by Claire Bott | Aug 1, 2017 | News
A new research report from the Northern Policy Institute (NPI), a Canadian think-tank based in Ontario, has put forward an argument that Canada would benefit from a basic income guarantee.
The report is authored by Professor Evelyn Forget of the University of Manitoba, who also holds the post of Director at the Manitoba Research Data Centre. She details a potential system for implementing basic income, as well as examining ways in which it could improve current social provisions, and looking at some potential pitfalls and issues around putting a basic income programme into place.
Forget begins by giving an overview of an experiment which took place in Canada in the 70s, called the Mincome project, which she has researched extensively. This experiment involved providing a guaranteed income for three years to all inhabitants of a small Manitoban town called Dauphin. Results included a significant decrease in both hospitalizations and mental health complaints.
Forget goes on to argue that a guaranteed basic income (called a Basic Income Guarantee, or B.I.G., in the report) is eminently affordable for Canada, once it is taken into account that existing income support programmes could be scaled back or done away with altogether. The system which she describes is one of a means-tested B.I.G., reduced significantly for those in regular, reasonably-paid work, and provided only to those between 18 and 65 (this differs from BIEN’s own definition of basic income).
While she acknowledges a number of issues in implementing this (for example, would houses or cars be taken into account as assets when considering who should receive the B.I.G. payments?), Forget also draws her readers’ attention to potential benefits; for example, children from low income families may do better in school due to reduced family stress, and therefore have less need for special, governmentally funded support. She further states that such secondary benefits, while desirable, should not be considered the primary test of whether a B.I.G. has been effective. Forget argues that “It is sufficient to show that the depth and breadth of poverty are reduced, because that is the fundamental purpose of a B.I.G.”
The report concludes: “Now is the time to address, head-on, the challenges and trade-offs that are necessary to create a universal B.I.G. that can meet the needs of Canadians in the 21st century. The challenges are real, but so too are the costs of doing nothing.”
This is one of a series of research reports which have been put out by the NPI on basic income in recent months, in the context of a three-year B.I.G. pilot project which is already being actioned in a number of areas in Ontario. The pilot project is based on a paper put together by Hugh Segal, a former Canadian Chief of Staff, and currently Master of Massey College, Toronto. Ontario Premier Kathleen Wynne said of the pilot project, “For months, we have been doing the background work to explore the idea of a basic income.”
Evelyn Forget, “Do We Still Need a Basic Income Guarantee in Canada?”, Northern Policy Institute, May 2017
by Kate McFarland | Jul 26, 2017 | News
Dutch journalist Rutger Bregman, whose bestselling book Utopia for Realists was influential in generating interest and support in basic income in The Netherlands, spoke on basic income at TED2017, held April 24-28 in Vancouver, British Columbia, Canada.
The overall theme of this official TED conference was “The Future You,” including talks by scientists and engineers on artificial intelligence and robotics. Bregman was among the speakers selected to discuss a “human response” to such technological developments.
Despite the conference’s focus on AI and automation, Bregman does not frame basic income as a response to technological unemployment. Instead, his starting point is to challenge the idea that poor people are poor because they are lazy, irresolute, or inexperienced in handling money. As reflected in the title of his talk, Bregman argues that poverty doesn’t result from a lack of character but simply from a lack of cash–and that, correspondingly, the best way to end poverty is just to give money to the poor. To bolster this claim, Bregman outlines the findings of Canada’s Mincome experiment, a four-year experiment of guaranteed annual income conducted in Manitoba in the 1970s. Bregman further argues that basic income would liberate not only the poor but also the many other individuals who, in the current economy, are forced to work long hours in unnecessary and unfulfilling jobs.
The talk met enthusiastic response from the audience, who applauded at lines such as Bregman’s remark that the government should do away with paternalistic bureaucrats overseeing welfare programs and just give their salaries to the poor people they’re supposed to help. Bregman wrapped up to a standing ovation.
The video of “Poverty isn’t a lack of character; it’s a lack of cash” was later uploaded to the TED website–where it had surpassed one million views by early July.
Watch the Complete Talk Below:
Cover Photo (Bregman at TED2017 – The Future You): CC BY-NC 2.0 TED Conference
by Dawn Howard | Jul 19, 2017 | Opinion
Topher Brennan is a progressive candidate from the state of California, currently running for US Senate. A self-professed “policy geek”, Brennan holds an undergraduate degree from the University of Wisconsin and a master’s degree in Philosophy from the University of Notre Dame.
