Why we should put ‘basic’ before ‘universal’ in the pursuit of income equality

by John Quiggin on February 8, 2017

That’s the title of my latest piece in The Guardian. There are two key points

First, in terms of effective tax rates and tax paid, any means-tested Guaranteed Minimum Income can be replicated by a non-tested Universal Basic Income, and vice versa

Second, for a number of reasons, it would be better to begin by expanding access to an adequate Basic income (in Australia, the Age Pension is an obvious benchmark) rather than starting with a small universal payment and then increasing it to a level sufficient to live on.

{ 25 comments }

1

Stephen Frug 02.08.17 at 5:07 am

You don’t really discuss the key political dynamic (at least, key in the U.S.; perhaps not elsewhere): universal programs are popular & supported widely; programs seen to be targeted at poorest are bitterly resented by about half the population. Makes a strong case, at least here, for universal over basic: more likely to sell, more likely to stick.

2

F 02.08.17 at 5:38 am

Exactly. No one has a problem with Alaska’s dividend. A National Dividend paid out to all citizens.

3

Pavel 02.08.17 at 5:41 am

@Stephen Frug
I’d like to second this. Welfare Chauvinism seems to have taken a strong root in the US, even amongst the poor themselves.

4

clew 02.08.17 at 8:02 am

Auction off 3Gt of CO2 emissions a year and return it to (all!) people per capita. You can’t take the sky from me, but you can hire it for a fair fee.

5

Peter T 02.08.17 at 10:47 am

I entirely agree that a basic universal income is a good idea. The practical policy objections are two-fold:

– one that there is a general feeling that unearned income is bad for people (see the lengths to which rentiers go to claim their incomes are earned);

– a second is that any such benefit paid for by taxes on private earnings is politically vulnerable. After all, the simplistic economics notion that taxes are a dead weight is ingrained, and the rich can always find some class of people who will believe that their taxes can be lessened if only the benefit were not paid to some other people.

Neither is insuperable. The right to a UBI could be coupled to a period of some form of service (environmental restoration and maintenance would be a good one, but any civic service would do).

The second is most easily addressed if one notices that schemes like the Alaskan one are paid for from the proceeds of common property. Property, moreover, which is widely acknowledged as common – natural resources. The obvious solution is to take into state ownership key productive resources, lease them out and pay for the UBI from the proceeds.

6

P.M.Lawrence 02.08.17 at 10:50 am

That article has the subheading, “Providing a basic income to all that’s not enough to live on makes no sense”.

I appreciate that it is the work of an editor, but would you concur with it? I ask because it actually makes perfect sense, for certain goals. You may not share these goals, but they are perfectly coherent and – ultimately – achievable: to provide a mere top up sufficient to allow effectively everybody to bid themselves into work at wage levels that would be inadequate on their own. With goals like that, it is the combination of two separately inadequate things that provides adequacy, that makes “a basic income to all that’s not enough to live on” make sense, and inter alia avoids any long term risk of funding needs overwhelming the system and/or too many people opting out of work (unless Malthusian constraints develop, and of course there are transitional issues getting there from here too).

That transition is the problem with “Logically, this leads to the idea that we should begin with a small universal payment, which would gradually increase in value to the point where it becomes sufficient to meet basic needs”. I would say it doesn’t necessarily lead to that idea, because doing it that way practically guarantees problems: just as you outline as happening with the Alaska Permanent Fund, unless and until it becomes almost sufficient to meet basic needs, it neither provides adequacy itself nor allows recipients to bid themselves into top up work well enough, while all the while it presents a funds outflow. That falls between two stools.

A rapid jump towards estimated levels could fail from stickiness issues, which is one reason I prefer the Kim Swales approach I have mentioned elsewhere that gives employers tax breaks per employee. The existence of that alternative is why it is not the case that “the” alternative, i.e. the only other option, is to “begin by providing sufficient income to support a decent standard of living to those most in need, then expand it to the entire population”. The Kim Swales approach, too, works out largely equivalent to the two largely equivalent variants you have canvassed here. Personally, I would prefer to go on to a further transition to a modernised Distributism, achieving not so much the euthanasia of the rentier as his dilution, on the principle that the problem with rentiers is that there are not enough rentiers.

7

John Horowitz 02.08.17 at 3:38 pm

Are you sure you want the headlines “Government sends $8,000 check to millionaires”?

8

bruce wilder 02.08.17 at 4:15 pm

S Randy Waldman, of Interfluidity, had an idea about how to implement a ubi that I thought had a great deal of merit as policy and as politics: do it as part of implementing a public system of payments. In other words, nationalise Visa / MasterCard /debit card payment system and then top up everyone’s balance at regular intervals.

This reform tackles one of the sources of onerous debt dragging people down and exaggerating income inequality. It accepts the elimination of paper currency. It banks everyone. It removes a private tax on the retail economy. It opens a channel for macro economic policy.

