Basic income or negative income tax are great ideas: they're cheaper to administer than the current welfare state, are more humane (people are treated as adults and allowed to spend the basic income on whatever they wish), and avoid perverse incentives. With the current system, getting a job easily has the same impact as a 100% tax -- all benefits go away, all income goes goes to deal with lost benefits (and free time goes to -- given this is an entry-level and menial/service job -- an activity that's not intrinsically rewarding).
Yet, people have (initially surprising to me) visceral reactions against these proposals -- despite these proposals coming from all over the political map -- as unfair.
Jonathan Haidt has an excellent article on morality of fairness:
In short, individuals see fairness on a scale -- from "what people receive should be proportional to what they contribute" to "from each according to his ability, to each according their means".
It also makes sense to add a slightly more nuanced pole to this, namely "just desserts": "people should be able to keep everything that they earn, with the exception of fees for services they use and externalities they impose on others"; in other words, fairness concerns should also be balanced against negative liberty.
This could explain why there's such strong opposition to a basic income: significant chunk of the population people see it as less fair as opposed to more fair, another chunk views it as just another form of theft. It's also why many aren't easily bothered by supposed excesses of idleness of the rich, as long as the wealth was acquired legitimately. This isn't to endorse these views, but to acknowledge that these positions are sincerely held by individuals of all races, genders, and incomes.
This is also why many of the wealthy vote for politicians that (on paper) promise to reduce wealth inequality and one of the reasons why many of the poor vote for candidates that don't think inequality is a problem. In short, these are moral views as opposed to matters of rational self-interest.
Contrary to Marx not everyone is fighting for their class interests, contrary to popular view of economics (which is different from how economists actually see it) not everyone is trying to maximize their own net worth by any means possible. Economists say individuals try to maximize their utility, which to nearly all means -- to some extent -- wanting to see good in the world, but with their own definition of what is good.
So here's a proposal: when speaking on inequality and social justice, let's identify who the audience is, and justify policy proposals according to their values. If someone is a libertarian, address the negative effect concentration of wealth (which often begets political power) has on liberty (e.g., politicians buying their way into office to push Nanny state policies, wealthy funding campaigns that lead to criminalization of vice, etc...)
Likewise, if someone cares about proportionality, point out that labour theory of value is false: law of supply and demand means it's inevitable that people will get rich as result of sheer luck or doing something that seems trivial. That's not to mention that many of the wealthy are wealthy as result of rent-seeking -- and fight both rent-seeking and the inequality it leads to.
Otherwise, quite frankly, these ideas will remain dead in the water politically.
Edit: one thing that should be noted is that it's unlikely that in a free market (which is generally a good thing) wealth distribution will be anything other than power law (which isn't to say we can't smooth it out, but we can't turn it to a normal probability distribution). However, wealth isn't everything: why not divorce wealth from status (to the extent, we already do this)? For example, Silicon Valley (it's getting hard to use that term non-ironically, unfortunately) does tend to praise the value of individual contributors as well as that of entrepreneurs and managers, yet there's disconnect in mainstream culture -- where remaining an individual contributor (or even a mid-tier manager) is _not_ considered a successful outcome. This change will have to happen organically, of course.
> In short, individuals see fairness on a scale -- from "what people receive should be proportional to what they contribute" to "from each according to his ability, to each according their means".
Exactly, and fairness keeps getting shifted along this scale. Here's an example that comes to mind when I think of taxation: let's say you have a country of 1 million people, and with total government expenses of $1 billion/year. The first taxation idea that comes to mind (and perhaps the fairest) is that every citizen pays exactly $1000 each in taxes. Now some people are going to scream "that's no fair, some people don't make that much per year, you want them to starve?" So then the next idea is "how about everyone pays 10% instead, so rich people pay more in raw dollars, but everyone still pays the same percentage?" The reply becomes "but that's still not right, rich people can afford to pay much more". Eventually, you wind up with a progressive tax that tops at around 90%, and nobody thinks this is fair (all in the name of fairness).
Actually, I don't have a problem with top tax rates that high on say income over 10 million a year. People don't make 50 million a year living in a hut in the middle of nowhere. It's not as obvious as welfare, but without things like IP law and roads you just don't get that kind of concentrated wealth accumulation outside of warlords which are really just another form of government. People argue that it's bad for the economy, but the US has actually had significantly slower economic growth when the top tax rate was below 70% (1982 to now) than when it's above 70% (1936-1981).
My discussion was around "fairness". Do you think it's "fair"? Making some people pay more than others (unequal amounts) can be considered unfair (everyone paying exactly $X is also fair). Here's an analogy: when 5 friends go out for dinner, does the richest one pick up the tab, do they split it up equally, or does every individual pay for what he/she eats? You can argue that each of those options is "fair" in some way.
