by Tyler Prochazka | Jan 29, 2020 | Opinion
As US presidential candidate Andrew Yang continues to outperform expectations, his signature policy proposal, the Freedom Dividend or Universal Basic Income (UBI), is receiving increased scrutiny. Some of the criticisms are well warranted, while others are misconceptions based on a flawed understanding of how basic income would operate.
The following addresses some of the primary misconceptions regarding Yang’s plan.
UBI is too expensive
The cost issue is one of the most persistent misconceptions about basic income.
A basic income system would have a built-in clawback through the tax system. In Yang’s case, a portion of the clawback comes through the opt-in system that would substitute cash-like welfare programs for the Freedom Dividend, such as food assistance. However, most of the burden of the clawback would be on the wealthiest families who would pay more in taxes than they could receive from basic income
As I have noted previously, the UBI clawback can be both direct and indirect. For example, the Affordable Care Act (ACA) requires families to pay back some or all of their healthcare subsidies at the end of the year if their yearly income exceeds a certain amount. A UBI system can similarly create a phase-out in the income tax system.
Considering Yang’s Freedom Dividend is opt-in, it is likely that many wealthy families would not opt to receive the dividend anyway.
Indirect clawback mechanisms could include Yang’s proposed Value Added Tax (VAT). The VAT is effectively a national sales tax, meaning even lower-income people would pay back a portion of their basic income depending on how much they spend their dividend on taxed goods.
Yang has said he would exclude many essential items from the VAT, though. Calculations show the VAT combined with UBI would have a net positive effect on purchasing power for low-income individuals.
Any taxes paid on the UBI would be used for the following year’s dividend, meaning much of the money is repeatedly recycled through the system. The additional amount that is redistributed to lower-income families is called the “net cost” or real cost of basic income. The net cost is the amount the government would actually redistribute every year under UBI.
Factoring the clawback, the real cost of basic income to the government would be approximately $539 billion annually, according to Georgetown Professor Karl Widerquist. This is less than 25 percent of existing entitlement spending.
UBI would have the same cost as a Negative Income Tax (NIT) when factoring the clawback, but the sticker price of the gross cost creates a false impression of a higher cost for UBI. NIT is not universal — it only provides the subsidy to those who qualify, making the cost appear lower than UBI. When I asked Yang whether he would support NIT to avoid the cost misconception, he said NIT would be a step in the right direction.
UBI would cause inflation
The inflation misconception has been around for many years, but it has become more convincingly debunked since I first wrote about it nearly three years ago.
It is essential to note that Yang’s plan is redistributing existing cash, not printing new cash. For every dollar spent, there must be a dollar taxed first, which would offset inflationary pressures.
As Karl Widerquist noted, basic income is no different than other welfare programs in terms of increasing demand for goods. Denmark has one of the most generous welfare states in the world, but they also consistently experience a low and stable inflation rate below two percent.
In the United States, food assistance, which can be freely spent like cash on most food items, has not produced inflation in food prices. On the contrary, research from the London School of Economics shows in states with higher take-up of food stamp assistance, prices have dropped and there is greater product variety relative to those areas with lower food assistance take-up. This is because suppliers respond to increased demand with more competition entering the market.
Thus, the guaranteed demand from basic income could generate higher levels of competition that brings down costs for low-income people.
In Alaska, which has a small Universal Basic Income funded by oil revenues, inflation has been lower than the U.S. average since the program started. Other research in Mexico demonstrates that directly giving cash does not produce inflation.
Since the United States is a globalized market, any short term demand spike creates an economic profit that is resolved by increased production, bringing the price down in the long-run.
In fact, the United States is experiencing unusually low levels of inflation. Contributing factors could include the Amazon.com effect, automation, immigration, and global trade. Basic income would not change these underlying factors keeping a hold on inflation.
The main area where there could be meaningful inflation in the medium term is the cost of rent because there is a fixed supply of land.
Basic income could empower more people to move and find other options. Renters would have a better bargaining position with their landlord if they had a guaranteed dividend than if they are desperately clinging to their job.
