How to grasp the cost of a basic income ?

The last French presidential campaign, in particular the civic primaries of the left, made it possible to bring out the idea of the basic income in the opinion. This has suddenly become the object of numerous discussions, heated debates, as well as more or less well-documented press articles.

The question of its cost, one of the cornerstones of the project, comes back regularly and gives rise to debate. In this context, the divergences of point of view often show a certain ignorance of the subject, but especially reflect both the look and the angle of analysis of the French. Two approaches are opposed, one based on the appreciation of the gross budgetary cost, the other on that of the monetary transfer from the most favored households to the low-income households.

Our citizens receive conflicting information about the cost of a basic income.

Critics of basic income focus almost unanimously on its gross budgetary cost, which is indeed very important, ranging from 348 billion euros (« realistic » version: 250 euros per month for those under 18 and 500 euros for adults) to 522 billion euros (« generous » version: 375 euros per month for under 18s and 750 euros for adults). The argument that consists in comparing it with the amount of the State budget, around 400 billion euros in 2016, very often mentioned, reinforces this sense of abysmal cost.

Similarly, the journalists who organize debates on the subject often ask the question of what would be the consequence of the increase of the rate of compulsory deductions compared to GDP, of which we know that it is already, in France, among the most high. The gross cost thus proclaimed seems a difficult obstacle, if not impossible, to cross.

Its promoters, on the other hand, present its cost rather from the point of view of its redistributive effects, evoking the fact that the new tax revenue to be put in place would be affected in its entirety only for the financing of the basic income, so that its real cost would be that of the transfer of the rich to the poor, amount which is, in all cases, much lower than the gross cost. Thus, a basic income of 250/500 euros, in terms of gross cost, would amount to about 348 billion euros, while the redistribution it generates would only be about 80 billion.

But some say loud and clear that, if one imagines an amount close to that of the actual guaranteed minimum income (Revenu de Solidarité Active) and its implementation in the context of a tax reform, « it would not cost money ». It is also possible to hear or read words that « a basic income would not make any losers … » This type of speech certainly incorporates non-monetary elements, but it is, to say the least, misleading.

It is necessary to clarify the presentation of its effects

So, because of so many disparities, because of so much contradictory information, how to see clearly ?

The basic income is today a fuzzy and confused object in the minds of people who participate in debates or conferences. This public is often completely lost, especially for the appreciation of its cost, as well as its feasibility, not knowing who to believe and, in doubt, it often expresses the idea that it is lying to him, considering that it presents him information thst is truncated or erroneous.

The overall amount of funding, which would be provided by a renewed taxation, is intended to be used to pay the only basic income, paid either as an allowance or as a tax credit. It does not call into question the financing of the sovereign expenses of the State budget. The answer to the public in doubt is therefore that the evaluation made in terms of the gross cost of the basic income is meaningless, and that made from the point of view of the redistributive policy is the only correct one.

However, this kind  of presentation should in no way overshadow the logic and effects of the redistribution that would ensue, therefore the unavoidable consequences for the French, namely a change in the amounts paid in taxes and benefits received, so the emergence of winners, but also of losers.

For this purpose, in order to inform the debates, the presentation of the basic income should be systematically accompanied by information on its effects on the disposable income of the French [1], in particular according to various family configurations. This information could be done using a document similar to the one presented below, for the most important family configurations. It would allow everyone, on the one hand, to position themselves in the hierarchy of income, and on the other hand to assess whether, depending on the level of his income, he would become a winner or a loser. Similarly, to the extent that the audience often expresses the idea that, having a basic income, it would reduce his working time, he could thus visualize how, under this hypothesis, his disposable income would evolve.

The table below shows that disposable income with a basic income falls much more slowly than in the current situation without a basic income, which is an effective incentive to reduce working time.

Example of a document showing the evolution of disposable income [2]

Evolution of disposable income for a mono-active household with 1 child (in euros per month)

Capture

Micro-simulation performed with the Openfisca micro-simulator – Openfisca

Without this kind of information, the public can not understand the real issues of funding based on redistribution of income. At the extreme, he could imagine that everyone would be a winner, which the reaction of the people met sometimes shows.

