by Ashley | Jun 7, 2017 | News
Ioana Marinescu. Credit to: Harris School of Pubic Policy.
The Roosevelt Institute finds positive overall quality of life outcomes from giving cash directly to individuals. By studying three programs that share different components of a universal basic income, University of Chicago Professor Ioana Marinescu is able to shed light on empirical evidence showing improvements in consumption, health, education, among other areas of life that runs counter to fears about what may happen when people are given cash directly.
What would happen if cash was provided directly to people with no strings attached? The Roosevelt Institute recently published a report authored by University of Chicago Professor Ioana Marinescu that explores this question. The report is published as part of the Roosevelt Institute’s Reimagine the Rules effort to reorient policy at all levels toward a new economic and political system that is good for all. Marinescu reviews the empirical results from unconditional cash transfer programs that share different components of a universal basic income (UBI).
The programs evaluated include the U.S. and Canadian negative income tax experiments, the Alaska Permanent Fund Dividend, and the Eastern Band of Cherokees’ casino dividend program, in addition to other supplemental studies. In the 1970s, the U.S. and Canadian negative income tax experiments were developed where a random group of people in six U.S. states were provided enough money to live on through tax credits equivalent to the poverty line. Since 1982, every Alaskan resident has received an annual dividend between $800 and $2,000 as a share of invested oil profits from state lands through the Alaska Permanent Fund Dividend. The Eastern Band of Cherokees’ casino dividend program began in 1996 and provides a portion of the profits from a casino on the reservation to all tribal members through annual dividends of $4,000 per person per year.
Across these programs, the report analyzes behavioral effects of providing unconditional cash transfers to individuals in categories including labor participation, consumption, education, health, among other social factors. One concern about providing cash directly to people is that it would decrease the amount of people working and contributing to society. Marinescu’s research challenges these concerns with findings that show significant improvements in the overall quality of life of people who receive unconditional cash transfers. For example, the Alaska Permanent Fund provides universal payments directly to residents and shows no effect on employment and an increase in part-time work. People have been shown to increase their buying and spending when receiving unconditional cash transfers. In terms of education, “school attendance, grades, and test scores” improve for children and educational attainment is increased. Even for health outcomes, there was almost a 10 percent decrease in hospitalizations and improved mental health with a lower likelihood of experiencing alcohol or cannabis use or dependence in the case of the Eastern Band of Cherokee’s casino dividend program. Whether cannabis and alcohol consumption would still decrease in this day in age due to basic income or the giving off money, is anybody’s guess. Especially when you are to consider that the majority of the US has now decriminalized marijuana as well as cbd cartridge derivatives for medical uses. There are many forms of CBD too these days, the chemicals have been made into ointments, creams, capsules, gummies, the list goes on. Each type is best for different types of illness too. For example white label cbd is popular type of CBD product that is widely wholesaled over the world. People are said to be looking to use them to treat inflammatory conditions and anxiety, and there are many states that allow recreational consumption too. Due to the increase in the use of the likes of a vaporisateur and other methods for cannabis smoking, cannabis use will more than likely stay the same, or even rise more as it’s now seen legally as a medicine. Due to more and more states, as well as other countries decriminalizing or legalizing cannabis use and cultivation, it’s more than likely we’ll see raised levels of cannabis consumption across all age ranges, especially when people have the help of online resources to help them grow their cannabis personally. Cannabis users could now look online for tips for growing bigger buds that wouldn’t have been scientifically or genetically possible a number of years ago. Such advancements can even help people save money for the future too.
These findings are a critical step in providing a picture of what future possible outcomes and considerations should be taken into account as the debate on universal basic income continues to gain international prominence. By countering fears and assumptions about how providing unconditional cash directly to people may affect people’s contributions to society with empirical evidence on outcomes, the narrative about universal basic income can be repositioned to be grounded in facts rather than fears.
More information at:
Kate McFarland, “Survey of 11,000 Europeans finds 68% would vote for basic income,” Basic Income News, May 1st 2017
Kate McFarland, “Alaska, US: Judge Upholds Governor’s Veto of Part of State’s Social Dividend,” Basic Income News, December 3rd 2016
Ioana Marinescu, “No Strings Attached: The Behavioral Effects of U.S. Unconditional CASH Transfer Programs,” Roosevelt Institute, May 16th 2017
by Genevieve Shanahan | May 12, 2017 | Opinion
David Piachaud, Emeritus Professor of Social Policy at the London School of Economics, last November put forward a four-pronged case against basic income – on the grounds of justice, simplicity, economic efficiency and political feasibility. While the argument, I believe, fails on all four counts, I’ll here focus on the justice argument.