In the long-run, greater purchasing power from low-income people should induce more homebuilding and open up a greater share of unoccupied housing. That said, the high cost of rent exists now in many areas and should be addressed as a separate policy issue.
Nonetheless, it is unlikely that any inflation from UBI could completely wipe out the improved purchasing power from the dividend, let alone make people worse off.
UBI would cause laziness
The problem of laziness is one of the most thoroughly debunked misconceptions about UBI. Among those who closely study cash transfers, many no longer consider labor participation an interesting research question because the results consistently show no effect. Those who have read the relevant research and are still convinced that basic income causes laziness will likely never be persuaded otherwise.
As I reported in 2016, “The Overseas Development Institute just released the largest meta-analysis of cash transfer programs ever, spanning 15 years of data and 165 studies. The main takeaway is that studies show a consistent reduction in poverty measures. Perhaps an even more important conclusion is that most evidence showed an increase in work participation after receiving the basic income.”
Many specific examples from across the developmental spectrum corroborate the conclusion that basic income would not meaningfully reduce work. In Finland’s basic income experiment, there was no negative effect on work. Iran’s generous basic income did not reduce overall work but did cause some young people to substitute their time for more schooling. In Alaska, their partial basic income did not reduce overall work. On the contrary, Alaska’s basic income increased part-time work due to the increased demand generated by a basic income.
With a permanent basic income, there is reason to believe that a healthier and more productive labor market will emerge. For example, the Finland experiment showed basic income recipients were happier and more trusting overall. Many polls indicate that individuals would use the basic income to gain additional skills, spend time with family, volunteer, and engage in freelancing.
If the poor are no longer clinging to a job for survival, they can more freely find a job where they can be the most productive. They will also have more bargaining power to demand better working environments.
Most importantly, basic income would allow greater time and mental energy to be focused on the most important job in society: caregiving. Volunteering and caregiving provide enormous economic and societal benefits that are not recorded in GDP because they are typically unpaid.
Basic income gives people the right to say no to exploitation. But the most revolutionary aspect of UBI is that it finally gives everyone the opportunity to yes to their passions.
by Andre Coelho | Jan 24, 2020 | News
A new report from the Basic Income Canada Network (BICN) details how Canada could improve income security for everyone, with three options for a basic income for adults, while maintaining current child benefits for those under 18.
“We’ve seen interest in basic income grow far beyond theoretical debates. BICN is now frequently asked what it would look like in Canada,” said Chandra Pasma, a member of the BICN Advisory Council and co-author of the report. “Our report clearly shows there are multiple options Canadian governments could use to implement a successful basic income program.”
A basic income is an unconditional cash transfer from government to individuals to enable everyone to meet their basic needs, participate in society, and live with dignity, regardless of work status. The call for a basic income is growing, including from public health and environmental sectors, Nobel laureate economists, marginalized communities and people concerned about precarious work and technological disruption. The urgent need to reduce inequality and its costly consequences has led some researchers, advocates, and politicians to the conclusion that basic income is inevitable.
Statistics Canada’s Social Policy Simulation Database and Model (SPSD/M) was used to model the funding of the options, combining existing resources with changes to the tax/transfer system, including tax fairness measures. All options are based on BICN’s principles and goals–to reduce inequality, including inequality between women and men; prevent poverty; provide everyone with greater income security, including middle-income earners; and ensure the wealthiest individuals and corporations contribute their fair share. Each option in the report, Basic Income: Some Policy Options for Canada, meets these overall goals.
Option 1 is for 18-64 year olds based on household income, operating much like child benefits, with the $22,000/year ($31,113 for a couple) benefit amount gradually reducing as other income increases; seniors benefits remain in place.
Option 2 is similarly income-tested and is for all adults, including seniors.
Option 3 is a universal model, sometimes called a demogrant, that provides the same benefit amount to every individual adult.
