Outside of class after week 2, our homework was to find a social policy article related to economics that we found interesting. The article I found interest in was “Capitalism Has a Problem: Is Free Money the Answer?" This article discussed how the world could fix problems capitalism has created, such as the large inequality between the global elite and the world’s poor. It toyed with the idea of a universal basic income. Some of the ideas it listed are as followed:
- Universal basic income would “soften the edges of capitalism”.
- Whether or not a person is working, everyone receives a check from the government.
- This ensures that all people receive support for food and shelter, and “the stigma of public support” is removed.
- Universal basic income lets the market work on its own while offering economic growth; it will help cushion people who fail.
- It liberates those unable to leave poverty on their own and gives them time for artistic expression.
- It liberates people from working at, let’s say Walmart, where they will not be paid as much as they want. If they have this universal basic income, they do not have to work at Walmart.
This article also talks about other countries that have played with this idea. Some cities have been pursuing it to find benefits and potential. Finland; Oakland, California; Ontario; several cities in the Netherlands; and even more communities are working towards understanding if a basic income will help their citizens and bring them out of their deep poverty. Because there is such an issue with economic inequality in the world, cities and countries feel the need to provide more to their lower class.
The article then turns towards to a conservative’s point of view. It states their fear of handing out money to people who then become dependent on it and slack the rest of their life. Speaking based on the United States level, it is also a difficult subject because the number of citizens we have and its cost to the economy. Some also say universal basic income does not have the potential of being beneficial, especially if it is used as a replacement to the other government subsidies, because it still is not enough to live off.
While it was interesting to see both point of views, as well as the economic point of view, this is a subject that I do not agree with. Let’s say that all United States citizens receive a certain amount of money a year. That will amount to billions, possibly trillions, of dollars. Who is going to pay for that? The American people who work, that’s who. If everyone is paid a certain amount, whether they need it or not, we all have to pay for that through taxes and other fees. The dollar would not go as far, and people would still be in poverty with that amount of income if that was the only money they were making. Also, I firmly believe in teaching a man to fish. If citizens earn what they receive by working for it, they would feel better and more grateful for the money they earned. It would mean more to them. They also would not like seeing extra money going out of their paychecks to pay for those who willingly do not work. Whether poor or rich, it is hard for everyone to see money leaving their paychecks. Also, many people do not need to the universal basic income. Why pay someone who makes hundreds of thousands of dollars or more the same as someone living on government aid? That just does not make sense to pay people who truly do not need the money the same amount as someone who truly does need the money. There are many reasons why I do not believe a universal basic income would work. It is not economically smart or feasible, especially with the amount of citizens our country holds.
You have identified some of the main issues with guaranteed minimum incomes. I think you will find that there are ethical dilemmas in all sorts of social welfare programs, and basic minimum incomes are not unique in introducing some inequities to address other inequities.
Let's consider how much it would save, and how much it would cost. Let's say that the universal minimum basic income is set at $7,000 for single persons, $16,000 for married couples, $24,000 for married couples with one child under the age 18, and $29,000 for married couples with two or more children. For single parents with one child under 18 the income is set at $15,000, and for a single parent with two children the basic income is $22,000, and for a single parent with three or more children the basic income is $25,000. There are no increases for additional children. You notice I'm giving a huge incentive for marriage, and also some incentive for having children (but more incentives for having children in married families), and the incentives only increase incomes for up to two children (for married couple families) and three children (for single-parent families). How much would this actually cost. To estimate this, we can look at Census data.
Here is my understanding of the population profile of the United States, based on Census Bureau records:
Single individuals living alone: 35.3 million
Persons living in two person households that aren't families (not married; no family relationship): 21.6 million
Persons living in family households, not married couples, no children under 18: 91.7 million
Married couples with no children under 18: 23.7 million
Married couples with one child under 18: 9.8 million
Married couples with two or more children under 18: 15.3 million
Single parents with one child: 6.7 million
Single parents with two children: 4.0 million
Single parents with three or more children: 2.3 million
With this model, the total amount we would by paying out in basic incomes would be $2.4 trillion, approximately.
