by Malcolm Torry | Apr 9, 2020 | News, Opinion
There is a translation of this article into French.
A basic income is a periodic cash payment unconditionally delivered to all on an individual basis, without means test or work requirement (BIEN’s definition of Basic Income)
The coronavirus pandemic is causing huge suffering for those individuals who experience serious attacks of the disease, and for the families and friends of those who die from it. Everybody understands the social distancing measures that governments around the world are having to implement, because nobody wants health services to be put under so much pressure at any one time that those who need treatment cannot receive it. The global economy has been tanking as all sectors have had to shut down. Only two sectors – food and medicine – have really been keeping the economy afloat. As we all still shop for food, supermarkets have been a lifeline. However, an even bigger lifeline, quite literally, has been that of the medical industry. With medical devices and equipment such as needles and facemasks in such high demand, medicine has been keeping both people and the economy alive.
Governments have been doing what they can to protect employees’ incomes when their employers can no longer pay them, and to protect the incomes of self-employed people when their businesses have to cease trading either temporarily or permanently: but the measures put in place often struggle to protect the incomes of large numbers of workers in the informal sector and migrant workers.
Around the world we have seen legislators, journalists, think tanks, researchers, campaigners, and many others, calling for an emergency Basic Income. This is clearly to be welcomed. Also to be welcomed are changes to existing benefits systems that take them closer to being Basic Incomes. What is not to be welcomed is the use of the term ‘Basic Income’ for benefits that are not genuine Basic Incomes: that is, they are not ‘a periodic cash payment unconditionally delivered to all on an individual basis, without means test or work requirement’.
The reason for the increase in interest in Basic Income is that a genuine Basic Income would provide a secure layer of income when all other sources are either absent or insecure; it would inject demand into the economy and help us to avoid a recession; and because everyone would receive it, it would contribute to the social cohesion that every nation will need if it is to get through this crisis. It would not matter that Basic Incomes would be paid to people who didn’t need them, because it would be an easy matter to raise income tax rates on higher incomes so that those who already had secure incomes would not see their disposable incomes rise, and would be helping to pay for the Basic Incomes that everybody needed.
It is a significant problem that instead of paying Basic Incomes, governments are relying on increasing the coverage of existing means-tested benefits and on implementing new income-tested benefits. These benefits fall if earned income rises, so occasional and even permanent opportunities to earn additional income might be turned down because any increase in earned income would reduce benefit payments and could risk people losing their benefit claims entirely. A Basic Income would not fall if earned incomes were to rise, so any opportunity to contribute to the economy would be gladly taken, and there would always be an incentive to start the new businesses that any new economic situation would require.
Given the clear advantages of Basic Income, why are governments not implementing temporary or permanent Basic Income schemes? There might be several reasons for this. First of all, whether a country’s economy is more developed or less developed, there might simply be no mechanism available to enable the government to pay an unconditional income to every legal resident. What would be required would be a database that contained every individual’s name, contact details, date of birth, and bank account details. Given sufficient political will, many countries would be able to construct such a database within a fairly short period of time: but in the midst of this crisis it will generally be easier to use existing mechanisms to protect the incomes that can be protected fairly easily: through expansions of existing means-tested and contributory benefits systems; through using existing ‘pay as you earn’ income tax systems to enable employers to continue to pay employees who have been laid off; and to make grants to self-employed individuals on the basis of submitted annual accounts.
Where existing benefits systems are being used to maintain household incomes, the conditions for the receipt of benefits are often being relaxed: for instance, by no longer requiring stringent employment search requirements. Such changes are steps towards the complete unconditionality of Basic Income, and they are to be recognised as such, and are to be welcomed.
A trend that is not to be welcomed, though, is the use of the term ‘Basic Income’ for mechanisms that are not Basic Incomes. The recent short-lived experiment in Ontario was called a Basic Income, but it was household-based and therefore not ‘on an individual basis’, and it was income-tested and therefore was not ‘without means test’. It was not a Basic Income, and it should never have been called one. Similarly, during this crisis, governments are sometimes using the term ‘Basic Income’ for new or reformed benefits that are not Basic Incomes. This ought to stop, because it is misleading, and it makes rational debate more difficult to conduct.
So we should recognise and welcome the efforts that governments are making to adapt existing benefits systems so that they are closer in character to Basic Income; but we should point out that anything that is not a Basic Income will not exhibit the advantages that a genuine Basic Income would exhibit, and that if it is not a Basic Income then it should not be called one.
