Universal Income Credit (UIC) vs. Basic Income Guarantee (BIG) | Walter I Baltzley

ABSTRACT:  This article compares Universal Income Credit to Basic Income Guarantee.  It explains their similarities, and contrasts the strengths and weaknesses of each.

Free Money For Everybody!  Sounds like something out of a socialist daydream–and from a certain perspective it is…but from another it lays the groundwork for a free and prosperous capitalist system.  On the one hand this idea of free money could stifle innovation and strangle economic growth–on the other hand it could achieve unheard of levels of development and unleash the full power of the market.  Free Money could achieve either of these outcomes–depending on how it is implemented.

Basic Income Guarantee (BIG)

One way to provide free money to everybody is through taxation–simply impose a tax to collect the money, and then distribute it evenly among the population.  This is how Basic Income Guarantee (BIG) proposes to provide free money to the people.  In theory, they claim that this system would not impose any greater tax burden because it would replace our current tangled bureaucracy of social-welfare programs–including food stamps, housing, medicare, medicaid, social-security–everything…and replace them with a simple automated system with little overhead.

Universal Income Credit (UIC)

Another way to provide free money to everybody is for the government to coin currency into existence.  In today’s digital world that simply means someone at the Treasury types numbers into a computer.  Money created in this fashion is called credit, and hence the name–Universal Income Credit (UIC).  In theory, this would allow the government to eliminate all social-welfare programs, provide a universal income, and at the same time reduce taxes.

Different Challenges

While each program sounds simple on the surface, each has distinct challenges that must be overcome before they can be implemented.  It would be easy if we were creating a system from scratch.  However, we are not–and there are logistical problems with implementing either system within the framework of our current economic, financial, and government institutions.  In short, it is the bureaucracy that mucks things up.

Economic Problems

Both systems face similar problems on the economic front–the primary challenge being our system of rents and property taxes.  Because the housing market is monopolized, with only a handful of banks holding the vast majority of construction loans and mortgages, any general increase in income will also result in a corresponding increase in interest rates–which then gets passed on to consumers in the form of rent.  Also, because many states impose property taxes, any increase in income creates a temptation to increase those taxes–which again gets passed on to the consumer.

To solve this problem, we must break the bank monopoly over rents–either by restricting adjustable rate mortgages and loans, or by introducing new competitors into that market.  The easiest way to reduce rents is to reduce the cost and provide easy financing for new construction.  The easier it is to build, the faster rents will fall…unfortunately many powerful people make money off high rents and will oppose any such measures.

Financial Problems

Both systems also have difficulty with our current financial system.  Fractional Reserve Lending allows banks to extend ten times more money in loans than they have on deposit.  Thus, giving everyone free money would cause debt to multiply ten-fold–which brings us back again to the problem of rents–again, any gains by either system are eventually offset by increases in interest rates.

However, Basic Income Guarantee (BIG)–because it is funded with taxes–has several unique problems of its own.  First is the sheer quantity of money required to fund a basic income for everyone…the math looks something like this:

         322 Million People
X $2,000 Per Month BIG
=  $ 644 Billion Per Month Taxes
==================================
=  $ 7.73 Trillion Per Year in Taxes
==================================

Currently, the United States Government collects $4.6 Trillion a year in taxes.  Now, I will admit that this is only a rough estimate, and that we would probably pay children less than adults–but even if we ONLY gave BIG to adults, the math would still look like this:

         126 Million Adults
X $2,000 Per Month BIG
=  252 Billion Per Month Taxes
==================================
=  $ 3.04 Trillion Per Year in Taxes
==================================

Even if we eliminated all of the current social-welfare programs, it would not be enough to cover the cost.  Thus, we would have only one of two options…One, limit the number of people receiving Basic Income; or Two, increase taxes to cover the cost.

This then becomes a political struggle between conservative and progressive ideals–one wants to minimize cost and limit the size of the program, while the other seeks to redistribute wealth to achieve greater equality.   Thus, it would be difficult to get the bipartisan support needed to pass a Basic Income Guarantee funded by taxes–the practical solutions needed to make it financially feasible give rise to political challenges that threaten to undermine support by one political party or the other.

When it comes to funding, Universal Income Credit avoids the need to compromise any political principle.  Money is simply created and deposited into individual bank accounts.  It really is that simple.  There is no need to haggle over who gets it–or how much.  UIC gives to everyone and takes from no one. However, this does not mean that there will not be political opposition

Political Problems

Both Basic Income Guarantee and Universal Income Credit face significant–although different–political challenges. To pass, both require bipartisan support.  Unfortunately, to be financially feasible, BIG requires elements that will be deeply offensive to either one political faction or the other.  However, for UIC, the problem lies not in its feasibility, but in overcoming the tribal nature of politics, and correcting conservative misconceptions about the money power and inflation.

Because BIG is funded by taxes, to be viable, we must either:  1) Limit the number of people in the program, or 2) Increase taxes to cover the cost.  The first option would appease conservatives–who would jump at the opportunity to reduce bureaucracy and reduce costs.  However, it would offend progressives, who would be dissatisfied because the system would not reduce inequality.  Both sides would also also see the consolidation as a potential step toward sweeping away social-welfare altogether.  The second option would offend conservatives because it would be an expansion of social-welfare and a redistribution of wealth–a direct violation of their core values.  Thus, the only way to get the necessary bi-partisan support is to limit the program.

Another problem that both programs face is political tribalism.  Conservatives and Progressives tend to oppose and undermine programs that the other proposes–especially those that might actually WORK.  This is because politics is a contest of popularity.  Supporting your opponent’s program hands them a political “win”, and if it succeeds, you increase their party’s popularity and chances of election.  Thus, the incentive is to torpedo programs of your opponent and to promote your own.  However, there is a trick from game-theory to overcome this–that is for the dominant party to allow their opposition to claim credit for the program.  This allows the minority party to score a big political win, but it also benefits the dominant party because they get to claim the moral high-ground for setting aside partisanship to benefit their constituents.  Thus, success becomes a win-win proposition.

Finally, the biggest problem facing UIC is the myth that printing money causes inflation–the truth being that this is only SOMETIMES true.  I have already written another article that explains in-depth why coining currency to pay for UIC will NOT cause inflation–and will not repeat that information here.  Unfortunately, it is easier to disseminate myths than it is to dispel them–especially when powerful interests have used the education system and media to promote ignorance and push fear-mongering propaganda for over a hundred years.  Overcoming that kind of indoctrination will require us to create and disseminate short, powerful articles and videos that shine the light of truth and dispel the inflation myths that continue to spread like dung across the internet.  It will require a massive grassroots effort to educate the public on the true nature of “coin and credit”, and tear down the lies that have become promoted as common wisdom.

Conclusions:

Basic Income Guarantee and Universal Income Credit both seek to address the problems of poverty and inequality.  Both have advantages and dis-advantages:  UIC is simple to implement and expands benefits to everybody, but it faces huge opposition due to widespread ignorance and misunderstanding of “Coin and Credit”;  BIG will consolidate and streamline existing programs, but it will not provide benefit to additional people.

Although I am partial towards Universal Income Credit because it aligns better with my moral and philosophical views, both programs can be economically, financially, and politically viable if approached in a proper manner.  Both face serious challenges and will require major institutional changes if they are to be effective.  However, either program will be better than what we have today.

 

Advertisements
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s