Frequently Asked Question
A basic income is a periodic cash payment unconditionally delivered to all on an individual basis, without means test or work requirement.
This definition does not fit all actual uses of the English expression “basic income”, or of its most common translations in other European languages, such as “Bürgergeld”, “allocation universelle”, “renda basica”, “reddito di cittadinanza”, “basisinkomen”, or “borgerlon”. Some of these actual uses are broader: they also cover, for example, benefits whose level is affected by one’s household situation or which are administered in the form of tax credits. Other uses are narrower: they also require, for example, that the level of the basic income should coincide with what is required to satisfy basic needs or that it should replace all other transfers. The aim of the above definition is not to police usage but to clarify arguments. Each of its components are explained in more detail below.
One can conceive of a benefit that would have all other features of a basic income but be provided in kind, for example in the form of a standardised bundle of food, or the use of a plot of land. Or it could be provided in the form of a special currency with restricted uses, for example food stamps or housing grants, or more broadly consumption in the current period only without any possibility of saving it, as in Jacques Duboin’s (1945) “distributive economy”. A basic income, instead, is provided in cash, without any restriction as to the nature or timing of the consumption or investment it helps fund. In most variants, it supplements, rather than substitutes, existing in-kind transfers such as free education or basic health insurance.
A basic income consists in purchasing power provided at regular intervals, such as a week, a month, a term or a year, depending on the proposal. One can also conceive of a benefit that would have all other features of a basic income but be provided on a one-off basis, for example at the beginning of adult life. This has occasionally been proposed, for example long ago by Thomas Paine (1796) and far more recently by Bruce Ackerman and Anne Alstott (1999). There is a significant difference between a regular basic income and such a basic endowment. Yet, it should not be overstated. Firstly, the basic endowment can be invested to generate an actuarially equivalent annual or monthly income up to the recipient’s death, which would amount to a regular basic income. If left to the insurance market, the level of this annuity would be negatively affected by the length of a person’s life expectancy. Women, for example, would receive a lower annuity than men. However, the advocates of a basic endowment (including Paine and Ackerman and Alstott) usually supplement it with a uniform basic pension from a certain age, which erases most of this difference. Secondly, while other uses can be made of a basic endowment than turning it into an annuity, the resulting difference with a basic income would be essentially annulled if the latter’s recipients could freely borrow against their future basic income stream. Even if one wisely protects basic income against seizure by creditors, the security it provides will make it easier for its beneficiaries to take loans at every stage and will thereby reduce the gap between the ranges of options opened, respectively, by a one-off basic endowment and a regular basic income.
The basic income may, but need not, be funded in a specific, ear-marked way. If it is not, it is simply funded along with all other government expenditures out of a common pool of revenues from a variety of sources. Among those who advocated ear-marked funding, most are thinking of a specific tax. Some want it funded out of a land tax or a tax on natural resources (from Thomas Paine (1796) to Raymond Crotty (1987), Marc Davidson (1995) or James Robertson (1999) for example). Others prefer a specific levy on a very broadly defined income base (for example, Pelzer 1998, 1999) or a massively expanded value-added tax (for example, Duchatelet 1992, 1998). And some of those who are thinking of a worldwide basic income stress the potential of new tax instruments such as “Tobin taxes” on speculative capital movements (see Bresson 1999) or “bit taxes” on transfers of information (see Soete & Kamp 1996).
Redistributive taxation need not be the only source of funding for basic income. Alaska’s dividend scheme (O’Brien & Olson 1990, Palmer 1997) is funded out of part of the return on a diversified investment fund which the state built up using the royalties on Alaska’s vast oil fields. In the same vein, James Meade’s (1989, 1993, 1994, 1995) blueprint of a fair and efficient economy comprises a social dividend funded out of the return on publicly owned productive assets. Finally, there has been a whole sequence of proposals to fund a basic income out of money creation, from Major Douglas’s Social Credit movement (see Van Trier 1997) and Jacques and Marie-Louise Duboin’s (1945, 1985) Mouvement français pour l’abondance to the recent writings of Joseph Huber (1998, 1999, 2000 with J. Robertson).
There can be more or less inclusive conceptions of the membership of a political community. Some, especially among those who prefer the label “citizen’s income”, conceive of membership as restricted to nationals, or citizens in a legal sense. The right to a basic income is then of a piece with the whole package of rights and duties associated with full citizenship, as in the conception of the French philosopher Jean-Marc Ferry (1995). Others, especially among those who view basic income as a general policy against exclusion need to conceive of membership in a broader sense that tends to include all legal permanent residents. The operational criterion may be, for non-citizens, a minimum length of past residence, or it may simply be provided by the conditions which currently define residence for tax purposes.