Brennan recently put forth a plan for implementing a basic income with his timely essay “The case for a basic income guarantee”. In it, he provides various examples of failures within the current welfare system – specifically the SNAP (food stamps) program – and discusses replacing SNAP, as well as the group of programs known as OASDI, with a basic income.
You can read the full article here.
Dawn Howard: Please give our readers a little background into when and how you first became aware of basic income.
Topher Brennan: I’ve been aware of the concept of basic income for a long time, but I think I may have first heard about it in Robert Heinlein’s novel For Us, The Living, which I would have read back in in college, maybe even high school. I don’t remember what my initial reaction was. I may have thought “sure, that might make sense in the distant future, when everything is automated”—but by high school I was already a big fan of individual autonomy, so it wasn’t long before I figured out you could do something like that right now.
DH: Have you been following any of the current basic income pilot studies happening across the globe? If so, how do the design models and results of these pilots influence your own concept of its potential implementation?
TB: Most of the really exciting research I’m aware of is still ongoing. That said, I’m a huge fan of the charity GiveDirectly. I believe their basic income study hasn’t launched yet, but their research on one-time, no-strings-attached cash transfers provides strong evidence that when you give poor people money it really does lead to big improvements in their lives. It doesn’t all just get wasted on booze or anything like that.
I’m not sure I can claim this influenced my support for basic income—I was pro-basic income long before I knew about GiveDirectly, and the results of their research seem totally unsurprising to me. The reason the free market mostly works well is that (again, for the most part) people are pretty good at looking after their own interests. When politicians talk about creating jobs, no one retorts, “that won’t help, because the people who get the jobs will spend all the money on booze”. But when you talk about anti-poverty programs, suddenly everyone worries about that.
I should also say that when I was writing the article on basic income that I recently publish on Medium, a lot of the specifics were driven by looking at the current state of the social safety net in the United States specifically, and how it sometimes goes wrong. Basic income is a great idea no matter where you are, but I expect the implementation details will be somewhat country-specific.
DH: Given that poverty is typically considered a bi-partisan issue, how feasible would it be to implement a small-scale basic income pilot in California, given the state’s current budget concerns and overall political climate?
TB: You might be able to do it, but it would be tricky. Thanks to proposition 13 (an anti-tax ballot initiative passed when California was a much more conservative state), you’d probably need a ballot initiative to fund it. Also, because most current anti-poverty spending comes from the federal government, and the federal budget as a whole is just bigger (even in terms of percentage of GDP), I think you could shoot for a much bigger basic income right off the bat, working at the federal level.
DH: In your essay ”The case for a basic income guarantee”, you write:
“Being poor means politicians will try to micromanage your life. Politicians like to say they support helping the poor, but only the deserving, and only for things they really need. Whatever you think of that in theory, in practice, the government is bad at telling who’s deserving. It’s also bad at telling what people really need. All that happens is that we make the lives of people we’re trying to help worse, with nothing to show for it.”
Given that you recognize the desire for self-determination and autonomy among individuals living in poverty, do you feel that the government’s role is simply providing a monthly or yearly payment, or do you feel that some recipients would benefit from further education and/or government assistance in order to budget their money wisely?
TB: With education, if we’re talking about adults, people have the option of spending their basic income on education for themselves. A free $8,000 per year, for example, would make college much more affordable. The question of to what extent the government should be subsidizing college education, I think, comes down to somewhat technical issues of how much of the benefit of a college education is captured by college graduates, versus being a positive externality. I don’t actually know the answer to that question.
With K-12 education, there are some additional complications. In the United States, there are states where homeschooling is totally unregulated, and the result is some parents end up educationally neglecting their children. That’s not a win for personal autonomy—those kids didn’t make an informed choice to go without a decent education in their early years; their parents decided that for them. And basic reading and math are important skills no matter what you do with your life, so I’m pretty comfortable with the government insisting children learn them.
