The Big Choice About How to Implement Basic Income
Bit-by-bit, or all-at-once?
There are many potential benefits to introducing a Basic Income system. It could reduce poverty, provide greater financial security for millions of people, reduce stress levels, save on bureaucracy, improve work incentives, boost productivity, foster creativity and make a lot of people much happier — for starters!
Not everyone is yet fully convinced about the benefits and feasibility of a Basic Income system — so there’s clearly more explaining and persuading to be done. But as support for Basic Income grows and we get nearer to the stage of having widespread agreement that we should introduce a Basic Income system, one of the big issues we’re going to have to deal with is the question of how a Basic Income system should be introduced. In other words:
How should we transition from the tax and welfare system currently in use, to one built upon a Basic Income?
The exact answer will naturally depend on the specific country in question, but there are two broad, alternative approaches that could be applied: ‘The Incremental Approach,’ and ‘The D-Day Approach.’ We should think very carefully about this, because the approach we pick could be a major factor in determining whether Basic Income will be introduced successfully, or whether the whole idea might be quickly abandoned.
The Incremental Approach
With an incremental approach, Basic Income will only gradually replace existing welfare schemes, over a number of years.
What could happen is that a sort of mini Basic Income would be introduced. It would be far less than the amount a person would need to be able to actually live on. It might even be a really small amount, such as 10 dollars/pounds/euros per person, per week. Other welfare schemes would remain in place — although some welfare payments might be reduced by a similarly small amount. And there may be some very minor adjustments to some tax rates.
Then, the idea would be for these ‘Basic Income’ payments to be gradually increased over a number of years, alongside gradual increases in some tax rates, the gradual withdrawal of some tax allowances and the gradual reduction of some other welfare payments. This would continue until, eventually, we each have a full Basic Income, sufficient to pay for essentials. At this point, several current welfare schemes could be discontinued entirely.
The thinking behind taking such a slow and incremental approach is straightforward: People are less likely to get panicky over changes that take place only gradually.
Some people — rightly or wrongly — are apprehensive about the idea of introducing a Basic Income system. They may be concerned about the effect it could have on the economy, or on the government’s finances. Or they may simply be concerned that their personal financial position might be adversely affected.
As with almost any changes that are made to a tax and welfare system, there will be winners and losers, in terms of the immediate effects those changes have on people’s personal finances. Some people currently in receipt of welfare payments, might get less under a Basic Income system. And for some taxpayers, the extra money they receive as Basic Income will be outweighed by the additional taxes they must pay.
Such changes may be fair and reasonable. But anyone who experiences a sudden drop in their disposable income is likely to complain, no matter how fair and reasonable the changes might be. And this could obviously cause political problems. People may be less likely to complain, however, about changes that only take place gradually. They’ll have more time to get used to those changes and so may not experience the sort of shock or upheaval that a sudden change might precipitate.
There are serious problems, however, with such an incremental approach to introducing Basic Income. And one of the most fundamental problems with this approach, is that it requires that many existing welfare schemes will continue to operate alongside Basic Income. And this will mean that many of the major advantages of a Basic Income system won’t be realised for some time.
We won’t be able to get rid of all that means-testing-related bureaucracy. We won’t be able to get rid of the poverty trap. We won’t be able to get rid of many damaging disincentives to work, caused by means-testing. And during much of the transition period, we might actually have a more complicated tax and welfare system than we have at the moment.
And this situation is not just wasteful in terms of resources. It invites considerable political problems. We’ll have ongoing upheaval, without being able to benefit from the full advantages that a full Basic Income system should provide. You’ve then got the possibility that the idea of Basic Income will lose favour.
And when politicians look to make cuts, it might be all too tempting for them to cut back on Basic Income — especially if a new government comes in that didn’t support the Basic Income idea in the first place. They’ll say they want to ‘focus their efforts on helping the most needy’ — which is just a sly way of saying they’ll increase their reliance on the unfair means-testing systems that Basic Income is supposed to enable us to get rid of.
And if they do that, there will then be a real risk that the whole Basic Income idea could be abandoned entirely — not because there was anything wrong with the full Basic Income system we were supposed to be heading for, but because of the complexity, cost and ineffectiveness of the elongated transitional period.
The D-Day Approach
Under this very different approach, there will be a single day (probably at the very start of a new tax year) on which:
- A full Basic Income, sufficient to pay for essentials, will be introduced for all resident citizens.
- Several legacy welfare schemes will be discontinued or heavily modified.
- Personal income tax allowances will be discontinued.
- Various tax rates will be increased.
That is a lot of major changes. And some people will argue that it’s too much change for one day.
It’s worth noting, however, that it should be a change from a complicated system to a much, much simpler system. Lots of complicated, means-tested, bureaucracy-heavy welfare schemes will instantly become unnecessary. They’ll be replaced with a much simpler Basic Income. And because personal tax allowances will also be replaced by Basic Income, the tax system will be very significantly simplified, too.
Furthermore, whilst all these changes will take place on a single day, they can all be announced a long time in advance of D-Day, giving us lots of time to prepare people for those changes.
Perhaps the biggest objection to such an approach, is that it will bring about a rather sudden change in some people’s incomes. The winners aren’t likely to be complaining much, of course, but people who see a sudden and significant fall in their overall disposable income will be very likely to complain.
Most ‘losers,’ however, may only be seeing quite a small fall in their income. The biggest losers are likely to be very rich people (for whom tax rises outweigh the Basic Income payments they will be receiving) and those people who did unusually well out of existing welfare schemes, because they were able to qualify for a lot of different welfare payments at the same time.
And it is also arguable that a sudden change is not unreasonable, so long as the new system is fair and so long as people have had plenty of warning about the changes and what they will mean for their personal finances.
The big advantage of the D-Day approach is that, from day one, we can start to reap many of the major benefits of having a Basic Income system. From day one, everyone will have the full boost to their financial security and peace of mind that a full Basic Income should provide. From day one, we will be immediately relieved of a vast amount of the bureaucracy that legacy welfare schemes required. From day one, a lot of poverty-trap problems and damaging disincentives to work will be gone. From day one, people will have the freedom to make better career choices and be better able to take up educational and training opportunities.
And with all the major changes taking place at once, there should be less future upheaval to worry about — in terms of changes to the tax and welfare situation. There will be some adjustments, no doubt, but the biggest upheaval will be out of the way very quickly, allowing people to plan more effectively for the future.
As you’ve probably guessed, I’m generally in favour of the D-Day approach. It’s highly possible, however, that the first government to get serious about Basic Income, will decide that an incremental approach is more politically acceptable.
What I say, however — besides the arguments I’ve already given — is that the introduction of a full-blown Basic Income will be a momentous day and I think it may be perfectly fitting to treat it as such.
Any upheaval involved can be quickly got over and we can get on with enjoying living in a society in which no-one has to justify themselves to the state, or to exploitative employers, in order to be judged worthy of having enough food, warmth and shelter to keep themselves alive. And that will be the sort of ‘shock to the system’ we can actually look forward to.
