University of Amsterdam Democracy & Inequality
Begeleider: Dhr. dr. G.R. (Gordon) Arlen
Tweede beoordelaar: Dhr. prof. E.S. (Eric) Schliesser Bachelor Thesis
Sam van Roeden 10755357
Email: samvanroeden@gmail.com 25/06/18
Word Count: 9449
Improving the functioning of American Democracy with a Negative Income Tax
Abstract: Poverty and inequality levels in the United States are notably high, as compared with other western countries. These exceptionally high levels affect the functioning of American democracy in different ways. Approximately 12.5 percent of the American people both live below the poverty line and are also underrepresented in congress. This paper explores how a tax proposal called a Negative Income Tax could combat the problems surrounding poverty and simultaneously improve the functioning of democracy in the United States. This paper will also make the case that economic independence and the realization of freedom are significant factors affected by a Negative Income Tax and the improvement of these factors have a desirable political effect on a democracy. Moreover, it will validate that Negative Income Tax is an effective tax measure that deals with poverty and has positive effects on society as a whole. By adding the democratic perspective, this paper adds weight to the argument that a Negative Income Tax is a policy proposal that should be seriously considered as a realizable policy goal.
Table of Content
Introduction --- 1
1. Negative Income Tax: The Basics --- 4 1.1 Economic Feasibility --- 7
1.2 Positive Effects --- 9
1.3 Replacing the Welfare State --- 11 1.4 Critics --- 13
2. Improving Democracy: A Theoretical Perspective --- 15 2.1 Realization of Freedom ---15
2.2 The Theoretical Foundations of Democracy --- 18
3. Improving Democracy: Economic Security and Political Trust --- 22 3.1 Declining Economic Security --- 22
3.2 The Importance of Political Trust --- 24
3.3 Economic Security and Political Trust: A Causal Link --- 25 4. Improving Democracy: Poverty & Economic inequality --- 27
4.1 Poverty & Democracy --- 27
4.2 Economic Inequality and Democracy --- 30
5. Conclusion --- 32
Introduction
“I am now convinced that the simplest approach will prove to be the most effective— the solution to poverty is to abolish it directly by a now widely discussed measure: the guaranteed income” – Martin Luther King Jr. – American Civil Right Leader and
Nobel Peace Prize Winner (King Jr. 2010: 171).
The United States is an unusual example of a wealthy western democracy with a high poverty rate and an unequal distribution of wealth. The inequality levels and poverty rates of the U.S. are markedly bigger than comparable western countries, child poverty being especially high (Alston 2017). Over the last decade the poverty rate in the United States has been 12.5 percent, implying that approximately 40 million people live in poverty annually (ibid.). The welfare system tasked with dealing with poverty in America has failed to address the issue effectively. For example, a growing number of single mothers are ‘disconnected’, which means that they don’t work and don’t get support from the means-tested safety net the U.S. has in place (Wiederspan et al. 2015: 219). This is one of the reasons why scholars have argued that the U.S. welfare state is inefficient in dealing with poverty (ibid.).
Concurrently, questions are being raised about the functioning of the American democratic system. Voter turnout in the United States is low compared to other democratic western countries (Hill 2018), with the 2016-presidential elections having the lowest voter turnout rate in 20 years with 55 percent (CNN 2016). Data on public trust in government from 1958 until 2017 indicates that public trust is at a historically low level. Only 18 percent of the U.S. citizens “say they can trust the government in Washington to do what is right” (Pew Research Center 2017). A low voter turnout with low political participation are unhealthy indicators for the functioning of a democracy.
This paper aims to explore how a Negative Income Tax (NIT) could be a solution to address problems with the welfare state and improve democratic functioning. A NIT is a tax that is negative, meaning that instead of paying tax, citizens receive tax. In essence, it is a guaranteed income for all citizens below a certain income level. Instead of fixing the modern welfare state with more rules and bureaucracy, this paper will produce arguments to support that a NIT is a better suited option for reducing poverty effectively. Furthermore, this paper will examine the effects a NIT might have to improve the functioning of the American democratic system. Finally, this paper will make the case that if the NIT has positive effects on democracy, it may change the way scholars perceive it, increasing the likelihood that a NIT could be considered and enacted as policy.