There can also be a more or less inclusive conception of membership along the age dimension. Some restrict basic income, by definition, to adult members of the population, but then tend to propose it side by side with a universal, i.e. non-means-tested, child benefit system, with a level of benefit that may or may not be differentiated as a (positive or negative) function of the rank of the child or as a (positive) function of the child’s age. Others conceive of basic income as an entitlement from the first to the last breath and therefore view it as a full substitute for the child benefit system. The level of the benefit then needs to be independent of the child’s family situation, in particular of his or her rank. Some also want it to be the same as for adults, and hence independent of age, as is actually the case in the modest Alaskan dividend scheme and as would be the case under some more generous proposals (for example Miller 1983). But the majority of those who propose an integration of child benefits into the basic income scheme differentiate the latter’s level according to age, with the maximum level not being granted until majority, or later.
Analogous to the case of children, some restrict basic income to members of the population which have not reached retirement age and then see it as a natural complement to an individual, non-means-tested, non-contributory basic pension pitched at a higher level, of a sort that already exists in some European countries, like Sweden or the Netherlands. In most proposals, however, the basic income is granted beyond retirement age, either at the same level as for younger adults or at a somewhat higher level. In all cases, this basic income for the elderly can be supplemented by income from public or private contributory pension schemes, as well as from private savings and from employment.
Even on the most inclusive definition of the relevant notion of membership, any population is still likely to contain some people who will not be paid a basic income. Detaining criminals in prison is far more expensive to the community than paying them a modest basic income, even if full account is taken of any productive work they may be made to perform. Unless the detention turns out to have been ill-founded, it is therefore obvious that prison inmates should lose the benefit of their basic income for the duration of their imprisonment. But they can get it back as soon as they are released. The same may apply to the long-term inmates of other institutions, such as institutions for the mentally ill or elderly, to the extent that the full cost of their stay is directly picked up by the community rather than paid for by the inmates themselves.
A basic income is paid to each individual member of the community, rather than to each household taken as a whole, or to its head, as is the case under most existing guaranteed minimum schemes. Even if a benefit is paid to each individual, its level could still be affected by the composition of the household. To take account of the fact that the per capita cost of living decreases with the size of the household, existing guaranteed minimum income schemes grant a smaller per capita income to the members of a couple than to a person living alone. A fair and effective operation of such schemes therefore supposes that the administration should have the power to check the living arrangements of their beneficiaries. A basic income, instead, is paid on a strictly individual basis. Not only in the sense that each individual member of the community is a recipient, but also in the sense that how much (s)he receives is independent of what type of household she belongs to. The operation of a basic income scheme therefore dispenses with any control over living arrangements, and it preserves the full advantages of reducing the cost of one’s living by sharing one’s accommodation with others. Precisely because of its strictly individualistic nature, a basic income tends to remove isolation traps and foster communal life
Relative to existing guaranteed minimum income schemes, the most striking feature of a basic income is no doubt that it is paid, indeed paid at the same level, to rich and poor alike, irrespective of their income level. Under the simplest variant of the existing schemes, a minimum level of income is specified for each type of household (single adult, childless couple, single parent of one child, etc.), the household’s total income from other sources is assessed, and the difference between this income and the stipulated minimum is paid to each household as a cash benefit. In this sense, existing schemes operate ex post, on the basis of a prior assessment, be it provisional, of the beneficiaries’ income. A basic income scheme, instead, operates ex ante, irrespective of any income test. The benefit is given in full to those whose income exceeds the stipulated minimum no less than to those whose income falls short of it. Nor are any other means taken into account when determining the level of benefit a person is entitled to: neither a person’s informal income, nor the help she could claim from relatives, nor the value of her belongings. Taxable “means” may need to be taxed at a higher average rate in order to fund the basic income. But the tax-and-benefit system no longer rests on a dichotomy between two notions of “means”: a broad one for the poor, by reference to which benefits are cut, and a narrow one for the better off, by reference to which income tax is levied.