“The options vary administratively so don’t get sidetracked by the size of the different up-front costs,” notes Sheila Regehr, Chair of BICN. “It doesn’t mean one is much more expensive than another. The options have similar results for people and they are all funded from similar sources.” The report also notes that other funding sources for a basic income are possible, as well as downstream savings that can help make it even more affordable.
“Basic income in Canada is not a question of possibilities, but of priorities,” said Regehr. “It is clear from child and seniors benefits that it works for many Canadians already. The federal government’s priority now must be to take leadership to make it work for everybody; we are all part of the future of this country.”
To download the full report, click here.
To download a summary of the report, click here.
by Guest Contributor | Jan 19, 2020 | Opinion
By SB
There is a fear that a disproportionate part of Universal Basic Income would be paid to housing. Under current circumstances, a large portion of the income is paid to rent. A person UK in 2019, if receiving benefits only, in many cases is paying over fifty percent of their income for housing. If UBI was to come into effect, it is possible the same problem would occur. On the minimum wage in the UK (currently 8.21 per hour), over 43 percent of the income of a person living in a city will go to renting a single room. For first-time buyers, this can be devastating to their finances and can leave them asking questions such as “What are Bank and Mortgage Company Overlays?” in an attempt to pay off their debts.
If UBI becomes a transfer of funds from everybody in the economy to the landlords in the economy, then it cannot be progressive. These landlords are not particularly in need or poor. Therefore, the campaign for UBI must be approached keeping in mind where that income ends up.
Looking at rent rises in the last 29 years, one can see that that inflation between 1989 and 2019 makes everything roughly two and half times more expensive. So, anything that is 1 will be 2.50 today. Another way to put it is that 1 in 1989 is equal to 2.50 today. In the same time, the lowest wage rose from about 3.00 to 8.21 and tax on the minimum full-time wage decreases from twelve percent to five percent.
The biggest difference is rent and everything that comes with it, such as insurance from companies like Epremium. In terms of rent, 1 is equal to 10.50, or what was a 50 per calendar month is now 550.00 pcm. In buying terms, the lowest-priced homes cost about 35,000 in 1989 or six times the minimum wage annual income. In 2019, the average price of a two-bedroom flat varies widely. However, it is not uncommon to see a two-bedroom flat priced at 200,000 or twelve times the minimum wage. This would indicate that buying a house takes a similar trajectory as rent. In 1989, a person could have obtained a secure home, and put aside some money that comprises the state pension. If the property prices and rent had not risen and had stayed at about 9 percent of minimum income wages today, then this would be the case too. Even If there was a shortage of housing, they would have been able to initiate a build via a housing association or even through their own income.
Table 1 Wage falls as rent rises
| Year |
Monthly |
Annual Rent |
Annual Disposable Income (after rent, tax and national insurance) |
% of Minimum Wage for rent (After Tax and NI) |
% of Minimum Wage paid for tax factoring in tax free allowance |
| 1990 |
40.00 |
480.00 |
4,658.75 |
9.34% |
12.16% |
| 1995 |
62.85 |
754.26 |
5,113.24 |
12.85% |
9% |
| 2000 |
98.77 |
1,185.21 |
5,562.40 |
17.56% |
6% |
| 2005 |
155.20 |
1,862.40 |
7,100.89 |
20.78% |
9% |
| 2010 |
243.88 |
2,926.51 |
7,565.72 |
27.89% |
9% |
| 2015 |
383.22 |
4,598.62 |
7,923.37 |
36.72% |
4% |
| 2019 |
550.13 |
6,601.60 |
8,632.19 |
43.34% |
4% |
| 2020 |
602.18 |
7,226.11 |
8,629.68 |
45.57% |
4% |
| 2021 |
659.14 |
7,909.70 |
8,595.00 |
47.92% |
5% |
However, the rent and property price rise that took place meant that each time the minimum wage was raised (in line with inflation) to keep somebody at the same standard of living on minimum wage, the rent rise took a larger and larger portion of their income. In the beginning, the rent rise takes 25 percent of their pay rise, then taking about 50% of their pay rise, and in many years is a 100 percent or near 100 percent. In a few cases, it was more than 100 percent.
