Moving towards an age of economic abundance?

With lesser and lesser number of people living below the poverty line, the world is certainly becoming a better place to live in. But, can we completely eradicate poverty from the globe? Can we reach a stage where everyone has enough money to afford the basic necessities of life? The answer is yes. The two possible ways to do so are Universal Basic Income (UBI) and Negative Income Tax (NIT).

Universal Basic Income is a fixed amount, at a level sufficient for subsistence, given by the state to all its citizens regardless of income or work status. UBI proposals suggest that money be distributed at scheduled intervals – a week, a month, or even a year. Some economists suggest that it should be a complete alternative to the welfare system of the government, whereas others suggest that UBI should be supplementary to the existing welfare system, wherein the government should continue to spend on crucial welfare services like education and healthcare. Furthermore, discussions are being held whether non-adult population, pensioners, and inmates (prisoners, lunatics, etc.) should be entitled to UBI or not.

Negative Income Tax, on the other hand, is a system suggested by, among other proponents, economist Milton Friedman in his 1962 book Capitalism and Freedom. It was originally suggested as an alternative to the welfare system of the United States of America. In layman terms, NIT is a system where people earning below the threshold for tax liability receive supplemental pay from the government instead of paying taxes to the government.

NIT proponents envisioned it as a mirror image of the progressive tax system where tax liabilities of above-the-threshold taxpayers vary positively with income according to a tax rate schedule; tax benefits of below-the-threshold taxpayers vary inversely with income according to a negative tax rate schedule. Taxpayers with income above the threshold would pay taxes as a percentage of the positive difference between their income and threshold income, whereas taxpayers with income below the threshold would receive NIT refundable credits as a percentage of the negative difference between their income and threshold income.

Let us understand this with the help of a simplified example. Let the threshold for positive tax liability for a family of four be $10,000 per annum, and the tax rate be 50% of income. A family with only $8,000 of annual income would receive a cheque from the Treasury worth $1000 (50% of the $2,000 difference between its $8,000 income and the $10,000 threshold). A family with zero income would receive $5000 (50% of the $10,000 difference between its zero income and the $10,000 threshold). Similarly, a family with $40,000 of income would pay a tax of $15,000 (50% of $30,000 difference between its $40,000 income and the $10,000 threshold) to the treasury.

The major difference between UBI and NIT is that UBI covers all economic sections of the society: the rich as well as the poor. But, NIT aims to provide assistance only to the poor section of the society, i.e. people having income below the tax liability threshold. As a result, UBI is much more expensive and puts a greater financial burden on the government as compared to NIT.

However, both of them share some common advantages and disadvantages. Both, UBI and NIT ensure more equitable distribution of income and wealth, provide insurance against unemployment, and help to remove poverty from the world. Both of them are relatively easy to implement as they are often seen as an alternative to targeted welfare schemes, which need extensive groundwork to identify disabilities and beneficiaries and auditing to ensure that there is no leakage. They could help counter the corruption that mars welfare measures and ensure efficient use of revenue. Another common benefit is that guaranteed minimum income grants individual liberty, giving people the freedom to spend it in any way they choose and opt the kind of work they would want, rather than be forced to take up undesirable jobs to meet necessities.

UBI is gaining momentum day by day, with many billionaires like Bill Gates, Mark Zuckerberg, and Elon Musk, supporting the idea. Elon Musk in an interview exclaimed that unemployment due to automation will compel us to implement UBI globally. He said, “I don’t think we are going to have a choice. There are fewer and fewer jobs that a robot cannot do better.” UBI pilot programmes are sprouting up all around the world, with Finland being the pioneer and other countries like India, Italy, Switzerland, France, USA, among others, following it.

But many countries like Finland and Switzerland have decided to opt out of UBI and not implement it in their countries. One of the major reasons is that the cost of implementing UBI for the entire population of the country will be immense, along with massive expenditure incurred on the current welfare system. The governments and the people are not in favour of removing the welfare system, because if it is removed, then people will have to depend on the private sector for all types of goods and services. The private sector might misuse this power to maximise its profit, which might have dire consequences, especially in sectors like education and healthcare. Other reasons include exploitation of individual liberty by the people. There is no surety that individuals would spend their money to achieve socially desirable education, health, or nutrition levels. Instead, many of them might become lazy and indolent, may opt out of the labour market, and spend money on temptation goods such as alcohol, tobacco, drugs, etc.  

Let us now come to India, the fastest growing economy in the world. The Economic Survey 2016-17 has proposed quasi-universality of UBI in India by ensuring basic income to any one of the following sections of society:

bottom 75% of the population

women, who generally face worse prospects in employment opportunities, education, health or financial inclusion

certain vulnerable groups such as widows, pregnant mothers, the old and the infirm

Although quasi-universality of UBI seems attractive, it can be hard to implement due to lack of proper infrastructure. A large unbanked population, lack of ATMs and commercial banks, inactivity of Jan Dhan accounts, authentication failures in Aadhaar, poor mobile network connectivity, etc. are some of the problems which hinder the execution of UBI.

At last, comes the big question. Can UBI or NIT be implemented all around the world at present or in the future? Are we educated and mature enough to think the best for ourselves at all times? Should we get rid of the public services of the government? Can we develop a mechanism that prevents the misuse of money by people and of power by the private sector? Can all the nations bear the exorbitant cost of implementing UBI or NIT? Before proceeding any further, we need to find solutions to these significant questions. Only then, these revolutionary ideas will bring a positive change in the world.

 

By Sanjana Chandaliya

 

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