Pereira, Financing Basic Income

Richard Pereira (ed.), Financing Basic Income: Addressing the cost objection, Palgrave Macmillan, 2017, xiii + 116 pp, hbk, 3 319 54267 6, £37.99

In his introductory chapter Richard Pereira sets out his agenda: a Citizen’s Basic Income ‘at a sufficient level to ensure a dignified existence and a measure of social inclusion’ (p.1), and the retention of all existing public services. It has to be said at the outset that the editor is wrong to suggest that ‘the goal of a basic income as presented in the academic literature and in more common political and popular presentations of the concept’ is a Basic Income set at a level at or above official poverty lines (p.2). The Basic Income Earth Network’s definition does not imply any particular level, neither does the Citizen’s Basic Income Trust’s definition; and the majority of the detailed costings exercises undertaken in the UK assume that a Citizen’s or Basic Income can be set at any level and remain a Citizen’s or Basic Income as long as it is unconditional, nonwithdrawable, and paid to individuals. Somewhat inconsistently, the editor himself recognises that in his book ‘the level of basic income is set much higher than normally found in the academic literature’ (p.2). Concentrating only on a Basic Income sufficient for subsistence will restrict the usefulness of the book to policymakers favourable towards Basic Income but aware that the only politically feasible one would be a small one.

Pereira is of course right to suggest that a Basic Income should not leave individuals worse off than they are now: although, as we shall see, neither he nor his collaborators is able to operationalise this requirement. A further problem is that Pereira decides that the definition of Basic Income can include a Negative Income Tax and an annual dividend. Only the third option, the demogrant, fulfils the normal definition of a Basic Income. This matters. It might be true that the earned income/net income graph looks the same for a Negative Income Tax as it does for a genuine (demogrant) Basic Income, but their administrative processes are very different. And in today’s increasingly complex employment market a Negative Income Tax would impose administrative complexities similar to those with which the UK’s new Universal Credit is failing to cope. The editor suggests that a Basic Income can ‘eliminate a lot of waste of public resources and provide significant public savings’. (p.3) A demogrant would do that: a Negative Income Tax less so.

When it comes to approaches to financing Basic Income, the editor again restricts the agenda by assuming that social assistance (‘welfare payments’) and a variety of other programmes will be eliminated or restricted. The reason why he thinks that he can do this is that it would ‘allow for a higher basic income payment than what individuals currently receive from various income support programmes’ (p.4).

Pereira’s second chapter reviews a Canadian case study and suggests that abolishing a variety of existing welfare schemes, taxing carbon, taxing financial transactions, savings from the better health outcomes that a Basic Income would generate, and closing tax loopholes, would be sufficient to pay for Basic Incomes at a significant level without income tax rates having to be raised. In theory, it might be possible to close tax loopholes, but in practice there are significant problems with this approach. (Chapters 12 and 15 of Piketty’s Capital in the Twenty-first Century should be required reading: Piketty shows just how much global wealth is hidden in tax havens, and how difficult it would be to tax it.) A serious problem with Pereira’s second chapter is that it is full of estimates – for instance, in relation to closing tax loopholes – which are then combined into a figure which we are told would be available to fund a Basic Income. But there is an even more significant problem in relation to the existing programmes that Pereira would abolish in order to fund his Basic Income.  What Pereira has not proved is that the elimination of these programmes would not leave some households worse off, and, in particular, that it would not leave some low-income households worse off. Only microsimulation can provide such evidence, and we are offered no microsimulation results.

In chapter 3 Albert Jörimann calculates the gross cost of a Basic Income at 2,500 Swiss francs per month for everyone in Switzerland, and suggests that this could be paid for by abolishing existing social insurance and social assistance programmes, by increasing VAT, by increasing income tax, and by taxing energy. At the end of the chapter, the author sensibly considers the possibility that a lower Basic Income might be a useful first step. But again, we are provided with no evidence in relation to household gains and losses. Energy taxes and VAT increases are regressive taxes, and calculating the potential losses to low income households would be a complex matter. The datasets and computer programmes currently in use to microsimulate the disposable income effects of tax and benefits changes can only deliver results relating to income taxation, social assistance, and social insurance. (EUROMOD is now working on a method to estimate the effects of changes in VAT, and we await the results of this work with interest). In the absence of microsimulation results it would be politically infeasible to propose that VAT increases and energy taxes could be used to close the Basic Income funding gap.

In chapter 4, Gary Flomenhoft proposes funding an Australian Basic Income by capturing the economic rent generated by the commons and natural monopolies – which in practice means the taxation of land value, resource extraction, electromagnetic spectrum, water, public utility and transport privatization, airports, forestry, patents, gambling, internet domain names, satellite orbits, carbon, the value of a company attributable to the existence of the stock market, and taxi, banking and fishing licences. This is an interesting chapter on the possibility of additional taxes: but what is not clear is whether a government that implemented such additional taxes would wish to use the new revenue to fund a Basic Income. The only funding method that would avoid such a question having to be asked would be to pay for a Basic Income by increasing income tax and reducing social insurance and social assistance payments.

Pereira’s final chapter concludes that ‘the cost objection to BI is based upon inadequate and/or misleading information … Financing BI can produce fairer results for individuals and society while producing significant public cost savings’ (pp.105-6). Unfortunately, the evidence provided in this book does not support this conclusion. Only a microsimulation study of the detailed effects of the various proposals on household gains and losses, household employment incentives, and society’s inequality and poverty levels, would provide the required evidence. This matters. The answer to the question ‘Can we pay for a substantial Basic Income’ is always ‘Yes, in theory’. It is always possible to propose a funding method. The important questions are different ones: ‘Is the funding method proposed politically and administratively feasible?’, ‘Would this funding method have adverse consequences for any households in terms of disposable income loss, employment disincentive, or administrative complexity, and particularly for low income households?’ and ‘Would this funding method increase or decrease poverty and inequality?’ It is these questions that are not answered and no evidence is offered with which we might be able to answer them.

Having said that, this short book is a useful contribution to the field, because it sets an agenda for further study of the funding methods proposed.