Since the minimum wage increase to keep up with inflation and they are handing over above the calculated inflation for rent to their landlords, they are no longer gaining the additional money to stay at the same standard of living. Their wage is dropping and their ability to save and prepare for the future is dropping. For example, in 1989, for every 1 a person gives 9 percent or 9p to rent. In 2019, for every 2.50 roughly equal to 1 then, a person gives 1.07 to their landlord or 43 percent.
If we look at rent increment per year and pay increment per year, taking the actual rises in the minimum wage from government records, and factoring the rent rise equally distributed over the full twenty-nine years. In order to get from a monthly rent of 50pcm to 550pcm. If equally distribute, then from about 1990 to 1999, the pay rise would have been higher than the rent rise. Some years all of the pay rise is transferred to the landlord.
In 1990, about a quarter of the pay rise is a transfer to the landlord. In 1999, 2008, 2011, 2012, 2014 and 2019, the full pay rise is transferred to the landlord. In most other years about 40 percent to 98 percent is transferred to the landlord except for five years.
For rent to rise from 9 percent to 43 percent of the minimum wage, the rent must have risen in some years higher than their pay rises. This would have been reflected differently in different accommodations. However, everybody who was renting would have observed the change at some point. In the following example, the rent rise is assumed to be equally distributed across the years, to show how the rent could have moved from 40pcm to 550pcm.
What about tax, during the same period the tax goes from 12 percent of the minimum wage to about 5 percent. Comparing tax and rent, the tax amount starts out higher than rent. By 1992 tax and rent are about equal outgoings, and then slowly rent increases tenfold, and tax decreases to about half the share it was in 1989. The rent doubles tax in 1998, trebles in the early 2000s, and by 2015 it is ten times the rent, as an annual outgoing for a person on the minimum wage.
Disposable income moves in the reverse direction. In 1990, a person on minimum wage has almost ten times the disposable income than they pay on rent. Disposable income after rent, tax, and national insurance contributions are 4,658.75, while rent is 480 per year. In 1996 it is six times, in 2002 it is four times and so on. By 2018 it is less than 1.5 times, and if the trend continues by 2022, rent will be higher than disposable income.
If house prices and all other items had increased in line with inflation and the minimum wage pay rise was the same, then a person would have the potential of savings to purchase a home or build a home with about half their accumulated life’s income. When they sold that home, they would regain the total value, less depreciation of the same home. Homeowners can also look at selling their current homes for cash through a ‘We Buy Houses‘ company or they can help them find buyers that are interested in buying their homes at the price point they had set out so they do not lose out on any money they have put into their current home.
Table 2 shows a scenario of house prices had not risen.
| Year |
Monthly rent went from 40 to 550pcm in 29 years. |
Annual Tax for the year |
Annual Rent (12 Months) |
After RENT and Tax, NI per year |
% of Minimum Wage for Rent (After Tax and NI) |
% of Minimum Wage paid for tax factoring in tax free allowance |
| 1990 |
40.00 |
711.25 |
480.00 |
4,658.75 |
9.34% |
12.16% |
| 2000 |
49.35 |
440.20 |
592.22 |
6,155.38 |
8.78% |
6% |
| 2010 |
73.34 |
1,017.70 |
880.13 |
9,612.11 |
8.39% |
9% |
| 2019 |
101.53 |
701.90 |
1,218.31 |
14,015.47 |
8.00% |
4% |
However, they would not have been able to set aside enough money to raise one or two children. The calculation for a child would be half the cost of living between age 0 to age 18, at half the cost of an adult. However, testing of goods and services for children are actually coming to a price of roughly half the cost of living, as they are assumed to have done in the past.
