who received a modest basic income as cash transfers, showed that beneficiaries were quite capable of making rational decisions that improved their lives”
As for the claim that villagers would waste the money, the evidence gathered through three rounds of detailed surveys showed that people were quite capable of making rational decisions that improved their lives and their communities.
Some critics claim India could not afford to provide all its citizens with a basic income. That conveniently overlooks the fact that a vast amount is spent on schemes that never reach the intended beneficiaries. Every informed policymaker and social scientist knows that.
Providing people with a modest basic income instead of subsidies would actually save public revenue. We know that most of the money spent on the Public Distribution System is wasted, leaving villagers to rely on stale wheat or rice. The system also acts as a deterrent to local food production. Of course, if the state throws vast amounts at even a chronically inefficient scheme, some of it will get through. But it is dumb.
Be that as it may. What the pilots have shown is something we had not fully anticipated. Unlike subsidies or public works, the basic income transfers have the potential to be transformative. If the government is setting up a Policy Commission in which one of the four pillars is to focus on Direct Benefit Transfers, it should start by considering this point.
Effects of basic income
The point is that the basic income has three types of effect. First, it improves personal and community welfare. The evidence from the pilots showed improvements in child nutrition, schooling attendance and performance, health and healthcare, sanitation and housing. It also has desirable equity outcomes, since it benefitted women more than men, the disabled more than others, the least secure and lowest income groups more than others.
However, what should please my fellow economists is that it also stimulates growth. While discussing economic growth, there is a tendency to concentrate on corporations and big industrial sectors, and to see villages as zones of stagnation. However, in the villages receiving the basic incomes, economic activity increased, new small-scale businesses sprung up, work and labour increased — contrary to critics who claim that giving people cash would induce idleness — and more equipment and livestock were bought.
Although child wage labour declined, the overall increase in work and labour was shown by way of a shift from casual wage labour to more secondary activities. Other studies have tended to concentrate on people’s main activity. Had we done that, we would not have picked up the phenomenon that, in a rational risk-reducing way, households tended to diversify into more secondary activities.
The key point here, however, is that the cash transfers should not be depicted simply as welfare expenditure. That is bad economics and poor accounting.
Yet it is the third dimension that really makes the policy transformative. One way of putting it is to say that the emancipatory value of the basic income is greater than the monetary value. Money itself is a scarce commodity in Indian villages, and, as with any scarce commodity, this drives up the price. Moneylenders and landlords can easily put villagers into debt bondage and charge exorbitant rates of interest that families cannot hope to pay off.
What we found is that many recipients used the cash to make savings, putting themselves in a better position to avoid highly costly short-term borrowing in emergencies. In effect, the liquidity lowered their cost of living and reduced the monopoly power of the moneylenders. Indeed, in a survey of impressions after the pilot had ended, several respondents told us that the only people who were unhappy about the experiment had been the moneylenders. How tragic.
The emancipatory effect helped make the welfare and growth effects more sustainable. So, the scheme had a combination of positive effects, not just one.
Now, government should be encouraged to make haste slowly. Launch several pilots in a few low-income areas in which the design could vary. There are good reasons for believing that making cash transfers universal within communities would save money in administrative and other costs, and induces more positive economic and social outcomes than selective or targeted schemes. Among other reasons is that they induce collective action for community benefits.
It is also important to consider the potential role of intermediary non-government bodies. They can play a strong role in encouraging beneficial outcomes and help overcome the tendency for vulnerable people to remain vulnerable.
Above all, however, policymakers should learn to trust people whom they claim to serve. A growing danger in social policy is that it will veer towards social engineering, through sophistry and tighter conditionalities. Freedom matters, and so does the challenge of transformation."
Source
http://www.thehindu.com/opinion/op-ed/article6665676.ece
Ralph Nader on Basic Income
"In this recent episode of the Ralph Nader Radio Hour, 44 minutes into the show Nader answers a question from a listener on whether or not he supports a basic income. Nader replies by stating that he does and has supported a basic income for a long time. He then explains the bipartisan nature of the policy by pointing out its support from President Nixon, Milton Friedman, and Friedrich Hayek as well as the Green Party in the USA. When pressed to give more details on the size of a basic income for all Americans, Nader replied by saying that it could be as little as $3,000 or as much as $10,000 per year for each citizen. He then responds to claims that a basic income would create disincentives to work.
http://binews.org/2014/10/united-states-five-time-presidential-candidate-ralph-nader-supports-a-basic-income/
More at
https://www.facebook.com/pages/Basic-Income-for-Everyone/338385479687853
Ralph Nader is a five-time candidate for President of the United States, having run in 1992 as a write-in candidate, as the Green Party nominee in 1996 and 2000, and as an independent in 2004 and 2008.
To listen to the episode, follow this link.
Ralph Nader, “Ebola, Civic Heroes, Basic Income”, Ralph Nader Radio Hour, 20 October 2014.
Ralph Nader has reaffirmed his support for a basic income. (Source: Ralph Nader Radio Hour)
http://binews.org/2014/10/united-states-five-time-presidential-candidate-ralph-nader-supports-a-basic-income/
More at
https://www.facebook.com/pages/Basic-Income-for-Everyone/338385479687853
World Finance interviews Barbara Jacobson, one of the organisers of the European Citizens’ Initiative for an Unconditional Basic Income
"World Finance interviews Barbara Jacobson, one of the organisers of the European Citizens’ Initiative for an Unconditional Basic Income, about whether such a system is feasible for Europe
Source
http://www.worldfinance.com/videos/unconditional-basic-income-will-be-liberating-for-everyone-says-barbara-jacobson-video
Source
World Finance is soon hosting a round table discussion on unconditional basic income. The debate will include economists, including Liam Halligan, and Guy Standing, proponent of basic income in Europe. To put forth a question to the panel, tweet @JournalistJenny
Unconditional basic income: the key to alleviating Europe’s alarming unemployment levels, or misdirected socialist macroeconomics? World Finance talks to Barbara Jacobson, one of the organisers of the European Citizens’ Initiative for an Unconditional Basic Income, about the implications of such a system for Europe: what it might mean for unskilled jobs, inflation, and the British economy.
World Finance: Well Barbara, a basic income paid to everyone. That’s the theory, but what exactly is this, and who will benefit?
Barbara Jacobson: Well we hope everyone will benefit from it, actually. The main concern is the people who are very poor at the moment in Europe, and the way the economies in Europe have been going down very quickly. We feel that basic income would support demand, and also be a fairer way of allocating money within the economy. The other thing it will do is simplify the benefits system dramatically.
World Finance: Well is this just the benefits system repackaged?
Barbara Jacobson: No, we hope it will be liberating for everyone. First of all, small businesses depend a lot on a lot of unpaid work, both by the entrepreneurs themselves, and usually their families and friends. Or with the ageing population, we need some kind of support system for people to be able to look after their relatives. It’s not that we’re against the services that are available, but many families would rather look after their elderly in their homes. And at the moment if they do that then they risk becoming very poor themselves.
World Finance: So how do you expect this to be funded?