But, we could reduce Social Security by about half (because the $7,000 per person basic income would provide about half of what typical retirees or persons with disabilities now get from OASDI). We could scrap SNAP, and TANF, and Housing vouchers and subsidies, and the school lunch program, and a few other odds and ends. I think we would still keep Medicaid, but far fewer persons would qualify for it, so let's assume with the basic income the costs of Medicaid would decline by 75%. We would keep Medicare. We could scrap the EITC or reduce it significantly (let's say cut it in half). We could also reduce SSI by about half. We could reduce unemployment insurance by half.
Cut half of OASDI (Social Security): $450 billion
Cut half of EITC: $32 billion
Cut all of the Child Tax Credit: $24 billion
Cut all of TANF: $17 billion (just the federal contribution)
Cut all of SNAP: $73 billion
Cut all of HUD's expenditure on housing vouchers and half of the spending on public housing: $30 billion
Cut 75% of Medicaid: $441 billion
Cut half of SSI: $29 billion
Cut half of UI: $15 billion.
So, this basic income could reduce welfare expenditure by about $1.1 trillion, at least.
So, to provide the $1.3 trillion extra, we would cut Social Security taxes by about $400 billion, and increase income taxes from their current revenue of $1.84 trillion by $1.7 trillion ($1.3 trillion additional taxes and $0.4 trillion transferred from payroll Social Security since we're shifting some of the safety net from that over into the basic income). We would need to get $3.54 trillion from income taxes instead of the current $1.84 trillion. But, now that everyone is getting this basic income, incomes will have increased tremendously. Families of married couples with two children that had been earning $30,000 (and paying almost no net taxes after adding benefits and subtracting taxes) would now be earning $59,000. All across the poor, working class, and middle class these basic incomes would be pushing people who now pay minimal income taxes or no income taxes into new tax brackets where they would pay more taxes. Thus, we don't actually have to raise taxes by 80% or 90%. Probably it would suffice to raise income taxes by 70-75%. A married couple without children under the age of 18 that had income of $74,000 and paid $7,300 in federal income taxes (about 10%) would now earn $90,000 (adding their $16,000 to their $74,000), but instead of paying about 10% in income taxes, they might pay about 16% (paying $15,300 in taxes instead of $7,300 in taxes) or 20% (paying $18,000 in taxes instead of $7,300). Their after-income-tax income would now be higher (about $700) than it was before the basic income. So, for middle-class families like that, an increase from 10% of income paid in income tax to 17-20% paid income tax wouldn't decrease their consumption (because the $16,000 basic income they would receive is a bit higher than the increases in their income taxes).
Wealthy people who now pay 20% of their income in income taxes would be paying 34% of their income in income taxes, but that is still far less than the taxes people pay in Scandinavia. And, that basic income would nearly eradicate poverty and insecurity.
You've got to think through the numbers when you consider a policy like this, to see how feasible it would be, and what it would mean. Your moral objections to the policy are well-grounded, but there are these other aspects of the policy worthy of consideration. A basic income along the lines of what I've suggested here would involve a massive transfer of wealth from households now earning over $80,000 to households now earning less than $50,000. Taxes on the income earned by wealthy households would need to be increased significantly, but they would not need to be doubled. Rich people would end up paying about 34% to 45% of their incomes in income taxes. Everyone's payroll taxes would drop. Every person would have at least $583 per month, and married couples would have at least $1,333 per month. This would go a long way towards liberating everyone from the aspect of capitalism where workers are forced to take any job, no matter how demeaning and low-paying it is. But, those who did work would see real increases in their living standards. Earning $12,000 or $20,000 per year in a relatively low-wage job now would yield a real and substantial increase in living standards, because the tax rate for persons earning $36,000 or $28,000 or $19,000 and so forth are still relatively low, even after 70% increases in the approximately 5% people now pay if their incomes are around $36,000. For modest incomes (households earning $35,000 to $40,000), income taxes would go up from 5% to 8.5%, but payroll taxes would be cut by a few percentage points, so the result is almost no change in actual federal taxes paid, and probably a higher incentive to work. Now without the minimum income, when people work hard and bring their incomes up from nearly nothing to $20,000, they lose so many benefits that they face what is essentially a marginal tax rate well over 50%.