I am sorry I cannot provide a link. My Google skills are failing me this morning.

9

Ed 02.08.17 at 4:46 pm

This is probably a good place to point out the difference between an income guarantee and a guaranteed income.

With a guaranteed income, like with the Alaska fund, the government sends out a check of a few thousand dollars per year to everyone. Sort of like social security but with no age restrictions.

With an income guarantee, every adult citizen (yes, adult citizen) is guaranteed a certain level of income, tied to GDP or the poverty line, pretty much designed to keep people out of poverty. People file for taxes, declare their income, and if their post tax income is below this line the government sends a check making up the difference.

Why the difference? Well for one no $8,000 checks to multimillionaires (this comment was prompted by the John Horowitz comment). At worst you get some checks sent to asset rich cash flow poor people. The guarantee is also much less inflationary and much less vulnerable to fraudulent claims and system gaming (hence the every adult citizen provision). Since the amount is tied to GDP, or at least he poverty line, it will always be affordable since it would always be a set percentage of GDP, which also means the money amount will rise and fall roughly with the cost of living.

People with income from jobs that is above the line wouldn’t claim, but then if you are making more than what you would get from the government, why stop that arrangement? It would only make sense if you are burned out or have ethical reasons to leave the job, in which case you should leave the job, or if you have a job that is right around the line. The guarantee would effectively be a minimum wage and greatly reduce employers’ bargaining power, probably better than a jobs guarantee would.

It also has a philosophically coherent underpinning in the idea of a minimum standard of living for everyone.

However, its still vulnerable to the “money for nothing” objection, which would probably kill the idea, and to a lesser extent the “paid for by taxes from people with income” idea, you may need to increase the amount of state funding coming from not-income taxes to provide the support. You could fancy it up and do it as an insurance scheme.

10

L2P 02.08.17 at 4:54 pm

“Second, for a number of reasons, it would be better to begin by expanding access to an adequate Basic income (in Australia, the Age Pension is an obvious benchmark) rather than starting with a small universal payment and then increasing it to a level sufficient to live on.”

Couldn’t disagree more. A large number of people would see it as just another handout to “those people,” who don’t deserve it and need stronger incentives to work anyway. But if you turn that into a universal program they’re on board. Support for “need-based” health care subsidies is vastly lower than support for things viewed as “universal” like tax deductions for health care.

It would be far, far better to give some maybe-even-useless guarantee, like say $500 a month, that went to everyone. Once it was part of the culture (like Medicaire and Social Security), it’s hard to get rid of and easy to increase.

11

JRLRC 02.08.17 at 6:27 pm

Both: basic and universal.
The mexican model is “basic and not universal”, and the general and historic result is failure. That model was designed by Santiago Levy, an economist that you (John) may have heard of. “Universal but not basic” is a nonsensical proposal that nobody is proposing.

12

Yankee 02.08.17 at 6:32 pm

Millionaire retirees are already drawing the maximum Social Security benefit ($2639/month). Weirdly, nobody much cares about the rich getting richer; it’s all about making sure the poor get poorer.

13

JoB 02.08.17 at 8:45 pm

Professor De Grauwe (LSE I think) made a similar argument in the press in Belgium.

I agree with the commenters here that a basic income should be universal. The affluent will anyhow have to pay for it because it will not be budget neutral so why not make it a universal provision. That has the virtue of simplicity knowing complex deals are hard to organize and to get people to endorse. The truth is that even the affluent benefit from it in the sense that if their luck changes they have the security of not going homeless after a personal bankruptcy. I know not many affluent will be swayed by this argument but it is nevertheless the case. Making it universal means that it does not matter what happened on the personal luck-front and this is how it should be.

14

stevenjohnson 02.08.17 at 9:13 pm

John Horowitz @7: There will always be the headline, “Millionaires cash $8 000 government check!”

15

Greg McKenzie 02.08.17 at 9:14 pm

I agree that the reasoning is sound and matches the dual tests of equity and fairness. The only problem appears to be the beauracy at Centerlink. After the debt recovery software disaster in January, the idea that this government agency can handle anything complex is laughable. Our public beauracy has always been a problem, because it is poorly managed and given inept political guidelines. There may be one way to circumvent this inefficient
beauracy, it is an idea first proposed by Milton Friedman – no lover of public beauractric
efforts. This is sometimes called Negative Income Tax. The idea is that income support would be adjustable to current financial circumstances. And it would be run on a needs only basis. There is no perfect solution and this proposal requires detailed analysis, to overcome teething problems. But it will circumvent Centerlink.

16

RichardM 02.08.17 at 9:25 pm

Something like ‘1 year voluntary service guarantees x years of a livable basic income’ might work. You can control the number of people you accept on the program initially to make the numbers add up.

As automation ramps up, it can then be gradually scaled down until you get to a token two week working holiday being enough for a lifetime supply of everything non-scarce.