Depends, but a better (though still flawed) analogy is this: before dinner, everyone agreed and knew that if someone brought twice as much cash in their wallet to dinner, that person would pay more than everyone else but also get the best dish, the best view, and a massage while waiting for food to come out. And everyone had a chance to opt out of going to dinner before heading out, or to choose to not get all the perks.
Given that, it's sort of ridiculous for Fred to complain after dinner that he has to pay more than everyone else, and then to try to guilt trip them into paying an equal amount as him.
You seem to have completely missed the point of the scale described by strlen which is that people have different definitions of fairness and continued to argue that yours is the only one.
I would be very cautious drawing any firm conclusion from this kind of simplistic analysis.
First, as always with economic analysis, many other things are changing at the same time (inflation, trade, technology, etc.). Any one or some combination of other factors could actually be driving this and you would not know it. Additional event studies and evidence from other countries would be a start.
Second, you are effectively cherry picking your sample periods. 1936 was the very bottom of the Great Depression. Why don't we also look at the period before the US had income taxes, other countries, etc.
Third, tax rates are only one part of tax policy. Effective tax rates would be a start but then how to measure income when there is a big incentive to hide it.
Lastly and probably most importantly, what is the logic here. How exactly do high tax rates increase growth. It makes sense that they would reduce incentives. How much money would it raise? And if there is some great spending projects that increase growth why aren't we already doing them?
> People don't make 50 million a year living in a hut in the middle of nowhere.
They also are aware of other countries and venues to receive that income. While a poor schmuck getting his $15 mil bonus from AIG won't have anywhere to hide - we got him, anybody who has a choice of where the payments are made will choose a more accommodating tax regime.
There is a good Milton Friedman video wherein he explains why tax reform won't happen in the United States. The key is that the ideal goals of a tax system (e.g. generate lots of revenue with little inefficiency and little impact on taxpayers' personal financial situation and few unequally distributed loopholes like corporate tax avoidance) are not the goals of lawmakers who define the tax system.
In the video, he focuses on a theoretical tax system just like our current progressive income tax, but with all brackets >25% limited to 25%, and argues that it would be an improvement (according to ideal goals). But I think the argument could be extended to basic income or negative income tax, the latter of which Friedman also advocated.
> The key is that the ideal goals of a tax system (e.g. generate lots of revenue with little inefficiency and little impact on taxpayers' personal financial situation and few unequally distributed loopholes like corporate tax avoidance) are not the goals of lawmakers who define the tax system.
There are actually lots of viewpoints from which that set of "ideal goals" are not ideal.
And, of course, tax reform can happen with a different set of goals than Milton Friedman's ideals.
> In the video, he focuses on a theoretical tax system just like our current progressive income tax, but with all brackets >25% limited to 25%, and argues that it would be an improvement (according to ideal goals).
Well, if its just like our current system but for that change, the main difference will be a tax cut for high income earners and reduced revenue. That doesn't seem consistent with the so-called "ideal goals" set out earlier.
> There are actually lots of viewpoints from which that set of "ideal goals" are not ideal.
Perhaps, but I deliberately left the goals vague. I think they represent what an average taxpayer would think. Do you have any specific examples of other goals might be?
> Well, if its just like our current system but for that change, the main difference will be a tax cut for high income earners and reduced revenue.
In that video he specifically argues against that idea. He says revenue should increase, and one side effect would be that corporate declarations should increase since there is less financial incentive to find ways to "hide" income.
I'm not sure about that. 40% of hojillion dollars is more than 25% of hojillion dollars, but 25% of hojillion dollars is still plenty to hire a smart accountant.
No, that's not the point. The point is that lowering the tax rates on top earners changes the behavior of those top earners. I am not convinced that's true. If I can pay a team of accountants $1 million / year to hide $100 million, then whether it is taxed at 25% or 40%, I'm still as big a fool (or patriot) to hand over 24 million I don't have to as 39.
> No, that's not the point. The point is that lowering the tax rates on top earners changes the behavior of those top earners. I am not convinced that's true.
Why not? Do you think there is no limit on the amount a corporation would be willing to spend for each dollar they can remove from their tax declaration?
I think there is a limit. I even think it is below break-even, since they need to put in effort to go about it. I don't think it is clear at all that the proposed change pushes enough money past that limit. A big part of it depends on the structure of the costs of tax avoidance. Obviously, if every effective means of tax avoidance costs 30 cents on the dollar for any amount of money, lowering the rate from 40% to 25% would be hugely effective, though putting it at 29% would raise still more revenue. My position is that it's hugely unclear, and enough things have changed since Milton Friedman made those claims that it is open whether - even if he was correct at the time - they still hold true.
