An Experiment in Basic Income

Generali

Finland has started a methodical experiment into a basic income:

http://www.vox.com/2015/12/8/9872554/finland-basic-income-experiment

Finland is...conducting a pilot project, with a tiny fraction of the Finnish population participating, according to Olli Kangas, director of research at Kela, the Finnish Social Insurance Institution that runs basic unemployment, health, family, and many other benefit programs. Kangas and his research team have been tasked by the Finnish government with presenting proposals for testing out a basic income.....Finland is on the verge of conducting the most methodologically rigorous and comprehensive test of basic income to date. And that alone is a big deal.

The reason Finland is doing this now is thanks to Juha Sipilä — Finland's center-right prime minister — who took office in May after his Centre Party won the largest bloc of seats in parliamentary elections. The party's platform promised to bring a "new political culture of bold experiments," of which the basic income trial is to date by far the boldest. Sipilä has been publicly supportive of the idea of a basic income, and Kangas says the government has set aside €20 billion (a little under $22 billion) to fund the trial. (continues)

It's an interesting idea albeit one that I have my doubts about. The free rider problem is a biggie.

mwpt

I am a cynic. So it is rather strange that I have for a long time been in favour of basic income. I believe in incentives. I believe the myth of the benefit scrounger is fairly exaggerated, though they do exist. I'm sick of the rhetoric from both right (benefit scroungers, stealing all your stuff) and left (cutting welfare means you hate the poor). A citizens/basic income would solve a lot of problems in my opinion. It should be designed to provide a real safety net and not something that is just a stipend, or we'll just end up with the same situation of people trying to game the system and skewed incentives.

The ideal is:
- Tax systems designed such that CI and the tax your pay largely balance out, meaning working people should not be left substantially worse off after.
- Work pays. You can make a material difference to your standard of living by starting to work in any scale.
- CI should be large enough that it provides a complete safety net in times of trouble, without requiring any extra welfare.
- In particular (but not limited to) NO HOUSING BENEFIT as a separate concept. CI should be the income that allows people to choose their own outcomes, meaning they will have to do as any other working person does and choose somewhere that is within their means to live. Housing benefit separate to CI will wreck the concept. I hope Finland realise this.
- Extra welfare for disabled who need extra care. No incorrect narratives around this, just police it properly.

Weirdly, as a cynic, I somehow believe the concept will work.

michaels

What a good idea to test out a policy rather than blindly introduing ideology driven changes without any evidence that they work. It would never catch on here.

Surely with a basic income there is much less incentive to completely doss as you will always benefit from working however much or little you do?

The trick would be to set the level very low so that it really was about basic survival so that everyone wanted to work and to avoid worrying about terms like 'poverty' for those who chose not to. The vulnerable such as children could be protected by restricting expenditure categories so x% of basic income could only go on food, y% only on housing etc.

CLAPTON

very interesting idea but the devil's in the detail.

can't see how HB would work here or disability benefit

cells

state pensions are already a form of citizens income. I am not sure how someone could survive on less. So something like £6k pa for adults and maybe £2k for children. Giving £16k for two adults and two children.

Problem is that for the vast majority this £6k in basic income would have to be taken back via other taxes most likely income tax and it would have to apply at the lowest levels.

so we would probably be looking at getting rid of the personal allowance and the 20% band. Income tax and NI would be a flat 40% & 12% from the first pound of income.

such a high marginal tax rate will surely put people off.
It would also discriminate against those who have no kids or only a few.
For example a full time working single person earning £35k/yr would be some £4k worse off

mwpt

cells wrote: »

state pensions are already a form of citizens income. I am not sure how someone could survive on less. So something like £6k pa for adults and maybe £2k for children. Giving £16k for two adults and two children.

