Wednesday, July 30, 2014

Timothy Taylor — Universal Basic Income: A Thought Experiment

Pretty much all current public programs to assist households with low incomes suffer from the same seemingly unavoidable problem: As the household's income rises, the amount of assistance provided by the public program is phased out. For example, a person who earns an extra $100 might find that eligibility for public assistance has been reduced by $50. Economists call this reduction in benefits as income rises a "negative income tax," and it is not unusual for studies to find that certain working poor families face negative income tax rates in the range of 50% of the marginal dollar earned, 60%, or even higher (for examples, see here and here). These high negative income tax rates diminish work incentives for those with low incomes.
There's a way out called "universal basic income." Ed Dolan explores "The Pragmatic Case for a Universal Basic Income" in the Third Quarter 2014 issue of the Milken Institute Review (free registration may be required for access).
The idea of a universal basic income is that every U.S. citizen would be entitled to a chunk of money each year. This amount would not vary based on income level, or employment, or disability, or age, or any other reason. Specifically, when a low-income person works and earns income, the universal basic income check would not be reduced in any way. The "negative income tax" rate is zero percent.
The idea of a universal basic income raises obvious questions. How much would it be per person? How would it be financed? Are the politics of such a program conceivable? Let's tackle these in turn.
Conversable Economist
Universal Basic Income: A Thought Experiment
Timothy Taylor


Peter Pan said...

Yes, there is support for this idea from conservatives and libertarians.
When they believe that increasing levels of unemployment are inevitable due to structural changes in the economy, it adds to their support of a BIG. The JG is seen as less practical from an economic standpoint.

Good article which helps dissuade the myth that a BIG is an exclusively progressive ideal.

Brian Romanchuk said...

I believe that Milton Friedman was in favour of it ithe 1960s (labelled as a negative income tax). By folding it into the tax structure, the idea is that you shrink the welfare state bureaucracy. And since it is part of the tax schedule, it's not a handout, it's just people doing their taxes. This should theoretically make it easier to defend politically.

For some reason, progressives like the idea, but want to package it in a way so that the marketing is least acceptable to conservatives.

Peter Pan said...

Adversarial politics demands that you sell your product to one audience only.