One way to make basic income work politically is make it conditional upon providing something other than the actual market value of said something, at least initially.
For example, the Earned Income Tax Credit in the U.S. already effectively creates negative taxes for certain people, but only if they have "earned" income. While this isn't as efficient as a pure negative income tax or basic income, it's a good start.
You could also try paying people a basic income for community service, voting, registering for the draft, etc.
Unfortunately once you start doing that it loses its appeal because its foundation has been ripped out from beneath it.
First you start with basic civic duties. Then there are the things that are a bit more problematic in principle but'd still have a broad base of support--denying it to murderers and pedophiles and then all of a sudden anyone who's been convicted of a felony. Then, whoah, anyone who's committed a misdemeanor, and then you've got to start pre-emptively giving drug tests to anyone who might want to claim it. And then you add in ideas like "well, if you're disabled or a civil servant you should get more" and "obviously if you're a billionaire you shouldn't get any," and then if you make seven figures, then six, then five. And then "well, people shouldn't be spending money on Obamaphones, let's make it so that only food and housing can be purchased with it." And then only certain kinds of food and certain kinds of housing, TBD by policymakers and the helpful white papers that corporations specializing in those areas are happy to provide for free.
And then at the end of it all you end up with the deeply broken welfare system we have now, one that encourages dependency, dehumanizes recipients, and incentivizes against work, while simultaneously throwing away huge gobs of social value through administrative costs and corruption.
The scenario you outline is pretty speculative. Moreover, we're assuming that a pure basic income is politically unpalatable. Given that constraint, I'd rather take a half-assed version over nothing at all.
Also, if you keep the narrative simple and consistent, and the initial base is broad enough, I think it can maintain its appeal. The message behind Social Security is that you're entitled to payments because you put money in initially -- even if you ultimately get out more than you put in. As such, it's proven to be surprisingly resilient to attempts to impose restrictions on it.
Likewise, because the EITC is administered through the tax system, which everyone participates in -- regardless of whether you're a felon or not. Because it's framed as a tax benefit that everyone is potentially eligible for, it's also held up surprisingly well.
Dan Ariely has written extensively on psychological research that involves paying people for various activity.
Paying immediately removes intrinsic benefit and self-motivation. If before you were (and considered yourself) a great sport for coaching a local kids' baseball league and volunteering at a library over the weekend, once the money enters the equation, you're just another chump trying to pull money out of the system, grinding at it before you can go home and relax.
That's an important point, and your general sketch is certainly correct, though I think you are overstating and overgeneralizing the research a little bit. (That said, I grant that it's certainly possible your understanding is more correct than mine.)
> One way to make basic income work politically is make it conditional upon providing something other than the actual market value of said something, at least initially.
That's called a "behaviorally conditioned social welfare program", and along with means-tested social welfare programs, its exactly the efficiency and administrative problem that unconditional basic income sets out to solve. That's not making basic income work politically, that's the exact thing that basic income is proposed in opposition to.
Would basic income make the society really more equal? I find it quite difficult to estimate how would it turn out in practice. Wouldn't a more nuanced system give better results?
First, it's a form of redistribution of wealth: assuming it's used with a progressive system of taxation.
I completely agree that we can't know how it will turn out in the long term (but why not try it and scrape it if it doesn't?), but the idea is that individuals could use the income to retrain when forced out of work, and to be able to provide an environment for their kids that give their them at least a chance at upwards mobility.
Again, I don't think it will lead to perfect equality. Nor is it a magic bullet: one pet-peeve is that everyone seems to be concerned with income, but less so with wealth per-se. Some people have proposed a tax on land itself but not improvements to land: I am not trained in economics so I can't speak to its efficacy (perhaps it's an outmoded idea today), but from a moral standpoint such a tax (with perhaps a "homestead exemption" for one's primary residence up to a certain value) seems a lot more fair than an income or property tax (which also taxes improvements to property that benefit the community).
The main problem I see is that basic income would require a much richer society. If you want to have a system that gives a livable income to all unemployed people PLUS gives a significant income bump if someone gets employed, you need lots of money.
Today, everyone consumes the necessary amount to survive. If they didn't, they'd be, well, dead. I guess the relevant point is that few people, at least in Western countries, are dying of starvation or exposure (and those who do usually have severe mental illness).
This means that even with the particular kinds of capital arranged in the particular way we do today, we can produce enough goods so that everyone consumes enough to survive. It's just a question of financing. Most people at the lower end end up financing the consumption either through personal debt or through imposing negative externalities on society, be it theft, drawing down the resources of friends or family, or soaking up charity dollars that could be more effectively used as capital investment. And personal debt just kicks the externalities toward the future, with the additional option of bankruptcy, which increases lending costs for all borrowers, itself a costly externality.
