Basic Income: Could it be a solution for inequality?

What would you do with your life if you had an extra $1,000 a month? Maybe you would replace the car that’s on its last leg, or buy a nice suit to land a job. Perhaps you would send your kids to a better school, move into a nicer neighborhood or start that business you have been dreaming about. For some people it might mean being able to keep food in the house or buy shoes for the children.

It’s not a pipe dream, and it’s an idea the people of Switzerland have found worthy of serious consideration. It is called basic income, also known as basic income guarantee or unconditional basic income. The amount should be enough for everyone to live on, in a basic manner, as a fundamental right to life.

It is clear that poverty is a problem, both in our nation and around the world. In some places lacking in resources that is to be expected, but in a country as rich as ours in so many things, there is no real reason anyone should go without the basic necessities.

In 2014, 47.7 million Americans were living in poverty, 14.8 percent of the population, according to Susan Milligan at U.S. News & World Report. Those numbers aren’t static either. John Macionis wrote in Social Problems, “Over ten years, about one-fourth of the US population falls below the poverty line, usually because of unemployment, illness or divorce.” This temporary poverty typically lasts a year or two.

Poverty disproportionately affects children, women, minorities and the disabled, as well as the uneducated and unskilled, because they all start life at a greater disadvantage and with less control over their circumstances.

It can be argued that there are social welfare programs in place already. That is true, there are a massive number of them. They do help to relieve inequality, but only a little. They are also conditional, offering real disincentives to work, and expensive, wasteful bureaucracies grow up around administering them.

A basic income could change all that. If the Swiss system is implemented, it will be the largest experiment to date.

There have been results of some smaller studies that are very promising. Guy Standing, writing for the Guardian, reported on a large-scale experiment in India in 2011 that was funded by UNICEF.

Villagers were given cash payments equal to one-third of subsistence. The extra money was used by the villagers in a number of ways to improve their lives and help them lift themselves out of poverty. Homes and sanitation were improved, as were health and nutrition. School attendance increased, and so did students’ academic performance.

The villagers were enabled to reduce their debts and their risk of going deeper into debt. They enjoyed an increased ability to save for hard times.

The best of all results, though, was that the gains were the greatest for those who had been the most disadvantaged. Overall, the basic income supplement gave the villagers more control over their own lives, and freedom of choice.

Basic in rural India and basic in the US are two completely different things, of course. So what would it cost to do something like that here, and who would pay for it?

The cost is not difficult to calculate. The federal government draws the poverty line at just under $12,000 of annual income for a single individual (rounding numbers for convenience). That’s a pretty low number; let’s say we want people to live just a little better than that and bump it 25 percent, making it about $15,000.

The US population is about 325 million, roughly divided into 237 million adults and 88 million children (under 21). Those numbers yield a cost for a national basic income of about $4.2 trillion. That sounds like a lot. The federal government is currently spending about a quarter of that, with little effect.

So where would the money come from? There are a number of possibilities.

One is to fund it with the proceeds from our country’s natural resources, much like the Alaska Permanent Fund. One that has real potential is a national sales tax, to replace income taxes and the employee part of Social Security payments. Immediately, abolishing the Internal Revenue Service would open up the $2 billion its budget calls for.

A national sales tax of 25 percent, applied to the gross domestic product of $17.59 trillion would result in revenues of about $4.4 trillion. That would more than pay for the basic income without raising any other taxes, and remember, you didn’t have to pay income taxes!

There are some questions still unanswered, such as the potential for inflation. And there are critics who say that a flat sales tax would unfairly burden the poor, who spend a larger proportion of their income than do the rich, but a national sales tax is directly proportional to a lavish lifestyle, so it will be the spenders who pay the most.

Poverty contributes to drug use, unemployment, illness and disease, crime, children in the foster care system and childhood poverty has effects that echo for generations. An investment in our children, and in helping people to find their highest and best use, would be a worthwhile investment in our society.


There are 2 comments

  1. mea_mark

    A sales tax is to regressive. A flat tax might make more sense if you want to reduce the budget of the IRS. I would also suggest taxing financial transactions as one way to raise some of the funds, along with a carbon tax. The wealthy make trades all the times and don't pay into the system when they do and the big polluters get to pollute for free without paying in. It's time to tax them.

  2. Cazapas

    It's constantly a wealthy vs poor dichotomy. Those who have money, can make more money because they have investments. The poor must accept whatever wage businesses offer so that they can survive. Of course it isn't so black and white. But, we know now that capitalism and it's utility is not living up to it's potential in how it can serve more people.

    Contrary to what some may think, giving away "free" money would not cause rampant inflation as long as the amount was modest. We live in an era of fighting deflation with negative interest rates and high unemployment rates. Basic income would give governments a real tool to stimulate the economy( and inflation) if they are trying to create that. I could argue that free money could also cause deflation if you wanted to. Lower the minimum wage, and allow everyone to work with a higher clawback ceiling. Then products would get cheaper because labour got cheaper. It's difficult to see a different paradigm if the only systems that exist are capitalism and socialism.

    Growing GDP is difficult when benefit entitlements are tied to income. Basically we can pay people to stay out of the workforce.. but what if they want to work.. shouldn't they be allowed to do that without massive clawbacks? This is how welfare got a bad name. Basically we divided socialism and capitalism by virtue of the restrictions around benefit entitlements.

    Higher taxes would be inevitable for such a system, but they might not be as high as you would think given that most people would have more money to spend and thereby there would eventually be more money to tax. In this current economy, there seems to be a lack of spending and demand, not a lack of captial, labour, or resources. This is because many people can't get jobs that would enable them to spend more. Minimum income would create many jobs by stimulating demand (assuming not everyone will want to be a lazy tightwad)

Leave a Reply