I was intending to post this after I had performed the mammoth task of getting the background analysis refined into a final, readable form (it is in a 30 pg draft at the moment!). However, discussions about the pros and cons of a universal allowance (it goes under a few different terms incl: universal basic income (UBI) , universal benefit (UB)) have unexpectedly hit the national, and international, media so I felt compelled to post a stripped down version of this as a comment on STUFF.
As I got in early I am currently the post with the most votes! 🙂
Originally it was published as a letter to an international publication (oh alright – it was The Economist) so hence the use of $US and other non NZ specific terminology
____________
Originally written June 4th, 2016
Dear Sir
Considering the various luminaries listed as supporting a universal basic income it is disappointing that you have again given it the thumbs down (Basically Flawed, June 4th) Perhaps they see something that your analysis has missed? I would suggest adding the following into the mix.
First, in most developed countries the tax system delivers a universal income already, just not in cash. Using my own country, New Zealand, as an example, 83% of government expenditure is paid out universally in the form of health care, compulsory education, superannuation (a universal income for the elderly), and core government services. This is equivalent to a universal income of $19k (US$13K) per year. The remaining 17% is dominated by tertiary education funding (a regressive tax as this is paid disproportionately to the well off) and payments to those working with children (a very badly designed system with +100% marginal tax rates for many). Only around 3.5% is directed (inefficiently) to low-income earners, far less than most assume. In an alternative system, all this 17% could be replaced with a universal income of $12k (US$8.3K) per year to those between 18 and 65, leaving most significantly better off for no increase in the nett tax take.
Secondly, although you correctly state that a universal income requires tax increases, you ignore the critical distinction between nett and gross tax. With largely universal tax systems the average taxpayer basically receives benefits equivalent to what they pay in tax. Since they have little choice over what those benefits are economists would normally assume they are worse off. Not so with taxes to pay for a universal income. For the average taxpayer, any tax increase would be returned directly as cash leaving them in the same nett position as before the tax was applied.
Why bother then? Because: those below the average receive more than they pay so the system reduces inequalities; it is far more efficient and eliminates large bureaucratic wastage; it removes marginal tax rates that contribute to the “poverty trap” in current welfare systems; and removes the temptation to under-report income to take advantage of income related benefits. It also allows individuals to choose how best to allocate resources to improve their own life. In short, it is a fairer more efficient system than we currently have and can be implemented in many countries for the same NETT tax cost.
Dr Justin Stevenson
Christchurch
New Zealand
Rough against rough 