Barbara Jacobson: The Citizens’ Income Trust reckons that it could pay a £10,000 income for everybody. There’s also an increasing divergence in the difference between tax on people who are earning versus tax on people who are on income that is unearned – so for example rents, share dividends, financial speculation tax, that sort of thing. Which would actually increase the amount of money significantly.
World Finance: Well critics might argue that this sounds frightfully socialist, if you like. And won’t this deter people from full-time employment?
We feel that basic income would support demand, and also be a fairer way of allocating money within the economy
Barbara Jacobson: The pilot studies around the world say no! There was a very interesting experiment in Canada called the Mincome done for about four years in the 1970s, which showed that actually the only people who really stopped working were young mothers of small children before school, teenagers who were trying to get into college and who were studying, and people who were close to the age of retirement anyway.
World Finance: Well do you think there could be a question of culture there? Because maybe in Canada people want to work more, whereas if you go somewhere else maybe they’ll be more work-shy?
Barbara Jacobson: What people have to understand about most means-tested benefit systems is that they are actually the cause of people being so-called ‘work-shy’. If you work on top of benefits – say if you’re in the tax credit system, or if you claim housing benefit in this country – the effective tax rate is 85 percent, which is a huge disincentive to work. If we had a citizens’ or a basic income, people would be able to keep the income that they get from that, they would be taxed on the income which they earn on top of that, and we just feel that would be a much fairer system.
World Finance: Well if this did come into practice, what would you think would happen in terms of people entering the country? Would they also be eligible for the same unconditional basic income?
Barbara Jacobson: What we’re saying is that anybody who is eligible for child benefit, so anyone who has the right to remain in this country. We also feel that if it were a European initiative, if it were Europe-wide, I think that would mean a lot of people wouldn’t have to move in order to feed their children.
World Finance: Well not to ask the awkward questions, but what do you think would happen to sort of, unskilled jobs then, that really rely on low wages? Because if they’re getting an unconditional basic income then perhaps they’d be less likely to do these sort of jobs?
Barbara Jacobson: Or they would be demanding higher wages! It’s a very strange thing at the moment, that work seems to be remunerated in inverse proportion to its social usefulness. Say for example, if all the nurses went on strike tomorrow there would be a disaster; if all the bankers went on strike, who would notice?
World Finance: Well assuming we do give everyone money, surely this will have severe inflation implications?
Barbara Jacobson: Well considering how indebted the economy is at the moment, I don’t think that’s too much of a problem. There would be a lot of people who would be paying down their debts with this, probably.
World Finance: In effect it’s really a fiscal stimulus; wouldn’t it be better to just invest in a policy that supports a long-term economic approach that creates jobs?
Barbara Jacobson: Well we feel this would create jobs, because people would be employing themselves. Or you know, they could pool their citizens’ or basic income to set up community projects or even business projects in their area.
World Finance: How do you think this will impact the British economy if it did come into practice, realistically?
Barbara Jacobson: The more money you give to poorer people, the more they actually proportionally spend into the economy. That’s what people seem to forget you know? Money seems to be trickling up as opposed to trickling down. In poorer areas, when people are spending money, that’s where the multiplier effect is. That’s where every pound spent actually creates another five or six pounds in that local economy.
What we would hope is that in very hard-pressed areas like the north, people would be able to stay there as opposed to coming down to London, and rebuild their own economies there.
World Finance: Barbara, thank you.
Barbara Jacobson: Thank you very much."
http://www.worldfinance.com/videos/unconditional-basic-income-will-be-liberating-for-everyone-says-barbara-jacobson-video
Source
Yoland Bresson played an international role in the promotion of basic income.
"Yoland Bresson (1942-2014), one of the prominent advocate for basic income in France passed away during the summer.
A tribute by Jacques Berthillier originally published in French. Translated and adapted by Stanislas Jourdan.
In 1971, Yoland Bresson worked as an economist for the Concorde aircraft project, and observes a surprising fact: those who have more control over time and personal schedule are those with more financial resources (and those who are more likely to book flights on Concorde airlines). Moreover, people’s resources increase over time because freedom and time allow to take advantage from commercial discounts, and get access to social conditions which allow to escape from constrained social time.
Yoland started to dedicated himself into studying those notions until he found the theory linking spare time with income, which he published in 1981, and developped in the book ‘Post-Salariat’ in 1984. A conclusion emerged from this theory: the value of time is the value of the minimum income, the poverty line from which individuals become economically integrated. Therefore, we should distribute to people the monetary equivalent of the unit of time.
In 1986, Yoland Bresson was invited by Philippe van Parijs to participate to the very first meeting in Louvain-la-Neuve (Belgium) where BIEN was founded.
Later on, he was contacted by Henri Guitton, reknown economist and very enthusiast reader of Bresson’s books. They decided together to found a working group around those concepts. After a series of meetings at the Polytechnic University, the “association for an existence income” (AIRE) was created. They insisted on the notion of ‘income’ as opposed to ‘allocation’ [allowance] because an income is linked with the contribution to the creation of wealth, while a social allwoance is refers to the notion of assistance. Indeed, every single exchange of time contributed to the creation of wealth, as Bresson proclaimed.
First, Henri Guitton was president of the AIRE, then Yoland Bresson replaced him after Guitton died. The association was striving for the instauration of an ‘existence income’, it explored the idea in order for all citizens and politicians to embrace it.
Since then, the AIRE kept spreading the idea. It notably organised a BIEN Congress at Paris Saint-Maur in 1992, a colloque at Cedias on june 12th 1996, and two other ones at the French National Assembly: one on November 26th, 1998, with more than 300 participants. Finally; and the second one on june 23rd 2004 with the sponsorship from Christine Boutin (Christian-Democrats leader).
In 2012, when the European Citizens’ Initiative for Unconditional Basic Income started to be organised, Bresson immediatly supported the efforts deployed by a new generation of activists. He partners his association with the launch of a new website revenudebase.info which resulted in the creation of the French Movement for a Basic Income, a new association which broadly federates all those who push for the idea of a basic income. Yoland Bresson had the wisdom and open-mindness necessary to trust the young new blood who made the movement grow.
Yoland Bresson also played an international role in the promotion of basic income, notably through his interventions in the french-speaking african countries, and until recently in Bulgaria. Shortly before he died on august 22nd 2014, he was invited for a conference at the Polish Parliament.
His contribution as an economist also include his last proposal: the creation of a eurofranc, a new national currency complementary with the euro currency. His idea was to unleash the possibility to finance a basic income with money creation, without transgressing the Lisbon Treaty – which would result in leaving the eurozone. Such scheme was set to be temporary, allowing a smooth transition for the introducion of a basic income.
If this very innovative (and even revolutionary) proposal was adopted, the introduction of a basic income would be facilitated, and the economic activity would be simultaneously stiumulated.
Following Yoland Bresson’s decease, we have received a very large number of letters expressing sympathy, esteem and gratitude to Yoland and his family. It would not be possible to publish all of them, but there is one we would like to communicate. The one from BIEN’s founder Philippe van Parijs:"
Source and More
http://binews.org/2014/12/tribute-yoland-bresson/
A tribute by Jacques Berthillier originally published in French. Translated and adapted by Stanislas Jourdan.