In public discourse the idea of a guaranteed Basic Income (BI) is becoming more widespread. A good example is the Swiss referendum in 2016 about implementing a BI (BBC 2016). After careful consideration, this paper endorses the NIT is as a superior alternative to a BI because of different factors like economic feasibility and practicality, making a strong case for a NIT as beneficial for society as a whole.
One interesting aspect of the NIT is that is has characteristics of values that are central to the ideological political ideas from the left as well as the right. For the left, a NIT is a form of basic income since it guarantees an income to everybody in society earning below a certain threshold. Everybody is economically protected and nobody has to live in poverty involuntarily. A NIT which is set around the poverty line combats poverty in the most effective manner (Wiederspan et al 2015: 230). A strong social safety net is central to left-wing politics which a NIT can effectively provide.
For the right, a NIT reduces the need for big government and cuts bureaucracy extensively since it replaces most social welfare program with a single cash transfer. Also, it provides a kind of liberty to its citizens which is advocated by right wing
libertarians such as Milton Friedman (Friedman 2009). Instead of the government deciding what poor people need - with a NIT - the poor get the freedom to decide for themselves what they need most and spend that social welfare money accordingly. With a NIT, Democrats get a society with low poverty and an economic safety net for everybody. Republicans get a government that is smaller and interferes less with the decisions of its citizens. The multidimensional political characteristics a NIT possesses creates a policy proposal that could be supported by Republicans as well as Democrats.
This research paper will explore and attempt to answer the following question: How can a Negative Income Tax improve the functioning of democracy in the United States? In order to address this question properly, the paper is structured in two sections. The first section will introduce the concept of NIT, look at its economic feasibility, and explore both its positive effects and possible critiques and limitations. The second section will focus on how a NIT can improve democracy in America. First theoretical expectations will be examined. After this, the effects a NIT has on economic security, political trust, poverty and inequality and ultimately how this improves the functioning of democracy, will be discussed. This paper draws on a good number of theoretical sources and is mostly normative while empirical evidence will support the arguments made.
1. Negative Income Tax: The Basics
Taxation is the most important tool a state holds to redistribute wealth in society. Therefore, altering the tax rates can have a significant influence on the inequalities of a society. A progressive system, where the rich are taxed more heavily than the poor, reduces income inequality to a certain degree (Lambert 1993: 357). Introducing taxes that effectively combat the income inequalities in the United States can be beneficial to society as a whole. The Negative Income Tax (NIT) has some of those features.
A NIT is geared towards helping the less affluent in society. The idea behind it is simple, the poorest sections of society receives a government benefit, while the richer sections in society pay taxes (Tondani 2009: 246). In essence, a NIT is a redistributive program with a tax deduction as the main principle. If your income is below a certain set threshold, you receive supplemental income instead of paying taxes. The result of this is that everybody below the income threshold will be lifted up to, or beyond the set threshold. When the threshold is set to a meaningful level, the NIT can be an effective tax measure reducing poverty.
A NIT has multiple variables, leading to different models proposed by a wide range of scholars (Friedman 2009; Wiederspan et al. 2015; Harvey 2006; Lopez-Daneri 2016; Honkanen 2014). A NIT has three variables that are important in determining the costs of this tax (Harvey 2006: 4). The first variable is the population unit you will measure. You can choose to measure the income of individuals, individual adults, or households. The second variable is the set threshold which determines the size of the tax and how much impact it has on society. The threshold is usually set around the poverty line and is the main determent for the amount of cash the beneficiary can receive. If the threshold is set too high, problems with work incentives start to arise. If the threshold is set too low, the tax wouldn’t have a significant impact
in reducing poverty or helping the less affluent. Apart from this, the threshold separates the receivers from the taxpayers (Tondani 2009: 248), making the set threshold (TH) the most important feature off the tax. The final variable is the take-back rate (TBR) at which the NIT benefit per dollar is reduced after the threshold has been reached (Harvey 2006: 4), also known in the literature as the marginal tax rate of the NIT (Wiederspan et al 2015: 223). The take-back rate of a NIT is not equivalent to the marginal income tax rate of the current tax system, it has nothing to do with each other. In the case of a NIT with a set threshold and a take-back rate, the recipient will still receive some kind of NIT benefit even if the recipient earns more than the set threshold. The take-back rate is essential in giving people incentives to work, especially because you don’t have to work to survive with a NIT policy in place.
