Can “Self-Financing” Redeem the Basic Income Guarantee? Disincentives, Efficiency Cost, Tax Burdens, and Attitudes

Abstract

Recent proposals have been advanced for “self-financing” a basic income guarantee (BIG). This article critically assesses claims that this method of finance would alleviate the economic issues of incentives and efficiency and the political issues of taxpayer burdens and support that challenge all major BIG schemes. The self-financing methods are shown merely to obscure the adverse impacts on marginal effective tax rates that would otherwise require explicit increases in income tax rates. Increased efficiency costs are shown by examples to be extremely large. The self-financing structure is also found to concentrate burdens on middle-income taxpayers. Public opinion surveys further suggest scant public support for the taxes that would be needed to finance such schemes. The article reviews the economic basis for categorical treatment, with BIG benefits focused on those who are unable to work and policies supporting work, earnings, and human capital investment for employable persons. This approach could be financed with lesser taxpayer burdens while according more closely with public values about work; it would also directly address the long-run causes of poverty rather than just the symptoms.