In 1971, Yoland Bresson worked as an economist for the Concorde aircraft project, and observes a surprising fact: those who have more control over time and personal schedule are those with more financial resources (and those who are more likely to book flights on Concorde airlines). Moreover, people’s resources increase over time because freedom and time allow to take advantage from commercial discounts, and get access to social conditions which allow to escape from constrained social time.
Yoland started to dedicated himself into studying those notions until he found the theory linking spare time with income, which he published in 1981, and developped in the book ‘Post-Salariat’ in 1984. A conclusion emerged from this theory: the value of time is the value of the minimum income, the poverty line from which individuals become economically integrated. Therefore, we should distribute to people the monetary equivalent of the unit of time.
In 1986, Yoland Bresson was invited by Philippe van Parijs to participate to the very first meeting in Louvain-la-Neuve (Belgium) where BIEN was founded.
Later on, he was contacted by Henri Guitton, reknown economist and very enthusiast reader of Bresson’s books. They decided together to found a working group around those concepts. After a series of meetings at the Polytechnic University, the “association for an existence income” (AIRE) was created. They insisted on the notion of ‘income’ as opposed to ‘allocation’ [allowance] because an income is linked with the contribution to the creation of wealth, while a social allwoance is refers to the notion of assistance. Indeed, every single exchange of time contributed to the creation of wealth, as Bresson proclaimed.
First, Henri Guitton was president of the AIRE, then Yoland Bresson replaced him after Guitton died. The association was striving for the instauration of an ‘existence income’, it explored the idea in order for all citizens and politicians to embrace it.
Since then, the AIRE kept spreading the idea. It notably organised a BIEN Congress at Paris Saint-Maur in 1992, a colloque at Cedias on june 12th 1996, and two other ones at the French National Assembly: one on November 26th, 1998, with more than 300 participants. Finally; and the second one on june 23rd 2004 with the sponsorship from Christine Boutin (Christian-Democrats leader).
In 2012, when the European Citizens’ Initiative for Unconditional Basic Income started to be organised, Bresson immediatly supported the efforts deployed by a new generation of activists. He partners his association with the launch of a new website revenudebase.info which resulted in the creation of the French Movement for a Basic Income, a new association which broadly federates all those who push for the idea of a basic income. Yoland Bresson had the wisdom and open-mindness necessary to trust the young new blood who made the movement grow.
Yoland Bresson also played an international role in the promotion of basic income, notably through his interventions in the french-speaking african countries, and until recently in Bulgaria. Shortly before he died on august 22nd 2014, he was invited for a conference at the Polish Parliament.
His contribution as an economist also include his last proposal: the creation of a eurofranc, a new national currency complementary with the euro currency. His idea was to unleash the possibility to finance a basic income with money creation, without transgressing the Lisbon Treaty – which would result in leaving the eurozone. Such scheme was set to be temporary, allowing a smooth transition for the introducion of a basic income.
If this very innovative (and even revolutionary) proposal was adopted, the introduction of a basic income would be facilitated, and the economic activity would be simultaneously stiumulated.
Following Yoland Bresson’s decease, we have received a very large number of letters expressing sympathy, esteem and gratitude to Yoland and his family. It would not be possible to publish all of them, but there is one we would like to communicate. The one from BIEN’s founder Philippe van Parijs:"
Source and More
http://binews.org/2014/12/tribute-yoland-bresson/
You can't Control every single person.
Ok Ok I will Vote for you to have Free Money for your Basic Needs as long as you are productive, and do the right things everyday in the right way and someone else will determine whether or not you are doing the "right thing" with your day, your life or not. WOW. Really? How about NOT?
Basic Income for All
Basic Income for All
Washington Gives Billions; Why not to ALL Citizens instead of simply other Countries?
Here is a List of U.S. Foreign Assistance
http://en.wikipedia.org/wiki/List_of_countries_by_foreign_aid_received
Why Not a Basic Income for every U.S Citizen?
"Which Way Forward for a Basic Income in the United States—Expand the EITC or Social Security?"
"Paper presented at the Fifteenth Basic Income Earth Network Congress,
McGill School of Law, Montreal, June 27-29, 2014. Almaz Zelleke, Visiting Scholar,
NYU Robert F. Wagner Graduate School of Public Service, az22@nyu.edu. Rev. 7/2/14.
Note: Not for citation. This is very much a work in progress, and I welcome feedback to
improve the analysis and proposal.
Abstract: Recent attention to basic income in the U.S. prompted by the successful
petition for a basic income referendum in Switzerland suggests the time is ripe for
concrete basic income proposals.
In this paper, I consider ways forward based on the expansion of existing income support programs—the Earned Income Tax Credit for lowwage workers and Social Security for senior citizens, among others.
The EITC is a household-based negative income tax paid annually, while Social Security benefits are
partially-taxable individual grants paid on a monthly basis. I discuss the pros and cons of
these approaches for a subsistence-level basic income in the U.S.
1. Introduction
Interest in a basic income in the U.S. is higher than at any time since the 1960s, largely due to the media attention around the petition for a basic income referendum in Switzerland. As is often the case, attention is focused on the amount of a potential basic income (with the amazing figure of $2,800 a month having been introduced by the conversion of the suggested Swiss figure of 2,500 Swiss francs a month into U.S. dollars) and its unconditionality.
Little attention in these discussions has been paid to how a basic income might be implemented. In particular, a basic income is often conflated with a negative income tax (NIT). Are there other forms a basic income might take? Are there important differences? Does a specific goal, such as poverty elimination, or reduction of inequality, lead to a preference for a specific form? If so, are there grounds for preferring a different form to an NIT? In this paper, I explore the ways a basic income might be implemented and consider the pros and cons of each.
2. Four Models for Income Supplementation
When designing income supplements, there are several important questions
related to eligibility, size, and funding of the benefit. In terms of the form the benefit will
take, there are two essential questions: whether the benefits are phased in, and whether
they are the phased out, in relation to other income or assets. This provides four basic
models for designing income supplements (table 1).
Table 1: Four Models of Income Supplementation
SSI=Supplemental Security Income; FAP=Family Assistance Plan; SS=Social Security;
EITC=Earned Income Tax Credit; Alaska PFD=Alaska Permanent Fund Dividend
2a. No phase in, phase out (figure 1) Under the first model, the maximum benefit
is available to those with no other income, but phases out as income rises.
Supplemental Security Income (SSI) in the U.S. is an income supplement in this form with no phase in, but a phase out as earned income rises.
President Nixon’s proposed Family Assistance Plan (FAP) also had this structure. Social Security benefits follow a version of this structure, with no phase in but with phase out of 50-85% of benefits as other income rises. Since this structure guarantees a certain amount of income before benefits phase out, let’s call it the Guaranteed Minimum Income, or GMI model.
