(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system; most existing programs like Medicaid, Veteran’s Benefits, and Social Security for the elderly over 65 are repealed and replaced with a UBI.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 This is unsurprising, because many of the programs this proposal had repealed to finance the basic income are concentrated on this tax bracket.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affected by this proposal are individuals 65 and older, also because their benefits, such as Social Security, have been repealed and distributed among the rest of the population.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.
Courtney McCaffrey and others from AT Kearney published an article on the debate around Universal Basic Income (UBI) in markets throughout the world. Politicians, in both Europe and North America, are winning on campaign trails with talk about returning control to the common people from the economic system in the globe.
But one of the big worker displacers is automation and new technologies. Oxford University reported 47% of US jobs will be taken over by automation in the next two decades. A UBI is being offered as an economic buffer for such workplace and technology transitions.
Such a UBI would be universal and unconditional in the application. Past UBI experiments such as Mincome in Canada, projects in Seattle and Denver (USA), and Namibia produced real, positive results empowering those politicians. McCaffrey and her collegues also mention recent major endorsements for UBI, for instance from such luminaries as Elon Musk, Tim O’Reilly, and Marc Andreessen.
The article discusses pros and cons of UBI, in a general sense. It was noted that citizens with a UBI will spend more time on family and school. The sources of funding for the UBI could be revenues from natural resources and/or more taxes. Some views of critics are following their own political lines, but the major concern revolves around people’s availability to work when they get a UBI covering their basic needs.
Finally, the article summarizes views agains UBI on the political Right and Left. On the Right, the main argument is cost. On the political Left, detractors view UBI as “regressive” because it could dismantle current welfare systems, and that it may not capture different living costs in different areas.
There was once a town in Canada that essentially eliminated poverty, and at the time no one seemed to know. One filmmaker is doing his best to shine a bright light on the research into this town.
Vincent Santiago is producing “The Mincome Experiment” documentary that looks into the Manitoba experiments in the 1970s, which provided a minimum income guarantee to the entire town of Dauphin. Santiago recently spoke with The UBI Podcast about his project.
“The experiment was completed but there was a change in government in Manitoba and federal level so experiment was never analyzed,” Santiago said.
That is until Dr. Evelyn Forget of the University of Manitoba began digging up these old records. Forget found there was a reduction in hospital visits and instances of mental health issues in the area with a minimum income. Despite worries, there was no large reduction in the amount of work being done, Santiago said.
“The only sector that was affected was the mothers who gave birth and the teenagers who stopped working to finish high school,” Santiago said.
Santiago said any new idea like minimum income guarantee will cause backlash, especially if the research is not explained well.
“Just like when they first introduced universal health care in Canada, there was a lot of opposition,” he said.
In order to explain these results, Santiago said it is important for the basic income movement to focus on public relations. He said his documentary is an important way to show the positive results of minimum income systems.
“I would like to make this documentary to dispel a lot of these misconceptions,” he said.
Currently, Santiago is running a crowdfunding campaign to help cover the costs of production for the film.
Three communities across Ontario have been selected for the Province’s guaranteed minimum income pilot. Ontario will be rolling out a three-year study in late spring and fall 2017. Premier Kathleen Wynne made the announcement with details of the project in Hamilton on April 24th.
The stated goal of the pilot on the official website of the Ontario Government is to ”test whether a basic income can better support vulnerable workers, improve health and education outcomes for people on low incomes, and help ensure that everyone shares in Ontario’s economic growth.”
The mayors of each community – Lindsay, Thunder Bay, and Brantford/Hamilton/Brant County, expressed hopeful to positive reactions at the announcement that their cities had been chosen to pilot in the project.
Kawartha Lakes Mayor Andy Letham, which is home to the community of Lindsay, describes precarious work as a cause for concern in his community and admits that the status quo of society isn’t functioning well. “The cost of poverty on people’s mental health is real,” said Letham. “So how to we break these cycles?” Lindsay will host 2,000 of the total 4,000 participants.
Thunder Bay Mayor Keith Hobbs, a 34-year veteran of the local police force, described his experience with some members of the community: “I saw the same people all the time, like a revolving door.” Hobbs expressed excitement at the possibility of this project positively impacting the lives of those he had consistently interacted with. Workers and citizens of Thunder Bay have had to reinvent themselves as the region transitioned from industries like pulp and paper to health research institutes, law, and genomics.
Pulp and Paper Mills in Thunder Bay, Ontario
Brantford Mayor Chris Friel expressed excitement to take part in a project that will reduce poverty and improve health and educational outcomes. Ron Eddy, the Mayor of Brant Country, stated that he looks forward to observing the results of the project. “The only way you’ll know the outcome is to try it out. So, let’s see what happens,” Mayor Eddy said.
Details on the Pilot
The basic income pilot will randomly select 4,000 individuals between ages 18 to 64 that meet certain criteria, and provide them with a minimum income despite their employment status. The plan will target populations who are in precarious work positions, those already on social assistance, and the homeless. The program will, however, target mostly the “working poor” according to Ontario’s Minister of Community and Social Services Helena Jaczek. Those receiving a minimum income will be compared to a control group, which will not receive payments. The project will look for outcomes using metrics like food security, health and health care usage, education and training, and labor market participation among others.
Recipients of the guaranteed minimum income will receive:
$16,989 per year for a single person (75 percent of the Canadian poverty line), less 50 percent of the recipient’s earnings from work;
$24,027 for a couple, less 50 percent of their earnings from work;
An additional $6,000 for those with disabilities.
In addition to this, recipients will continue to receive other provincial and child benefit payments.
With this version of a guaranteed minimum income, a person earning $12,000 a year would still receive a basic income of $10,989 (subtract $6,000, or half their earnings, from the base amount of $16,989) and therefore receive a total of $22,989. A recipient’s net income will still increase, with the minimum income still active, as earnings from work increase up until around a wage of $34,000, where the payments would disappear. The total cost of the project is expected at $50 million per year.
Hugh Segal, a former senator who was consulted for the project, noted in Manitoba’s “Mincome” experiment in the 1970’s that the community saw improvements in health with no drop in employment, and that the potential exists for the government to save money if it replaced the traditional social assistance programs like Ontario Works with a basic income. The Provincial government is also in the early stages of planning a fourth basic income pilot for the First Nations community.
A crowdfunding campaign was just launched for the new documentary, “The Mincome Experiment”. Kreytor, a recent web platform designed for “showcasing, curating and crowdfunding creative work” launched the campaign on May 1st, 2017, only five years after the platform was created by the documentary producer Vincent Santiago, an independent artist from Winnipeg, Manitoba (Canada). Over the last five years Vincent has interviewed experts in the field and gathered information for the documentary.
Funds to support the documentary is now officially open at Kreytor’s Mincome project webpage. Also, the launch provides a short video (below) that introduces the documentary, while providing background and context on basic income experiments conducted in Dauphin, Canada, in the 1970’s. Recently, the experimental results from Dauphin have been reported on more extensively, after having been archived for decades.
