Thread by @scottsantens

THREAD: With the announcement yesterday by India's opposition party of an intention to implement basic income for the poor (not UBI) one of the more fascinating results I've observed so far is that the parties appear to now be fighting over who thought of it first.

https://twitter.com/Tejasvi_Surya/status/1089890935582928896

What's so interesting about this development in India is that it's *kind of* like if a Democratic president was talking about implementing UBI if re-elected, and then the Republican party promised they would implement UBI if elected. Now the debate moves to details vs concept...

In India, neither of the parties involved are talking full UBI, but one is talking about a step centered around farmers, and now the other is talking about everyone under an income level. Unfortunately, neither of them really understands UBI, because each is focused on the poor.

Here's the thing: If your concern is that those who "don't need UBI" don't get it, then regardless of your reasoning, you should simply support clawback via taxation, not on the income itself. If you don't want someone to have $1000 more, then just increase their taxes by $1000.

Basically, if your goal is to only help the poor, then an alternative to only giving something to the poor, is to give to everyone and then take it back from the rich. These may sound the same, but they're quite different. It's all about marginal tax rates & errors of exclusion.

The "basic income" for the poor announced yesterday in India appears to be a guaranteed minimum income. A typical GMI sets a threshold and says anyone below this line, we will raise to this line. It's tightly targeted. The result is a marginal tax rate of 100%. What's that mean?

A 100% marginal tax rate means that given a line drawn at $1000, someone earning $400 will be given $600. If they work twice as much to earn $800, they will get $200. Their additional $400 earned results in a $400 loss, which is equivalent to a 100% tax on earned income.

Put yourself in that position. If no matter what you do, you get a TOTAL income of $1000, what's the point of earning income? Yes, people will have enough to eat, which is good, and much better than lots of people starving, but what you've just created is a ceiling, not a floor.

Also consider being right on the other side of that line. Say you are earning $1001. What do you get? Nothing. You get nothing. And all those people doing nothing? They all have $1 less than you. Would that upset you? Would you really care that no one is going hungry?

Now, there is another way to go about this that still avoids giving to those who "don't need more money." It involves moving the line into the middle class, and adding a slope so that the marginal tax rate is lowered from 100% to something much more reasonable, like 30%-50%.

Now take the same earlier example of someone earning $400 and the rate is 50% for sake of simplicity of calculation. Someone earning $0 would get $1000, but $400 would get $800, for a new total of $1200. If they worked more to earn $800, they would get $400 for a total of $1400.

Notice that now, working to earn more always results in more total income. Again consider the case of earning $1001. Do you get nothing? No. Your new total income is $1500.50. You get $500.50, which you can view as a 50% raise. Are you still mad that those earning $0 get $1000?

This was Milton Friedman's great insight and what was tested in the 70s in both the US and Canada. It's called a Negative Income tax. It's still targeted at the poor, but it's a floor instead of a ceiling. At the very least, India should be talking about this kind of targeting.

Now what about UBI? The amount of total income can be absolutely identical to the numbers above. For the person earning $400, they could still end up with a total of $1200, but instead of getting an extra $800, they'd get $1000 and pay $200 of their earned income.

If they worked twice as much to earn $800, they would get $1k and pay $400, ending up again with a total of $1400. The person earning $1001 would still end up with $1500.50, but they'd get $1k and pay $500.50. The results are all the same. This understanding is frequently missed.

UBI unlike NIT requires no monthly calculation. The income would be the same every month for everyone, and the clawback from the rich would be done via the tax code once a year, or through other tax methods than income like consumption taxes. That's where the focus needs to be.

If you're so damn concerned about only the poor getting something, then focus on the tax system, not what you want to give to the poor. It does not cost $1000 to give someone $1000 if you increase their taxes by $1000. It is no different than giving that someone a $1k tax credit.

Worry much more about false exclusion than false inclusion. The rich getting money to buy food can be seen as a waste, but those with insufficient incomes not getting money to buy food can be FATAL. The line of determination therefore needs to exist towards the top, not bottom.

Doing it this way also means creating an incentive to work instead of a disincentive to work. As things are, the highest marginal tax rates are on those who receive something *because* they are poor. The highest marginal tax rates should be on the rich *because* they are rich.

Someone who spends $10,000 per month on average to support their lifestyle is not going to stop working to earn $1,000 per month. They can already do that and they don't! High marginal tax rates have a much smaller impact on work at the top than the bottom of the income ladder.

With all that said, I'm still excited about how seriously India is considering providing income to the poor, because it's an improvement and because a lot of discussion about basic income is happening there.

That India is accepting that the solution to poverty is money is HUGE.

It's also huge for the #BasicIncome discussion to move from small corners to an entire nation, and for the discussion to move to details instead of just the idea itself.

In conclusion, all of India is not implementing UBI, *but* they're *closer* than all other nations right now.

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