In this model, the benefit builds slowly along with earned income, plateaus once it reaches its maximum, and then phases out as earned income continues to rise. The Earned Income Tax Credit (EITC) in the U.S. is an income supplement in the form of an NIT that phases in and phases out. Let’s call this the NIT model.
In this model, the benefit builds slowly along with earned income, plateaus once it reaches its maximum, and then phases out as earned income continues to rise. The Earned Income Tax Credit (EITC) in the U.S. is an income supplement in the form of an NIT that phases in and phases out. Let’s call this the NIT model.
Finally, income supplements can vary according to whether they are scaled to family or household size, as with the EITC and SSI, or whether the benefits are individually paid and the amounts are uniform, as with the PFD. Basic income is generally defined as an individual benefit, but given the family and household basis of the U.S. income tax code, it’s worth considering whether this is an essential feature of basic income implementation, or whether it could be set aside for transition purposes, if not on a permanent basis.
This question is beyond the scope of this paper. Now that I’ve outlined the basic distinctions, let’s take a closer look at the various forms a basic income might take.
While a basic income in the form of a flat grant like the PFD might be the preference of basic income advocates, without a sovereign wealth fund or other large and well-defined asset on hand to fund it, any significant basic income in the U.S. is likely to involve raising or reallocating tax revenue, and will lead to a desire to keep total costs down in order to keep taxes as low as possible.
That will likely push the debate in the direction of a GMI or an NIT—an income supplement with a phase out, as incomes rise, and with or without a phase in. So let’s take a closer look at the GMI and NIT models first.
4. A Guaranteed Minimum Income (GMI) or Negative Income Tax (NIT) GMIs and NITs, as they were first discussed in the U.S., were designed to address the problems created by the structure of social assistance programs at the time.
Social assistance benefits, because they were tied to a standard of need, were often more generous than what could be earned by wages by the lowest waged workers.
And yet, because social assistance was meant to be a substitute for wages, rather than a supplement to them, social assistance beneficiaries faced dollar-for-dollar benefit reductions, or effective 100% marginal tax rates, when they began to earn income.
The problem was how to provide benefits in a way that encouraged, rather than discouraged, 8
employment, and the proposed solution was to phase out benefits at a lower marginal tax
rate. This approach was termed a negative income tax (NIT), which at the time referred to
both variants—what I’m calling the GMI model, with no phase in (figure 1), and what
I’m calling the NIT model (figure 2), with a phase in.
President Nixon proposed a GMI in the 1960s that would have guaranteed a family with children a minimum income of $1,600, about half the poverty threshold for a family of four at the time. The phase out rate would have been about 40%, meaning a reduction of 40¢ for every dollar earned—a significant improvement over 100% tax rates,
but still a much higher marginal tax rate than faced by low-income earners who did not receive the grant. FAP generated considerable opposition and did not pass Congress, but after its defeat Congress did enact the Earned Income Tax Credit (EITC), an NIT for lowincome workers with children, which has been increased and expanded repeatedly in the decades following.
The inherent dilemma of the NIT is that the more generous the benefit and the lower the rate at which the benefit phases out, the higher the cost of the program and the more taxpayers fall under the program. On the other hand, targeting the benefit to only the neediest keeps costs lower, but requires steeper phase-outs, back in the direction of the 100% marginal tax rates. This dilemma is illustrated by the EITC (figure 9), which phases in slowly, increasing as earned income increases, and then phases out slowly, as income surpasses the poverty line adjusted for family size. The irony of its NIT design is that some benefits continue to be paid until income approaches, or even (for families with
3 children) surpasses, $50,000, but the amount of the benefit at that point is trivially small.
This tradeoff is well known to basic income advocates, but it’s worth parsing out
the underlying assumptions of the GMI and NIT approach. Both models are based on a
particular theory of economics, which holds that
• Employment alone provides fair or adequate income to most workers and their
families
• Income subsidies can be limited to a relatively small group of workers for whom the
market mechanism does not work (for reasons of racial discrimination, geographic
location, preference for childrearing over work, etc.)
• The poor need to be incentivized to work for more than a subsistence level benefit
• This cash benefit is superior to other forms of subsidy (such as a higher minimum
wage, a jobs program, etc.) because it is either cheaper or less distorting to the
market.
This theory holds today for the EITC, which is widely heralded as having encouraged
single mothers—a population that is thought to need incentives to go to work rather than
remain on social assistance benefits—to enter the workforce and leave what is left of
welfare in the U.S. SSI, on the other hand, acknowledges the lower likelihood of its
eligible population—seniors and the disabled of any age—to earn enough to live on, but
its meager benefit level (75-80% of the poverty threshold) and high phase out rates of
100% on unearned income, and 50% on earned income (above modest exclusion
amounts) serves as a deterrent to feigning disability, failing to save for retirement, or
shifting from low-wage work to SSI benefits.
5. The Flat Grant Models (RFG and TFG)
In contrast, the Flat Grant models are based on very different theories of
economics. The RFG is based on the theory that
• All members of a political community are entitled to share in the resources of that
community, regardless of their work effort or other income
• Work disincentive effects are either small, shared by all recipients regardless of
their work effort or other income, or irrelevant, given that funding is independent
of employment and the tax base.
The size of the benefit is based on the size of the asset, along with the time horizon over
which the community wishes the asset to hold value and pay a benefit.
The TFG, on the other hand, is based on a theory that is more directly in conflict
with the theory underlying the GMI and NIT models. This theory holds that
• Employment alone does not provide a fair or adequate income to most workers
and their families
• The market mechanism fails many workers for reasons unrelated to their own
efforts or desert
• The poor need no greater incentives to work for more than a subsistence level (or
even higher) benefit than those with higher incomes need to remain employed in
high-paying jobs
• This cash benefit is superior to other forms of subsidy (a higher minimum wage, a
jobs program, etc.) because it maximizes the freedom of the individual recipients
to choose how to live.
None of this comes as news to basic income advocates. However, it does suggest that it
makes strategic sense to explicitly distinguish basic income from the NIT and GMI
models. While it is in theory possible to construct a GMI with a much lower phase out
rate and a much longer “tail” of progressively increasing tax rates and decreasing benefit
amounts, which might appear to make it indistinguishable from a progressive TFG, the
rationales underlying the two models, at least as they have developed in the U.S., suggest
that it would be strategically sound for U.S. basic income advocates to choose a model
that makes its underlying rationale clear.
As Brian Steensland argues in his exhaustive The RFG can also be a way of protecting an asset like clean air, by taxing those who pollute it in order to limit and, at the same time, share the profits of the negative externalities of polluting activities. In the U.S., a carbon tax and dividend seems like the
most likely form of RFG that could be enacted, given the state laws that at least currently
govern the exploitation of other natural resources such as oil and water. Contemporary
Georgists have also suggested the use of land taxes to fund an RFG.
History of the U.S. guaranteed income debates of the 1960s, and Karl Widerquist echoes
in his review of the literature on the guaranteed minimum income experiments of the
1960s and 70s,4 it is easy for the general idea of an income supplement to mean different
things to different people, and then to generate opposition from across the political spectrum.