To illustrate how a Negative Income Tax might look like in practice, this paper will use the results from Wiederspan and his colleagues who give a compelling overview of how a NIT could function in the United States (Wiederspan et al. 2015). There are multiple options in designing a NIT with different outcomes. Comparing the different options, the analysis of Wiederspan and his colleagues seems the most practical and efficient, and is therefore used as the optimal NIT model in this paper. In part because they use a threshold based upon the poverty line that is given from the US Census Bureau. This threshold is weighted against family size and looks at different types of income like earnings, interests, rents and child support to determine the poverty threshold (Census Bureau 2017). The scholars create a simulation with two different thresholds around the poverty line. They use a 50% take-back rate showing the flexibilities and different options of the tax.
Table 1 shows the effects the different variables of the tax have on the total income.
Source: Wiederspan et al. 2015: 223.
For instance, if you don’t have any income (Earned income 0%, first column), you will have a total income of 100 percent of the poverty threshold. Meaning the recipient will receive cash from the government equivalent to the poverty threshold. If you work and have an income which is half of the designated poverty line (Earned income 50%, first column), your income will be supplemented till threshold, as well as 50 percent of the earned income, resulting in a total income of 125 percent. This shows how the take-back rate comes into effect and stimulates people to start working, even if their salaries are far below or above the poverty threshold, a key incentive to make the NIT effective. With a take-back rate of 50 percent, the benefits of a NIT start to die out at 200 percent earned income. This make it beneficial to keep working, even if you earn above the poverty threshold. Working always pays.
NIT Formula:
Total Income = Earned Income + NIT Benefit =
Total Income = Earned Income + (Threshold – Earned Income * Take-Back Rate) =
TI = EI + (TH – EI * TBR)
Once the NIT benefit section in this formula starts to become negative, the tax is completely faded out due to the take-back rate. At this point, you start to pay taxes instead of receiving a negative tax. The take-back rate determines at which point in relation to the threshold this is. How the tax system is set up after this point has been reached is up to policy makers and politicians to decide.
A NIT model that is discussed here, would provide society with a guaranteed minimum income floor for all citizens, preventing involuntary poverty. The take-back rate makes it beneficial to work since with every dollar you earn, you will receive more government support until take-back rate is faded out. Let’s now look what such an extensive but simple welfare program would cost.
1.2 Economic Feasibility
One interesting finding Wiederspan and his colleagues discovered, is that their model of a Negative Income Tax is actually economically feasible (idem: 227-230). One of the main objections to a NIT or a Universal Basic Income is that they are accompanied with high costs. The question then is, how are you going to pay for such a program and which programs can reduce costs to save money when a NIT comes in its place? The
scholars combined their preferred model of a NIT with Fiscal Data from the year 2007 and come up with the following findings in Table 3 (idem: 229).
Source: Wiederspan et al. 2015: 229.
By applying a threshold that completely covers the poverty line combined with a take-back rate of 50 percent, the data shows that it would cost the US government 219 billion dollars a year to raise all household to the poverty threshold. It would only cost 219 billion dollars in cash to provide a safety net were everybody’s income would be above the poverty line. Wiederspan and his colleagues compare that amount to the social safety net spending’s that are already in place and come to the conclusion that a NIT is not that much more expensive (idem: 230). The programs they propose to replace with a NIT are the largest means-tested income-transfer programs in the United States with the exception of Medicaid. These are the Earned Income Tax Credit program (EITC), Supplemental Security Income program (SSI), Housing Aid program, Supplemental Nutritional Assistance Program (SNAP), Temporary Assistance for Needy Families program (TANF), and the School Food programs (idem: 228). Together the expenditures of these programs are 207 billion a year, only 12 billion less than a Negative Income Tax would cost.
There are some objections to be made with the cuts in social programs proposed above. Cuts in certain programs will have negative effects a Negative Income Tax can’t
resolve. All the current programs have a specific objective, for example assisting the elderly who live in poverty, or providing the children with poor parents with free meals during school time. Replacing these programs could result in losses regarding those objectives. It is possible that some families would get less government support under a NIT program than under the existing programs. However, most of these programs pay less than a NIT would pay (idem: 231). There will be trade-offs in altering and replacing policies for a NIT and this needs careful study. However, the point is to make a comparison between the existing programs and the costs of a NIT (idem: 227). The comparison shows us that such a NIT isn’t radically expensive and does a better job at dealing with poverty. This makes a NIT a realistic policy goal that is worth consideration.
