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  • Ofer Setty

Universal Basic Income: An enticing idea that won’t work without proper funding

Updated: Aug 25, 2022

One of the reasons for the popularity of this idea – whereby the state transfers an unconditional, fixed periodic stipend to each resident – is that it can be carried out in very different ways. However, its subtext is problematic, as are the methods of implementation.

The idea of a universal basic income – a fixed periodic stipend given to each resident without any conditions – has been gaining momentum in recent years. The reactions to the matter are varied: On the one hand, those on the economic right, who are bothered by the bureaucratic burden, view the program as an opportunity to simplify the welfare system and eliminate the association between residents’ socioeconomic status and the resources provided to them. On the other hand, those on the economic left view the policy as an opportunity to establish a new social order that will enable people to enjoy occupational freedom.

One of the reasons for the popularity of this idea is that it can be accomplished in very different ways. The key question, however, is whether it should be an extension of the existing welfare programs or whether it should be a separate program that replaces existing welfare programs (or at least part of them). In any event, it refers to resource distribution via a progressive tax. The degree to which a tax can be progressive is one of the most loaded questions in economics. Contrary to how it may appear, there is no clear conclusion about the impact of taxes on the economy. Taxation is a complex matter, and the manner of taxation in addition to how the government spends the money, are just as important as the tax rate.

Let’s take for example the matter of income tax. In Israel, the average income tax rate is 22% -- ranking fifth from the bottom among OECD countries. It’s difficult to predict how raising taxes towards the OECD average of 36% will influence the labor market in Israel, mainly because taxes can be increased in various ways. However, there is a relatively broad consensus that taxation can reduce inequality and increase the well-being of weaker segments of the population. Therefore, even if we accept the assumption that raising taxes will harm economic growth, the ethical consideration of what should take precedence – economic growth or well-being – is almost non-existent in public discourse.

Another important point concerns total expenditure. A not particularly high universal income payment of 2,000 shekel (~ 600 USD) a month per resident would amount to about 17% of GDP, close to half of the government’s budget. How about if we provide a stipend to only those between the ages of 19 and 64 (since children and the elderly already receive allowances)? This type of program would be comparable in percentage of GDP to Joe Biden’s plan (“once in a generation investment”), which aims to rebuild US infrastructure over a span of eight years! Therefore, even if it is possible to raise the funds needed for a universal basic income, one must consider whether it would be preferable to invest that money in improving infrastructure, education, heath, etc.

What about the option of funding a basic income program at the expense of existing welfare programs? Even if we completely cancel all allowances from the National Insurance Institute, as well as the Ministry of Welfare and Social Services, we will only raise about half the amount that it would cost to fund a basic income program – at a rate of only 1,000 shekels a month per resident. Such a move would crush the welfare services in Israel, and consequently, the money currently allocated for the elderly, the disabled, those injured at work, the unemployed and others, would be distributed among all residents of the country. This move is not politically, socially or ethically feasible.

One final point: The discussion surrounding universal basic income can, at times, focus on an individual’s freedom from work. The subtext, therefore, is that work is a terrible thing, an outcome of a system that has us working too hard and diminishes our opportunities for self-expression. Therefore, the call for freedom from work is, in essence, driven by people’s submission to a social system that sanctifies commodities rather than a system that recognizes the value that work can provide to individuals and society. The preferred alternative is a system in which work is desirable, in which people work for a reasonable number of hours, and one which leads to the creation of personal, social, and economic value.

In the meantime, even though a lot of people find this policy appealing, in the absence of a sensible funding strategy – this policy will simply not work for us.



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