For this reason, it might be best for basic income advocates to work as hard to
distinguish basic income from the NIT and GMI models as advocates of those programs
worked to distinguish them from social assistance, or the much maligned “welfare.”
If I’m right about this, then part of our strategy has to be continuing to highlight
the structural and systemic factors that lead to poverty and economic insecurity, as the
left has long done.
We now have more evidence than ever about this, thanks in large part to the kind of long-term analysis of income trends undertaken by Thomas Piketty5 and his colleagues. Another part of the strategy has to be confronting the rhetoric about work incentives embedded deep in the NIT and GMI models. Charles Karelis provides a theoretical argument against the way marginal utility theory has been used against the 3 Brian Steensland,
The Failed Welfare Revolution: America’s Struggle over Guaranteed Income Policy (Princeton University Press, 2008). See also Felicia Korhnbluh, The Battle
for Welfare Rights: Politics and Poverty in Modern America (University of Pennsylvania
Press, 2007).
4 Karl Widerquist, “A Failure to Communicate: What (If Anything) Can We Learn From
the Negative Income Tax Experiments,” Journal of Socio-Economics, 34: 49-81.
5 Thomas Piketty, Capital in the Twenty-First Century (Harvard University Press, 2014).13
poor,6 and Sendhil Mullainathan and Eldar Shafir recently published psychological
research to back up Karelis’ intuitions.
On the other hand, after the instinctive resistance to the idea of unconditionality
and the concern about work incentives, the next line of resistance to a basic income is
inevitably the high cost of a universal grant, so the question of financing has to be
addressed as well. Assuming that the TFG model is the way to go, what would a basic
income look like?
6. The Tax-Financed Flat Grant (TFG)
The TFG form of basic income designed to eliminate poverty and maximize work
incentives should look more like Social Security, and less like either the EITC or SSI.
While the Social Security benefit amount varies from recipient to recipient, based partly
on their earnings history (or that of their spouse or parent), once it is set it does not
change according to income or assets, until other income reaches a threshold.8 This
reflects Social Security’s structure as a contributory program whose benefits feel
“earned” by those who receive them, and preserves incentives for covered workers to
save additional funds for retirement and for those seniors who are able to keep working
and earning income.
Once other income reaches $25,000 for single tax filers, or $32,000, 50-85% of Social
Security benefits are taxable at the same progressive tax rates that apply to income for all
taxpayers.
A basic income designed on the TFG model would be a uniform, tax-exempt flat
grant financed not by past contributions but by progressive taxes on all other income,
earned or unearned (figure 10). Current tax rates on the first dollar of earnings are limited
to the flat Social Security and Medicare payroll taxes of 7.65%, but with the income floor
of an untaxed subsistence level basic income, progressive income taxes could begin on
the first dollar of earnings as well; the basic income could replace the personal
exemptions and standard deduction income disregards. This has two advantages. It would
raise funds, but it would also make all workers contributors to the financing of the basic
income as well as recipients of its benefits—the contributory model that is one of the
elements of Social Security’s political durability.
The basic income grant forms an income floor exempt from taxation; all other income is
subject to progressive tax rates.
The advantages of this structure are
• The benefit remains in place as income fluctuates, maintaining the economic
security of the benefit for precarious workers
• It removes the disincentive effects of the high marginal tax rates the GMI and NIT
forms impose on low-income earners
• It restores progressivity to the tax and benefit system, under which marginal tax
rates rise as income increases, rather than the other way around, as is currently the
case in the U.S.
Following the Social Security approach, the TFG could be administratively
separated from the tax system, and integrated only at the point of the annual tax filing,
when the receipt of the grant is reported and used to determine the first dollar of taxable
income. (High earners who know that their taxes due will be greater than their basic
income grants will likely prefer to forgo the monthly payment in favor of claiming it as a
tax exemption on their tax returns.) But there are reasons to prefer a full integration with
the tax code.
One advantage of the tax-integrated approach is that it invites a reform of the tax
code in the direction of simplification. If all citizens receive what is essentially a
refundable personal exemption and standard deduction tied to an adequate minimum,
what is the rationale for the myriad tax exemptions and deductions that complicate the
U.S. tax code and that redistribute benefits up the income ladder? Some of the
exemptions, like the lower rate on capital gains, are clearly designed to privilege the
income streams particular to the politically powerful, but others, including the home
mortgage interest deduction, the child tax credit, and of course, the EITC, are designed—
but poorly so—to subsidize socially-approved investments on the part of low- and
middle-income taxpayers.
These tax exemptions are now estimated to cost the U.S. Treasury $1 trillion in foregone revenues. It is true that in the current political culture in the U.S. any reduction in exemptions is viewed as a tax increase by anti-tax activists like Grover Norquist, author of the “Taxpayer Protection Pledge”9 signed by the majority of Congressional Republicans. But the strategy of linking economic security for all Americans with tax simplification for all taxpayers might have the chance of breaking
through the current political stagnation in Washington by uniting progressive Democrats
on the left and classically liberal Republicans on the right.
7. How High Should the Basic Income Be?
For a basic income that eliminates poverty—which should be the first priority in
the U.S.—the poverty thresholds present themselves as a target amount for a basic
income. While there is widespread agreement that they are outdated and inadequate, it
seems unrealistic that in the current climate a basic income could be set at a higher level,
and evidence from the NIT experiments in the U.S. and Canada in the 1960s and ‘70s,
along with more recent evidence from a study of Native Americans who received
dividends from casino profits, suggests that even less than poverty threshold-level income
supplements can have significant effects on well-being and opportunity
The TFG model suggests a salient amount as a starting point for a basic income in
the U.S. The current value of the personal exemption is $3,900, and the standard
deduction, which applies not to individuals but to tax units, is $12,200 for married
couples filing jointly.
Dividing the standard deduction by 4, to get at a rough per person amount for a typical family, yields a little over $3,000 per person. A $7,000 per person basic income that goes to adults and children would not provide an income sufficient to meet the poverty threshold for a single person living alone, but it would exceed it for couples or joint householders and all families with children. The experience of Social Security suggests that popular universal benefits that start out at a low level will increase
over time.
Of course, the basic income could be targeted to the poverty threshold for
individuals who live alone, or about $12,000 per person, but it seems unlikely that a basic
income at that level would also go to children, which would leave our most vulnerable
families—single-parent families—at disproportionate risk for poverty.
To achieve a higher level basic income probably requires a rationale in addition
the one based on poverty elimination, and a source of funding. Growing inequality in the
U.S. is a problem that can also be alleviated by a basic income. Thomas Piketty provides
compelling evidence that inequality cannot be reduced by the redistribution of income
from earnings only, but requires a tax on capital as well. This could be addressed in one
(or both) of two ways.
The first may appeal to some of the same potential allies on the right for whom income tax simplification is a goal. The second won’t appeal to many on the right, but it’s worth trying anyway.
The first option is a tax on the imputed income of capital. There is widespread
agreement among tax specialists that the U.S. system of taxation of capital gains, even at
a lower rate than earned income, distorts the behavior of owners of capital—particularly
in a political regime like ours in which tax rates are changed fairly frequently.