1.2 Positive Effects
A Negative Income Tax is proposed by scholars and politicians because of the wide variety of positive effects a NIT can achieve. The idea of a NIT started with the libertarian thinker Milton Friedman in the 1960s (Friedman 2009). From a libertarian standpoint, Friedman saw multiple advantages in having a NIT. First, the tax is aimed at the income of the poor and gives them cash which, is arguably simpler than providing citizens with programs that correspond with their needs. Second, all citizens can receive the benefits of the tax and a lot of special measures now in place could be replaced by it. Third, a NIT operates outside of the market. Friedman is a strong supporter of a free market without government intervention. A NIT does not have direct impact on market prices other welfare measures have. For instance, raising the minimum wage directly impacts the prices of the market because it makes labor more expensive. Fourth, it would provide work incentives to the least well-off. Finally, Milton
Friedman’s proposal of a NIT was cheaper than the existing means tested welfare programs in his day (idem: 192). To summarize, “The case for the negative income tax as opposed to the existing welfare system is that it will improve work incentives, reduce bureaucracy for administration, eliminate the multiplicity of overlapping programs, and target benefits on the poor and not the middle class” (Moffit 2003: 122).
The proposal from Milton Friedman got support in the political sphere resulting in multiple test-pilots run by the United States government between 1968 and 1982. The main purpose of the four test-pilots was to look at the adjustments a NIT would bring to the labor supply (Robins 1985: 567). Extensive research has been done about the effects of these pilots resulting in mixed findings. Overall, participants began working fewer hours, a trend especially pronounced among mothers, suggesting that the additional income gave mothers the opportunity to spend more time with their children. Despite the reduction in work hours ranging between 5 and 7.9 percent (Widerquist 2005a: 61), the total labor supply was not negatively affected. The reduced hours of work were supplemented by the unemployed, resulting in the same economic efficiency. People started to work less, though they did not completely flee from the labor market. Harold Watts, who was one of the architects of the New Jersey experiment, confirmed this finding: “I don’t remember finding anyone (on an anecdotal basis), who as soon as they got the grant, left the labor market and sat on the porch and whittled for three years” (Widerquist 2005b: 99). The results demonstrated that low-wage workers had a stronger position in the labor market (idem: 69). The outcomes of labor market participation showed to be surprisingly positive.
Other effects not relating to the labor supply have been measured as well. The NIT showed to have positive effects on academic test scores and an increase in high school completion rates by a significant 25 to 30 percent. Furthermore, there was an upturn in adults that started higher education. “Similar positive effects on low birth,
homeownership, health, and other indicators of well-being were documented” (Wiederspan et al 2015: 226).
One of the most well documented pilot cases was the MINCOME pilot in Dauphine Canada between 1974-1979 (Forget 2011). This pilot was different from the other experiments because it involved scientists specifically looking at the social impacts of a NIT on society. The results were staggering. For example, Young adults married at a later age, birthrates went down, school results increased significantly and students studied longer. Additionally, contact with mental health physicians declined and the hospitalization rate dropped by 8.5 percent (idem: 283). The MINCOME pilot-case suggest that a NIT can seriously improve the health of the population and save significantly in health costs. Just imagine what an 8.5 decrease in healthcare costs would look like on a national level.
1.3 Replacing the Welfare State
A NIT model as proposed in this paper would replace most of the welfare state that is currently in place. Such a policy would certainly cause controversy. There are a few arguments to be made to replace the means-tested welfare programs with a NIT. First, the welfare programs in place aren’t effectively reducing poverty. The welfare system now provides a low safety net for people to fall upon with very low minimum incomes for the poorest part of the population (Bryan 2005: 610). The welfare state was set up based on the notion that the government could re-allocate resources to those in need most effectively. Murray argues that the welfare state isn’t capable of doing this effectively anymore because of the increased complexity of the tasks of welfare state (Murray 2008: 3). As shown above, a NIT could be more effective in dealing with poverty because if the threshold is set high enough, no one has to live in poverty
involuntarily. When compared solely on poverty reduction, the NIT proves to be more effective and efficient.
Another task of the welfare state is to safeguard its citizens from economic shocks and hazards. For instance, to support the unemployed and those that are in between jobs. An analysis of the potential impact a NIT on this aspect of economic security will be fully examined in later sections.