To summarize, Piachaud outlines Philippe van Parijs’ famous argument for basic income from his 1991 paper “Why Surfers Should be Fed: The Liberal Case for an Unconditional Basic Income” and claims that the fatal flaw of van Parijs’ argument is that he does not take into account a crucial distinction between the voluntarily and involuntarily unemployed.1 The former value their leisure, it is posited, at least as much as the lowest wage paid to their employed counterparts. In this way, only redistribution of income to the involuntarily unemployed can be justified on Rawlsian grounds. Unfortunately, Piachaud overlooks or underestimates van Parijs’ lucid explanation of why both are entitled to the basic income. In what follows, I’ll try to show why van Parijs’ argument is unaffected by Piachaud’s critique.
The Difference Principle
Both van Parijs and Piachaud begin their arguments from the Difference Principle – a key concept in political philosophy since its first presentation in John Rawls’ seminal A Theory of Justice in 1971. Briefly, the Difference Principle states that social and economic inequalities (or inequalities in terms of “primary goods”) are justified only insofar as they benefit the least advantaged. The most important consequence of this principle, on Rawls’ account, is that it justifies inequality in wages to the extent that offering higher wages for valuable work, or steep rewards for successful innovation, incentivises the types of behaviour that generate economic growth and thereby increase the standard of living for all.
A crucial point for the Difference Principle, of course, is determining who counts as “the least advantaged”. One of the first criticisms of Rawls’ theory was that, if the least advantaged are just the people who have the least wealth, it would unfairly favour people who prefer smaller incomes and a lot of leisure over those who prefer to work hard and earn vast sums. If we imagine that the “least advantaged” in our society are those who can only find minimum wage employment (leaving aside other clear forms of disadvantage, like chronic illness and disability, or marginalization), it can seem intuitively perverse to treat those who choose not to take up that minimum wage job as more disadvantaged, and therefore more deserving of public assistance, than those who do. It’s pretty natural to think, “Well, if the surfer doesn’t do the best he can to get that job at McDonald’s, that’s his look out. We can’t be expected to support him when he’s perfectly capable of supporting himself.”
To avoid counterintuitively lavishing taxpayer money on the surfer, then, Rawls proposed that leisure time be treated as a primary good:
“[T]wenty-four hours less a standard working day might be included in the index as leisure. Those who are unwilling to work would have a standard working day of extra leisure, and this extra leisure itself would be stipulated as equivalent to the index of primary goods of the least advantaged. So those who surf all day off malibu must find a way to support themselves and would not be entitled to public funds.”2
This basically gets us to the social welfare system as we (aspire to) have it now: public funds are used to support the least advantaged, who are those who cannot find employment, whether due to incapacity or a lack of jobs. To ensure this support only goes to those who are the least advantaged, conditions and testing are applied – recipients of benefits must prove that they cannot work or that they are actively looking for work. And while basic income advocates often point to the inefficient costs associated with conditionality, such that it may be better for everyone if we just accept and absorb the cost of free-riders, van Parijs points out that people are likely to be willing to forgo efficiency gains to preserve their view of fairness. That is, if we are to gain the requisite political support, we must show that basic income is not merely efficient but also just and fair on a reasonably intuitive view of fairness.
Philippe Van Parijs (photo credit: Enno Schmidt)
Twenty years after Rawls introduced the Difference Principle, van Parijs took this idea and extended it. While most of us basic income advocates aren’t primarily motivated by concern for surfers who can’t possibly take a 9-to-5 job because it wouldn’t leave them adequate time to catch the perfect, most righteous wave, van Parijs’ strategy is strong. If it can be shown that even surfers – capable but unwilling to work – deserve a basic income sufficient to live on, it would seem to follow that everyone else does, too. How, then, does van Parijs get from Rawls’ support for conditional income support to the full, universal, unconditional basic income that would be paid even to the surfer?
Is Leisure Time a Resource?
Van Parijs argues that it is in fact unfair to treat leisure time as a primary good. As a liberal theory of justice – that is, a theory that is neutral regarding what constitutes a “good life” – the Difference Principle should not favour those who prefer working over those with other values. This means that, while we might say that people have to work to pay their own way on the grounds of justice, we can’t say people should work simply because hard work and self-denial is virtuous. Van Parijs shows, by means of a thought experiment, that such discrimination is the result if we follow Rawls and treat the value of leisure time as equivalent to the wage one could earn in the same time if one were working.
This thought experiment involves examining what the consequences of the approach would be in the case of an “exogenous windfall”, such as the state discovering valuable oil and gas reserves off its coast. In the case of such a windfall, the incomes of those who are working or deemed deserving of income support would (ideally3) increase, but the surfer’s set of primary goods would stay the same (i.e., he would have his day of leisure and empty pockets both before and after the windfall). The surfer is thus excluded from the benefits of the windfall – to which he is equally prima facie entitled as a citizen of the state – simply because his leisure time is deemed to be equivalent to the wage earned in a standard working day.