Taxation of capital gains—the amount earned when assets are sold—but not of the value or
earnings of the capital if they are unrealized—induces owners of capital to hold on to
assets that might be better (in the sense of economic efficiency) sold. (It also taxes
owners on gains that might be illusory—based on inflation, but not real gain.) Owners of
capital are more likely to sell when capital gains taxes are decreasing, and to hold when
they are increasing, encouraging them to lobby for reductions, even if they are for short
windows only.
A way around this problem that encourages the circulation of capital and its allocation to the highest yielding investments, is to tax on an annual basis an imputed earning of, say, 4% or 5% on the value of capital assets.13 The other way is to forget about taxing capital gains and to impose a tax on the value of the capital itself, as Piketty has proposed.
Higher, progressive rates of taxation on capital could fund a higher basic income aimed at reducing economic inequality—something a subsistence-level basic income would have little effect on.
The second option would be to restore meaningful taxation of estates—or better
yet, of inheritances. Ideally, the full amount of revenue from estate or inheritance taxation
should be devoted to the redistribution of wealth through a basic income. Under the
current U.S. tax code, estates valued at under $5.25 million face no estate tax at all.
With the median inheritance for the baby boom generation estimated to be only $64,000,15 it’s
clear that the high threshold for estate taxation benefits a small minority of inheritors. To
have the strongest effect on inequality, taxation of estates should shift to taxation of
inheritances, with lifetime exclusion amounts high enough to exclude most inheritances
from taxation and to encourage bequests that distribute accumulated wealth more
broadly.
8. Conclusion
A TFG financed by progressive taxes on income, capital, and inheritances would
eliminate poverty and, depending on how progressive the tax rates are, have the potential
to stop the trend of rising inequality in the U.S. and even reverse it. If the TFG model
seems like a plausible approach to the implementation of a basic income in the U.S., the
next step would be to estimate the tax rates required to finance a basic income at this
level, but that is beyond the scope of this paper."
Source and Full Article with Graphs
http://www.usbig.net/papers/Zelleke,%20A%20Basic%20Income%20in%20the%20U.S..pdf
McGill School of Law, Montreal, June 27-29, 2014. Almaz Zelleke, Visiting Scholar,
NYU Robert F. Wagner Graduate School of Public Service, az22@nyu.edu. Rev. 7/2/14.
Note: Not for citation. This is very much a work in progress, and I welcome feedback to
improve the analysis and proposal.
Abstract: Recent attention to basic income in the U.S. prompted by the successful
petition for a basic income referendum in Switzerland suggests the time is ripe for
concrete basic income proposals.
In this paper, I consider ways forward based on the expansion of existing income support programs—the Earned Income Tax Credit for lowwage workers and Social Security for senior citizens, among others.
The EITC is a household-based negative income tax paid annually, while Social Security benefits are
partially-taxable individual grants paid on a monthly basis. I discuss the pros and cons of
these approaches for a subsistence-level basic income in the U.S.
1. Introduction
Interest in a basic income in the U.S. is higher than at any time since the 1960s, largely due to the media attention around the petition for a basic income referendum in Switzerland. As is often the case, attention is focused on the amount of a potential basic income (with the amazing figure of $2,800 a month having been introduced by the conversion of the suggested Swiss figure of 2,500 Swiss francs a month into U.S. dollars) and its unconditionality.
Little attention in these discussions has been paid to how a basic income might be implemented. In particular, a basic income is often conflated with a negative income tax (NIT). Are there other forms a basic income might take? Are there important differences? Does a specific goal, such as poverty elimination, or reduction of inequality, lead to a preference for a specific form? If so, are there grounds for preferring a different form to an NIT? In this paper, I explore the ways a basic income might be implemented and consider the pros and cons of each.
2. Four Models for Income Supplementation
When designing income supplements, there are several important questions
related to eligibility, size, and funding of the benefit. In terms of the form the benefit will
take, there are two essential questions: whether the benefits are phased in, and whether
they are the phased out, in relation to other income or assets. This provides four basic
models for designing income supplements (table 1).
Table 1: Four Models of Income Supplementation
SSI=Supplemental Security Income; FAP=Family Assistance Plan; SS=Social Security;
EITC=Earned Income Tax Credit; Alaska PFD=Alaska Permanent Fund Dividend
2a. No phase in, phase out (figure 1) Under the first model, the maximum benefit
is available to those with no other income, but phases out as income rises.
Supplemental Security Income (SSI) in the U.S. is an income supplement in this form with no phase in, but a phase out as earned income rises.
President Nixon’s proposed Family Assistance Plan (FAP) also had this structure. Social Security benefits follow a version of this structure, with no phase in but with phase out of 50-85% of benefits as other income rises. Since this structure guarantees a certain amount of income before benefits phase out, let’s call it the Guaranteed Minimum Income, or GMI model.
In this model, the benefit builds slowly along with earned income, plateaus once it reaches its maximum, and then phases out as earned income continues to rise. The Earned Income Tax Credit (EITC) in the U.S. is an income supplement in the form of an NIT that phases in and phases out. Let’s call this the NIT model.
In this model, the benefit builds slowly along with earned income, plateaus once it reaches its maximum, and then phases out as earned income continues to rise. The Earned Income Tax Credit (EITC) in the U.S. is an income supplement in the form of an NIT that phases in and phases out. Let’s call this the NIT model.
Finally, income supplements can vary according to whether they are scaled to family or household size, as with the EITC and SSI, or whether the benefits are individually paid and the amounts are uniform, as with the PFD. Basic income is generally defined as an individual benefit, but given the family and household basis of the U.S. income tax code, it’s worth considering whether this is an essential feature of basic income implementation, or whether it could be set aside for transition purposes, if not on a permanent basis.
This question is beyond the scope of this paper. Now that I’ve outlined the basic distinctions, let’s take a closer look at the various forms a basic income might take.
While a basic income in the form of a flat grant like the PFD might be the preference of basic income advocates, without a sovereign wealth fund or other large and well-defined asset on hand to fund it, any significant basic income in the U.S. is likely to involve raising or reallocating tax revenue, and will lead to a desire to keep total costs down in order to keep taxes as low as possible.
That will likely push the debate in the direction of a GMI or an NIT—an income supplement with a phase out, as incomes rise, and with or without a phase in. So let’s take a closer look at the GMI and NIT models first.
4. A Guaranteed Minimum Income (GMI) or Negative Income Tax (NIT) GMIs and NITs, as they were first discussed in the U.S., were designed to address the problems created by the structure of social assistance programs at the time.
Social assistance benefits, because they were tied to a standard of need, were often more generous than what could be earned by wages by the lowest waged workers.
And yet, because social assistance was meant to be a substitute for wages, rather than a supplement to them, social assistance beneficiaries faced dollar-for-dollar benefit reductions, or effective 100% marginal tax rates, when they began to earn income.