BIEN is gathering information from its affiliated organisations on their governments’ measures to protect incomes during the crisis, and in particular information on the extent to which those measures exhibit the characteristics of Basic Income, and the extent to which they do not.
In the meantime, information on the measures that governments are implementing can be found on the IMF website.
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by Malcolm Torry | Apr 8, 2020 | News
BIEN’s Turkish affiliated organisation, ‘Citizen’s Basic Income Research Development Culture and Dissemination Society’, is organising a series of ‘UBI Advocates’ conversations.
Three smaller groups have discussed the relationship between the coronavirus crisis and Basic Income:
The first discussion
A second discussion
A third discussion
A larger group of ‘UBI Advocates’ has now met:
The first UBI Advocates discussion
For further details about the UBI Advocates’ conversations, contact Dr. Ali Mutlu Köylüoğlu.
by Malcolm Torry | Apr 7, 2020 | News, Opinion
The Spanish newspaper El Pais has published an article, ‘La renta básica deja de ser una utopía‘ (‘Basic income is no longer a utopia’):
La pandemia lleva a diversos países a ensayar planes de transferencias directas no universales para compensar la reducción en los ingresos de sus ciudadanos …
The pandemic leads various countries to try non-universal direct transfer plans to compensate for the reduction in the income of their citizens …
An English translation can be found here.
by Malcolm Torry | Feb 2, 2018 | Opinion
Discussion of alternatives to Citizen’s Basic Income are increasingly debated, so we are here publishing for the first time a paper prepared in 2015 for a consultation organised by some of the UK’s major charities on options for reforming the benefits system.
Introduction
This short article outlines three options for the reform of the UK’s tax and benefits system: Tax Credits, Negative Income Tax, and Citizen’s Basic Income.
The descriptions and discussions assume that both the tax unit and the benefit unit are the individual and not the household. The complexities related to household-based options would require additional description and discussion.
Tax Credits
( – real ones: not what the Government calls ‘tax credits’)
A credit is allocated to every individual. If someone is earning nothing, the full credit is paid. As earnings rise, the credit is withdrawn. At the point at which the credit is exhausted, Income Tax starts to be paid. (A Tax Credit that is withdrawn as unearned income rises is theoretically a possibility, but the administration would be even more complicated than for the version described here.)
In the diagram, the credit is worth £x per week. As earnings rise, the credit is withdrawn, so net income rises slower than earned income. At earnings of £y per week (the break-even point), the credit has all been withdrawn. Above this point, Income Tax is paid.
The diagram assumes that the rate at which the credit is withdrawn is the same as the tax rate. If the rates are different then the slope of line EF is different above and below earnings of £y per week.
Administration
The tax credit can be administered by the Government or by the employer. If the Government administers the Tax Credit, then the employer must provide regular and accurate earnings information to the Government, as with the current Universal Credit. If the employer administers the Tax Credit then, if someone moves between employers, their Tax Credit administration has to be transferred between employers. If they have a period of unemployment, then administration of the Tax Credit has to be handed to the Government and then on to the new employer. If someone has two employments, then the employers have to decide which of them will administer the Tax Credit. And if someone has occasional other earnings, then their employer needs to be informed so that the Tax Credit can be withdrawn accordingly.
If every working age adult receives the same Tax Credit then neither their employer nor the Government needs to know any personal details. If people in different circumstances receive different levels of Tax Credit then their employer and the Government will need to know individuals’ circumstances in order to allocate the correct credit.
Our current income tax system is cumulative. An annual amount of income is not taxed. Each week, or each month, the employer has to calculate how much tax to deduct so that, by the end of the year, the correct amount of tax has been deducted. With Tax Credits, the tax system would be non-cumulative. Each week, or each month, the correct amount of the Credit would need to be paid in addition to earnings, or no Credit would be paid and earnings would be taxed. A non-cumulative system requires a single tax rate, so anyone paying higher rate tax would need to pay additional Income Tax at the end of the tax year.
Negative Income Tax
Income Tax deducts money from earnings above an earnings threshold, and a Negative Income Tax pays money to the employee below the threshold: so a Negative Income Tax scheme functions in the same way as a Tax Credit scheme. The only difference is in the specification. A Tax Credit scheme specifies the amount to be paid out when there are no earnings, along with a withdrawal rate as earnings rise. For a Negative Income Tax, the threshold is specified along with tax rates above and below the threshold. If the rates above and below the threshold are the same, then for earnings below the threshold, the same amount is paid out for earnings of £z below the threshold as would be collected in tax on earnings of £z above the threshold.
