3

Proposals for basic income of some sort are currently popular. Some of these proposals are universal (everyone gets the same amount), whereas others would adjust for income, such that a millionaire might get less than someone with no income. However, wealth disparities are often greater than income disparities.This suggests the possibility of a basic income with some sort of net worth adjustment. There could be some upsides, such as reducing racial and general wealth disparities better than other forms, but it's possible things wouldn't be so simple.

How effective would a basic income of this sort be at achieving its goals (e.g. reducing income inequality, ensuring a livable situation)? What downsides would it have relative to universal or income-adjusted basic income, if any?

  • I doesn't seem to have garnered much interest (besides you and me). I did find a US study on changing the means test for their social security from income- to wealth-based. I doesn't draw any conclusions besides noticing some distributional changes austaxpolicy.com/… published version doi.org/10.17310/ntj.2017.1.04 – Fizz Apr 4 at 4:52
  • Whenever I see UBI related topics, it seems there is a strong tendency to avoid talking about windfall tax. inheritance tax, etc. Without those, you cannot patch the fundamental problem of capitalism that have cause wealth concentration and monopolised of goods and services (which render all basic income adjustment useless). – mootmoot Apr 4 at 7:22
  • @mootmoot - Well, net-worth-indexed UBI might possibly push things a little in that direction. – Obie 2.0 Apr 4 at 7:32
  • Do you know that most people who support the UBI have a tendency to abolish social safety net ? Without a well defined social safety net, all the basic needs can be commoditized for profit than provide as well being of general public. – mootmoot Apr 4 at 7:46
  • 1
    What is the difference between basic income adjusted for income or wealth and means-tested welfare adjusted for income or wealth? – Lag Apr 4 at 16:01
5

There are some general comments/downsides to asset/wealth limits as a means test of any kind of welfare program:

Asset tests can create a disincentive to save among families who might subsequently qualify for benefits. Sometimes one additional dollar of assets can result in the loss of thousands of dollars per year in public assistance benefits. This raises the question: Do asset tests actually discourage savings and reduce asset accumulation among families who might qualify for public assistance benefits? At least one influential paper says yes. Hubbard, Skinner, and Zeldes, in their 1995 article, interpret the low levels of wealth accumulation among low-income households as a rational, utility-maximizing response to asset-based, means-tested welfare programs.

Note however that often a combined assets and means is used in current US programs... (The quote is not exaggerating the influence of that study; it has over 1,500 citations in Google Scholar. Potentially there is a lot more research on this then. I'm not terribly familiar with it though.)

A more recent (2015) study, also focused on the US, analyzes the optimal trade-off point:

This paper quantitatively determines the asset limit in income support programs which minimizes consumption volatility in a lifecycle model with incomplete markets and idiosyncratic earnings risk. An asset limit allows allocating transfers to those households with the highest utility gains from extra consumption. Moreover, it serves as substitute for history and age dependent taxation. However, a low limit provides incentives for high school dropouts to accumulate almost no wealth. Consequently, they miss self-insurance and suffer from high consumption volatility. For an unborn, these effects are optimally traded-off with an asset limit of $145,000.

So perhaps a fair program (at least in the sense of balancing incentives) can be devised. The latter study also notes that

Partly driven by these concerns, recent reforms greatly relaxed the asset means-test (see Federal Budget, 2011). However, some level of means-testing may actually increase social welfare, because it allocates transfers to those households which have the largest utility gains.

I'll also note that the OECD does measure asset poverty. Furthermore they measure separately liquid asset poverty.

enter image description here

  • Considerable overlap between income and asset poverty (~75% on avg.), though the degree of coincidence varies across countries;
  • Many of those who are not income poor lack adequate ready assets to buffer economic shocks. Economic vulnerability is typically at least three times as high as income poverty;
  • Great cross-country variation in both liquid asset poverty and economic vulnerability

At least the middle bullet there is an argument to consider asset-based means tests. But also note the substantial overlap with income poverty (1st bullet).

Also

  • Asset poverty rates are critically sensitive to the type of assets (liquid financial vs net wealth) and the length of the spell considered (3 vs 6 months).

  • The larger the concept of wealth and the longer the spell, the higher the asset poverty rates.

  • On average, liquid asset poverty is 3 times higher than net worth poverty

So that's another issue with asset-based tests, they seem quite sensitive to how wealth is measured.

enter image description here

General patterns. Liquid asset poverty is highest for households headed by:

  • Single parents;

  • Poorly educated people;

  • Employees;

What appears from this is that liquid-asset-based basic income may end up subsidizing a lot employees, so that may be objectionable to some.

And basing on net worth may have other problems, regional housing price variation for one. That would have to be corrected for.

  • 1
    "Sometimes one additional dollar of assets can result in the loss of thousands of dollars per year in public assistance benefits." That's true, but its due to rather careless design at best. I don't think it's an inherent flaw with all such systems. – Obie 2.0 Apr 4 at 5:11
  • @Obie2.0: there might be more research on different schemes in other countries. – Fizz Apr 4 at 5:12
-3

If everyone had the same salary regardless of skill or ability required for their job then nobody would strive for more because there is no incentive to work harder. I'm in tenth grade and can relate to this; if there was no pay raise for a harder job then I wouldn't have decided to take the college track. If there's nobody to fill stressful high skill level jobs, then society would start to crumble. Government would then assign career paths and you would lose your freedom to choose how to live your life. Picture a dystopian society like in "The Giver" where you are bound to your community and job because that role must be filled.

  • 2
    This seems like an implausible outcome. It also seems to be based on a situation not described in the question – Obie 2.0 Apr 4 at 5:09
  • It is an extreme example, but in the end society would become stagnant without the motivation of a reward system and what greater reward system is there than capitalism. lol – ReidM Apr 4 at 5:13
  • 4
    I don't think the question suggested either abandoning capitalism or setting all income to a fixed level. – Obie 2.0 Apr 4 at 5:14
  • I just reread the question and see that he's basically suggesting extreme taxation based on net worth. This still would stop millionaires from developing their wealth at some point. If their total income was less than that of someone on unemployment benefits (as stated in the question's example) then their expenditure would have to be less than that to further grow their wealth. Eventually they would reach a point where it would be impossible to gain anymore net worth. – ReidM Apr 4 at 5:23
  • Without the ability to gain anymore wealth rich individuals would look to move away from the country and that would hurt the economy. I also think Fizz makes a better point, that this would discourage saving. – ReidM Apr 4 at 5:28

You must log in to answer this question.

Not the answer you're looking for? Browse other questions tagged .