Tuesday, March 5, 2013

Basic Income - Real definition, and leftist justification

Basic income is a cash amount given to every citizen from social funds (government).  There is neither any condition for receiving the cash, nor does the the amount given (pre-tax) get reduced or increased based on the recipient's other income or wealth.

This article will be longer than the above statement because that definition is not agreed upon, and the most prominent advocacy groups, conflate the term basic income with a larger set of policy alternatives (mainly Guaranteed income) which though they may have similar appeals and motivation, are economically incoherent and thus objectionable, and destined to fail any legislative attempt.

Groups that correctly describe basic income
The Basic Income Earth Network defines basic income perfectly, and the link provides organized responses to many questions.

Citizen's Income is another word for basic income.  I am unsure who coined it.  It is a great word because it reflects the core philosophy of basic income.  A benefit entitlement to citizens rewarding them for their participation in society whether or not that participation is limited to consumption.  The commitment of society to its citizens can hopefully motivate additional contributions to society from its citizens.

Unfortunately, some groups include programs with other philosophies (guaranteed income) under a citizen's income "brand".  If I were allowed to name the umbrella of policies that include basic and guaranteed income, I would call it "populist income"

I define programs that follow citizen's income natural philosophy to be basic income, and (my definition of) social dividends.  Social dividends is the surplus of tax revenue over social expenses that is, as it should be, distributed equally to all citizens.  Basic income is the fixed component of citizen's income, while social dividends is a variable entitlement based on the success of the economy, and any government efficiencies or program cuts.  Social dividends ensure that government administration is diligent and purposeful, because every citizen pays equally for any program (because the alternative to any program is distributing its cost equally to citizens).

Groups that corrupt the definition of basic income
USBIG (Basic Income Guarantee)'s definition "a government ensured guarantee that no one's income will fall below the level necessary to meet their most basic needs for any reason." is unfortunately Guaranteed income, and not basic income.  They see themselves as an umbrella group for all populist income proposals.

Guaranteed income of $15000 vs Basic Income of $10000
Guaranteed or minimum income of $15000 means that every eligible recipient receives a socially funded cheque equal to ONLY the difference between their other income sources and $15000.  So, they receive nothing if their income is $15k or more, receive $1k if their other income is $14k, and receive $15k if they have no other income.

To understand why basic income and guaranteed income are drastically different, in the context of work:

  • Basic income (of $10k) is identical to giving every full time (40 hour/week) worker a $5/hour raise, and every half-time worker a $10/hour raise.
  • Guaranteed income (of $15k) reduces every full time worker wages by at least $7.50/hour, and every half-time worker wages by at least $15/hour.  In exchange for a $15k payment.
The obvious shortfall of guaranteed income is the work disincentive it provides.

The naive and misguided appeal of Guaranteed Income
Would you rather receive $15k for not working or $10k for not working?  A citizen's income should not provide a rational incentive for people to refuse work, and especially not even part time work.  The only rationale for preferring Guaranteed income over basic income is if you intend to refuse all work.

Guaranteed income, if we assume no one refuses work, can appear to be more affordable because fewer people are eligible, and most people might not receive the full amount (because their other income reduces their stipend).  The problem here is more complex (dealt with shortly), but the presupposition that no one refuses work is false, as it directly makes many work propositions unacceptable and irrational.  The forecasted costs of guaranteed income are impossible to be accurate without certainty of the rate at which people might refuse work.

Guaranteed income is a stupid idea designed to sabotage populist income policies
Refusing work is rational if the work will pay $20k or $25k per year (regardless if that income is earned with part time hours).  $15k for doing nothing, means no commuting and lunch expenses, and more free time, autonomy, and less stress.  If we are not born qualified for a full time $25k+/year job, then it discourages training and working for the experience required to be qualified for a $25k+/year job.

If you can make $10k tax free by stealing or traficking, then that may be more appealing than a $25k/year official-economy job.  You make as much when adding the $15k government stipend.

With a $15k guaranteed income, employers will prefer to pay you a small amount of cash instead of a salary.  That could even apply to well paying jobs, as you would gain more total benefits at a lower cost to the employer.  This would harm the tax base used to fund the guaranteed income.

People with incorporated businesses would instead of paying themselves, pay their children, or pay themselves $45k+ every 3 years, and get the guaranteed income the other 2 years.

People with investments can have negative income.  Even if Guaranteed income were limited to a maximum of $15k, then there are already extremely risky investment alternatives equivalent to betting on a roulette spin in a casino.  If I had earned $15k already that year, I would bet red on a roulette wheel.  Red I win another $15000, black I get whatever I lost back from the Government.  Other investments within the tax code include losing $15k this year, in hopes of earning more in following years.

For seasonal workers such as teachers, fishermen, and farmers, earning $5k/month for 4 months would provide them with no economic benefit whatsoever, unless they are confident in finding work outside of those 4 months.  Similarly, people starting a job search in the middle of the year would be very unlikely to make money from employment.