When you consider that aspect, the basic income might actually provide a greater incentive for people to work. Also, with a basic income, we could lower the minimum wage, since low wages would be understood as supplements to the basic income. Thus, the basic income might stimulate more business growth. That is, the basic income, by distributing the ability to consume through taxes and basic income expenditures, shifts the burden of raising consumption (income) from businesses and the wages they must pay, allowing businesses the advantage of lower minimum wages, but also the advantages of higher incomes in the population, and the increase in demand among consumers that would be stimulated by that.
One of your moral objections is that persons who do work will not appreciate having their money taken from them and distributed to those who do not work. That is indeed an unfair aspect of welfare systems; they do transfer money from some people and give it to others, and the people who get the money are not always the sort of persons we would choose to supply with any portion of our incomes. That particular unfairness has to be weighed against a variety of other forms of unfairness that also obtain when people keep their money and do not pay taxes that get transferred into income for other persons.
Imagine that a married couple earning $74,000 and now paying 10% of that in income taxes would see their income taxes go up from $7,400 to $15,750 (because their taxes would go from 10% to 17.5%). But, with the added $16,000 in basic income, their after-tax and after-basic-income income would be up too. Even if they pay 20% of their $90,000 income ($74,000 earned plus $16,000 in basic income), they end up with $72,000, which is more than they had with 10% taxes on $74,000, which was $66,600. A household of a married couple with no dependent children under 18 earning $128,000 and paying 16% income taxes now would see their tax rate go up to 28%, but they would be earning (with basic income added) $144,000, so their net after-tax and after-basic-income level goes down only from $107,520 to $103,680, a decrease of about $320 per month). The basic income and the resulting increases in taxes doesn't make much of a burden to the middle class; households earning less than $75,000 would probably come out ahead, and households earning $75,000 to $150,000 would suffer increases in taxation that would not substantially reduce their consumption or their lifestyles.
What I'm trying to illustrate here is that the basic income and the resulting increase in income taxes of about 75% over what they are now involves not any big change in after tax / after transfer incomes for middle class persons. Most of the money won't be going to persons who earn nothing and live on $7,000 per year or $16,000 per year; rather, most of the money is going from households earning over $80,000 or $90,000 to households earning $30,000 to $50,000. For the very poor, the basic income is replacing SNAP and subsidized housing and the earned income tax credit they are already getting. The very poor would still get Medicaid, but many people whose incomes are now between 60% of poverty and 130% of poverty would see income increases to a point where they would lose Medicaid, and just use their basic income to pay for subsidized health care insurance on one of the health care exchanges. So, for most poor persons and near poor persons, the basic income really won't dramatically increase their consumption, but it will give them security; as they won't have to worry about losing benefits and they will know their income floor, and understand that they will never fall below that floor.
Also, while you see the universal aspect of it as objectionable (because, as you point out, poor people will be paying taxes so that money can go to wealthy people, as even wealthy households will get the basic income benefit), the net effect is to move income and consumption down from the wealthiest 20% of the income distribution to the bottom 2/3rds of the income distribution. So, the idle able-bodied recipients will not be getting a big portion of all this basic income transfer.
One problem we have now is that the near-poor are resentful and jealous of those who live with little or no income and have consumption levels that approximately equal what the working near-poor have. This is because as we phase out benefits and reduce subsidies and credits to people as they move from poverty to near-poverty, we impose upon them a marginal tax rate equivalent that is very, very high. That is a terrible injustice. With the basic income, we diminish this injustice considerably, by introducing a graduated income tax right from the start, with the start already so high, we will be letting the working poor keep a higher portion of their income. So, we'll get a diminishment of that particular injustice (of high decreases in benefits imposing what is essentially a ridiculously high marginal tax rate on low income persons), but there will be an increase in the injustice of letting lazy and shiftless people remain idle.