Here Piachaud enters the fray, defending Rawls’ suggestion that the voluntarily unemployed must value their leisure at least as much as the wages they forgo. If the surfer continues to shirk employment at the new, higher wage permitted by the exogenous windfall, the argument goes, it must be because the value of his leisure, to him, was all along at least equivalent to the new higher wage. In this way, the surfer’s share of primary goods continues to be at least equivalent to that of the least advantaged worker.
Piachaud’s argument here relies on a distinction between the voluntarily and involuntarily unemployed, drawn on the grounds of the value of leisure time to them – measured by their willingness or not to take up work where it is available. This is a mistake, however, though one very easily made (I feel its pull constantly in these discussions). It is a mistake because leisure time, like any other primary good, should not be valued at the level of the individual. It doesn’t matter that I value my leisure time a lot and you don’t. What matters is the value of this resource as determined by the market – that is, as van Parijs puts it, “in terms of competitive equilibrium prices.”4 Van Parijs here draws upon another widely influential theorist of distributive justice, Ronald Dworkin, who elegantly shows in “Equality of What? Part 1: Equality of Welfare” that what egalitarians must be concerned with is not equality of happiness, or preference satisfaction, or welfare, but rather equality of resources.5
Let’s illustrate the surfer’s evaluation of his leisure time with a more concrete example. Say I *love* lager. If you hand me a glass of the finest champagne at a party, I’ll hand it back and say “thanks, but please, give me a bottle of lager instead”. If it happened that it was incredibly expensive to make lager, such that one bottle cost $100, I would still buy cases, forgoing many other pleasures. That I live in a world where lager is pretty cheap is lucky for me. But should I be charged more so that the price I pay better reflects its value to me personally? No – that would be unfeasible (how, exactly, would vendors measure each customer’s preferences to ensure they were charging the right price?) and nonsensical (by the same logic, I could pay $5 for the champagne since I only get $5 of enjoyment from it, despite its massively higher market price).
The Costs to Others of Our Choices
This isn’t a simple question of efficiency. What we’re looking for, from a justice perspective, is that no one impose costs on others. It would be wrong from me to pay only $5 for the champagne, despite my personal judgement of its value, because of the vastly greater cost to others of producing it. Dworkin puts it this way – as a matter of justice, “people must pay the actual cost of the choices they make […] measured by the cost to others of those choices.”6
Returning, then, to the distinction between the voluntarily and involuntarily unemployed, van Parijs argues that it is welfarist – that is, mistakenly pursuing equality of welfare rather than equality of resources – to apply willingness-to-work conditions to the basic income. This approach “charges” for leisure time based on whether the able-bodied potential worker enjoys the time off or not (as clumsily measured by Jobcentre assessments of employment search efforts). As we’ve outlined here, the correct price to “charge” for leisure time is its cost to others – the worth of what others might have to give up for us to have that leisure time.
Doesn’t a basic income immediately violate this principle, requiring the rest of society to hand over a portion of their earnings to the voluntarily unemployed? Van Parijs says it does not, because the basic income, fundamentally, is just the individual’s share of the world’s resources he was entitled to from the start, by virtue of being a person.
It should be noted that van Parijs does distinguish between voluntary and involuntary unemployment in a way that affects the level of the basic income. Piachaud and van Parijs both agree that, where there is involuntary employment (i.e. not enough jobs to go around), there are employment rents that are properly subject to redistribution. That is, in a perfectly competitive, idealised labour market – where everyone has access to all relevant information, there are no geographical limitations to what jobs an individual can apply for, and there are no costs associated with hiring and firing, or regulations like minimum wage – supply and demand would balance. Workers’ wages would simply be the actual market price of their labour, and there would be no unemployment attributable to lack of jobs. By contrast, in any real labour market there is friction – due to imperfect access to information, geographical limitations, hiring and firing costs, and regulations – which means that many workers are paid more than would be necessary in a perfect market for their labour, and many eager potential workers are left without a job. In this way, on van Parijs’ account, the level of the basic income can rise and fall in accordance with the level of employment rents in a labour market.
“[…] in the case of scarce jobs, let us give each member of the society concerned a tradable entitlement to an equal share of those jobs. […] If involuntary unemployment is high, the corresponding basic income will be high. If all unemployment is voluntary, no additional basic income is justified by this procedure.”7
As another way of understanding this point, van Parijs suggests that we think of jobs as resources in themselves (though Piachaud does not seem to entertain this line of reasoning). Perhaps the classic way of thinking of a job is as labour one expends in exchange for resources (a wage). Yet we know that jobs are much more than that – many jobs have value beyond the wage earned, whether in terms of meaning, enjoyment, community, status, etc. This is part of the reason why one might not value the increase in leisure time afforded by unemployment: even where conditional unemployment benefits are generous, most people still prefer work. Since available employment is limited due to the market inefficiencies outlined above, the surfers are doing the aspiring workers a favour, correctly assigning themselves to the ranks of the unemployed so that more jobs are available for those who want them.