The problem was how to provide benefits in a way that encouraged, rather than discouraged, 8
employment, and the proposed solution was to phase out benefits at a lower marginal tax
rate. This approach was termed a negative income tax (NIT), which at the time referred to
both variants—what I’m calling the GMI model, with no phase in (figure 1), and what
I’m calling the NIT model (figure 2), with a phase in.
President Nixon proposed a GMI in the 1960s that would have guaranteed a family with children a minimum income of $1,600, about half the poverty threshold for a family of four at the time. The phase out rate would have been about 40%, meaning a reduction of 40¢ for every dollar earned—a significant improvement over 100% tax rates,
but still a much higher marginal tax rate than faced by low-income earners who did not receive the grant. FAP generated considerable opposition and did not pass Congress, but after its defeat Congress did enact the Earned Income Tax Credit (EITC), an NIT for lowincome workers with children, which has been increased and expanded repeatedly in the decades following.
The inherent dilemma of the NIT is that the more generous the benefit and the lower the rate at which the benefit phases out, the higher the cost of the program and the more taxpayers fall under the program. On the other hand, targeting the benefit to only the neediest keeps costs lower, but requires steeper phase-outs, back in the direction of the 100% marginal tax rates. This dilemma is illustrated by the EITC (figure 9), which phases in slowly, increasing as earned income increases, and then phases out slowly, as income surpasses the poverty line adjusted for family size. The irony of its NIT design is that some benefits continue to be paid until income approaches, or even (for families with
3 children) surpasses, $50,000, but the amount of the benefit at that point is trivially small.
This tradeoff is well known to basic income advocates, but it’s worth parsing out
the underlying assumptions of the GMI and NIT approach. Both models are based on a
particular theory of economics, which holds that
• Employment alone provides fair or adequate income to most workers and their
families
• Income subsidies can be limited to a relatively small group of workers for whom the
market mechanism does not work (for reasons of racial discrimination, geographic
location, preference for childrearing over work, etc.)
• The poor need to be incentivized to work for more than a subsistence level benefit
• This cash benefit is superior to other forms of subsidy (such as a higher minimum
wage, a jobs program, etc.) because it is either cheaper or less distorting to the
market.
This theory holds today for the EITC, which is widely heralded as having encouraged
single mothers—a population that is thought to need incentives to go to work rather than
remain on social assistance benefits—to enter the workforce and leave what is left of
welfare in the U.S. SSI, on the other hand, acknowledges the lower likelihood of its
eligible population—seniors and the disabled of any age—to earn enough to live on, but
its meager benefit level (75-80% of the poverty threshold) and high phase out rates of
100% on unearned income, and 50% on earned income (above modest exclusion
amounts) serves as a deterrent to feigning disability, failing to save for retirement, or
shifting from low-wage work to SSI benefits.
5. The Flat Grant Models (RFG and TFG)
In contrast, the Flat Grant models are based on very different theories of
economics. The RFG is based on the theory that
• All members of a political community are entitled to share in the resources of that
community, regardless of their work effort or other income
• Work disincentive effects are either small, shared by all recipients regardless of
their work effort or other income, or irrelevant, given that funding is independent
of employment and the tax base.
The size of the benefit is based on the size of the asset, along with the time horizon over
which the community wishes the asset to hold value and pay a benefit.
The TFG, on the other hand, is based on a theory that is more directly in conflict
with the theory underlying the GMI and NIT models. This theory holds that
• Employment alone does not provide a fair or adequate income to most workers
and their families
• The market mechanism fails many workers for reasons unrelated to their own
efforts or desert
• The poor need no greater incentives to work for more than a subsistence level (or
even higher) benefit than those with higher incomes need to remain employed in
high-paying jobs
• This cash benefit is superior to other forms of subsidy (a higher minimum wage, a
jobs program, etc.) because it maximizes the freedom of the individual recipients
to choose how to live.
None of this comes as news to basic income advocates. However, it does suggest that it
makes strategic sense to explicitly distinguish basic income from the NIT and GMI
models. While it is in theory possible to construct a GMI with a much lower phase out
rate and a much longer “tail” of progressively increasing tax rates and decreasing benefit
amounts, which might appear to make it indistinguishable from a progressive TFG, the
rationales underlying the two models, at least as they have developed in the U.S., suggest
that it would be strategically sound for U.S. basic income advocates to choose a model
that makes its underlying rationale clear.
As Brian Steensland argues in his exhaustive The RFG can also be a way of protecting an asset like clean air, by taxing those who pollute it in order to limit and, at the same time, share the profits of the negative externalities of polluting activities. In the U.S., a carbon tax and dividend seems like the
most likely form of RFG that could be enacted, given the state laws that at least currently
govern the exploitation of other natural resources such as oil and water. Contemporary
Georgists have also suggested the use of land taxes to fund an RFG.
History of the U.S. guaranteed income debates of the 1960s, and Karl Widerquist echoes
in his review of the literature on the guaranteed minimum income experiments of the
1960s and 70s,4 it is easy for the general idea of an income supplement to mean different
things to different people, and then to generate opposition from across the political spectrum.
For this reason, it might be best for basic income advocates to work as hard to
distinguish basic income from the NIT and GMI models as advocates of those programs
worked to distinguish them from social assistance, or the much maligned “welfare.”
If I’m right about this, then part of our strategy has to be continuing to highlight
the structural and systemic factors that lead to poverty and economic insecurity, as the
left has long done.
We now have more evidence than ever about this, thanks in large part to the kind of long-term analysis of income trends undertaken by Thomas Piketty5 and his colleagues. Another part of the strategy has to be confronting the rhetoric about work incentives embedded deep in the NIT and GMI models. Charles Karelis provides a theoretical argument against the way marginal utility theory has been used against the 3 Brian Steensland,
The Failed Welfare Revolution: America’s Struggle over Guaranteed Income Policy (Princeton University Press, 2008). See also Felicia Korhnbluh, The Battle
for Welfare Rights: Politics and Poverty in Modern America (University of Pennsylvania
Press, 2007).
4 Karl Widerquist, “A Failure to Communicate: What (If Anything) Can We Learn From
the Negative Income Tax Experiments,” Journal of Socio-Economics, 34: 49-81.
5 Thomas Piketty, Capital in the Twenty-First Century (Harvard University Press, 2014).13
poor,6 and Sendhil Mullainathan and Eldar Shafir recently published psychological
research to back up Karelis’ intuitions.
On the other hand, after the instinctive resistance to the idea of unconditionality
and the concern about work incentives, the next line of resistance to a basic income is
inevitably the high cost of a universal grant, so the question of financing has to be
addressed as well. Assuming that the TFG model is the way to go, what would a basic
income look like?
6. The Tax-Financed Flat Grant (TFG)
The TFG form of basic income designed to eliminate poverty and maximize work
incentives should look more like Social Security, and less like either the EITC or SSI.
While the Social Security benefit amount varies from recipient to recipient, based partly
on their earnings history (or that of their spouse or parent), once it is set it does not
change according to income or assets, until other income reaches a threshold.8 This
reflects Social Security’s structure as a contributory program whose benefits feel
“earned” by those who receive them, and preserves incentives for covered workers to
save additional funds for retirement and for those seniors who are able to keep working
and earning income.