But let's also think about those people who remain idle and refuse to work, who claim that we owe them a living. Are they wrong in making that claim? Surely we agree that everyone deserves freedom. Giving people a basic income is a way of distributing freedom, since we are freeing people from the capitalist pressure to conform to the expectations of employers and capitalists. We now pay lots of money to defense to protect our freedom from hostile powers and violent groups. About 48% of income tax dollars go to defense spending or related costs. We're told this is to protect our freedom (although I suspect a high percentage of this spending is really purposed to enrich defense contractors who then contribute campaign funds to the politicians who vote to appropriate money to buy the things sold by those defense contractors). Why not pay taxes also to protect people and their freedom from the power of hostile employers and soul-crushing work? Once you accept that we can take taxes from the public to protect freedom, why do we make a distinction between the freedom from conquest by foreign powers and the freedom from being coerced by the economic pressures of life? Also, what proportion of the population would really be satisfied to live lives of leisure on incomes of $583 per month? That's enough for a studio apartment in a low-rent area of the country where monthly rents on studio apartments might be found for $400 per month, and that leaves $183 for food, recreation, transportation, and so forth. The USDA estimates that people need about $50 worth of food per week, so the $7,000 per year basic income isn't really going to offer people any sort of luxury.
Let's consider how much it would save, and how much it would cost. Let's say that the universal minimum basic income is set at $7,000 for single persons, $16,000 for married couples, $24,000 for married couples with one child under the age 18, and $29,000 for married couples with two or more children. For single parents with one child under 18 the income is set at $15,000, and for a single parent with two children the basic income is $22,000, and for a single parent with three or more children the basic income is $25,000. There are no increases for additional children. You notice I'm giving a huge incentive for marriage, and also some incentive for having children (but more incentives for having children in married families), and the incentives only increase incomes for up to two children (for married couple families) and three children (for single-parent families). How much would this actually cost. To estimate this, we can look at Census data.
Here is my understanding of the population profile of the United States, based on Census Bureau records:
Single individuals living alone: 35.3 million
Persons living in two person households that aren't families (not married; no family relationship): 21.6 million
Persons living in family households, not married couples, no children under 18: 91.7 million
Married couples with no children under 18: 23.7 million
Married couples with one child under 18: 9.8 million
Married couples with two or more children under 18: 15.3 million
Single parents with one child: 6.7 million
Single parents with two children: 4.0 million
Single parents with three or more children: 2.3 million
With this model, the total amount we would by paying out in basic incomes would be $2.4 trillion, approximately.
But, we could reduce Social Security by about half (because the $7,000 per person basic income would provide about half of what typical retirees or persons with disabilities now get from OASDI). We could scrap SNAP, and TANF, and Housing vouchers and subsidies, and the school lunch program, and a few other odds and ends. I think we would still keep Medicaid, but far fewer persons would qualify for it, so let's assume with the basic income the costs of Medicaid would decline by 75%. We would keep Medicare. We could scrap the EITC or reduce it significantly (let's say cut it in half). We could also reduce SSI by about half. We could reduce unemployment insurance by half.
Cut half of OASDI (Social Security): $450 billion
Cut half of EITC: $32 billion
Cut all of the Child Tax Credit: $24 billion
Cut all of TANF: $17 billion (just the federal contribution)
Cut all of SNAP: $73 billion
Cut all of HUD's expenditure on housing vouchers and half of the spending on public housing: $30 billion
Cut 75% of Medicaid: $441 billion
Cut half of SSI: $29 billion
Cut half of UI: $15 billion.
So, this basic income could reduce welfare expenditure by about $1.1 trillion, at least.
