Good article by Scott Santens which save me the bother of grinding some numbers to illustrate the point.
In his example, even though the income tax rate/withdrawal rate is 40%, the actual net transfers as a % of total income are only 12.5%. The lower the initial inequality of incomes, the lower is the net transfer amount.
Includes good quotes from Milton Friedman and Greg Mankiw explaining why negative income tax and UBI come to exactly the same thing.
And while this is good fun mathematically, if you look at the UK's tax and welfare systems and how they interact and take away all the to-ing and fro-ing, overlaps, lacunas and administrative hassle, the end effect is not that far off a UBI anyway, so shifting to UBI would involve no additional net transfers whatsoever.
Thursday, 3 May 2018
"Why every estimate of UBI that simply multiplies the number of recipients by the amount received is simply wrong"
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Ah, but you're forgetting that its a dynamic system (as you always do with LVT but thats another argument). You're assuming those who currently net payers-in will continue to pay into the pot at the same level for those who are net recipients. If the amount is set at a level that allows a reasonable lifestyle (say at current benefits cap level for a family of 4) then significant numbers of people will say 'F*ck it, I'm not working 40 hours a week to get only a few £££ more, I'm going to take it easy and take the UBI and do nothing instead'.
This they screws up the calculations as there's more people taking out and less paying in, so the cost immediately rises, as does the tax rate required to fund it, thus causing even more people to fall below the point at which its not worth working. And so on into a death spiral.
Thats why the rate of UBI is absolutely crucial - get it wrong on the high side and the idea spirals out of control in cost overruns, get it wrong on the low side and you get huge numbers of people taking massive income cuts from current benefits, which is a political disaster.
Personally I don't think there is a UBI rate that is stable, I think is a fundamentally unstable system, that has a tendency to go out of control regardless.
S, "Thats why the rate of UBI is absolutely crucial - get it wrong on the high side and the idea spirals out of control in cost overruns, get it wrong on the low side and you get huge numbers of people taking massive income cuts from current benefits, which is a political disaster."
Correct. So set it as close to current benefit levels as possible. If set correctly (i.e.funded out of LVT) it is inherently stable.
"So set it as close to current benefit levels as possible"
Thats the trouble, its impossible to set a flat rate that mirrors the effect of a means tested benefit system - payments are currently made on need, so people get differing amounts. Replacing all that complexity with one flat rate is never going to work.
One of two things happens - either you set it high enough that no one loses out from their current payments, in which case it'll be ludicrously expensive and a massive disincentive to work, or you set it a more affordable rate that doesn't have the incentive to leave paid employment, in which case many people who currently get more will lose out. Which is politically impossible - any change to a welfare system that leaves anything more than a handful of people worse off will never get off the ground, its political kryptonite. No political party will want to touch it.
I'm convinced that you just can't get to a UBI from a means tested system - the transition either is unaffordable, or requires massive social disruption no political party will wish to set in motion voluntarily, and take the flak for. They have seen the outcome of things like the Poll tax, and the 'Bedroom tax', and won't want to touch it. Losers scream far louder than winners, and even not all winners agree with the new system if it appears to be 'unfair'. Its a massive vote loser.
S: " its impossible to set a flat rate that mirrors the effect of a means tested benefit system"
That is uninformed drivel.
It clearly is possible.
If you take this topic seriously, then spend a few weeks downloading all the rules, statistics on how much each benefit costs, running spreadsheets etc, and you will find that it is a piece of piss to replace most benefits* with a flat rate payment and a single rate of tax/benefits withdrawal (i.e. basic rate of tax plus NIC).
I've done it, plenty of others have done it independently and arrived at a similar conclusion. Most people end up less than £10 a week better or worse off.
I'll making your journey easier by telling you it's easy. When I first started ten years ago I thought it would be difficult.
* If there are some that don't fit easily to the rest of the system, then put them to one side. Basically it's Housing Benefit and severe disability payments.
"I've done it, plenty of others have done it independently and arrived at a similar conclusion. Most people end up less than £10 a week better or worse off."
That's why it would be politically unacceptable. You can see the fuss about the bedroom tax how politically sensitive even small changes are. Any losers will be paraded through the media, and compared with examples of winners who are better off. Its just not a politically viable thing to suggest. And while 'most' may only be a tenner worse off, there will be non insignificant numbers who lose more, and they're the ones you (as the proponent of the scheme) would be faced with.
"So Mr Wadsworth, here we have Sally, Sally will lose £30/week under your new scheme, what do you have to say to her?"
S, politicians do not comment on individual examples. The Tories have quite happily take loads of benefits away from people and got away with it. In a few months, Sally will probably find she's ended up better off anyway.
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