What would a basic income do?

[Mise]

I can see that, Mr Mise. But millionaires are already being taxed and would continue to be so. How much more complexity does it add to adjust their tax rate (provided they in effect pay anything at all, of course, since mostly they pay the least, but that's by the by), so that in effect they receive zero net gain from a Universal benefit?

Would we only wish to do it to millionaires? I'm not a millionaire, but I certainly don't need an extra £6,000 from the government. I would hope that the basic income would be withdrawn completely by the time it gets to me. And yet, there are people on the same income as me, who are struggling to make ends meet. Certainly, when I was 21, I pretty much lived like a king on my rather modest salary, because I had literally no responsibilities. Before that, when I was living with my parents, I hardly needed any money at all. But if I were 21, married to a non-working spouse, and had 2 kids, I would have struggled to make ends meet. Similarly if I were disabled, or 75 years old with no personal pension, or recently unemployed. So, if I were a different person, I would hope that the threshold for withdrawal would be much higher than my current salary.

So people are different - they are in different situations, and have different income requirements depending on their personal circumstances. At what point do we draw the line and say "it's not fair that person X is receiving free money from the government -- they clearly don't need it!" It's not as simple as looking purely at income. The efficacy of this welfare benefit is really, really low.

So yes, we could easily and cheaply exclude millionaires by raising taxes, but that wouldn't really increase the efficacy of the system: we would still be providing benefits to people who really don't need them. It wouldn't cost us much to do, perhaps, but nor would it provide a great benefit in terms of targeting welfare and getting the most bang for our tax buck.

 

[Borachio]

But the alternative is the present horrendously complicated iniquitous expensive mean-tested system. Are you saying this is the best we can hope for?

I'd argue for a Universal Benefit for everyone, including children, so that would take care of people's changing circumstances due to child rearing.

Of course, that brings up baby farmers, the sad benighted people. But we have those anyway.

 

[Mise]

I don't think our current system is optimal (again, statistically very unlikely that we just so happen to have the best system possible), but I think it's much closer to optimal than one at the very end of the spectrum.

And I actually agree with the general sentiment, that we've gone too far towards policing benefits. I think we probably spend too much on tackling benefit fraud; I doubt it makes sense from a cost-benefit perspective. How much do we spend on tackling fraud vs how much do we save (including deterrent effects)? The general goal that we could save money by simplifying our tax/benefit system is well worth pursuing.

But I think the starting point for that should be to focus on changing what we have now. Iain Duncan-Smith had the right idea, IMO: bundle benefits that are triggered by the same or similar means-tests together and pay them out as one single benefit. Aside from anything, imagine the upheaval for some families, who were used to receiving £13,000 in welfare benefits and have budgeted their whole lives around that number, but now have to deal with only £12,000? A £1,000 cut might not sound like much, but it could be the difference between survival and bankruptcy for some people. People have been protesting over far less.

 

[Linkman226]

Yeah but then it's not a basic income any more is it. You're saying "let's give $10,000 to everyone, except for people who don't really need it, in which case, let's tax them more instead". That already reduces the amount of operational efficiency savings you make, because you're adding a layer of complexity, one that requires additional resources to administer. You might say that it's not a very big layer of complexity, but actually, the fact that it's the first layer of complexity makes it the most expensive to administer. Each additional layer will surely cost less to administer due to economies of scale. So if you're adding the first, expensive layer, you might as well add a second, cheaper layer. And another, and another, because each additional layer is (arguendo) cheaper than the previous, until the savings (or added benefits to poor/sick/disabled/disadvantaged people) you get from better targeted welfare benefits outweigh the additional marginal cost of administration.

So even before you get to the behavioural impact that others are discussing, there is already an economically optimal point, if you want to make the most efficient welfare system. It seems incredibly unlikely to me that this optimal point between operational efficiency and welfare efficacy is at "zero layers of complexity".

This is classic sunk cost fallacy.

But the alternative is the present horrendously complicated iniquitous expensive mean-tested system. Are you saying this is the best we can hope for?

I'd argue for a Universal Benefit for everyone, including children, so that would take care of people's changing circumstances due to child rearing.

Of course, that brings up baby farmers, the sad benighted people. But we have those anyway.

Easy solution. Limit BI to two or three children per family or similar.

 

[Mise]

If you think it is then you've misread it or misunderstood it.

 

[uppi]

So people are different - they are in different situations, and have different income requirements depending on their personal circumstances. At what point do we draw the line and say "it's not fair that person X is receiving free money from the government -- they clearly don't need it!" It's not as simple as looking purely at income. The efficacy of this welfare benefit is really, really low.

Most of this could be handled on the tax side. And to a degree it already is, e.g. with tax breaks for married couples. The states takes away with one hand (taxes) and gives away with the other (welfare benefits). So most people have to deal with the tax agency and a bunch of welfare agencies managing all these benefits. The idea would be to radically simplify the benefit side and try to smooth out everything on the tax side, so there is only need for one huge bureaucracy instead of the several existing huge bureaucracies.

What would be lost is the fine grain control of benefit recipients on what they can spend their money for. Instead of the state paying rent and telling people how big their flat can be, it would just hand them money so that they use it for what they need. So these people would have more freedom to live their life as they want, but you have to trust them that they use that freedom wisely.

I am intrigued by the idea of a basic income, but I am not convinced it would work. But I would love to find out. Does anyone volunteer to have their country try it?

 

[Mise]

I see, so the important part in your view isn't necessarily that there is only one single benefit for everybody, but that, by administering it all as a combined tax/benefit system, rather than as taxes on one side and benefits on the other side, we could save a lot of money? That certainly has merit.