Second, a NIT could eliminate of the welfare trap/poverty trap that currently exists (Standing 2008: 24). The welfare trap exists because of two reasons. First, people who are on welfare and start working lose all government benefits while there is no guarantee that their financial situation will improve (Jordan 2013: 231). Second, as they earn income, they have to pay taxes over that income, which makes the low-income jobs that most poor people are enrolling in, financially undesirable and unattractive (ibid.). Combined, these factors give the poor little incentive to start working as they are very likely have less income. In other words, this system creates a financial trap with no incentives for poor people to start working. A NIT could remove this trap for two reasons.
First, a NIT would provide financial incentives to work because of the turn-back rate in combination with the set threshold as demonstrated above. Second, a NIT provides the ability to simultaneously work and receive government benefits, stimulating labor market participation. Therefore, the NIT can effectively get rid of the poverty trap that keeps people in welfare (Barry 2001).
In sum, replacing some welfare programs with a NIT has many positive effects for society, viewed through different aspects of quality of life. Still, there were some limitations surrounding the NIT which prevented the program from being implemented into national policy by President Nixon.
1.4 Critics
On August 8, 1969, Republican President Nixon presented his Family Assistance Plan (FAP) which had resemblance of a Negative Income Tax as proposed by Milton Friedman (Spitzer 2012: 456). Nixon’s welfare reform had the purpose to place “a floor under the income of every family with children in America” (Steensland 2011: 157). His bill would have resulted in the largest increase in welfare spending since President Roosevelts New Deal in 1935; an action that is unprecedented for a Republican president (Spitzer 2012: 456). The proposal made it through the House of Representatives but was stranded in the senate. Therefore, it is important to look at the limitations of a Negative Income Tax and what the main criticism are to understand the political feasibility of a NIT.
Steensland (2011) made an analysis of why the Nixon bill didn’t made it through congress and saw three main objections. Democrats thought the bill wasn’t progressive enough, business interests were afraid the labor supply would drop, and other critics contended that giving money to undeserving persons was unjust. The first objection, that the bill didn’t do enough, would probably not apply to the proposal of a NIT mentioned in this paper since this version is much more extensive than Nixon’s proposal. The second objection about labor participation is proven to be less of an issue in the different test-pilots mentioned above. The improvement of education, health and other well-being factors arguably outweighs a slight drop of labor supply a NIT could initiate. Additionally, the take-back rate is an incentive to work more, and combats the labor supply problem. Statistically, this has also been proven (Amine & Lages Dos Santos 2012). Moreover, scholars have researched the effects a NIT would have on the economy as a whole, showing promising results of growth on the GDP
(Lopez-Daneri 2016; Nikiforos et al. 2017). The last argument however, that people who get money for free who don’t deserve that money is still relevant today.
In American society, there is a strong feeling that a large portion of the poor are undeserving of the social welfare benefits they receive (Gilens 2009: 61). Different surveys and public opinion polls show the distrust towards poor people receiving welfare. There has always been a clear distinction between the poor who deserve benefits, and the poor who are seen as undeserving. The latter is seen as a big part of the welfare recipients: “What is remarkable, though, is that many Americans believe that the majority of welfare recipients could get along fine without it” (idem: 67). Creating a NIT where even more ‘undeserved’ poor people will receive government benefits will be a difficult sell in public opinion. Because of this, Wiederspan and his colleague argue that supporters of a NIT have to be active in shaping the public discourse surrounding the proposal (Wiederspan et al. 2015: 232). Research has shown that most of the poor hold the same work ethic as the rest of society, a fact that is often contradicted in the public discourse. Making this fact clear to the public, as well as promoting the positive effects for society as a whole and stating the unfairness of the current system, might help influence public opinion in favor of a NIT (ibid.).
Another aspect that should be carefully considered when replacing certain means-tested welfare programs with a NIT is the fact that some families will end up with less government support. A NIT “would provide an income floor for all but cut existing benefits for some” (idem: 231). If you cut on programs that are also used by families living above the poverty line they will receive less cash on a Negative Income Tax system. These distributional trade-offs should always be considered and fully thought through. If a NIT becomes national policy, decisions have to be made that can possibly result in negative effects on some.