17

Bill Hawil 02.09.17 at 12:01 am

There are two types of parasitic income; one is, expecting a benefit from society, but not being prepared to contribute to society. The other is income from assets or money, which now probably exceeds the payment of social security by the government.
As the advance of technology is so fast, displacing people from work, but not providing new jobs, fewer and fewer people are reaping the benefits from the capital which is needed for the technology.
What is even more surprising, that the high taxation of income is much in the media, yet the tax level is rather low compared to the 1970’s, when the highest tax rate in Australia was around 72%.
Another question for Australia is, which other country has the means test of the age pension, and a tax-free super for over sixties, if the income comes from a so-called taxed fund.
I put this question to many politicians, the media, private and ABC, yet none would give me an answer, be it positive or negative.
How much has the introduction of the tax-free super for the over sixties, introduced by the Howard and Costello government in 2007, and the tax concessions for super in general, contributed to the large budget deficit.

18

Scott P. 02.09.17 at 2:51 am

At least half the people on this thread are proposing it.

19

J-D 02.09.17 at 4:17 am

Stephen Frug

You don’t really discuss the key political dynamic (at least, key in the U.S.; perhaps not elsewhere): universal programs are popular & supported widely; programs seen to be targeted at poorest are bitterly resented by about half the population. Makes a strong case, at least here, for universal over basic: more likely to sell, more likely to stick.

Perhaps the point could have been discussed in more detail, but it’s plainly acknowledged and responded to:

Of course, an attempt to expand access to income support will be politically difficult, more so than advocacy of a small universal payment. But, in an environment where the economic and political order is breaking down around us, political caution is a road to oblivion.

20

Jerry R Hamrick 02.10.17 at 12:31 pm

I attempted to subscribe but I got a screen filled with coding and text.

21

stevenjohnson 02.10.17 at 5:05 pm

About the resentment of taxes: So long as people believe (as the media proposes) the problem for most people is taxes, instead of low pay, fiscal policy will never make any sense.

We’re much more likely to get VAT than UBI or GAI. How else deliver on massive military spending, a giant privatization of infrastructure on government money and such like?

22

Jerry R Hamrick 02.10.17 at 11:58 pm

In the U.S. there should be an annual stipend of $36,000 per citizen per year from life to death. It should be called the Social Security Lifetime Stipend (SSLS) and it should be payable in monthly installments. Two thousand dollars should be deposited into the citizen’s UniCheck account and One thousand dollars should go into the citizen’s UniLife account. Both accounts would be kept in the Universal Bank of the United States (UNI). The UniCheck account funds could be used for any legal purpose and the UniLife account would be saved, at interest set by actuaries, until the citizen reaches 18 years of age. At that time the UniLife funds would be eligible for use in paying for some of the necessities of life: building or buying a home, going to college or getting some other form of higher education or training, starting a family, starting a business, and the like. The purpose of these funds is to enable the citizen to build a long life worth living for himself and his loved ones while providing for a long, comfortable, safe retirement. There is much more to go along with the SSLS and the Uni accounts including no taxes out of current income.

We keep fiddling with our current economic and government systems but we never really make fundamental changes to them. These systems are failed and without fundamental changes they will drag us toward destruction of our civilization. By trapping ourselves in the swamp created by our current ways of managing our money supply, our resources, and our population, we are enabling the onrushing catastrophe of global warming to destroy us–and it will be sooner than later. We are running out of time, we are committing suicide, we must adapt or die.

23

Joe 02.11.17 at 7:17 am

I basically agree with the article (I think). On the other hand a policy to watch is the Canada Child Benefit. This was initially a flat, very modest universal benefit introduced by the Conservative government. The current Liberal government has received a lot of praise for adjusting the benefit to make it substantially bigger at the bottom end and phased out fairly gradually so that the middle class benefits as well. So another political strategy might be getting people used to a cash transfer program with a low UBI, then shifting it to a guaranteed annual income/ negative income tax model. Of course, as you say in the article the small UBI could get chopped, and I think it’s also important to face up to the possibility that switching to a more targeted program will just degenerate over time into a truly “residual” poverty program. But it’s not obvious that this *has to* happen.

24

Collin Street 02.11.17 at 10:16 am

As the advance of technology is so fast, displacing people from work, but not providing new jobs,

Err. People want stuff and they don’t want to do it themselves. There’s no shortage of things-that-could-be-done, no shortage of total demand: the problem is, noone can afford them because most people have no money and no access to credit.

“Where are the jobs going to come from?” from the limitless pool of human desire. Where’s the money going to come from… and why hasn’t it come already?

25

Antonin 02.11.17 at 7:04 pm

Eight men own the same wealth as the 3.6 billion people who make up the poorest half of humanity, according to a new report published by Oxfam today to mark the annual meeting of political and business leaders in Davos.

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