If we return, then, to the idea of justice as not imposing costs on others, we can see that the surfers are in the clear. The lowest level of basic income simply corresponds to each individual’s rightful share of the world’s natural resources. Then, where there are additional resources to be redistributed due to the existence in a labour market of employment rents, this is to compensate for the costs imposed on the unemployed by the employed in taking up scarce jobs. There is no distinction between the voluntarily and involuntarily unemployed in entitlement to this level of the basic income – each equally provides a benefit to the employed by freeing up their share of jobs and the various non-monetary benefits that go with them. Directly anticipating and defusing Piachaud’s claim that such rents should only be redistributed to the involuntarily unemployed, van Parijs warns:
“adopting a policy that focuses on the involuntarily unemployed amounts to awarding a privilege to people with an expensive taste for a scarce resource. Those who, for whatever reason (whether to look after an elderly relative or to get engrossed in action painting), give up their share of that resource and thereby leave more of it for others should not therefore be deprived of a fair share of the value of the resource. What holds for scarce land holds just as much for scarce jobs.”8
Arguments about distributive justice like these, that drill down to the fundamentals of the way our economies and societies work, are necessarily abstract. It’s therefore important to be wary of directly inferring real-world policy from such idealised thought experiments. Nevertheless, amidst the complexity of our modern interlocking economic systems, the core argument – that everyone is entitled to their share of the world’s natural resources – is a guiding light.
Reviewed by Tyler Prochazka and Kate McFarland
Read More:
David Piachaud, “Citizen’s Income: Rights and Wrongs,” Centre for Analysis of Social Exclusion, LSE, November, 2016.
Hilde Latour, “UNITED KINGDOM: David Piachaud Calls Basic Income a Wasteful Distraction from Other Methods of Tackling Poverty,” Basic Income News, February 9, 2017.
Philippe van Parijs, “Why Surfers Should be Fed: The Liberal Case for an Unconditional Basic Income,” Philosophy and Public Affairs, 1991.
John Rawls, “A Theory of Justice,” Harvard University Press, 1971.
John Rawls, “The Priority of the Right and Ideas of the Good,” Philosophy and Public Affairs, 1988.
Ronald Dworkin, “What is Equality? Part 1: Equality of Welfare,” Philosophy and Public Affairs, 1981.
Ronald Dworkin, “What is Equality? Part 2: Equality of Resources,” Philosophy and Public Affairs, 1981.
Ronald Dworkin, “Sovereign Virtue Revisited,” Ethics, 2002.
Main Photo: The photographer reading John Rawls’ ‘A Theory of Justice’, CC BY-NC-SA 2.0 Dana Hilliot
1. A parallel argument, unexplored here, would address the important question of whether employment is voluntary or involuntary. Under most of today’s welfare systems for able-bodied adults, conditionality and sanctions are used to “incentivise” recipients to take up any job available. This threat of destitution has moral implications, in that it calls into question the consensuality of such employment.
2. John Rawls, “The Priority of the Right and Ideas of the Good,” Philosophy & Public Affairs (1988) p. 257
3. At present, incomes generated from natural resources are directly distributed to citizens in only a handful of cases (the Alaska Permanent Fund and Norway oil fund spring to mind). More commonly, states channel incomes from natural resources into the general budget, or such natural resources pass into the realm of private property. While arguments can be had regarding direct versus indirect distribution – whether each citizen gets their share of the windfall directly, or instead indirectly through government spending – that all citizens should benefit in some way seems uncontroversial.
4. Philippe van Parijs, “Why Surfers Should be Fed: The Liberal Case for an Unconditional Basic Income,” Philosophy and Public Affairs (1991), p117
5. For a quick run-down of the problems with equality of welfare, see this summary from the Stanford Encyclopaedia of Philosophy.
6. Ronald Dworkin, “Sovereign Virtue Revisited,” Ethics 113.1 (2002), p111
7. Philippe van Parijs, “Why Surfers Should be Fed: The Liberal Case for an Unconditional Basic Income,” Philosophy and Public Affairs (1991), p124
8. Philippe van Parijs, “Why Surfers Should be Fed: The Liberal Case for an Unconditional Basic Income,” Philosophy and Public Affairs (1991), p126
by Kate McFarland | Apr 25, 2017 | News
Luke Martinelli is a research associate for the universal basic income project of the Institute for Policy Research (IPR) at the University of Bath. In March 2017, Martinelli published the working paper “The Fiscal and Distributional Implications of Alternative Universal Basic Income Schemes in the UK”, which uses simulation techniques to examine the effects of four revenue-neutral basic income schemes for the UK on poverty and inequality.