As the system is essentially the same as a Tax Credit scheme, the same diagram applies. Different rates above and below the threshold would result in the EF having different slopes above and below earnings of £y per week. Administrative considerations would be the same as for Tax Credits.
Citizen’s Basic Income
A Citizen’s Basic Income is an unconditional income paid to every individual by the Government, and it is not withdrawn as earnings rise. Tax is paid on all or most earned income.
In the diagram, a Citizen’s Basic Income of £x per week is paid to everyone. All earnings are taxed. The line EF shows the net income.
(The diagram assumes that a single tax rate is charged on all earnings.)
Administration
The Government pays a Citizen’s Basic Income to every individual, the amount depending only on the person’s age ( – larger amounts could be paid to older people as a Citizen’s Pension, and lower amounts to children and young people). Employers would continue to administer Income Tax via PAYE as they do now.
(A variant is a Participation Income. This would require fulfilment of a ‘participation condition’ before receiving it. The graph would be the same as for Citizen’s Basic Income, but only for those receiving it. The participation conditions would need to be specified and each individual’s fulfilment of them would have to be monitored. This would result in considerable administrative complexity, and would also mean that many of a Participation Income’s effects would be closer to those of means-tested benefits than to those of a Citizen’s Basic Income.)
Comparison
Negative Income Tax, Tax Credits, and Citizen’s Basic Income, all generate the same net income diagram, so all three schemes would reduce marginal deduction rates (the total rate of withdrawal of additional income), would incentivize employment, and would enable families to more easily to earn their way out of poverty.
The differences between the schemes are administrative.
(For more detailed discussion of all of these options see Malcolm Torry, The Feasibility of Citizen’s Income (Palgrave Macmillan, 2016), pp. 214-230.)
by Malcolm Torry | Dec 28, 2017 | Research
Satelite picture over Europe. Credit to: TechCrunch.
A new working paper from the Institute for Social and Economic Research at the University of Essex reports on research using the EUROMOD microsimulation programme to simulate the labour market effects of several different tax and benefits reforms in countries in different parts of Europe.
The reform options tested are as follows:
- An unconditional Basic Income – correctly defined
- A general Negative Income Tax – that makes a payment if earnings fall below a threshold (the payment being proportional to the amount that wages fall below the threshold), and deducts tax above the threshold
- What the researchers call a ‘conditional basic income’ – which is a means-tested benefit that is withdrawn at a rate of 100% as earnings rise, thus constituting a guaranteed minimum income
- In-work benefits – means-tested in-work benefits without a relationship with the income tax threshold.
All of the reforms assume a flat income tax.
The research finds that the General Negative Income Tax usually promises the most efficient employment market: although in the context of the UK there is almost nothing to choose between a General Negative Income Tax and an Unconditional Basic Income. The research did not take into account the administrative complexities of a Negative Income Tax. If it had been possible to simulate the effects of administrative complexities on labour market decisions then they might have found that in the UK an Unconditional Basic Income would have turned out to be the most efficient option.
The working paper is entitled The case for NIT+FT in Europe: An empirical optimal taxation exercise, and is by Nizamul Islama and Ugo Colombinob.
Click here to read the working paper; or here to download the paper as a pdf.
Abstract
We present an exercise in empirical optimal taxation for European countries from three areas: Southern, Central and Northern Europe. For each country, we estimate a microeconometric model of labour supply for both couples and singles. A procedure that simulates the households’ choices under given tax-transfer rules is then embedded in a constrained optimization program in order to identify optimal rules under the public budget constraint. The optimality criterion is the class of Kolm’s social welfare function. The tax-transfer rules considered as candidates are members of a class that includes as special cases various versions of the Negative Income Tax: Conditional Basic Income, Unconditional Basic Income, In-Work Benefits and General Negative Income Tax, combined with a Flat Tax above the exemption level. The analysis shows that the General Negative Income Tax strictly dominates the other rules, including the current ones. In most cases the Unconditional Basic Income policy is better than the Conditional Basic Income policy. Conditional Basic Income policy may lead to a significant reduction in labour supply and poverty-trap effects. In-Work-Benefit policy in most cases is strictly dominated by the General Negative Income Tax and Unconditional Basic Income.