Which is not to say our current K-12 is perfect by any means. But when I think about things I’d hope to see fixed in the near future, I think about evening out the disparities in school funding so we don’t have supposedly public schools that are de facto private because you can only go to them if your parents can afford the absurd housing prices in the district. What the right thing to do would be, in an ideal world, if we were designing the system from scratch—I don’t know.
As for helping people with budgeting, I think most people who find themselves financially strained become pretty good at budgeting in a hurry because they have to be. You can add various caveats to this—supported decision making can be very helpful for people with intellectual disabilities, for example—but the idea that what poor people really need is help budgeting, at least the way it’s often meant, is a myth.
DH: Even though libertarians, greens and independents do not make up the lion’s share of registered voters in California, libertarians in particular might find certain aspects of your campaign platform appealing and consider voting for you. However, your stance on basic income might turn them off because of its distribution model – specifically that it puts more power in the hands of the federal government. How would you respond to this type of concern from voters who do not want the government running large-scale social welfare programs?
TB: I’d dispute the premise that it puts more power in the hands of the federal government. If it looks that way, it’s because the federal policies I’d like to replace (in part or in whole) are often designed to look smaller than they actually are. I really try to avoid that, because I think it leads to bad policy, even if it would be politically convenient.
For example, the federal government spends over a trillion dollars a year on so-called “tax expenditures”, where the tax code is written a certain way not because it’s the most sensible way to raise money for things the government wants to do, but in the service of some social policy or other.
Tax expenditures are popular because they let politicians say, “it’s not a spending increase, it’s a tax cut!” But they can have perverse effects relative to more straightforward approaches to the same issues. I’m not always sure these consequences are unintended. Because tax expenditures are confusing, they also make it easier to sell one policy to voters and another policy to donors.
Another example is means testing of government programs. It sounds like common sense—government programs should help only those who really need it. And it’s politically convenient, since it can make a program look much cheaper on paper. But means testing is functionally equivalent to combining a much larger program with a large income tax—the tax is just hidden. And because it’s hidden, it’s more likely to be designed in a stupid way where some people wind up with a 95% effective marginal tax rate, and have little reason to, say, try to get a promotion or take on more hours.
So I try, as much as possible, to avoid these policy mistakes—even if it means more work explaining a proposal to people.
DH: Many activists within the basic income community posit that our current economic system (capitalism) is inefficient and unsustainable, and that eventually we must transition out of it. Do you see basic income as a type of incremental step toward this transition – a kind of temporary “band aid”?
TB: That’s a big question! It depends both on what you mean by “capitalism” and what happens with future technological development. The former we can argue about endlessly, and the latter I don’t think anybody knows for certain. I will say this, though—I think most people underestimate how many features of our current economic system are not the natural order of things, or even “what happens under capitalism unless someone reigns the corporations in”, but are the feature of specific government policies, which are often not well-thought-out, or which are designed to benefit the powerful rather than the average person.
Take prescription drugs, for example. I recently heard someone put this very succinctly: if prescription drugs were a free market, you’d be able to order them from Canada. High prescription drug prices are sometimes justified on the grounds that they’re necessary to fund drug research, but I think it’s pretty obvious we could find better ways to fund drug R&D than what we currently have.
And there are lots of things that are like that. So I think we could have a better, fairer economic system that would look quite a bit different than what we have right now, whether you’d end up classifying it as a variety of capitalism or not.
If you would like to learn more about Topher Brennan, you can visit his web site: www.topherbrennan.com
or
Follow him on social media:
@TopherTBrennan
facebook.com/topher.t.brennan
by Guest Contributor | Jul 17, 2017 | Opinion
Written by: Frank Kamanga
INTRODUCTION
This article is inspired by the article titled “Helicopter money and basic income: Friends or foes” authored by Stanislas Jourdan (2017). He made a very important attempt to clear up confusion between two similar and conflicting yet important terms in the global economy at this moment. Hıs article has opened doors for another attempt to compare basic income scheme and cash transfer schemes. This article will explain the definitions of cash transfers (CTs) and universal basic income (UBI), as well as institutional frameworks under which the programmes are implemented. It will also address financing arrangements for the programmes, and linkages between UBI, CT and Sustainable Development Goals, in an attempt to explain the justification of UBIs in the current state of the global economy. Policy issues related to both CTs and UBIs will also be highlighted.