So, to reiterate, the minimum wage over a lifetime will not deliver to either a one- or two-income household, the returns for a home, investment in education to give higher wage opportunity, and a pension or putting aside money first to have children, plus the cost of bringing up children. Therefore, there is no choice for people on the minimum wage but to look for further state support. However, the truth of the matter much denied is, who is taking the subsidy, the person on minimum wage or precarious jobs, the end customers that are being given a lower price based on a low wage. The landlord is taking 43 percent of the income in real terms whether sourced in benefits or wage, or the hiring organizations who are saving a larger percentage of their budget for others who are paid more. Finally, that subsidy goes to shareholders whether it ends up mostly in the pocket of a small set of people, or a retirement fund which funds a large set of people. What is clear, people on minimum wage should not be blamed or made to feel guilty because of their poverty. Instead they should be enlightened educated on tools that may be able to help them in this time of need such as home equity. Many times people are sitting on money and don’t even realise that they can claim it. Find more information on this link – https://www.facebook.com/equityexperts.org/.
And the Universal Basic Income is an idea that can only be realized if each of the key areas of expense for a human being to live takes a reasonable proportion of the income. Otherwise, Universal Basic Income is just a guaranteed income for landlords today and maybe another industry tomorrow, and will fail to supply the basic set of goods and services it is designed to guarantee.
Sources of data
| 1 |
Minimum Wage 1999 to 2013 Ref [1] https://www.theguardian.com/news/datablog/2013/oct/01/uk-minimum-wage-history-in-numbers |
| 2 |
National Insurance 1999 to 2019 Ref [2] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/709420/Table-a4.pdf |
| 3 |
Income Tax – Personal Tax Allowance and Reliefs, 1990 to 2019 [3] https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/709412/Table-a1.pdf |
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Notes |
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There are data gaps in the Rent to Income Ratio, the most Signiant of which are explained below |
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The starting rent in 1990 of 40pcm is derived from my own personal experience of renting a double room in a shared house. I remember at the time I chose a room that I could be comfortable in, and did not choose the cheapest room. I was moving from a room with relatives, where I paid 30pcm. The common room price in loot the listings paper which was the main source for finding lettings at the time was 30pcm to 50pcm, I believe that the bills were not included. The rent in 2019 was derived from a search for a double room on a website. There are many rooms that are priced over today’s rent of 550, which seem to be most rooms. However, through many searches of different websites, I can see that it is a common rent for a room in that area. This data could be improved by searching through archived copies of listings papers for the time. There are many rooms advertised at about 200 more than the rent I have quoted in some cities. |
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From starting rent to today’s rent, I am estimating a % increase year on year, equally distributed. This would end up with today’s rent. For future rent, I am taking the same % increase forward for a further twenty years |
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Minimum Wage: When referring to minimum wage, I am always assuming the full adult minimum wage and not the minimum wage for young adults |
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Minimum Wage in 1990 to 1998
I have real data from .gov site and from the guardian site from 1999. This is the year the minimum wage came into effect. Prior to this I have a sketchy memory of my take home pay in 1990. Therefore, the start salary 3.00 per hour is pure guess and would be slightly lower if I calculated using the future trend. Tracing back this goes to about 2.70. I feel that this would not be accurate as my take home pay would have been lower. |
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Future Minimum Wage 2019 to 2039
If I estimate a year on year % increase to take me from 3 to 8.20. The % increase is about 3.5% year on year. I am then using this for future years. |
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Minimum Wage 1999 to 2019
Data from tables on .gov websites and guardian websites. This data does not take into account which month the change came into effect and assumes a full year at the minimum wage increment for the year. This data could be improved. |
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Tax Calculations |
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If the rent year is 1990. The tax is calculated using figures for 1990, and the calculation is done against the full year from 1990 till today, therefore this data does not use the previous tax year for the last three months of the financial year. This would mean that tax would be slightly lower than shown here. Tax Personal Allowance, and all other calculations involving tax, including salary after tax also ignore the financial year change over. Therefore, this data could be improved. The overall trend of rent rises outstripping pay rises would not change. |
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National Insurance NI for 1990 to 1998 has been put at zero, because of confusion about the rules at the time. However, I believe it to be quite low for the minimum wage because of the exemptions for low wage at the time. This data could therefore be improved. |
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Contact Details
Email: sbptime@yahoo.com |
by Andre Coelho | Dec 15, 2019 | News
The full title is “Exploring Universal Basic Income: A Guide to Navigating Concepts, Evidence, and Practices”, and it’s the most recent publishing of the World Bank on the specific issue of basic income, by the hands of editors Ugo Gentilini, Margaret Grosh, Jamele Rigolini and Ruslan Yemtsov. From the original World Bank webpage it can be read:
Specifically, the book examines how UBI differs from or complements other social assistance programs in terms of objectives, coverage, incidence, adequacy, incentives, effects on poverty and inequality, financing, political economy, and implementation. It also reviews past and current country experiences, surveys the full range of existing policy proposals, provides original results from micro–tax benefit simulations, and sets out a range of considerations around the analytics and practice of UBI.
