Thursday 3 December 2009

Guaranteed minimum income

Nolan at TVHE notes Gareth Morgan's support for a move to a guaranteed minimum income plus a flat tax.

I don't agree with Morgan's wish to fund some of the move by the imposition of a capital tax. In an ideal world, I could go with Arthur Grimes's preferred land tax, but we're not in that world.

Interesting to note that Charles Murray proposed moving to a guaranteed minimum income in the US as well.

In Murray's proposed system, every adult American not incarcerated would get $10K, beginning at age 21, of which $3K must be used for health care. Every other welfare and aid programme would be abolished: TANF, Medicare, Medicaid, social security - everything. The system's total cost would be higher than the current welfare system but, as it would also replace social security, would be cheaper in the long run as more folks retire.

Murray notes that the current system places lots of restrictions on individuals with respect to eligibility whereas a straight cash transfer lets people make their own decisions about how to run their own lives. Moreover, since everyone would know that everyone gets the transfer, an element of personal accountability is induced: everyone knows that everyone has $10,000 a year, so someone who then requests further assistance from the private charitable sector has to answer some relatively hard questions. Other effects: fathers cannot evade child support as the judge will know the location of the bank account where the $10,000 is deposited.

In the New Zealand context, this latter point could be important: eliminating the DPB and ensuring judges have ready access to fathers' bank accounts would provide a powerful inducement for fathers to be named.

Sounds great, but I'm still worried about whether the system is an equilibrium. What happens when some poverty advocate puts out a report showing some grandmother taking care of 20 kids under the age of 18 trying to get by on her $10K entitlement. Does Labour then win on a platform that brings back much of the old system in addition to the guaranteed minimum income?

I also worry about what happens to the stringency of immigration restrictions: I like immigration, but would worry that a guaranteed minimum income would provide a powerful inducement for tighter immigration controls. Presumably benefits could be restricted to citizens rather than just permanent residents. But is that stable either?

I could probably be convinced to push the button for a scheme of this sort in preference to the current system. Not sure that I'm there yet, and I'm not there if it's funded through a capital tax, but I could be convinced.


  1. So would your guarranteed minimum income be protected from creditors in the case of bankruptcy? If someone can sign a contract to perminantly garnish this income, this is equivalent to one lump-sum payment. Some people will lose this money, and then need welfare. In order for this to work, it really need to be protected from garnishment.

  2. The official assignee, as best I understand bankruptcy law in NZ, checks over your budget and if you've got income in excess of what's necessary to live on, will send it to your creditors. I'd expect that the $10K, if it's your only income, would effectively be protected that way; if you had other income, then you'd be garnished down to the basic minimum.

    It would be a particularly risk-loving person who'd buy securitized guaranteed minimum income payment streams.

  3. Basics on NZ bankruptcy here. Still have to pay child support, but all else highly contingent on income.

  4. Thanks. I like the idea of guarranteed mini income. But, mMy concern is a general form this:
    People tend to sign contracts they haven't fully read, e.g. mobile phone contracts. This contracts can cause a massive debt, say $10k, from a minor mistake (e.g using data overseas). The guaranteed min income means that "traps" in long, often unread contracts will become more prevalent because they will be more profitable.

  5. @Magic: to the extent that guaranteed minimum income comes with no strings or caseworkers trying to stop particularly foolhardy spending, there could be more of it. On the other hand, incentives would be sharper. I'd worry less about massive debt as the cost of bankruptcy is relatively smaller for folks with only the guaranteed min income as income.