Basic income and cash transfers are not novel ideas for poverty alleviation. A basic income scheme was initiated in North America in the 1970’s and 1980’s with support from prominent economists of that time. Following the successful implementation of such programmes, governments and the World Bank began implementing cash transfers in emerging and developing countries. With the rising discontent toward the neoliberal economic system and austerity measures, poverty alleviation measures such as Universal Basic Income (UBI) have been resuscitated back to life in developed economies. Gradually, governments in emerging and developing countries are carrying out pilot projects to assess the efficacy of basic income projects.
Emerging and developing countries like India and South Africa, which are implementing cash transfers, are also contemplating introducing basic income projects. This demonstrates that there are differences between these two concepts. Indeed, these two programs are similar regarding their purpose of alleviating poverty and their nature of implementation. However, the analysis below will show why UBI stands out as a different programme from cash transfers, and why our current economic circumstances means a basic income scheme should be implemented globally even in developing and emerging economies.
DEFINITION OF BASIC INCOME AND CASH TRANSFERS
CASH TRANSFERS
Cash Transfer Programmes are founded on social inclusion theory in the context of economic development. The social inclusion theory posits that governments should integrate the poor into the general economy by supporting them with a basic amount of cash. Cash transfer programmes fall into two categories: conditional cash transfers and unconditional cash transfers. Under conditional cash transfers, recipients receive cash only if they can demonstrate that their behavior meets certain stated requirements. Under unconditional cash transfer programmes, the payout does not depend on individual behaviour (Forget E.L et al., 2013).
Conditional Cash Transfers (CCT) are used to encourage the behaviour of utilizing public services such as education and health services which lead to a reduction of poverty in the long run. For instance, in Mexico the conditional cash transfer programme provided cash to households on the condition that their children regularly attend schools and also access health services at clinics[1]. Proponents of conditional cash transfers argue that the scheme leads to better investments in human capital through access to social services that improve people’s knowledge and skills. The World Bank is a major supporter of the conditional cash transfer programme.
Meanwhile, advocates of the Unconditional Cash Transfer (UCT) programme look at the situation from a different perspective. They argue that poverty is cyclic and hard to break out of when there are conditions imposed on your spending. For instance, with restrictions on peoples’ spending, some basic needs are left out of the spending equation. To meet these basic needs, people may engage in other risky income generating activities such as sex work. When people are in poverty and desperate for money, we should not condition help on changing their behavior. Therefore, advocates of UCT argue cash should not be given according to certain behaviors. Rather, these resources should be made available to poor families so that they can make spending decisions consistent with their socio-economic priorities regardless of the work or job they are engaged in. UCT programmes are supported by human rights advocates and are consistent with a human rights based approach to development.
Unconditional cash transfers are not only premised on certain behavioural requirements, they also have lower administrative costs than conditional transfers (Capriati 2016). In addition, in countries like Malawi unconditional cash transfers have also been merged with other social services like agricultural farm cooperatives and access to health services, hence improving their effectiveness. In this case, UCTs are more consistent with meeting a broader aspect of sustainable development goals.
This notwithstanding, with regards to impact, lessons from CCT and UCT programmes in Zomba city in Malawi have shown that both programmes have had positive results in terms of reducing child marriages, improving educational attendance, and avoiding early pregnancies. However, it has shown that UCT is relatively more effective in solving several challenges met by the families. This is because based on tastes, preferences, and priorities, families could decide how to spend money without constraints so that intended objectives can be met (Forget E.L et al., 2013).
BASIC INCOME
The concept of basic income is a relatively new phenomenon in the developing world as opposed to the developed world. In Canada, a basic income experiment called MINCOME was carried out as a means-tested negative income tax[2] in the 1970s. Meanwhile, a notable experiment was conducted in Namibia and currently two countries are carrying out pilot projects – Kenya and Uganda. Basic income guarantee or Unconditional Basic Income (UBI) is considered as a UCT income large enough to guarantee everyone in an economy or in the world a minimum level of financial resources on an individual basis without imposed conditions.
Basic Income mainly works on the principles of unconditionality and universality. Proponents of basic income also argue that the programme is based on the intrinsic value of human beings in an economy. This value is generated from their contribution to the creation of the general wealth of the society and also from the inherited value of our ancestors who created the wealth we are enjoying today (Jourdan S. 2017). Just like cash transfers, basic income plays quite an array of roles from poverty alleviation, school attendance promotion, work emancipation, gender balance incentivization, social protection, modernization and early child marriage prevention.