From the fact that rich and poor receive the same basic income, it does not follow, however, that the introduction of a basic income would make both rich and poor richer than before. A basic income needs to be funded. If a basic income were simply added to existing tax-and-benefit systems, it is clear that the comparatively rich would need to pay both for their own basic income and for much of the basic income of the comparatively poor. This would clearly hold if the funding were through a progressive income tax, but would also hold under a flat tax or even a regressive consumption tax. For the ex nihilo introduction of a basic income to work to the financial advantage of the poor, the key condition is simply that, relative to their numbers (not necessarily to their incomes), the relatively rich should contribute more to its funding than the relatively poor. In most proposals, however, the introduction of a basic income is combined with a partial abolition of existing benefits and tax reductions. If the proposed reform simply consisted in spreading more thinly among all citizens the non-contributory benefits currently concentrated on the poor, the latter would clearly lose out. But no one is making such an absurd proposal. In most proposals that rely on direct taxation, the basic income replaces only the bottom part of the non-contributory benefits, but also the exemptions or reduced tax rates on every taxpayer’s lower income brackets. The immediate impact on the income distribution can then be kept within fairly narrow bounds for a modest basic income. But the higher its level, the higher the average rate of income tax and therefore the greater the redistribution from the comparatively rich to the comparatively poor.
Thus, giving to all, rich and poor, is nor meant to make things better for the rich. But, for a given level of minimum income, is there any reason to believe that it is better for the poor than a means-tested guaranteed income? Yes, for at least three interconnected reasons. Firstly, the rate of take up of benefits is likely to be higher under a universal scheme than if a means test is in place. Fewer among the poor will fail to be informed about their entitlements and to avail themselves of the benefits they have a right to. Secondly, there is nothing humiliating about benefits given to all as a matter of citizenship. This cannot be said, even with the least demeaning and intrusive procedures, about benefits reserved for the needy, the destitute, those identified as unable to fend for themselves. From the standpoint of the poor, this may count as an advantage in itself, because of the lesser stigma associated with a universal basic income. It also matters indirectly because of the effect of the stigma on the rate of take up. Thirdly, the regular, reliable payment of the benefit is not interrupted when accepting a job under a basic income scheme, whereas it would be under a standard means-tested scheme. Compared to means-tested schemes guaranteeing the same level of minimum income, this opens up real prospects for poor people who have good reasons not to take risks. This amounts to removing one aspect of the unemployment trap commonly associated with conventional benefit systems, an aspect to which social workers are usually far more sensitive than economists.
The right to a guaranteed minimum income is by definition not restricted to those who have worked enough in the past, or paid in enough social security contributions to be entitled to some insurance benefits. From Juan Luis Vives (1526) onwards, however, its earliest variants were often linked to the obligation to perform some toil, whether in the old-fashioned and ill-famed workhouses or in a more varied gamut of contemporary private and public workfare settings. Being unconditional, a basic income sharply contrasts with these forms of guaranteed income intimately linked to guaranteed employment. It also diverges from in-work benefits restricted to households at least one member of which is in paid employment, such as the American Earned Income tax Credit or the UK’s more recent Working Families Tax Credit. By virtue of removing the unemployment trap – i.e. by providing its net beneficiaries with an incentive to work – a basic income (or a negative income tax) can be understood and used as an in-work benefit or a top-up on earnings. But it not restricted to this role. Its unconditionality marks it off from any type of employment subsidy, however broadly conceived.
It also marks it off from conventional guaranteed minimum income schemes, which tend to restrict entitlement to those willing to work in some sense. The exact content of this restriction varies a great deal from country to country, indeed sometimes from one local authority to another within the same country. It may involve that one must accept a suitable job if offered, with significant administrative discretion as to what “suitable” may means in terms of location or skill requirements; or that one must give proof of an active interest in finding a job; or that one must accept and respect an “insertion contract”, whether connected to paid employment, to training or to some other useful activity. By contrast, a basic income is paid as a matter of right – and not under false pretences – to homemakers, students, break-takers and permanent tramps. Some intermediate proposals, such as Anthony Atkinson’s (1993a, 1993b, 1996, 1998) “participation income”, impose a broad condition of social contribution, which can be fulfilled by full- or part-time waged employment or self-employment, by education, training or active job search, by home care for infant children or frail elderly people, or by regular voluntary work in a recognised association. The more broadly this condition is to be interpreted, the less of a difference there is with a basic income.
Phrased in this very general way, the question makes no sense. Let us bear in mind that it is not part of the definition of a basic income that it should be sufficient to satisfy the beneficiaries’ basic needs: consistently with its definition, the level of the basic income could be more and it could be less. Nor is it part of the definition of a basic income that it should replace all other cash benefits: a universal benefit need not be a single benefit. A meaningful answer can only start being given to the question of affordability if one specifies the level at which the basic income is to be pitched and stipulates which benefits, if any, it is to replace. Under some specifications – for example “abolish all existing benefits and redistribute the corresponding revenues in the form of an equal low benefit for all” -, the answer is trivially yes. Under other specifications – for example “keep all existing benefits and supplement them with an equal benefit for all citizens at a level sufficient for a single person to live comfortably” -, the answer is obviously “no”. Each of these absurd extreme proposals is sometimes equated, by definition, with basic income. But neither has, to my knowledge, been proposed by anyone. Every serious proposal lies somewhere in between, and whether some basic income proposal is affordable must therefore be assessed case by case
Are there general reasons why a basic income would not be affordable at a level at which a conventional guaranteed income would? One obvious reason might simply be that a basic income is given to all, whether or not they are willing to work, whereas a conventional guaranteed minimum income is subordinated to a willingness-to-work test. As a result, it is claimed, more poor people will be receiving a basic income than a conventional guaranteed income, or, if the number beneficiaries is not much greater, they will be doing less work than would be the case under a work-conditional benefit system. In net terms, therefore, a basic income scheme is certain to cost more.