2. Improving Democracy: A Theoretical Perspective
A Negative Income Tax is closely related to the literature about a Basic Income (BI). A BI is an idea that is getting more attention by scholars as well as journalists resulting in different test-pilots and an academic journal called Basic Income Studies. Philippe van Parijs is the leading figure doing research about a BI and defends a BI from a libertarian perspective. He defines a BI as “a basic income is an income paid by a political community to all its members on an individual basis, without means test or work requirement” (Parijs 2004: 8). As you can see, a Negative Income Tax and a BI have significant similarities. A NIT is a version of a BI with the difference being that a NIT provides government benefits for a smaller portion of society – people who live around the poverty line – instead of every individual. Thus, a NIT is a smaller and more specific version of a BI with a different outcome. However, because of the similarities, a lot of the philosophical justifications the BI literature has examined is also applicable to a NIT. This section will look at the literature on BI and democracy, and what it can teach us about the relationship between a NIT and democratic functioning.
2.1 Realization of Freedom
The Basic Income idea has been heavily debated within social justice theory. A BI has been justified from different ideological standpoints including the libertarian perspective (Parijs 1995), the egalitarian perspective (Baker 1992), the communitarian perspective (Jordan 1992) as well as the liberal perspective (White 2003). From a libertarian perspective for instance, the conception of achieving real freedom to pursue whatever you want in life is seen as part of social justice theory which a BI could achieve (Parijs 2004: 19-20). Real freedom is a combination of having the freedom to pursue
whatever one might want to pursue with having the means to actually pursue this (Henderson 2017: 2). To achieve this aim, Parijs wants a BI with the highest sustainable level of payment to live as unconventionally as one might fancy (idem: 3). In comparison, a NIT will not achieve Parijs his version of real freedom. What a NIT does achieve is a kind of freedom proposed by libertarian thinker Milton Freedom in the preceding chapter.
Additionally, a NIT can lead to a shift in human psychology put forward by Erich Fromm (1966), who states that although we live in an age of economic abundance, humans still have a psychological mindset of scarcity (Fromm 1966, 1). The psychological threat of scarcity is the feeling that who doesn’t work shall not eat. Human survival has largely depended on finding food in an economic and psychological sense, therefore: “a guaranteed income, which becomes possible in the era of economic abundance, could for the first-time free humans from the threat of starvation, and thus make him truly free and independent from any economic threat” (Fromm 1966, 1). Accordingly, a NIT can help citizens to get rid of the mindset of scarcity and in essence make them freer psychologically and financially.
The ‘freedom’ a NIT provides to its citizens is based on independence and self-ownership, as proposed by political theorist Karl Widerquist (2013). He states that freedom should be seen as an ‘Effective Control of Self-Ownership’ (ECSO freedom) (Widerquist 2013: 27). The theory of ECSO freedom is closely related to the concept of negative freedom with a libertarian touch (idem: 38-43). The basis to be free of ECSO freedom is the power to say no, have personal independence and direct access to resources (ibid.). ECSO freedom is “the effective power to accept or to refuse cooperation with other willing people” (idem: 33). Individuals who are free, are not subject to any external controls by the state, other individuals, systems or unwanted
relations in the social world (idem: 33). In other words, to be free is to have the power to say no to those relations and be an independent individual.
Being independent is to not be forced into something by other individuals (idem: 35); an individual can choose to cooperate with other people, but doesn’t necessarily have to. This is problematic when there is not an acceptable alternative to cooperate in another person’s projects which would make the individual dependent (idem: 36). That is why the right to have an exit-option with an unconditional access to resources is essential in being free (idem: 37). Otherwise, individuals don’t have the power to say no to relations they don’t want which inflicts on their control over self-ownership.
Widerquist imagines a guaranteed Basic Income, much like the NIT, the perfect tool to provide such an exit option in modern post-industrial societies (idem: 70). A cash transfer is better in securing that exit-option than raw resources would do (idem: 68-70) as it makes the individual more independent in the sense that money provides greater options to decide what the individual wants, while raw resources are very limited in that aspect.
A NIT will provide the individual an exit-option in relations that are economically affected while ensuring that the individual is independent and self-controlling. Moreover, a NIT offers the individual unconditional access to resources increasing bargaining power in relationships with others and the opportunity to pursue more equitable and desirable relations. The ethical framework of the ECSO freedom theory is best utilized with a NIT since it provides that solid economic floor to fall back upon (Tondani 2009: 250). Let’s now turn to democratic theory and look at how a NIT can influence the well-functioning of democracy from a theoretical perspective.