INSTITUTIONAL FRAMEWORK FOR BASIC INCOME AND CASH TRANSFER PROGRAMME
The institutional framework of these programmes can be analyzed in terms of implementation, sources of funding, policies and financial infrastructure. Firstly, given the diverse nature of objectives of both cash transfer and basic income projects, different non-governmental organizations and line ministries of central government can implement these projects. The government normally implements both basic income and cash transfer projects in the context of fiscal policies.
Financial sector tools such as mobile payment technology and policies also play a huge role in implementation of both basic income and cash transfer projects. GiveDirectly, a US based NGO, is able to implement a basic income project in Kenya and Uganda due to robust mobile technology payment systems established in these two economies.
FINANCING OF BASIC INCOME AND CASH TRANSFER PROGRAMME
Cash transfer programmes and UBI programmes share some differences in terms of how resources are to be mobilized. There is readily available information in terms of how cash transfer programmes are being implemented and funded in developing countries like Malawi. As for UBI, the information is scant but constantly flowing, as different suggestions on how the scheme should be financed are being put forward by proponents.
From an experience of cash transfer schemes in Malawi, these Conditional Cash Transfers are mainly funded by the World Bank and implemented by the government of Malawi. Meanwhile, Unconditional Cash Transfer schemes are implemented by Unicef, Oxfam, Government of Malawi and several non-governmental organizations. These programmes are financed by various donors including the Government of Germany, EU, World Bank, Irish Aid and the Government of Malawi. At the same time, the government of Netherlands is funding the design of a linkage and referral system of the Social Cash transfer programme.
As for the financing of the UBI programme, the topic is currently being addressed in different circles at policy and academic levels. Some of the topics being discussed include how the resources should be mobilized, what kind of tools should be used and who should fund the programme. Understanding this aspect of the UBI programme can assist in providing information on how to strategize campaigning and advocacy programmes for UBI in different countries.
It is claimed that there are currently no established, in-country funding mechanism for UBI in developing nations, except for external funds, as in the cases of Uganda and Kenya. However, in selected developed countries that are piloting the schemes, governments are implementing the projects through their fiscal space. Given the need for longevity of the schemes, some authors such as Young (2017), Stern (2017) and Santens (2017) have suggested sustainable ways for mobilizing resources for UBI in the United Kingdom and United States of America. Some of the methods may apply to both developing and developed countries, while others are restricted to developed countries. Here we will dwell on Young’s proposal for financing UBI and this can be can be categorized into three main groups: 1. Recalibrating existing tax and benefit systems 2. Replacing CCT 3. Communalizing common assets 4. Direct grants from the private sector can also be utilized.
Advocates for proposal one argue that for UBI to be politically feasible, it must be achieved using the existing infrastructure of taxation and spending. The idea is that UBI is currently at a conceptual stage. To materialize this scheme, governments must begin with existing resources (on a trial basis) and there is neither a need for radical and rapid changes to the system nor additional taxes. In this approach, the UBI scheme can be small in scale, targeting the most vulnerable people across the board. As in the case of developed nations such as the UK, resources can be mobilized through restructuring the existing, inefficient and unfair benefit systems. Under this proposition, UBI can be used as a subsistence or sub-subsistence level of income to be supplemented by earnings from employment and/or disability, housing, or child benefits.
One of the ways in which savings for UBI can be generated is through restructuring existing benefits, as explained by Malcom Torry of the Citizen’s Income Trust. He states that the administrative savings from dismantling the means-tested benefits system are in the range of £8-10 billion. In other words, it is very expensive to decipher who is and isn’t deserving of government support, especially when recipients must prove their worthiness. Restructuring the benefits to look more like a UBI scheme can not only help save money but would also be fairer.
The second proposal for financing UBI is simply replacing the CCT scheme with a UBI scheme in developing and emerging economies. India is already on the way to do this. UBI is more closely related to a UCT scheme, hence all the benefits of a UCT scheme over CCT also accrue to UBI.