Once other income reaches $25,000 for single tax filers, or $32,000, 50-85% of Social
Security benefits are taxable at the same progressive tax rates that apply to income for all
taxpayers.
A basic income designed on the TFG model would be a uniform, tax-exempt flat
grant financed not by past contributions but by progressive taxes on all other income,
earned or unearned (figure 10). Current tax rates on the first dollar of earnings are limited
to the flat Social Security and Medicare payroll taxes of 7.65%, but with the income floor
of an untaxed subsistence level basic income, progressive income taxes could begin on
the first dollar of earnings as well; the basic income could replace the personal
exemptions and standard deduction income disregards. This has two advantages. It would
raise funds, but it would also make all workers contributors to the financing of the basic
income as well as recipients of its benefits—the contributory model that is one of the
elements of Social Security’s political durability.
The basic income grant forms an income floor exempt from taxation; all other income is
subject to progressive tax rates.
The advantages of this structure are
• The benefit remains in place as income fluctuates, maintaining the economic
security of the benefit for precarious workers
• It removes the disincentive effects of the high marginal tax rates the GMI and NIT
forms impose on low-income earners
• It restores progressivity to the tax and benefit system, under which marginal tax
rates rise as income increases, rather than the other way around, as is currently the
case in the U.S.
Following the Social Security approach, the TFG could be administratively
separated from the tax system, and integrated only at the point of the annual tax filing,
when the receipt of the grant is reported and used to determine the first dollar of taxable
income. (High earners who know that their taxes due will be greater than their basic
income grants will likely prefer to forgo the monthly payment in favor of claiming it as a
tax exemption on their tax returns.) But there are reasons to prefer a full integration with
the tax code.
One advantage of the tax-integrated approach is that it invites a reform of the tax
code in the direction of simplification. If all citizens receive what is essentially a
refundable personal exemption and standard deduction tied to an adequate minimum,
what is the rationale for the myriad tax exemptions and deductions that complicate the
U.S. tax code and that redistribute benefits up the income ladder? Some of the
exemptions, like the lower rate on capital gains, are clearly designed to privilege the
income streams particular to the politically powerful, but others, including the home
mortgage interest deduction, the child tax credit, and of course, the EITC, are designed—
but poorly so—to subsidize socially-approved investments on the part of low- and
middle-income taxpayers.
These tax exemptions are now estimated to cost the U.S. Treasury $1 trillion in foregone revenues. It is true that in the current political culture in the U.S. any reduction in exemptions is viewed as a tax increase by anti-tax activists like Grover Norquist, author of the “Taxpayer Protection Pledge”9 signed by the majority of Congressional Republicans. But the strategy of linking economic security for all Americans with tax simplification for all taxpayers might have the chance of breaking
through the current political stagnation in Washington by uniting progressive Democrats
on the left and classically liberal Republicans on the right.
7. How High Should the Basic Income Be?
For a basic income that eliminates poverty—which should be the first priority in
the U.S.—the poverty thresholds present themselves as a target amount for a basic
income. While there is widespread agreement that they are outdated and inadequate, it
seems unrealistic that in the current climate a basic income could be set at a higher level,
and evidence from the NIT experiments in the U.S. and Canada in the 1960s and ‘70s,
along with more recent evidence from a study of Native Americans who received
dividends from casino profits, suggests that even less than poverty threshold-level income
supplements can have significant effects on well-being and opportunity
The TFG model suggests a salient amount as a starting point for a basic income in
the U.S. The current value of the personal exemption is $3,900, and the standard
deduction, which applies not to individuals but to tax units, is $12,200 for married
couples filing jointly.
Dividing the standard deduction by 4, to get at a rough per person amount for a typical family, yields a little over $3,000 per person. A $7,000 per person basic income that goes to adults and children would not provide an income sufficient to meet the poverty threshold for a single person living alone, but it would exceed it for couples or joint householders and all families with children. The experience of Social Security suggests that popular universal benefits that start out at a low level will increase
over time.
Of course, the basic income could be targeted to the poverty threshold for
individuals who live alone, or about $12,000 per person, but it seems unlikely that a basic
income at that level would also go to children, which would leave our most vulnerable
families—single-parent families—at disproportionate risk for poverty.
To achieve a higher level basic income probably requires a rationale in addition
the one based on poverty elimination, and a source of funding. Growing inequality in the
U.S. is a problem that can also be alleviated by a basic income. Thomas Piketty provides
compelling evidence that inequality cannot be reduced by the redistribution of income
from earnings only, but requires a tax on capital as well. This could be addressed in one
(or both) of two ways.
The first may appeal to some of the same potential allies on the right for whom income tax simplification is a goal. The second won’t appeal to many on the right, but it’s worth trying anyway.
The first option is a tax on the imputed income of capital. There is widespread
agreement among tax specialists that the U.S. system of taxation of capital gains, even at
a lower rate than earned income, distorts the behavior of owners of capital—particularly
in a political regime like ours in which tax rates are changed fairly frequently.
Taxation of capital gains—the amount earned when assets are sold—but not of the value or
earnings of the capital if they are unrealized—induces owners of capital to hold on to
assets that might be better (in the sense of economic efficiency) sold. (It also taxes
owners on gains that might be illusory—based on inflation, but not real gain.) Owners of
capital are more likely to sell when capital gains taxes are decreasing, and to hold when
they are increasing, encouraging them to lobby for reductions, even if they are for short
windows only.
A way around this problem that encourages the circulation of capital and its allocation to the highest yielding investments, is to tax on an annual basis an imputed earning of, say, 4% or 5% on the value of capital assets.13 The other way is to forget about taxing capital gains and to impose a tax on the value of the capital itself, as Piketty has proposed.
Higher, progressive rates of taxation on capital could fund a higher basic income aimed at reducing economic inequality—something a subsistence-level basic income would have little effect on.
The second option would be to restore meaningful taxation of estates—or better
yet, of inheritances. Ideally, the full amount of revenue from estate or inheritance taxation
should be devoted to the redistribution of wealth through a basic income. Under the
current U.S. tax code, estates valued at under $5.25 million face no estate tax at all.
With the median inheritance for the baby boom generation estimated to be only $64,000,15 it’s
clear that the high threshold for estate taxation benefits a small minority of inheritors. To
have the strongest effect on inequality, taxation of estates should shift to taxation of
inheritances, with lifetime exclusion amounts high enough to exclude most inheritances
from taxation and to encourage bequests that distribute accumulated wealth more
broadly.
8. Conclusion
A TFG financed by progressive taxes on income, capital, and inheritances would
eliminate poverty and, depending on how progressive the tax rates are, have the potential
to stop the trend of rising inequality in the U.S. and even reverse it. If the TFG model
seems like a plausible approach to the implementation of a basic income in the U.S., the
next step would be to estimate the tax rates required to finance a basic income at this
level, but that is beyond the scope of this paper."
Source and Full Article with Graphs
http://www.usbig.net/papers/Zelleke,%20A%20Basic%20Income%20in%20the%20U.S..pdf
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