Problem is that for the vast majority this £6k in basic income would have to be taken back via other taxes most likely income tax and it would have to apply at the lowest levels.

so we would probably be looking at getting rid of the personal allowance and the 20% band. Income tax and NI would be a flat 40% & 12% from the first pound of income.

such a high marginal tax rate will surely put people off.
It would also discriminate against those who have no kids or only a few.
For example a full time working single person earning £35k/yr would be some £4k worse off

I sat down for 10 minutes the other day and tried to devise a system in which CI was enough to live on, most people should come out net neutral but still incentivise work at all pay scales. I didn't manage to get all the way there. There must exist a reasonably fair system though.

antrobus

mwpt wrote: »

...The ideal is:
- Tax systems designed such that CI and the tax your pay largely balance out, meaning working people should not be left substantially worse off after....

Sadly, not possible.

The arithmetic is quite straightforward; 40 million adults of working age, 30 million work, 5 million on benefits, 5 million neither pay tax nor receive benefits. (Think students and [STRIKE]housewives[/STRIKE] housepersons.)

Working people will have to pay more tax to fund the basic income of that latter group. (Think 5 million at £6k a year, or an extra 6% on basic rate.)

Generali wrote: »

...It's an interesting idea albeit one that I have my doubts about. The free rider problem is a biggie.

Here are some more doubts.

The other fly in the ointment - which the Finns do not seem to have thought about very much - is that the provision of such plenty would provide a magnet to those parts of the EU for whom €800 a month is a good wage. Pretty soon, Finland would be swamped by riff-raff, and the whole thing would become unaffordable.

http://www.telegraph.co.uk/finance/economics/12037623/Paying-all-UK-citizens-155-a-week-may-be-an-idea-whose-time-has-come.html

antrobus

mwpt wrote: »

I sat down for 10 minutes the other day and tried to devise a system in which CI was enough to live on, most people should come out net neutral but still incentivise work at all pay scales. I didn't manage to get all the way there. There must exist a reasonably fair system though.

You are not alone.:)

As attractive as it as an idea, when you do the arithmetic for basic\citizen's\guaranteed income you end up with having to find some multi-billion-pound sum from somewhere in order to balance the books. This inevitably involves raising taxes on income in some way.

michaels

cells wrote: »

state pensions are already a form of citizens income. I am not sure how someone could survive on less. So something like £6k pa for adults and maybe £2k for children. Giving £16k for two adults and two children.

Problem is that for the vast majority this £6k in basic income would have to be taken back via other taxes most likely income tax and it would have to apply at the lowest levels.

so we would probably be looking at getting rid of the personal allowance and the 20% band. Income tax and NI would be a flat 40% & 12% from the first pound of income.

such a high marginal tax rate will surely put people off.
It would also discriminate against those who have no kids or only a few.
For example a full time working single person earning £35k/yr would be some £4k worse off

A lot of people who currently get benefits, 50% is a much lower marginal rate than they currently pay. I am not at all sure it would disincentivise much work at all and if the 'basic' level is set low enough then almost everyone will want to do some work. The main difficulty is housing costs - because these are so high in the UK the citizens income is unaffordable when I try and work it out.

cells

michaels wrote: »

A lot of people who currently get benefits, 50% is a much lower marginal rate than they currently pay. I am not at all sure it would disincentivise much work at all and if the 'basic' level is set low enough then almost everyone will want to do some work. The main difficulty is housing costs - because these are so high in the UK the citizens income is unaffordable when I try and work it out.

Yes if you are a family on benefits your marginal benefit withdrawal rate is higher than 50% now however for a lot of people the marginal rate right now is between 0 and 32%.
0% for people earning about £10k or less and about 32% above that

The lowest paid in society that are not reliant on benefits and there is a lot of them (eg savings above £6k or couple on min wage in a cheap part of the country or singles on low wages)

These people would see their marginal tax rate jump from close to 0% to over 50%


If I were only earning £10k a year and currently paid no tax on that and the new system gave me £6k CI and then my wages dropped from £10k to £4k I would consider quitting work. Working 25h a week for £80 would not appeal at all especially if there was a cost to commute.

black and grey market work would boom as the lower paid go from 0% tax to 50% tax

cells

also with a CI the income tax system would be an almost flat 50-55% for everyone. Then there would be cries about the rich being taxed no more than the poor which could lead to something like a 45% lower tax and a 65% higher tax