However, it is clear that the evolution of disposable income would not be without effects, making winners and losers, on the one hand in a horizontal way between the different family configurations, and on the other hand in a vertical way in to the extent that obviously the richest would be more losers. Without having taken the precaution of informing the public on the issue of the consequences of the evolution of redistribution, any presentation of the basic income is thus biased, even misleading.

The following two scatter charts clearly show, for a basic income of 250 euros per month for children under 18 and 500 euros for adults, the winners (above the diagonal), and the losers (below), for single individuals, as well as for couples. These graphs show that single individuals are much faster losers than couples.

Individuals alone

Couples

A global vision of income redistribution is essential

Some advocates of basic income rightly consider that the redistributive logic of its fundind allows to consider that it is fundamentally different from that which prevails for the coverage of state expenditure sovereign, and should therefore be managed outside the State budget. They imagine a system managed autonomously by an organization compared to the National Family Allowance Fund.

This kind of proposal is an opportunity to recall that, traditionally, as the economist Richard Musgrave defined it in 1959, the State has to face 3 main functions: the allocation of the resources, the regulation of the economic situation, as well as the redistribution of income. Appreciated in a generic way as a public authority, therefore including local authorities, the State budget is therefore the only way to define and manage the redistribution of income.

Thus, whatever the management mode of funding a basic income, it should be borne in mind that it is part of the overall logic of income redistribution decided by the State. It can therefore be envisaged only through the State budget.

This redistribution is in no way a zero-sum game

It is also important to take into account the fact that the appreciation of the vertical transfer of a sum of money from the pocket of the most favored to the pocket of the poor can not be reduced to its monetary aspect alone. Indeed, the structure of the various levies put in place would mechanically modify the distribution of income between households, thus creating an impact in terms of efficiency, since it would affect the behavior of agents who might have an interest, for example, in reducing their labor supply and, for high incomes, to make tax optimization or even to emigrate to countries that are more tax-efficient. As a result, the available resources of the economy would be modified. The redistribution of income can not therefore be considered a zero-sum game.

The establishment of a basic income requires the emergence of a new social contract

As experimentation in the 1970s in Dauphin, Ontario (Canada) has shown, the introduction of a basic income will certainly have positive effects in terms of education and health. It is also easy to imagine that savings would be achieved by reducing the controls currently exercised by the paying agencies. The notion of cost which is the subject of this article should therefore be qualified. However, in the absence of a study on these possible impacts, we can only now reason on the basis of an accounting and non-economic definition of this cost.

Similarly, if indeed opponents of the basic income are mistaken in appreciating its cost from the sole point of view of its gross fiscal cost, and if its real cost is that of the net transfers of the most favored households to low-income households, to present it as a reform without any financial or economic impact would be a mistake, which would inevitably deceive the citizens.

Finally, it is clear that a basic income can emerge only in the context of a new social contract which, in essence, must inevitably be based on the acceptance by the more advantaged persons to pay a larger portion of their income in favor of the poor, the importance of this new contribution depending on the amount of basic income that would be distributed. These are the limits of the tax burden which, fundamentally, will be a major constraint to its design and implementation.

Robert Cauneau, activist for a Basic Income, member of MFRB

Image : fotomelia.com

 


Notes :

[1] The concept of disposable income, as defined and used in this article, corresponds to the amount of net wages + all social benefits – the income tax and – the housing tax.

[2] The hypotheses on which the data in this table have been calculated, as well as those used to draw up the graphs presented below, have been retained only for the demonstration presented in this article, notably that of the emergence winners, but also losers. They are sometimes the consequence of technical constraints inherent to the Openfisca micro-simulator, constraints that will certainly be quickly lifted. But they are not in any way the reflection of any preference of the author of this article, which will have the opportunity, in future publications, to formalize well-argued proposals that may eventually serve as a basis for the work of the members of the MFRB. It is essentially:

  • the allocation of a monthly basic income of 250 euros for under 18s and 500 euros for adults

  • maintenance of income tax

  • maintaining the generalized social contribution (CSG)

  • the implementation of a proportional CSG of 22.5% on the whole of the income, taken from the first euro to finance the basic income

  • maintaining the reductions of employers’ charges on low wages;

  • removal of the RSA and the Activity Bonus

  • the abolition of family allowances and the family supplement

  • the removal of the back to school allowance

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