Accompanying the release of this 46-page working paper, Martinelli also published a shorter blog post, focusing on some of the methodological issues underlying his decision to conduct simulation studies.
As Martinelli describes in the post, empirical evidence concerning the effects of basic income can be sorted into two main types: ex-post (“after the fact”) and ex-ante (“before the event”).
Ex-post evidence includes the results of pilot studies and experiments specifically designed to test some of the effects of introducing a basic income, as well as observational studies of related policies such as Alaska’s Permanent Fund Dividend. Martinelli points out that experimental studies are limited in their ability to forecast the effects of a basic income. For example, trials are limited in duration (whereas a basic income would be lifelong) and are influenced heavily by the specific contexts in which they are implemented, constraining the applicability of their results to other contexts. Moreover, the policies analyzed in both experimental and observational studies often diverge from full-blown basic income schemes in key respects.
Ex-ante evidence, in contrast, is exemplified by microsimulation–the technique used in Martinelli’s working paper–which uses computing methods to simulate any of a number of tax and benefit reforms. While microsimulation predict the fiscal and distributional consequences of a broad array of possible policies, it has other limitations; for instance, it does not shed light on the behavior effects of basic income (or other policies) or take account of such effects in prediction. Thus, Martinelli believes that ex-ante evidence must complement, rather than replace, ex-post evidence.
Martinelli’s forthcoming paper “Exploring the Distributional and Work Incentive Effects of Plausible UBI Schemes” will further examine the “distribution of winners and losers” under UBI, again using microsimulation techniques.
Read the full post:
Luke Martinelli, “Addressing the evidence deficit: how experimentation and microsimulation can inform the basic income debate,” IPR blog, March 13, 2017.
Reviewed by Cameron McLeod
Photo CC BY 2.0 Michael Greenberg
by Furui Cheng | Apr 18, 2017 | Opinion
Furui Cheng
In the discourse of global basic income debates, China provides the most recent example of a social dividend-style basic income, similar to the Alaskan model. In discussions surrounding Nixon’s welfare reform in the 1970s, which was a quasi-basic income proposal, four different anti-poverty paradigms competed for influence. None of them can well explain today’s social dividend examples. We need a new paradigm in the current round of worldwide basic income debates.
China’s new facts
In November of last year I introduced the Huaidi case from China, in which villagers cooperated in urbanization and received high levels of welfare from their collectively owned land. This is not the only such case in China, however. The Chinese Famous Villages Influence Ranking was published in 2016, and 300 villages were selected from thousands in a joint effort by the Working Committee of Chinese Village Development Association, the Modern Village and Town Development Research Center of Tongji University, the Chinese Council of APCRD (the Chinese Association for Rural Community Development) and the Chinese Reputation Center (CPPC). The evaluation of the influence of Chinese villages in 2016 was mainly based on the comprehensive evaluation of the following factors: the village development index, people’s livelihood index, management index, charm index, green index and reputation index. In this way, the evaluation depends not only on per capita GDP or income, but also on living conditions, security conditions and interpersonal relationships, as well as the temperament of the villagers, including their mental state, sense of ownership and so on. This evaluation incorporates the well-being of the people and promotes the comprehensive development of further villages. The Zhejiang province has 37 villages in the ranking list, the most of all the provinces. Huaidi is one of the Hebei province’s 15 ranking villages, which ranks 77th of the total 300.
In addition to the regional welfare from land, China’s fiscal contribution by national state-owned enterprises (SOEs) has increased in recent years. In the past, Chinese SOEs only paid tax to the budget, but kept all their after tax profits. Since 2007, SOEs have increasingly paid part of their net profits to the national budget. This proportion will rise to 30% of total profits in 2020. There are four different categories of SOEs. The first type includes tobacco, petroleum and petrochemical, electricity production, telecommunications, coal and other resource monopoly industries and enterprises, which pay 20% of their net profits to the state. The second type includes steel, transportation, electronics, trade, construction and others in the competitive industries, paying a proportion of 15%. The third category includes the military and scientific research institutes, contributing 10%. The fourth category encompasses policy companies, including the Chinese Grain Reserves Corporation and the Chinese Cotton Reserves Corporation, which are exempt from turning over their net profits. Of interest, the proportion of the China National Tobacco Corporation’s net profits to be paid to the state has increased to 25%, singling the corporation out as a fifth category of its own. Part of the revenue from SOEs’ profits has been injected into the national social security system to benefit the majority.
Regardless of the origin of the social dividend – whether public land or SOEs – it is similar to Alaska’s Permanent Fund Dividend (PFD) model.
A new paradigm?
