basic income grants

Sometimes comments on blog posts and newspaper columns are more interesting than the original posts, even when they are off-topic. “Itzman”, commenting on Samuel Brittan’s column “Where an Augustinian fiscal policy falls short”, in the Financial Times (9 September 2011) provides an example of this by cogently making the case for a universal income grant.

[W]e must stop preferential subsidies to the out of work: we should subsidise work at all levels instead of enforcing working time directives and minimum wage policies.

That is, welfare should be universal, and not removed when work is taken up. And it effectively defines minimum income.

Social policy moves from attempting to legislate for equality, and towards underwriting poverty solely.

An ungated copy of this column (without comments) will be posted in a week or so to Samuel Brittan’s webpage.

A universal government transfer goes by various names, most often “basic income grant”. It is a sum of money, enough to keep everyone out of poverty, given to every man, women and child in a country. The grant is not taken away from those who earn wages, save and invest. The grant might be taxed, but only to the same degree as earned income. Economists of all political views favour such a scheme. Milton Friedman was a famous proponent, and called it a “negative income tax”. There is even an academic organisation – Basic Income Earth Network (BIEN) – that organises conferences and publishes papers on the subject. BIEN has an international board, and seventeen national affiliates. Its 14th Congress will take place in Munich (Germany), 14-16 September 2012.

Itzman does get one detail wrong. A basic income grant subsidises life, not work. What a basic income does is eliminate high rates of taxation of work (and saving) implicit in means tests. Kudos to Itzman, however, for correctly noting that there is no need to legislate minimum wages when a basic income is available to everyone, workers and non-workers alike.

Itzman also is somewhat off-topic, since Brittan is writing about stabilisation policies, not about poverty traps. Basic income grants, although they remove high implicit taxes on labour, have no obvious effect on cycles of unemployment and inflation. If anything, universal grants might make cycles worse. Unemployment insurance payments, after all, increase automatically when unemployment rises, and decrease when workers find jobs. Basic income grants remain the same, regardless of the number of unemployed workers.

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