So, to provide the $1.3 trillion extra, we would cut Social Security taxes by about $400 billion, and increase income taxes from their current revenue of $1.84 trillion by $1.7 trillion ($1.3 trillion additional taxes and $0.4 trillion transferred from payroll Social Security since we're shifting some of the safety net from that over into the basic income). We would need to get $3.54 trillion from income taxes instead of the current $1.84 trillion. But, now that everyone is getting this basic income, incomes will have increased tremendously. Families of married couples with two children that had been earning $30,000 (and paying almost no net taxes after adding benefits and subtracting taxes) would now be earning $59,000. All across the poor, working class, and middle class these basic incomes would be pushing people who now pay minimal income taxes or no income taxes into new tax brackets where they would pay more taxes. Thus, we don't actually have to raise taxes by 80% or 90%. Probably it would suffice to raise income taxes by 70-75%. A married couple without children under the age of 18 that had income of $74,000 and paid $7,300 in federal income taxes (about 10%) would now earn $90,000 (adding their $16,000 to their $74,000), but instead of paying about 10% in income taxes, they might pay about 16% (paying $15,300 in taxes instead of $7,300 in taxes) or 20% (paying $18,000 in taxes instead of $7,300). Their after-income-tax income would now be higher (about $700) than it was before the basic income. So, for middle-class families like that, an increase from 10% of income paid in income tax to 17-20% paid income tax wouldn't decrease their consumption (because the $16,000 basic income they would receive is a bit higher than the increases in their income taxes).
Wealthy people who now pay 20% of their income in income taxes would be paying 34% of their income in income taxes, but that is still far less than the taxes people pay in Scandinavia. And, that basic income would nearly eradicate poverty and insecurity.
You've got to think through the numbers when you consider a policy like this, to see how feasible it would be, and what it would mean. Your moral objections to the policy are well-grounded, but there are these other aspects of the policy worthy of consideration. A basic income along the lines of what I've suggested here would involve a massive transfer of wealth from households now earning over $80,000 to households now earning less than $50,000. Taxes on the income earned by wealthy households would need to be increased significantly, but they would not need to be doubled. Rich people would end up paying about 34% to 45% of their incomes in income taxes. Everyone's payroll taxes would drop. Every person would have at least $583 per month, and married couples would have at least $1,333 per month. This would go a long way towards liberating everyone from the aspect of capitalism where workers are forced to take any job, no matter how demeaning and low-paying it is. But, those who did work would see real increases in their living standards. Earning $12,000 or $20,000 per year in a relatively low-wage job now would yield a real and substantial increase in living standards, because the tax rate for persons earning $36,000 or $28,000 or $19,000 and so forth are still relatively low, even after 70% increases in the approximately 5% people now pay if their incomes are around $36,000. For modest incomes (households earning $35,000 to $40,000), income taxes would go up from 5% to 8.5%, but payroll taxes would be cut by a few percentage points, so the result is almost no change in actual federal taxes paid, and probably a higher incentive to work. Now without the minimum income, when people work hard and bring their incomes up from nearly nothing to $20,000, they lose so many benefits that they face what is essentially a marginal tax rate well over 50%.
When you consider that aspect, the basic income might actually provide a greater incentive for people to work. Also, with a basic income, we could lower the minimum wage, since low wages would be understood as supplements to the basic income. Thus, the basic income might stimulate more business growth. That is, the basic income, by distributing the ability to consume through taxes and basic income expenditures, shifts the burden of raising consumption (income) from businesses and the wages they must pay, allowing businesses the advantage of lower minimum wages, but also the advantages of higher incomes in the population, and the increase in demand among consumers that would be stimulated by that.
One of your moral objections is that persons who do work will not appreciate having their money taken from them and distributed to those who do not work. That is indeed an unfair aspect of welfare systems; they do transfer money from some people and give it to others, and the people who get the money are not always the sort of persons we would choose to supply with any portion of our incomes. That particular unfairness has to be weighed against a variety of other forms of unfairness that also obtain when people keep their money and do not pay taxes that get transferred into income for other persons.
