A Bit About Basic Income

Posted: August 30, 2016 by Nazim in Governmental Agencies, Legislation, Money Money!

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Nazim mentioned the concept of a National Basic Income on a recent episode, and I wanted to post some extra information about it, just in case there was interest. The core notion is to replace all governmental income subsidies, which include unemployment assistance, social security, the Earned Income Tax Credit, Food Stamps, Temporary Assistance for Needy Families, and the many other programs that assist those who may in be temporary or long-term financial distress with a paycheck that the recipient can spend however she or he chooses. It would also remove some regulations that shift livelyhood burdens on employers, such as their portion of unemployment insurance, social security contributions and minimum wage requirements. However, this would not replace medical or educational assistance programs, at least as far as I understand it.

This idea comes in many shapes and sizes, and Nazim likes the administrative efficiency of a Negative Income Tax (which is just another form of Basic Income) the best, and while the notion has the big draw of being administratively light and deferring to individuals’ choices, most concerns focus on its feasibility, mainly the price tag and whether people will just turn into large, pale slugs.

As far as the latter goes, well, pilot programs haven’t yielded any such evolutionary step. Many of the experiments report a small decrease in working hours, but some report an increase, and overall productivity doesn’t seem to change much, but most attempts so far have been pretty small in terms of scale, so it’s hard to say. Finland might implement a large scale program in a couple of years, and it would be very interesting to see how it goes.

The feasibility issue, and the economic cost, is the bigger issue, and one that I did some quick, back-of-the-napkin math for. The Office of Management and Budget, which both parties use when they make budget projections, puts the total cost of Social Security and Income Security programs at $1.35 trillion in 2013, so lets start with that number. Basic Income would really only benefit the poorest part of the population, because it would be taxed back (or not paid out at all, in the case of a Negative Income Tax bracket) from anyone wealthy enough to not need it, which I will arbitrarily draw the line for at $30,000 of annual income. So, those making below $30 grand a year, they would get a graduated paycheck that scales inversely to their “normal” income, from zero for those who make $30,000 or more to, say (again, arbitrarily), $10,000 a year for those who make nothing. These are numbers I’ve plucked from thin air, for the sake of discussion. According to the Census Bureau, we get the following breakdown (pdf warning; and the numbers are approximate and rounded for ease of calculation):

  • About 11 million people in the US make close to nothing in annual income, so they would get the full $10,000 in basic income.
  • About 40 million make around $10,000 a year, so their basic income would decrease by a third, netting them $6,666 in basic income for that year, in addition to their regular income.
  • Another 42 million people make around $20,000 a year, so they would get about $3,333 in basic income to supplement their $20,000.
  • The remaining population, who all make $30,000 a year or more, either get no basic income or it is taxed back, so we don’t need to calculate needs at all.

These costs total only half a trillion dollars, so we could spend the same amount again to administer it in the most inefficient way imaginable and still come in at a substantially lower price tag than the current programs cost us. While it’s hard to tell whether current programs are better off giving cash, or directed assistance, what Nazim likes in these programs is that the individuals involved would determine their needs, instead of legislative dictates. But, perhaps more importantly, there would be a substantial solution to the growing automation of menial labor, and the decrease in untrained job offers. Sure, folks might not want to work for McDonald’s anymore, but that would mean that McDonald’s would have to either offer better compensation or automate more of the production, which sounds like progress to me.

Man, it’s weird to write about myself in the third person.

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