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Kaj_Sotala comments on Open Thread, May 19 - 25, 2014 - Less Wrong Discussion
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Lots of people are arguing governments should provide all citizens with an unconditional basic income. One problem with this is that it would be very expensive. If the government would give each person say 30 % of GDP per capita to each person (not a very high standard of living), then that would force them to raise 30 % of GDP in taxes to cover for that.
On the other hand, means-tested benefits have disadvantages too. It is administratively costly. Receiving them is seen as shameful in many countries. Most importantly, it is hard to create a means-tested system that doesn't create perverse incentives for those on benefits, since when you start working, you will both lose your benefits and start paying taxes under such a system. That may mean that the net income can be a very small proportion of the gross income for certain groups, incentivizing them to stay unemployed.
One middle route I've been toying with is that the government could provide people with cheap goods and services. People who were satisfied with them could settle for them, whereas those who wanted something more fancy would have to pay out of their own pockets. The government would thus provide people with no-frills food - Soylent, perhaps - no-frills housing, etc, for free or for highly subsidized prices (it is important that they produce enough and/or set the prices so that demand doesn't outstrip supply, since otherwise you get queues - a perennial problem of subsidized goods and services).
Of course some well-off people might choose to consume these subsidized goods and services, and some poor people might not choose to do that. Still, it should in general be very redistributionary. The advantage over the basic income system is that it would be considerably cheaper, since these goods and services would only be used by a part of the population. The advantage over the means-tested system is that people will still be allowed to use these goods and services if their income goes up, so it doesn't create perverse incentives.
Another advantage with this system is that it could perhaps rein in rampant consumerism somewhat. Parts of the population will be habituated to smaller apartments and less fancy food. Those who want to distinguish themselves from the masses - who want to consume conspiciously - will also be affected, since they will have to spend less to stand out from the crowd.
I guess this system to some extent exist - e.g. in many countries, the government does provide you with education and health care, but rich people opt to go for private health-care and private education. So the idea isn't novel - my suggestion is just to take it a bit further.
The universal basic income schemes that seem the most reasonable to me adjust the taxation so that, while the UBI itself is never taxed, if you make a lot of money then your non-UBI earnings get an extra tax so that the whole reform ends up having very little direct effect on you. In effect, that ends up covering the "only used by a part of the population" criteria. The perverse incentives can't be avoided entirely, but they can be mitigated somewhat if the tax system is set up so that you're always better off working than not working.
For a concrete example, there's e.g. this 2007 proposal by the Finnish Green party. Your working wage (in euros per month) is on the X-axis, your total income after is on the Y-axis. Light green is the basic income, dark green is your after-tax wage, red is paid in tax. According to their calculations, this scheme would have been approximately cost neutral (compared to what the Finnish state normally gets in tax income and pays out in welfare).
Thanks, that's interesting. 440 euro is not a lot, though - could you live in Helsinki on that (in 2007)? Is this supposed to replace for instance unemployment benefits (which I'm sure are much higher)? It so, this system would make some people who aren't that well off worse off.
One thing that is seldom noted is that the Scandinavian "general welfare states" are in effect half-way to the UBI. In Sweden, and I would guess the other Scandinavian countries as well, everyone gets a significant pension no-matter what, child benefits are not means-tested, etc. Also virtually everyone uses public schools, public health-care, public universities and public child-care (all of which are either heavily subsidized or free). So it's not a question of either you have an Anglo-saxon system where benefits mostly go to the poor or a UBI system, but there are other options.
440 euros is almost the same amount as direct student benefits were in 2007, though that's not taking into account the fact that most students also have access to subsidized housing which helps substantially. On the other hand, the proposed UBI model would have maintained as separate systems the current Finnish system of "housing benefits" (which pays a part of your rent if you're low-income, exact amount depending on the city so as to take into account varying price levels around the country) as well as "income support", which is supposed to be a last-resort aid that pays for your expenses if you can show that you have reasonable needs that you just can't meet in any other way. So we might be able to say that in total, the effective total support paid to someone on basic income would have been roughly comparable to that paid to a student in 2007.
Some students manage to live on that whereas some need to take part-time jobs to supplement it, which seems to be roughly the right level to aim for - doable if you're really frugal about your expenses, but low enough that it will still encourage you to find work regardless. Might need to increase child benefits a bit in order to ensure that it's doable even if you're having a family, though.
The Greens' proposed UBI would have replaced "all welfare's minimum benefits", so other benefits that currently pay out about the same amount. That would include student benefits and the very lowest level of unemployment benefit (which you AFAIK get if your former job paid you hardly anything, basically), but it wouldn't replace e.g. higher levels of unemployment benefits.
Thanks, that's interesting and comprehensive.
Housing benefits are an alternative to the idea discussed here; i.e. subsidizing particular low-cost, low-standard flats. However, the problem with housing benefits is that you tend to get more of them if you have higher rent, and thus you in effect reward people with more expensive tastes, which leads to a general increase of housing consumption. My proposal is intended to have the exact opposite consequence.
I'm not that adverse to the UBI but there is something counter-intuitive about the idea that rich people first pay taxes and then get benefits back. This forces you to either lower the level of basic income (or other government expenditure) or raise taxes. My suggestion is intended to take care of this without having to resort to means-testing.