A Quick Note on a Universal Basic Income
economy in which average income is $50,000 but with much income inequality. To provide a social safety net, two possible
policies are proposed.
A. A universal transfer of $10,000 to every
person, financed by a 20-percent flat tax on income.
B. A means-tested transfer of $10,000. The full amount goes to someone without any
income. The transfer is then phased out: You
lose 20 cents of it for every dollar of income you earn. These transfers are financed by a tax of 20
percent on income above $50,000.
I have seen
smart people argue as follows: Policy A is crazy. Why should Bill Gates get a government
transfer? He doesn’t need it, and we would need to raise taxes more to pay for it. Policy B
is more progressive. It targets the transfer to those who really need it, and
the transfer is financed by a smaller tax increase levied only on those with above-average incomes.
But here is
the rub: The two policies are equivalent.
If you look at the net payment (taxes less transfer), everyone is
exactly the same under the two plans. The difference is only a matter of framing.