Report says basic income may not reduce poverty, advocates firmly disagree

"Make poverty history" poster seen in Hackney, London. (Credit: stanjourdan / Flickr)

As the global economy stares down the barrel of rising inequality and increased automation, more countries are toying with the idea of a universal basic income. But a new report by the Organization for Economic Cooperation and Development (OECD) is less than enthusiastic, saying that without significant tax hikes, a basic income would do little to reduce poverty and even exacerbate it in some cases.

That conclusion is very problematic for a welfare reform that advocates bill as a solution to poverty. A small safety net of cash distributed to everyone regardless of income level or employment status, prevents people – but especially the poor – from slipping into destitution.

Finland, for example, is almost five months into a two-year experiment in basic income, and so far many of the recipients are already reporting lower levels of stress. Every month, the country’s social security institution pays out $600 to 2,000 people who are enrolled in unemployment, and that payment will continue until 2019 even if they find jobs. Whether they choose to stay home to care for elderly parents, turn down unappealing jobs, take a low-paying job or start a business, they have some measure of financial stability.

RELATED  India says it's time to seriously consider universal basic income

According to the OECD, it is a simple welfare solution that cuts down on bureaucracy. However, in its policy brief published yesterday, it examined the financial feasibility, and the conclusions were not encouraging.

According to the report, if all existing benefits for the working-age population were scrapped and the funds spread equally, the amount would fall far short of eradicating poverty and be less than what some beneficiaries currently receive. On the other hand, a basic income amount set at the poverty line for a single person would be very expensive and require additional taxes.

Looking at simulated scenarios in a few countries, the report concluded that poverty rates would actually rise in the U.K., France and Finland with a basic income and would remain about the same in Italy. However, middle-income households would gain the most, particularly in France.

But basic income advocates disagree on a number of points. For one thing, it’s not actually a basic income if doesn’t lift people above the poverty line. The report also suggests that achieving a basic income amount at that level would require immense increases in personal income tax. However, advocates see many sources of potential financing, such as a carbon tax, tax on automation, closing tax loopholes for corporations and a combination of other tax reforms.

Ultimately, supporters say that funding a basic income is fundamentally different from funding other benefits, “because for the vast majority of people it works like a tax rebate,” Karl Widerquist, an economist at Georgetown University-Qatar, wrote in a post for Basic Income News. His calculations, which are currently under peer-review, conclude that the cost of basic income are far more reasonable.

RELATED  Costa Rica still steadily lifting people out of poverty

Regardless of concerns posed by the OECD and others, many countries, political parties and even private initiatives are forging ahead in talks and promises of basic income trials. It’s a solution that many at the very least hope will work.

Share.

About Author

Joanne Lu

Joanne Lu is a South Carolina-based writer and editor dedicated to global development, poverty alleviation and social justice. After a year in Rwanda, she now covers the Asia-Pacific and economics. Find her on Twitter @joannelu or email joanne@humanosphere.com.

  • Jeff White

    Why are the (unnamed) advocates of Basic Income opposed to increasing income taxes to pay for BI? Income taxes are the most progressive form of taxation, and as such require the rich to pay more than the poor. Basic Income is worthless if it does not amount to a redistribution of wealth from the rich to the poor.