The third proposition involves communalizing common assets. Some proponents state this UBI financing mechanism takes a more radical and systematic overhaul approach. These proponents look at financing UBI in its universality context and hence propose financing solutions that span across geographical boundaries of both developed and developing countries. These proponents argue for the abolishment of private ownership of resources – be it physical, cultural, biological, or economic. They argue that resources such as the biosphere, atmospheric carbon, fisheries and forests, and unearned income of technological change should be respected as the common property for all, rather than be the source of exploitative disparities from unequal access and power. The implementation of such a systematic and transformative change requires establishment of new policies, institutions and a new economic paradigm at a global level.
There are several prominent advocates who have come up with several ideas on how resources can be mobilized under the proposal of communalizing common assets. First, Barnes Boyce and James Boyce put forward that charges should be put in place by governments on access and use of ‘communally inherited assets’ and that revenues must be redistributed. They argue that charges could be placed, for example, on polluting the scarce resource that is the carrying capacity of our atmosphere, or on trades of stocks, bonds, and derivatives (the latter of which could raise $300 billion per year). Barnes and Boyce claim that charges on a portfolio of universal assets could grant a US citizen a UBI of $200 a month.
A wealth tax could also provide an alternative for resources for UBI ın some countries. Researchers such as Thomas Piketty suggest measures such as progressive capital taxation. Martin Faley suggests the Georgist land value tax (LVT) in the context of the UK. Faley claims that land taxes coupled with common licenses could fund a £4,500 annual UBI. A globalization fund could also strike a deal. Globalization has had some negative consequences as we can see from recent increased in nationalism and unemployment in developed and emerging economies. Multinational companies exploiting labor and cheap natural resources in developing countries whilst making billions of US dollars should be charged a globalization tax to be fed into the globalization fund. This fund can be used to support a global UBI dividend or grant.
The fourth industrial revolution is mainly characterized by automation of jobs and technological unemployment. Some economists and futurists have found leeway to press for resource mobilization to finance UBI. For instance, Economist Yannis Varoufakis and futurist Kartik Gada have each suggested that the labor savings from automation could (and should) pay for UBI. According to Varoufakis, the proposal is that one-part should be wealth tax and one-part should be ownership restructuring. That is, a small tax is levied on shares from every initial public offering put into a commons capital depository that in effect grants citizens property rights over new technologies that yield financial returns. The Commons Capital Depository would then pay out a UBI to all citizens.
The last proposal that is also being applied already is the financing of UBI activities with funds from the private sector. eBay is financing pilot projects in both Kenya and Uganda. More and more private companies can come in to support such projects in developing countries.
LINKAGES BETWEEN CASH TRANSFER AND UNIVERSAL BASIC INCOME AND SUSTAINABLE DEVELOPMENT GOALS
Cash transfer and basic income share the same theories of how they change people’s behavior or improve living conditions of people in the context of Sustainable Development Goals.
- CT programmes reduce poverty and increase income. As income increases, people spend money to solve diverse needs of their families and they also spend on luxury goods. SDG 1, 2, 3, 4, 5 and 9
- CTs and Basic income reduce risk. A CT or a Basic income is a form of social insurance that increases the planning horizon and allows one to take calculated risks. SDG 2,3,4
- CTs and Basic income reduce income inequality. SDG 10
- CTs and Basic income enhance social values of dignity and integrity, hence build communities through interaction. SDG 11, 16, 17
WHY UNIVERSAL BASIC INCOME NOW
There are quite a number of reasons to justify the policy shift in favour of basic income in both developing and developed countries. The first reason is that the basic income is guaranteed over a long period, thereby enabling people to make plans for major life decisions ahead of time. The longevity of UBI can also stimulate demand in the global economy, hence leading to increased production and employment in the production sector.
Additionally, just as with unconditional cash transfers, basic income schemes could be cheaper than providing in-kind transfers and conditional cash transfers. In-kind transfers take the form of goods and services like cattle, books, schools, and hospitals. It is claimed that projects involving the provision of such projects have huge administrative, implementation and logistics costs. Besides this, they constrain people on their freedom to spend money on the goods and services of their choice. However, thanks to mobile technologies, basic income programmes are implemented with ease and offer economic freedom on expenditure of the money.
