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September 19, 2013

Comments

Bruce

Universal benefits give everyone a stake in the system and that's got to be good for social cohesion. For example, I'm fortunate enough financially not to be in a position to receive state benefits (though not so wealthy that the withdrawal of child benefit didn't hurt). So now I'm cut off from all benefits and my only role in the system is as a taxpayer. And that's not just a life-stage thing. The nature of my profession is that if I lost my job I would get by temporarily on freelance work rather than claim benefits and in all probability by the time I retire universal pension will have dribbled away to nothing, at least for those who have made other provision. Basically, the benefits system is for other people. I'm not complaining; this is all very nice for me. But a lot of people are in my situation and I worry that it risks increasing divisions (class divisions) in society, with less understanding and fewer connections between those dependent on and independent of state benefits.

mike smitka

Tokyo has a variation on this (based on the situation when my kids did a year in a local elementary school in 1991-92: school lunches are mandatory, but mothers could quietly apply to have the fee waved. So everyone at the same food, which was both edible and healthy (and eaten in the classroom with kids required to take turns serving, and all had to clean up their own desk). My recollection is that the fees were quite low, so I presume there was also a direct subsidy (eg purchased costs but not capital costs or perhaps even the head cook's salary). My kids didn't know who may have been paying and who was eating a free lunch. And there were kids in cubbyhole apartments and others from families in multifloor single-families houses that were wealthy. (In wide swaths of Tokyo such housing is mixed together; my kids played with kids from both extremes, visiting each others' residences.)

This does not however speak to your efficiency argument, though this certainly meant mothers did not have to spend time making box lunches and surely lowered total time (wo)man-hours spent fixing school lunches.

weareastrangemonkey

I think Chris has got this plain wrong on the efficiency front. Lets put some rough numbers on this.

Currently a single unemployed person receives about 5000 PA in JSA and Housing Benefits. Many unemployed people receive more than this but lets take this as the minimum we ought to be giving people who do not have other sources of income. Under the current means tested system we have 2.5 million unemployed so we need to raise 12.5 billion a year (plus admin costs) to provide a (low-ball) benefit like this. Total national earnings are 1.5 trillion so we need to raise 1.25% of GDP to cover this amount.

If we want to give every adult of working age (so we don't need to think about kids and pensioners) a basic living income of £5000 per annum we need to raise something like 150 billion (plus admin costs) which is more like 10% of GDP.

So which will be more distortionary, raising funds equal to 10% of GDP or equal to 1.25% of GDP?

Well the means tested way does imply very high marginal rates for the unemployed. Say they get a job for !0K PA they face an implicit 50% tax rate in the sense that they lose their JSA and Housing Benefits. Distorting the 2.5 million least productive (in the sense of earning money) workers incentives with a 50% effective tax rate is never going to distort the economy as much as raising taxes by 8% on the other 30 million adults in the economy.

Consider that if all the unemployed were working minimum wage jobs instead that they would be raising 25 billion PA. If an 8% tax hike on the rest of the economy caused a 1% fall in GDP then the cost to the economy would be 15 billion. To get a similar distortion from means testing we would need to assume that 60% of the unemployed are only unemployed because they face a 50% tax rate on their first 10K.

This isn't to say that I am necessarily against a basic living allowance, but we need to recognise that if we want to make sure that the worse off in society are well treated that it will be a lot more expensive and quite inefficient by the narrow technical definition to which Chris referred.

Luke

weareastrangemonkey, You talk about the distortion of raising the tax necessary to pay a a basic income. I can see that point.

But how much distortion is there when it gets paid straight back? I haven't done the sums (probably couldn't), but for most people in work won't it mean paying a bit more tax, and getting roughly the same back? They're already paying for the unemployed.

Obviously there will be some winners and losers, but how much distortion would it cause?

Johnrusselldickson

this is interesting on the impacts in NZ:

http://nihi.auckland.ac.nz/sites/nihi.auckland.ac.nz/files/news/ANA%20BISkIT%20presentation.pdf

Doug

I don't think some people can begin to grasp how psychologically devastating any form of means-testing is for those at the receiving end of it. I remember in the 1960s/1970s my grandmother talking about its effect in the 1930s and still getting quite emotional about it.

タイメックス 時計 アイアンマン

Wow that was unusual. I just wrote an very long comment but after I clicked submit my comment didn't show up. Grrrr... well I'm not writing all that over again. Anyway, just wanted to say great blog!
タイメックス 時計 アイアンマン http://watches.flashead.com/タイメックスtimex-時計-watches-7.html

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