Contributors to the book include (but are not limited to) Francesca Bastagli (Head of the Equity and Social Policy Programme and Principal Research Fellow at the Overseas Development Institute), Jurgen De Wispelaere (Policy Fellow with the Institute for Policy Research, University of Bath), Ugo Gentilini (Global Lead for Social Assistance with the Social Protection and Jobs Global Practice at the World Bank) and Tina George (Senior Public Sector Specialist at the World Bank).
The book is available as a free download, accessible the World Bank’s webpage dedicated to it.
by Andre Coelho | Dec 10, 2019 | News
Jane Dodds and Liberal Democrat leader Jo Swinson. Picture credit to: The Week
Over fifty candidates for the UK’s Liberal Democrat party (Lib Dem) have signed a personal commitment to back basic income pilots in the next parliament, if elected.
The intention to run these basic income pilots, which would be implemented by removing conditionality rules from the standard element of the main Universal Credit benefit system, is already an official part of the party platform, voted for by Lib Dem members this autumn as part of the party’s ‘A Fairer Share For All’ package of anti-poverty proposals. With social security issues low on the agenda in the election overall, however, a number of the party’s candidates signed a separate declaration to bring attention to the policy.
The Liberal Democrats have a comparatively long history with minimum income as an idea, with citizens’ income proposals forming part of the party’s platform in its 1992 manifesto, and in recent years their proposals to abolish the sanctions system for social security, which they adopted in 2016, have seen them move back towards unconditional income policies. This comes alongside the Lib Dems’ wider pledges to spend more money on social security, abolish benefit sanctions, and end many of the other restrictions and claim delays that have caused problems with the Universal Credit system since its introduction. Lib Dems have been recognized by the Resolution Foundation to have progressive policies on welfare issues.
The backers of the minimum income statement, which was organized by a group of party activists, come from across Britain, covering all nations and regions and both urban and rural areas. Notable signatories include Andrew George, James Cox, Jasmine Sakura-Rose and Jane Dodds (Welsh Liberal Democrat), who has publicly spoken out in favor of the idea.
Quotes from signatories:
“I support a minimum income because it gives people the power to say no to exploitative jobs and a base from which to work to better themselves. Only with a minimum income or UBI in place can we begin to support real freedom for all.” – Oliver Craven, candidate for Sleaford and North Hykeham
“We can’t carry on with a system that doesn’t ensure that people have a stable, reliable minimum level of income. The instability people face under the current social security system badly impacts on their health and wellbeing, and we have to find a way out of that.” – Josie Ratcliffe, candidate for South West Norfolk
“As a Lib Dem I believe in empowering people, and one of the most important parts of that is ensuring they can care for themselves and their communities and pursue their own paths and goals without the constantly looming threat of income insecurity that so many people currently face.” – Charley Hasted, candidate for Eltham
More information at:
Jane Dodds, “Why the Welsh Liberal Democrats want to trial Universal Basic Income in Wales”, Nation Cymru, March 2nd 2019
This article was written by James Baillie. Edited and reviewed by André Coelho.