Basic income is also conventionally universal and is regarded as a human right. Basic income programmes target people across the board in an economy. The cash is provided irrespective of your employment status, gender, region, physical ability. Rather, it is based on one’s inability to meet basic needs in a society. Therefore, beneficiaries in a basic income project are diverse and the impact on poverty reduction as well as the multiplier effect on the economy are likely to be huge.
Finally, just as with conditional cash transfers, basic income offers an opportunity for long term investment in human capital. From the recent evaluation survey of GiveDirectly’s basic income project in Kenya, 20 percent of respondents said that they were using the money for payments of school fees for either themselves or their children. As the project is expected to last for some years, recipients of the cash can make long term and secured plans to finance their studies, hence building human capital in the economy.
POLICY ISSUES FOR CTs AND UBI
- Basic Income is more closely related to UCT. Therefore, in terms of cost structure, the cost per unit of outcome will be lower with a UCT and UBI scheme compared to conditional cash transfer scheme.
- UBI has a greater potential for political advocacy and long-term stability despite its perceived greater cost, due to its universality.
- Financial Modelling of UBI in Malawi must be conducted to assess the possibility of carrying UBI and UCT concurrently.
Frank Kamanga is a former Economist of the Central Bank of Malawi. He is a co-founder of Global Hope Mobilization and Centre for Child Development of Research, two local NGOs in Malawi. He is member of the Basic Income Earth Network Outreach Committee and also Global Unification International UBI Africa Committee.
BIBLIOGRAPHY
Capriati M. (2016) https://www.givingwhatwecan.org/post/2016/07/whats-so-special-about-give-directlys-basic-income-pilot/ Accessed in April 2017
Forget, E.L, Peden A.D., and Strobel, S.B (2013). Cash Transfers, Basic Income and Community Building. Social Inclusion, 1(2), 84-91.
Jourdan S. (2017) helicopter money and basic income: friends or foes?
Santens S. (2017) How to Reform Welfare and Taxes to Provide Every American Citizen with a Basic Income. Accessed on 6th June 2017.
SDG knowledge platform. https://sustainabledevelopment.un.org/?menu=1300. Accessed in April 2017
Stern, A. (2017) Raising the floor. Accessed in June 2017
Young Charlie (2017). Conversation about Basic Income is a Mess. Here’s How to Make Sense of it. https://evonomics.com/basic-income-conversation-make-sense-charlie-young/. Accessed in April 2017.
[1]https://web.worldbank.org/archive/website00819C/WEB/PDF/CASE_-62.PDF
[2]A negative income tax is a progressive income tax system where people earning below a certain amount receive supplemental pay from the government instead of paying taxes to the government.
by Benjamin Sadlek | Jul 16, 2017 | News
(Former Republican House Majority Leader Eric Cantor speaking at the American Enterprise Institute. Credit to: The Washington Post)
The American Enterprise Institute, a conservative think tank, released a piece of research in late May, which was an attempt to analyze the effect of the implementation of a universal basic income (UBI) on the current American social welfare system.
The proposal has been released as a working paper, meaning in this case a preliminary research paper with incomplete considerations, but a base model nonetheless to move forward with and make improvements.
The Basic Proposal
The paper’s proposal is a budget-neutral form of a UBI, meaning instead of implementing a basic income in addition to the existing American social welfare system; most existing programs like Medicaid, Veteran’s Benefits, and Social Security for the elderly over 65 are repealed and replaced with a UBI. Using data from the Federal government’s budget outlays from 2014, the paper finds that the repeal of large programs in America would yield about $2.54 trillion dollars. In addition to this, the proposal repeals 23 different tax benefits like the Student Loan interest deduction and Earned Income Tax credit, bringing in more revenue and freeing up a grand total of about $3.21 trillion for a UBI.
With additional taxes coming in from the UBI itself, and increased tax liabilities on all income tax brackets, the proposal finances and prescribes a basic income of $13,788 for individuals over the age of 18 and $6,894, or half the income of adults, for individuals under the age of 18.
Using Federal government tax data, the paper analysis the net benefit gain or loss by tax bracket and age. Using the parameters described, the findings show that some of the most adversely affected by this system are in the lowest tax bracket ($0-$10,000). This is unsurprising, because many of the programs this proposal had repealed to finance the basic income are concentrated on this tax bracket.