Imagine that a married couple earning $74,000 and now paying 10% of that in income taxes would see their income taxes go up from $7,400 to $15,750 (because their taxes would go from 10% to 17.5%). But, with the added $16,000 in basic income, their after-tax and after-basic-income income would be up too. Even if they pay 20% of their $90,000 income ($74,000 earned plus $16,000 in basic income), they end up with $72,000, which is more than they had with 10% taxes on $74,000, which was $66,600. A household of a married couple with no dependent children under 18 earning $128,000 and paying 16% income taxes now would see their tax rate go up to 28%, but they would be earning (with basic income added) $144,000, so their net after-tax and after-basic-income level goes down only from $107,520 to $103,680, a decrease of about $320 per month). The basic income and the resulting increases in taxes doesn't make much of a burden to the middle class; households earning less than $75,000 would probably come out ahead, and households earning $75,000 to $150,000 would suffer increases in taxation that would not substantially reduce their consumption or their lifestyles.
What I'm trying to illustrate here is that the basic income and the resulting increase in income taxes of about 75% over what they are now involves not any big change in after tax / after transfer incomes for middle class persons. Most of the money won't be going to persons who earn nothing and live on $7,000 per year or $16,000 per year; rather, most of the money is going from households earning over $80,000 or $90,000 to households earning $30,000 to $50,000. For the very poor, the basic income is replacing SNAP and subsidized housing and the earned income tax credit they are already getting. The very poor would still get Medicaid, but many people whose incomes are now between 60% of poverty and 130% of poverty would see income increases to a point where they would lose Medicaid, and just use their basic income to pay for subsidized health care insurance on one of the health care exchanges. So, for most poor persons and near poor persons, the basic income really won't dramatically increase their consumption, but it will give them security; as they won't have to worry about losing benefits and they will know their income floor, and understand that they will never fall below that floor.
Also, while you see the universal aspect of it as objectionable (because, as you point out, poor people will be paying taxes so that money can go to wealthy people, as even wealthy households will get the basic income benefit), the net effect is to move income and consumption down from the wealthiest 20% of the income distribution to the bottom 2/3rds of the income distribution. So, the idle able-bodied recipients will not be getting a big portion of all this basic income transfer.
One problem we have now is that the near-poor are resentful and jealous of those who live with little or no income and have consumption levels that approximately equal what the working near-poor have. This is because as we phase out benefits and reduce subsidies and credits to people as they move from poverty to near-poverty, we impose upon them a marginal tax rate equivalent that is very, very high. That is a terrible injustice. With the basic income, we diminish this injustice considerably, by introducing a graduated income tax right from the start, with the start already so high, we will be letting the working poor keep a higher portion of their income. So, we'll get a diminishment of that particular injustice (of high decreases in benefits imposing what is essentially a ridiculously high marginal tax rate on low income persons), but there will be an increase in the injustice of letting lazy and shiftless people remain idle.
But let's also think about those people who remain idle and refuse to work, who claim that we owe them a living. Are they wrong in making that claim? Surely we agree that everyone deserves freedom. Giving people a basic income is a way of distributing freedom, since we are freeing people from the capitalist pressure to conform to the expectations of employers and capitalists. We now pay lots of money to defense to protect our freedom from hostile powers and violent groups. About 48% of income tax dollars go to defense spending or related costs. We're told this is to protect our freedom (although I suspect a high percentage of this spending is really purposed to enrich defense contractors who then contribute campaign funds to the politicians who vote to appropriate money to buy the things sold by those defense contractors). Why not pay taxes also to protect people and their freedom from the power of hostile employers and soul-crushing work? Once you accept that we can take taxes from the public to protect freedom, why do we make a distinction between the freedom from conquest by foreign powers and the freedom from being coerced by the economic pressures of life? Also, what proportion of the population would really be satisfied to live lives of leisure on incomes of $583 per month? That's enough for a studio apartment in a low-rent area of the country where monthly rents on studio apartments might be found for $400 per month, and that leaves $183 for food, recreation, transportation, and so forth. The USDA estimates that people need about $50 worth of food per week, so the $7,000 per year basic income isn't really going to offer people any sort of luxury.
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