Candice, Sharon and I (Anemone) met at Hub Mall this evening for about 2.5 hours, talking about the different types of basic income (BI) and their pros and cons (and about a whole lot of other things, too). Here is a basic summary of our discussion of different types of basic income, with some of my own thoughts. Feel free to add your thoughts in the comments.
UNIVERSAL DEMOGRANT VS NEGATIVE INCOME TAX
There are two main types of basic income: a universal demogrant (UD) and a negative income tax (NIT).
A Universal Demogrant (UD) is tax-free money that everyone gets, regardless of what they earn. Higher earners pay higher taxes on their other earnings, and will end up paying more in income tax than they receive as a UD, but they still get the UD up front.
A Negative Income Tax (NIT) is money that some people get, based on their previous year’s tax return. Everyone who earns below a certain amount would have their income topped up by the difference between what they earned and the threshold in the following year.
Negative income taxes can come in various forms, depending on what happens above the threshold.
An NIT with a 100% clawback (like Speenhamland), would simply top up people’s income, so if you earned 10k, and the threshold is 15k, you would get a basic income of 5k the next year, while if you earned 15k or more you would get nothing.
An NIT with a lower clawback (say, 50%) would continue as a partial basic income above the threshold. If you earned 10k and the threshold was 15k, you would get a BI of 10k the next year. If you earned 15k, you would get 7.5k the next year, and if you earned 20k, you would get 5k. You would continue to get a partial basic income as long as your income was below 30k. (These are my calculations, done just now, and haven’t been checked by anyone. If you spot any errors please let me know in the comments.) An NIT with a threshold of 10k and a clawback of 33% would also end at incomes above 30k, but would give people below this a lower NIT. [The formula is BI = (threshold – income + (1-clawback)*income).]
A basic income would replace other income support programs recipients are currently receiving. If the BI is given only to adults aged 18-64, then current programs aimed at children and seniors would remain in place, and the BI would replace only welfare programs, possibly EI, and possibly tax credits for this group. We think it is likely that a BI would initially be only for adults 18-64, then harmonized with income supports for seniors sometime down the road. For now, support of children will stay the same as it is now (child tax credit for lower income families), too.
The advantages of an NIT are that it would be targeted towards those who earn less income, and it would probably be easier to implement politically to start with. The main disadvantage all NITs have is that they are based on the previous year’s income, so if your income varies widely from year to year you will receive the basic income in the year after you need it, not the year you need it. An NIT with a 100% clawback also acts as a disincentive for anyone earning near or below the threshold: employers would have to guarantee an income well above the threshold in order to attract workers. This could be feasible for full time employees but would be a big problem with part time jobs. Having a partial clawback would solve this problem, since the clawback would be similar to income taxes in its effects.
The advantage of a UD is that everyone gets it, so everyone likes it. Universal programs tend to have more political support than targeted programs, even when some taxpayers pay more to support it than others. You never know when you’re going to be one of the ones getting more out of the program than paying in, unless you’re so rich you have more money than you know what to do with even after paying taxes. The disadvantage is that it’s a bigger stretch to implement a UD all at once than to introduce the targeted support of an NIT, both politically and logistically.
An NIT will work better when people need income while they get job training (like EI now, but for everyone, while only some workers can qualify for EI), but a UD will work better if jobs are lost to automation and there aren’t any new jobs to retrain for.
In the end, having an NIT with a partial clawback amounts to a UD with higher taxes for higher income earners. The only difference would be when the basic income is paid out relative to earnings. Given that a partial clawback is better than a full clawback in terms of work incentives, it makes sense that any NIT we implement will end up looking like a UD, so in the end a UD will probably make the most sense, because it will have both a partial clawback and more timely payments.
INDIVIDUAL VS HOUSEHOLD
Basic income could be paid to individuals, or to households. The advantage of paying it to households is that it is better targeted to single parent families with low income. (Two parent families would not get twice as much as single parent families, as they would if it were distributed to individuals.) The disadvantage to giving it to families, not individuals, is that it makes it hard for people (typically women and teenagers) to leave abusive families, or even just bad relationships. If you have to establish yourself as a separate household first before you can receive a BI, but you can’t afford to establish yourself as a separate household until you get a BI, you’re stuck. You’re even more stuck if it’s an NIT rather than a UD, and you have to wait a year after moving out before you can get any money. An individual BI gives people a lot more power over their lives, which is central to the whole point of a BI in the first place.
WHAT IS POVERTY?
We also talked about how to define poverty. There are numerous poverty measures out there, each with their pros and cons, but poverty itself consists in not having enough money or resources to eat sufficient healthy food, live in safe, healthy housing, or participate in society (e.g. take courses, pay for some basic activities with others like eating out occasionally or going to a show or game).
Our next meetup is on May 23rd (fourth Tuesday this time, but still second last), in Hub Mall, at the LRT Lounge, at 6:30 pm. We will be talking about the advantages and disadvantages of having a basic income, compared to what we have now.