There would be an attractiveness to develop schemes where people with high incomes appear to lose and transfer all of it in order to get an extra $15k.

All of the above are perverse incentives that would ruin the tax base that Guaranteed income relies on to be feasibly fundable, and especially ruin economic participation and activity.  The gross stupidity of guaranteed income is the same obvious abuse that too-big-to-fail banks can make through bets where heads they win big, tails we (society) reimburse any losses they "sufferred".

Basic income is the freedom to do anything
Basic income provides freedom from slavery by equalizing the bargaining power of parties in the labour market, and prevents generational theft of providing retirement benefits to the current generation of seniors but not funding future generations' retirement.

Basic income contains no disincentive for work, and through the spending it adds to the economy, creates significant work opportunities.

What is likely the greatest benefit of all of social dividends is its power to make sure everyone pays an equal amount for any social service.  It is too easy for citizens to resign themselves to the government taking as much money as it can from society in order to pay for whatever it wants.  A viable alternative to any program/cost must be an equivalent cash payment to citizens.

Basic income as a great benefit to labour
While guaranteed income would provide organized labour with the huge benefit of forcing extremely high wages in order to make people want to work, and so fewer people in the labour force, and much better bargaining position for wages, guaranteed income would destroy the economy by reducing work too much, and having an unsustainable funding requirement.  It will never be adopted because of this, and is merely a ploy to get political campaign funding.

Basic income may be a smaller beneft to labour, but it is still the same benefit.  Some people will work less, and thus improve labour's bargaining position.  Increased spending means there will be more work available to do, further benefitting sellers of that work.  If more people have the freedom to pursue education or business startups, then that further enhances the competitive position of those who want to work now.  Basic income is sustainable, with predictable funding requirements, and is not a power grab for any constituency.

Balancing life quality away from the 1%, while still benefiting them along with everyone else, is a win for labour too.

Basic Income should be a taxable benefit
The only controversial point among real basic income proponents is whether the benefit should be taxable.  It should be because it suits both of the 2 core philosophies of basic income.

The first philosophy of basic income is that it is an anti-poverty program.  If it is a taxable benefit, then at whatever taxation policies, a higher amount of pretax basic income can be afforded than if it is non-taxed (say $10k/year taxed vs $8k/year non taxed), and the poor will keep a larger portion of the benefit compared to the very rich.

The 2nd philosophy of basic income and social dividends is that it is a rightful benefit of participating in society.  Your existence, through consumption, benefits society fueling its work and purpose.  Your duty to pay back a portion of your benefits from society should not be affected by the source of those benefits.

The mathematical distinction between taxable and non-taxable is not very large.  An equivalent balance of benefits to poor vs. rich can be made by increase top marginal tax rates at the same time that basic income is first implemented.  To me, the philosophical purity of the 2nd point is more important than the feel good appearance made by calling it non-taxable.

Criticism of basic income levels
Set too low to meet comfort levels: The core justification of basic income is to permit survival so as to eliminate oppressive slavery-like forces as a reason to work.  For someone who doesn't want to work, they may be unable to afford certain lifestyle choices such as living alone in an urban apartment.  Solutions include getting a job or room mates, electing municipal politicians that will implement a local basic income supplement, or moving away if all work seems oppressive or unsuitable.

Set too high such that it discourages work:  The only criteria for determining if basic income level is too high is that it is socially unaffordable.  If robots do all work, then $50k or $100k in basic income/social dividends is not necessarily too high, if the robot owners pay high taxes.  When determining social affordability, basic income can be too high to motivate some people to bother with working, but unlike minimum/guaranteed income, there is still an incentive of always earning more by working than by not working, and so people who value life style and status will always be willing to work.  Still the balance between people doing real work to pay real taxes, and those pursuing science, education, art, and entrepreneurship to potentially pay future taxes must exist.  Too high a tax rate on those earning work income such that it prevents needed work from being done can occur, but usually high taxes on very high incomes just provides more opportunity for work sharing and work delegation.  A sustainable level of basic income is simply the tax revenue raised less the cost of other wanted government services.

Unemployment and inflation concerns: Unemployment occurs because work is unwanted or un-needed.  Price (of labour) is a perfect market mechanism for determining employment levels, but slavery or coerced work should not be an appropriate tool to reduce unemployment.  If wage rates go up, it may cause some inflation, but coerced work is not an appropriate tool to reduce wages and inflation.  Variable social dividend levels is another market feedback tool that allows society to adjust to economic or natural conditions in a moral reaction to how work is needed or wanted.

Recommended implementation guidelines
Starting a basic income program at the lowest possible level that provides survivability, so that its sustainability and affordability is certain is the best approach.  From that certain initial implementation, it will become obvious what sustainable increases to the fixed basic income level, and variable social dividend are possible.


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