Basic Income or Negative IncomeTax?

I’m told my blog should fit on a smartphone nowadays. Here goes.

In theory a Universal Basic Income and Negative Income Tax are identical, but Silvia Avram of Essex University explains that although the two schemes do in theory produce the same result, an experiment suggests that only the Unconditional Basic (Citizens’) Income (UBI) will actually do what the theory predicts.

The difference is that the UBI gives money unconditionally upfront, but takes it away in tax if it transpires that you didn’t need it, and it takes away more than the UBI was worth from the better off. The NIT on the other hand taxes you in the first instance, but gives you money back if at the end of the tax year (or other period) your other income is too low.

Why the difference in behaviour? All humans are hard wired to be loss averse. The free gift has to come first.

This 15 minute 1968 video of Milton Friedman, a leading neoliberal, is an excellent explanation of the basic principle. Although advocating a NIT, it could be used word for word on behalf of a UBI.

 

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