What are the key elements in the current global discussions about basic income? Is it simply an anti-poverty strategy, just like any other kind of social assistance program in operation? Or is it a comprehensive overhaul of the welfare system, like the New Deal transformation was in the 1930s, which came to form the very basis of the current social security system? The most controversial elements of debates surrounding present public welfare systems and basic income proposals include work ethic, fiscal affordability, a culture of desert and civil rights, among other aspects. The latter has been reviewed in detail in recent history, especially since Nixon’s Family Assistance Plan (FAP) legislation. The main characteristic of FAP is that people can receive the benefit without work requirement, and independently of their family structure. This is very similar to today’s unconditional basic income definition, although FAP is not universal.
At the outset of the Nixon administration, proponents of four fundamentally different anti-poverty paradigms, each of which contained a different causal story, competed for influence. Three of these paradigms supported Guaranteed Annual Income (GAI) plans. Proponents of an economic citizenship paradigm identified the economic system, especially structural unemployment and the wage structure, as the source of poverty. For proponents of this view, the objective of GAI policy was to alleviate poverty and provide citizens with basic income security.
The family stability paradigm identified the social system, especially changing family structures within poor, typically black communities, as the source of poverty. Proponents of this view hoped that GAI policies would decrease poverty by providing additional support for maintaining two-parent families, since rates of marital breakup appeared to be correlated with poverty rates.
The laissez-faire paradigm, which GAI supporters with a libertarian orientation invoked, identified the welfare system and its alleged perverse incentives against work as the root of the problem. Laissez-faire proponents felt that GAI plans would rationalize the welfare system by creating stronger incentives for labor market participation while also granting the poor greater freedom.
The main opposition to GAI proposals within the administration came from officials who saw the behavior of the poor themselves as the primary cause of poverty and believed that welfare reform should rehabilitate the poor by exposing them to the discipline of the labor market. This rehabilitation paradigm argued that limiting eligibility for social provisions and requiring recipients of government benefits to work would be the best path to eliminating poverty.
Is Alaska’s PFD or China’s current social policy context embedded in any of the above paradigms? I don’t think so. At least, that is to say, the four paradigms that undergirded this decade-long debate half a century ago are not sufficient to underpin a new round of worldwide debates on basic income. For example, many countries are considering levying a tax on various kinds of resources, including land, minerals, oil and gas, internet infrastructure, etc. (1). But if we want to justify these different kinds of taxes for financing basic income, the world need a new paradigm. As Philippe Van Parijs says: “It needs to recognize fully that the bulk of our real incomes is not the fruit of the efforts of today’s workers (let alone of the abstinence of today’s capitalists), but a gift from nature increasingly combined with capital accumulation, technological innovation and institutional improvements inherited from the past.”
Notes:
(1) Karl Widerquist and Michael W. Howard (edited), “Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World”, Palgrave Macmillan, 2012
More information at:
Furui Cheng, “Cooperative Society and Basic Income: A Case from China”, Basic Income News, November 10th 2016
Brian Steensland, “The Failed Welfare Revolution: America’s Struggle over Guaranteed Income Policy”, Princeton University Press, September 2007
Philippe Van Parijs, “Basic Income and Social Democracy”, Social Europe, April 11th 2016
[in Chinese]
The editor, “The Chinese Famous Villages Influence Ranking”, The Orientation News, December 16th 2016
HEB101, “Famous Villages in Hebei Province”, Hebei News, December 14th 2016
About the author: Cheng Furui is undertaking a post-doctoral program in the Institute of American Studies of the Chinese Academy of Social Sciences. She got her PhD from Tsinghua University and her research interest is public policy. “Social Assistance and Poverty Alleviation Divergence: A Capability Approach” is her first published book based on her doctoral dissertation, which explores the Chinese social safety net in detail. She is now a voluntary news editor of BIEN, and also one of the organizers of China Social Dividend/Basic Income Network: bienchina.com.
Article reviewed by André Coelho and
by Guest Contributor | Apr 7, 2017 | Opinion
Written by: Thomas Clarkson
This opinion solely represents the view of the author and is not necessarily the view of Basic Income News or BIEN. BI News does not endorse any particular petition or policy.
A Problem
One of the difficulties in talking about universal income is that the arguments lack punch because we discuss them in the abstract. The “People’s Dividend” (PD) petition on Change.org tries to correct that problem by asking people to sign a petition and call Congress to take action. The PD petition is different because it uses real numbers:
- $27 trillion, the personal net worth of the one percent wealthiest (PNW1). Naturally, high net worth individuals have very different needs to low-income individuals which is why insurers like Jeff Bernard might be better equipped to assist them when it comes to insurance.
- $1.5 trillion per year, the annual growth of the personal net worth of that same one percent
- $4,500 per person, if the $1.5 trillion was re-distributed to all 333 million people in the U.S.
