Canadian journalist Eric Reguly writes that that the basic-income model contains one great flaw. He is wrong. Here, in his own words, is Mr Reguly’s criticism.
When an idea is embraced by the political left, right and centre, you know it has to be too good to be true. ….
Basic income, in its purest form, would pay a guaranteed wage to everyone, including children, regardless of their income from other sources. It would be given unconditionally. The recipient would not have to prove that he or she is looking for work or even wants work; eternal sofa surfing would be allowed. ….
The great flaw with the concept is that economies might not reinvent themselves if millions of people are paid not to work. ….
Eric Reguly, “Basic income has its appeal, but it also has a very basic problem“, The Globe and Mail (Toronto), 18 March 2016.
Eric Reguly is the Rome-based European columnist for The Globe and Mail. He has a Masters in Journalism from the University of Western Ontario (London, Ontario).
Mr Reguly has it backwards. Income-tested welfare pays people remain unemployed, and takes away benefits when they return to work, even at a part-time job with low pay. A universal basic income pays people even when they work. Earned income is then taxed at normal rates.
Consider the following thought experiment. Suppose the normal welfare payment to a single person (due to job loss, for example) is $400 a week. If the beneficiary earns, say, $100 in wages, her benefits are typically reduced by this amount, leaving her total income the same ($400). Only if she earns more than $400 does her net income rise. This is an implicit tax of 100% on wage income, up to an income of $400 a week. The total tax can easily exceed 100% if there is an explicit tax on wages and/or income, which is very common.
With a universal basic income of $400, all taxes are explicit. There is no need for a personal income tax deduction (zero rate band). The basic income replaces that. Now there is an incentive to search for work. If the beneficiary finds a job paying $100 and wage income is taxed at, say, 50%, her total income rises to $450. If she works full-time for $400, her total income rises to $600.