A basic income makes these externalities legible and puts the finances on the books instead of off of them. In addition it gives psychological security and improves the negotiating power of everyone.
The points you raise are good ones, but the question raised wasn't the cost of covering those at the bottom, it's the cost of also distributing it to the rest. Of course, if you couple basic income with an additional flat tax (that is, add X% to all tax brackets) that covers it, you would - net - be giving a lot of improvement to those at the bottom, asking a lot of money from those at the top, helping those just below the mean a little, and asking just a little more from those just above the mean. Of course, there's all the usual concerns around changes in tax rates (including tax evasion) still apply...
Of course but if you compare a basic income system with a more complex and nuanced system (ala developed world today) – and set both to the same level of redistribution – would the basic income lead to a more equal society?
It removes sharp cliffs as benefits are removed, which encourages work. It provides people the freedom to actually meet their most pressing needs (and allows competition to meet those needs cheaply and effectively) rather than the set of needs we guess will be most pressing. Those who, per their situation and opportunities and values, have better things to do will be more able to work less, which might make room for those who more need the opportunity - examples might be one spouse staying home to watch children and keep house, or someone pursuing their art or music, or volunteering at any of the remaining important causes.
All that is aside from the basic dynamic of "taking more money from those above the mean and giving more money to those below it" inherently pushing a bit toward more equality.
The catch is we already have several terrible systems of poorly and expensively providing basic income: abuse of SSDI and using food-stamps to buy goods to use as a de-facto currency (in West Virginia, it happens to be soda bottles, for example)
Yeah, that makes a lot of sense actually: basic income + no minimum wage (or if politically impossible, not raising minimum wage) -- since the basic income will continue even if someone is employed, it's a great incentive to stay to in the labour force and advance even if the pay is minimal.
I do think that Milton Friedman may not have foreseen the way automation might lead to at least long-term (but perhaps not permanent) structural unemployment.
Yet, people have (initially surprising to me) visceral reactions against these proposals -- despite these proposals coming from all over the political map -- as unfair.
Jonathan Haidt has an excellent article on morality of fairness:
http://www.democracyjournal.org/28/of-freedom-and-fairness.p...
In short, individuals see fairness on a scale -- from "what people receive should be proportional to what they contribute" to "from each according to his ability, to each according their means".
It also makes sense to add a slightly more nuanced pole to this, namely "just desserts": "people should be able to keep everything that they earn, with the exception of fees for services they use and externalities they impose on others"; in other words, fairness concerns should also be balanced against negative liberty.
This could explain why there's such strong opposition to a basic income: significant chunk of the population people see it as less fair as opposed to more fair, another chunk views it as just another form of theft. It's also why many aren't easily bothered by supposed excesses of idleness of the rich, as long as the wealth was acquired legitimately. This isn't to endorse these views, but to acknowledge that these positions are sincerely held by individuals of all races, genders, and incomes.
This is also why many of the wealthy vote for politicians that (on paper) promise to reduce wealth inequality and one of the reasons why many of the poor vote for candidates that don't think inequality is a problem. In short, these are moral views as opposed to matters of rational self-interest.
Contrary to Marx not everyone is fighting for their class interests, contrary to popular view of economics (which is different from how economists actually see it) not everyone is trying to maximize their own net worth by any means possible. Economists say individuals try to maximize their utility, which to nearly all means -- to some extent -- wanting to see good in the world, but with their own definition of what is good.
So here's a proposal: when speaking on inequality and social justice, let's identify who the audience is, and justify policy proposals according to their values. If someone is a libertarian, address the negative effect concentration of wealth (which often begets political power) has on liberty (e.g., politicians buying their way into office to push Nanny state policies, wealthy funding campaigns that lead to criminalization of vice, etc...)
Likewise, if someone cares about proportionality, point out that labour theory of value is false: law of supply and demand means it's inevitable that people will get rich as result of sheer luck or doing something that seems trivial. That's not to mention that many of the wealthy are wealthy as result of rent-seeking -- and fight both rent-seeking and the inequality it leads to.
Otherwise, quite frankly, these ideas will remain dead in the water politically.
Edit: one thing that should be noted is that it's unlikely that in a free market (which is generally a good thing) wealth distribution will be anything other than power law (which isn't to say we can't smooth it out, but we can't turn it to a normal probability distribution). However, wealth isn't everything: why not divorce wealth from status (to the extent, we already do this)? For example, Silicon Valley (it's getting hard to use that term non-ironically, unfortunately) does tend to praise the value of individual contributors as well as that of entrepreneurs and managers, yet there's disconnect in mainstream culture -- where remaining an individual contributor (or even a mid-tier manager) is _not_ considered a successful outcome. This change will have to happen organically, of course.