The PD petition proposes that the IRS annually harvest the growth of the wealth of the one percent and distribute it every year to every adult and child in the U.S. without conditions. It also urges people to take two specific actions to make that happen: 1) sign the petition and 2) call Congress.
Please Sign the Petition
If you read the petition first, or watch the video that introduces it, you will have a sufficient background for this article. Here is a link for the People’s Dividend Petition. Feel free to sign the petition while you are there.
Fun with Numbers
Before we go into the details of the proposal, it may be enlightening to compare some of the numbers given above to other things.
$27 trillion (PNW1) is:
- about 686 percent of the Federal Budget ($3.9 trillion)
- about 136 percent of the federal debt ($19.8 trillion)
- about 143 percent of GDP ($18.9 trillion)
- $81,000 per person in the U.S.
$1.5 trillion (the annual growth of PNW1) is:
- 38 percent of the Federal Budget ($3.9 trillion)
- 256 percent of the U.S. Defense budget ($585 billion)
- 253 percent of the annual Federal deficit ($592 billion)
- $4,500 per person in the U.S.
$4,500 per person is:
- one-third of the poverty level for 1 person, which is $11,880
- $18,000 or three-fourths of the poverty level for a family of 4 persons, which is $24,300
- one-seventh of the median wage for workers in the U.S.
- $450 million of added income for the population of Flint, MI, a city of 100,000 people
- $3 billion of added income for the population of Washington, DC, a city of 675,000 people
- $36 million of added income to the 8,000 homeless people in Washington, D.C., which is equal to one-third of Washington, D.C.’s 2017 affordable housing budget of $100 million
Are These Numbers Reliable?
The Forbes list of U.S. billionaires, as of March 21, 2017, identified 565 U.S. billionaires with a combined net worth of $2.8 trillion. This contradicts the established fact that “the personal net worth of the one percent wealthiest (PNW1) is actually $27 trillion. A lot of what is written in the popular press about wealth and income grossly understates PNW1. Fortunately, the World Wealth and Income database (located here) is pulling back the covers on this issue. WID.world has authoritative statistics on wealth and income going back 100 years. That is where the data that supports the People’s Dividend came from. Online access to the WID.world database has been available since 2011. However, economists have been laboring on it for thirty years or more and they deserve great credit for their results. This resource makes it possible for a non-economist like me to grasp wealth inequality trends.
With WID.world data, we can avoid erroneously limiting the wealthiest one percent of U.S. citizens to those found on the Forbes billionaires list. For example, an extrapolation of WID.world data from 2013 to 2017, indicates that the one percent includes all households with over $5 million in net worth. There are about 1,670,000 such households. I estimate that their total wealth in 2017 is $27 trillion, with an annual increase of $1.5 trillion projected. The important result that follows from getting the numbers right is that the size of the People’s Dividend payment gets large enough for people to notice. $4,500 per person is significant. That is the result when you divide the growth of $1.5 trillion by the entire U.S. population. The proposal takes data seriously and the petition includes a link, also given here, to all of my calculations and sources here.
Making It Real
Because the People’s Dividend idea is formulated as an actionable petition with known dollar results for individuals, it makes the numbers behind the universal income/wealth inequality discussion more real. For example, a person knows that their payment would be $4,500, with 99 percent paying no wealth tax. They also know whether their household net worth is above $5 million and, therefore, they know if they are in the 99%.
It is also immediately apparent to many that $27 trillion is simply too much money for one percent of the population to have when 50 percent of the population has so little. For those less easily convinced that that is too much inequity, consider the fact that the one percent’s share of total U.S. wealth has grown from 25 percent in 1982 to 40 percent in 2017. If the one percent’s share keeps growing one point every 2.3 years, then in 23 years it will grow 10 more points to 50 percent of total U.S. wealth. By 2040, the one percent would have as much wealth, 50 percent, as everyone else in the U.S. put together. I think, at that amount, almost everyone would agree that would be much too much.
The purpose of asking people to sign the petition and contact their one Congressional Representative and their two Senators is to encourage them to think about this data, and, in the process, have it become more real for them.
High Points of the People’s Dividend
The $4,500 PD Payment
- The $4,500 per person goes to everyone in the U.S., but only households with PNW greater than $5 million pay the tax. A household of 2 people worth $5.1 million would pay $7,800 and receive $9,000. This means that slightly more than 99 percent of the people would be better off financially. This should make it easier to get a majority of voters in favor of PD.
- The PD goes on year after year.
- The $4,500 is tax-free, so a dollar of the People’s Dividend is worth more to people who pay income taxes than a dollar of ordinary income.
- $4,500 is equal to about one-third of the poverty level for 1 person, which is $11,880. However, for a family of 4, $18,000 in PD payments is about three-quarters of the poverty level for a family of 4 persons, which is $24,300. Therefore, it would be a significant poverty fighter.
