Forbes Middle East

Fact & Comment

A Paycheck for Everyone?


It’s called universal basic

income, and the idea is gaining ground here and in Europe, especially with Covid19 hitting economies so hard. The government would pay every adult a certain amount of money every month, whether you work or not. Democratic party activists love the idea. So do some Republican­s. The Pope came out in favor of the notion. A candidate for the Democratic presidenti­al nomination,

Andrew Yang, advocated paying every adult $1,000 a month. He didn't win, but his idea is catching on. Italy has a minimum-income measure that tops up one's income if it falls below a certain level. Spain is mulling over something similar.

While Yang's proposal sounds enticing— who wouldn't want an extra $12,000 a year?—it would do real harm.

Let's make clear that we are not talking about such safety-net programs as food stamps, unemployme­nt benefits or Medicaid. A guaranteed income would be corrosive to people's work ethic, especially as politician­s raised the benefits whenever elections rolled around. It would eat away at the crucial link between effort and reward and would lure many people away from pursuing more productive lives. This is wrong, morally and economical­ly.

Work is critical to making our lives meaningful. It gives us purpose. It provides structure and encourages discipline, helping us to look beyond the immediate moment and think about the future. It encourages the can-do spirit that is unique to the American culture. Work produces the resources that we consume and the innovation­s that improve our standard of living.

Then there are the major practical problems of implementi­ng such a program. It would be hideously expensive. It's estimated that Yang's scheme would cost $3 trillion a year. He would impose a 10% national supersales tax on top of all the other taxes you pay. And, realistica­lly, that rate would have to be considerab­ly higher. A car that currently costs $30,000 would set you back $35,000 to $40,000 under Yang's plan.

These new and very heavy tax burdens would damage the economy by destroying capital, thereby hurting the productive investment­s that are essential for higher incomes and a better standard of living. A stagnant economy would worsen opportunit­y and exacerbate inequality.

A more constructi­ve approach would be to reform and expand the Earned Income Tax Credit, which is, in effect, a rebate of the payroll tax. This would give lower-income individual­s higher take-home pay, tax-free.

And creating the conditions for a booming economy—such as tax cuts—would be the most beneficial plan of all. Remember, before Covid, the pay of lower-income workers was rising at a faster pace than that of anyone else.

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