I wonder what benefits there are to keeping them separate? Is it just that the skills required to operate a tax collection organisation are vastly different from the skills required to operate a welfare distribution organisation? I suppose it's probably just a historic division that has persisted because nobody's bothered to change it.

 

[Linkman226]

If you think it is then you've misread it or misunderstood it.

How? You're essentially saying that because it's cheaper than it was before, might as well do it (never mind that it will still cost money).

 

[Cutlass]

They don't abandon the profit motive at all. They simply price their products higher and need to produce less to get the max profit.

That only works for a monopoly. Or, to a lesser extent, to an oligopoly. If you assume actual functioning markets, then sellers can't do that.

 

[Mise]

How? You're essentially saying that because it's cheaper than it was before, might as well do it (never mind that it will still cost money).

First of all, that's not the same as the sunk cost fallacy (not necessarily, anyway). Secondly, you're ignoring the other half of the equation that I'm describing in my post. I'm saying that, because the marginal cost is lower, the marginal benefit doesn't need to be as high in order to rationally approve introducing the new layer of complexity. There will come a point (due to diminishing marginal returns) that the marginal benefit exceeds the marginal cost, and at this point you should stop adding extra layers of complexity. It is highly unlikely that this point comes at literally the first layer of complexity that you add.

I actually mis-spoke in that post, though. I should have said "until the benefits no longer outweigh the costs". Perhaps that's the source of confusion.

 

[uppi]

I wonder what benefits there are to keeping them separate? Is it just that the skills required to operate a tax collection organisation are vastly different from the skills required to operate a welfare distribution organisation? I suppose it's probably just a historic division that has persisted because nobody's bothered to change it.

My cynical answer would be: You want your tax collectors to be overstaffed and your benefit distributors to be understaffed. Moneys flows in quickly but leaves slowly.

Not so cynical answer: If there are so many different benefits coming all with their own sets of rules so that one clerk cannot be an expert in them all, people will need to go to different clerks anyway. In that case it does not matter much whether those are in the same agency or not. If you want to fine-tune the rules for every situation in life you will end up with a lot of complicated laws and huge executive agencies to enforce them. The more a state wants to go down the nanny-state route, the more nannies it has to hire.

It also is a lot easier to reform a bunch of smaller programs one after another instead of having to touch a unified law of taxes and benefits. Considering the trouble politicians have in passing small-scale reforms, I fear a monolithic program would be almost impossible to change, if required. And it is possible to put emphasis on urgent topics. If you want to encourage education, you can increase assistance to students. If there is trouble with housing, you can mess around with rent assistance. That could not be done, if there was a single unconditional benefit program.

 

[Old Hippy]

the easiest way to do it would be to give a negative tax break where $10,000 is given to people (as a tax return) every one gets it and raise the tax threshold to say $50,000 (a stab in the dark) people with no income or unemployed would get it, low income workers would get it, and still get their pay, and very rich people would get it but would be offset as a % to their total tax bill. With a slight increase in tax a 'neutral ' position could be found in the mid to high middle income range.

 

[Hygro]

Every citizen gets $10,000 a year, no strings attached. What happens?

Link to video.

 

[brennan]

How does this compare to the USA's current social security systems?

 

[Tahuti]

That only works for a monopoly. Or, to a lesser extent, to an oligopoly. If you assume actual functioning markets, then sellers can't do that.

Note that we are talking about inflation here.

 

[Hygro]

You were talking about profits.

 

[Tahuti]

You're talking about profits, which is micro. Inflation is macro.

Macro effects tend to influence micro, not the other way around.

 

[Hygro]

the economy grinds to a halt as incentive goes out the window?

Oh, is this in addition to any other income they earn? In which case inflation sky-rockets.

Maybe that's a tad unfair; best wait for an economist to turn up

Naw, it'll just close the demand gap, meaning we will consume a greater percentage of what we already produce and more people will get jobs. Aggregate prices wouldn't change much with such a small public stipend.

 

[Cutlass]

Note that we are talking about inflation here.

What inflation? We aren't talking about a policy which causes inflationary pressure in a functioning market economy. In order to get inflation out of this, you would need non-fuctioning markets, mike monopoly, or you would need a government that spent the money without taxing or borrowing. In and of itself, a basic income is not an inflationary policy. And in the economy as it is now, with global oversupply of just about every good and service consumers buy, sellers have little to no ability to raise price.

 

[Cutlass]

How does this compare to the USA's current social security systems?

The problem is that the US has many different social security systems. Some of these overlap, others compliment each other, some are in conflict with one another. So the first effect is to simplify the system. The current system is complex, difficult to use, and expensive to administer. It discourages work by making the transition to work difficult and costly. But it is also difficult and costly to remain on the system. It's hard to get on, it's hard to remain on once someone qualifies, and it's hard to break free of once someone doesn't need it anymore. It breaks up families, and leaves children unprotected.

About the only thing worse than the current American system is having no system at all. Though that doesn't stop many politicians from trying to make the system even worse, by things like drug testing applicants and imposing various rules, restrictions, and time limits. Not to mention efforts to make people more reliant on private charities rather than the government.

Basic income would simplify all that. Much of the cost of the added benefits would be saved through eliminating most of the cost of administration of the many programs. The disincentive to work would be removed. The obstacles to transitioning to work would be removed. The pressure to break up families would be removed. The government or non-profit agency's interference with people's lives would be removed.

And, of course, that's what makes it politically impossible.