- The PD potentially adds a big boost to local economies. In Washington, DC, for example, a city of 675,000, the total PD payments to the population would equal $3 billion per year. This is equal to about 24 percent of the city’s 2017 budget of $13.8 billion.
- The PD is paid to everyone, including the one percent. Therefore, no apparatus for measuring need is needed, and virtually all the $1.5 trillion collected can go to the people.
- The PD would be paid out monthly like a social security check to provide a steady flow of income year around.
- The PD amount would vary up or down, depending on how fast the PNW1 is growing or decreasing, as it might if stock markets decline. Therefore, the PD amount is not guaranteed to be the same from year to year. This feature helps avoid deficit spending because the PD is always equal to the amount of wealth tax collected. To smooth the change in the PD amounts from year to year a moving average of collections might be used.
Alaska’s permanent fund dividend in 2016 was $1,022 per person. The PD would be more than four times that. See here.
The Wealth Tax
- The wealth tax is calculated so that it is equal to the year to year growth in the PNW1, estimated to be $1.5 trillion. Therefore, it represents the increase in PNW1 after the one percent has spent all they want to and paid all their taxes.
- The intention is to keep the wealth tax equal to the growth so that the amount of wealth does not decrease and kill the goose (PNW1) that lays the golden egg (PD).
- A good part of PNW1 is composed of stocks and bonds whose value can decrease in a market slump. If that happens, then the wealth tax rate would be reduced for a few years, but not eliminated, in order to allow the wealth to recover. You can see from the green and orange chart in the video that the 2008 recession caused everyone’s PNW to decrease. However, by 2013, everyone except the 50 percent least wealthy had recovered.
- The wealth tax applies only to every dollar over the household wealth threshold necessary to be part of the one percent. This is $5 million in 2017. A household with PNW of $5,000,001 would pay 7.8 cents in wealth tax. A household with PNW of $6,000,000 would pay $78,000 tax on the $1,000,000 of wealth over and above $5,000,000.
- The $5 million threshold amounts to about $500 billion leaving only $1 trillion to tax. The $1 trillion is taxed at 7.8 percent but the overall tax is 5.5 percent of PNW1. PNW1 grows on average 5.5 percent a year so the tax is equal to the growth.
The Amount of PNW1
- It is better to tax wealth than income because only “realized” income counts for income taxes, but increase in asset values results in increased wealth tax revenues whether the gain is “realized” through a sale or not.
- Capital gains are taxed at a lower rate when it comes to income taxes. Consequently, a lot of big earners take their compensation in the form of shares of stock. In this way, they reduce their income taxes, but a wealth tax would neutralize this tax avoidance strategy.
- The PNW1 amount is a comprehensive measure of the wealth inequality and considers: the effects of all other tax laws; economic forces, such as automation and globalization that reduce the share of profits going to labor; changes in government expenditures for health care and other social programs; right to work laws that weaken labor’s position; and all of the other factors that increase or reduce the concentration of wealth in the one percent. As such, it is an easy litmus test for inequality and a measure we should all watch carefully.
- Because the WID.world data only went until 2013, I estimated the 2017 amounts using the historical compounded growth rate of 5.5 percent.
- But it should not be necessary to estimate wealth amounts. Therefore, an important feature of the PD petition is that it would direct the U.S. Treasury to collect wealth data promptly and directly from banks, brokerage services and other wealth depositories, so that the public could see the PNW1 amount and other wealth distribution amounts shortly after the end of the calendar year.
- The petition requests Congress to appropriate extra money to the Treasury to create a wealth reporting system and a reliable means to track down wealth hidden in various tax havens.
- Not mentioned in the petition, but a necessary addition, would be for Congress to provide funds to Treasury to negotiate tax treaties with other countries to prevent other countries from giving our one percent a better tax deal than the U.S. This is necessary to prevent all of our “one percenters” from fleeing to other countries to avoid the wealth tax.
- By taxing personal wealth, the PD proposal avoids interfering in the taxation of corporations. If they become more profitable, then the shares owned by the one percent increase in value and the wealth tax harvests more.
Obstacles
There are several possible obstacles that might undermine a campaign for getting this petition signed. First, the ideas of universal income and the magnitude of wealth inequality are not well-known by the general public. Second, it might seem too “pie in the sky”, at least initially. Third, many might buy into the common belief that any “giveaway” will ruin the moral fiber of the country and encourage laziness. I am convinced, however, that with enough support, especially from individuals widely admired and trusted such as the Pope, Oprah or Bono, momentum could be achieved. Anyone reading this article with good ideas for getting people on board, please contact me at toclarkson@gmail.com.
Please Sign the Petition
Meanwhile, be sure to sign the petition, if you agree with it, and get one or two others to do the same – People’s Dividend Petition. Once people realize that they have skin in this game and that change is possible we may see some of these proposals become a reality.