Closer scrutiny reveals that this expectation rests on feeble grounds indeed. For suppose first that the work test is conceived as an obligation to accept work if offered by some (private or public) employer concerned to get value for money. If the worker has no desire to take or keep the job, her expected and actual productivity is unlikely to be such that the employer will want to hire and keep her. But if the worker is formally available for work, the fact that she is not hired or that she is sacked (owing to too low a productivity, not to anything identifiable as misconduct) cannot disqualify her from a work-tested guaranteed income any more than from an unconditional basic income. The only real difference between the former and the latter is then simply that the former involves a waste of both the employers’ and the workers’ time. Alternatively, suppose that the work test is conceived as an obligation to accept a fall-back job provided by the state for this very purpose. Rounding up the unemployable and unmotivated is not exactly a recipe for high productivity, and even leaving aside the long-term damage on the morale of the conscripted and on the image of the public sector, the net cost of fitting this recalcitrant human material into the workfare mould might just about manage to remain lower than plain prison, with the cost of supervision and blunder correction overshadowing the work-shy workers’ contribution to the national product. The economic case for the work test is just about as strong as the economic case for prisons
As is fully recognised by no-nonsense advocates of workfare (e.g. Kaus 1990), if a willingness-to-work condition is to be imposed, it must be justified on moral or political grounds, not on the basis of a flimsy cost argument inspired by the shaky presumption that a benefit coupled with work is necessarily cheaper than the same benefit taken alone. From the fact that workfare is likely to be costlier than welfare, it does not follow that the “unemployable” should be left to rot in their isolation and idleness. There can and must be a way of helping them out of it, namely by creating a suitable structure of incentives and opportunities of a sort a universal basic income aims to help create, whether or not a willingness-to-work test is coupled with it. Setting up such a structure is costly, as we shall shortly see, but adding a work test will not make it any cheaper – quite the contrary. And the absence of such a test, therefore, cannot be what jeopardises basic income’s affordability.
Of course, the budgetary cost is hugely different in the two cases, and if one could sensibly reason about transfers in the same way as about other public expenditures, there would indeed be a strong presumption that a basic income may be “unaffordable” when a conventional guaranteed minimum income is within our means. But transfers are not net expenditures. They are reallocations of purchasing power. This does not mean that they are costless. They do have a distributive cost to the net contributors, and they do have an economic cost through the disincentives they create. But both costs, we have seen, can be the same under either scheme. In addition, there are administrative costs. But, as also pointed out earlier, assuming a computerised and efficient tax-collection and transfer-payment technology, these are likely to be lower under a universal, ex ante scheme, than under a means-tested, ex post one, at least for a given level of effectiveness at reaching the poor. Paradoxically, therefore, giving to all is not more expensive but cheaper than giving only to the poor.
This is not as terrible as it sounds. The modestly paid workers whose marginal tax rate would need to go up are also among the main beneficiaries of the introduction of a basic income, as the increased taxation of their wage falls short of the level of the basic income which they henceforth receive. The concern, therefore, need not be distributive. Even if one ends up, as in some proposals, with a linear income tax, i.e. if the lowest earnings are taxed at the same rate as the highest ones currently are, the reform would still redistribute downwards from the higher earners (whose tax increase on all income layers would exceed their basic income). However, there is some ground for a legitimate concern about the impact such a reform would have on incentives. As stressed by some opponents of basic income and negative income tax (e.g. the marginal rates would be lowered in a range in which there is a possibly growing, but still comparatively small proportion of the economy’s marginal earnings, while being raised in a range in which far more workers would be affected. The incentive to work and train, to be conscientious and innovative would be increased in the very lowest range of incomes (say, between 0 and 500 Euro per month), but it would be decreased upward of this threshold, where the bulk of society’s work force, and particularly of its most productive work force, is concentrated. We would therefore be well advised not to rush too quickly to a system in which the effective marginal tax rate on the lowest incomes would not be higher than those higher up (see Piketty 1997).