Another group adversely affected by this proposal are individuals 65 and older, also because their benefits, such as Social Security, have been repealed and distributed among the rest of the population. When excluding age groups of 65 and older, however, nearly all tax brackets see a net benefit in this proposal, with the brackets seeing the greatest benefits being those in the middle.
Assessing the Real Value of Welfare Dollars
The second section of the paper attempts to add in the variable of welfare multiples to estimate the real cost and benefit to this proposal. Welfare multiples try to calculate the value of each dollar the government spends to the value by the welfare recipient for each government welfare program. The value of the welfare recipient comes from the idea that funds allocated by a government program are not always as valuable as cash (for example, if a family receives funds allocated for food by SNAP, but would rather use a portion of those funds for other purposes). A good government program would have a welfare multiple close to 1, while a bad government program would have a welfare multiple closer to 0.
Essentially, this section attempts to use welfare multiples to assess the gains in efficiency made in eliminating government waste by allowing people to spend the money how they see fit, or giving them a cash payment as they would have with a basic income.
The paper draws from current literature that estimates the welfare multiple of some government programs, but the authors admit to having to estimate others (see referenced literature for welfare multiples in working paper). They range from more wasteful programs like Medicaid (around .30, as used by this proposal) to less wasteful programs like Veteran’s Benefits (around .95, as used by this proposal). The literature on welfare multiples shows that there are various estimates on how effective these programs are, and therefore other authors may come up with slightly different welfare multiples. The ones employed by the authors in this proposal are an approximation based on different estimates.
When adding the welfare multiples into the equation, the net loss in benefits for the lowest tax bracket is reduced by about $4 thousand dollars per tax unit, though there is still a net loss in benefits. In addition, benefit losses to the tax brackets aged 65 and older are decreased, but by a lower margin than the lowest tax bracket as the welfare multiple is higher for these government programs. This means that the greatest increase in efficiency by implementing a UBI would be in the lowest tax bracket.
Review of the Findings
The important findings in this proposal from the American Enterprise Institute show that, if a UBI were to merely replace the existing social welfare system in the United States, by repealing existing welfare programs and tax benefits, there would be an overall redistributive impact from the old to the young, and from the poor to the middle class; though there would be a gain in efficiency overall.
Again, this is not a surprising finding as the goal of redistributive programs in America is to allocate taxpayer dollars mainly to the poor and the elderly. Some programs allocate funds too stringently, as the welfare multiples try to demonstrate, and sometimes it may be better for a welfare recipient to merely receive a cash payment. While in this proposal of a UBI the overall efficiency is increased, it does not compensate for the net loss in benefits to the poor and the elderly.
It is worth noting that the American Enterprise Institute espouses classical liberal values of entrepreneurship and free enterprise, as expressed on their website. One of their main interests in exploring a UBI, therefore, is to eliminate government waste, but this may also mean increasing the freedom of welfare recipients to make financial decisions that make sense to them.
One area the paper could do better in is to explain with detail how the repeal of tax provisions increased tax liabilities for different brackets and age groups. In their base model, to help finance the UBI, the paper repealed several tax provisions, which brought the average tax liability for the second tax bracket ($10,000-$20,000) to around $6,714, or on average 45% of their income. The average increase in tax liability for the tax bracket of $200 thousand to $1 million, on the other hand, is $28,425, or on average 4% of their income. The increase in tax liability that helps finance this proposal, therefore, is falling mainly on the lower tax brackets and individuals over 65.
In future research, proposals like this could examine the current tax code with more detail, and how it could be restructured to help finance a UBI. Because most of the new tax burden in this proposal seems to be falling on the lowest tax brackets and the elderly, there should be a conversation about who needs to be bearing the new tax burden, and how much that should be.
Notably, the paper admits that it does not take into account behavioral changes that would take place with the implementation of UBI. Proposals like this could potentially include insights from other basic income projects like the Mincome experiment in Canada, which revealed increases in high school graduation rates, and a drop of health care costs.
It is fair to be wary of the intentions of the AEI in releasing this working paper, but clearly a fair amount of effort was put into it, and it appears to be an honest inquiry into the subject. Finally, it is worth saying that the proposal is only a particular vision of a basic income, one that may not agree with many other visions, but research such as this may nonetheless come across some useful insights.
More information at:
https://www.aei.org/publication/a-budget-neutral-universal-basic-income/