2.2 The Theoretical Foundations of Democracy
Robert Dahl is one of the most influential democratic thinkers of the 21st century. Dahl
defines modern day western democracies as a polyarchal democracy, where polyarchy means “rule by the many” (Dahl 2008: 90). For a polyarchal democracy to function on a large scale it needs certain institutions like elections, elected officials and inclusive citizenship (idem: 85). Dahl argues that for a polyarchal democracy to function well, political equality is needed (Dahl 2006a: 5). But what does political equality mean and why is it so important?
The unique feature of a democracy is that citizens have equal rights and equal influence in the decision-making progress; citizens are political equals. In other words, political equality “postulate that the goals of every adult citizen of a republic are to be accorded equal value in determining government policies” (Dahl 2006a: 32). Also, all members should be treated as equally qualified and have an equal opportunity to participate in the decision-making process of the association. Dahl sees democracy as a way to realize the ideal of political equality in society (Axtman 2013: 119). Yet throughout society, inequalities are apparent in all aspects of human life with wealth inequality being one of the most significant. If inequality, rather than equality, is the norm for our society is it convincing to assume that political equality is a reality? As Dahl notes himself, other forms of inequality can have an effect on political inequality through divergent access to different political resources (Dahl 2006b: 66). This can result in an uneven political playing field with political equality being constantly tested. While Dahl sees political equality as a necessity for democracy, Pateman (2003, 2004) and Goodhart (2008) emphasize the importance of individual freedom in the well-functioning of a democratic system.
Carole Pateman and Goodhart argue that a BI is necessary for further democratization. Pateman states that democratic citizenship isn’t compatible with subordination. In other words, in our society individuals are dependent upon others because of social relations like marriage or capitalist organization and production which hinders citizens to be free (Goodhart 2008: 139). This kind of freedom can be realized under a BI like a NIT and helps the individual to be a democratic citizen.
Pateman sees individual freedom as autonomy and states that it is a key characteristic for democracy: “Democracy rests on the premise that individuals are born, or are naturally, free and are equal to each other. That is to say, they are self-governing or autonomous” (Pateman 2004: 91). Institutions in a democratic society should increase and protect the autonomy of its citizens (ibid.). Autonomy is not only to have opportunities available but to also to have an authority structure in place where individuals have the option to interact with other individuals. Here again, an exit-option to safeguard the freedom of the individual is essential and can be realized in the form of a BI like a NIT (ibid.). Freedom as self-government is an essential requirement for a democracy to functioning accordingly (Pateman 2003: 136) Pateman’s concept of freedom and autonomy closely relates to that of Widerquist examined earlier (2013).
Democracy rest upon the notion of political freedom where groups or individuals rule in terms of consent (Pateman 2003: 136). Citizens are not merely subject to the rulers, citizens are autonomous and have rights to rule themselves individually or collectively (idem: 137). The operational procedure for collective decision-making is universal suffrage. However, for a democracy to functioning within the ideals of democratic theory, citizens need to be self-governing and autonomous. A NIT is an institution that can provide that security to “maintain full standing as a citizen’ and ‘exercise self-government” (idem: 134).
The argument of Pateman on how a BI could improve democratization is twofold. First, it will allow individuals not to enter in unwanted relations that are in violation with the self-governing individual (Pateman 2004: 96). It can open up participation in social and political life and opportunities in developing political capacities and skills (ibid.). The economic dependency on income currently hinders this development.
Second, it will give the freedom not to be employed (ibid.). It will make it possible for anyone to go back to school, re-educate for a new occupation, do voluntary and political work, or set up a new business (ibid.). By detaching income from work, citizens are encouraged to reassess mutually reinforcing structures in society in a more democratic way (idem: 97). Pateman mentions marriage, citizenship and employment as examples (ibid.). By having this freedom, it has the potential to open the door to institutional change to further democratize (ibid.).
Goodhart (2008) building upon the work of Pateman (2003, 2004) stresses the importance of emancipation for political freedom. Emancipation on an individual level is equivalent to Pateman’s concept of self-governance (Goodhart 2008: 152). Emancipation can only be achieved if the subsistence of the individual is guaranteed, which is currently not the case because of the economic dependency of the individual (idem: 143). Thus, for political freedom to be achieved, citizens must be freed from the economic dependency that keeps citizens in relations they don’t want and hinders them from being self-governing. Without the right of subsistence, other rights such as: “education, political participation, personal security, freedom of expression are all compromised by economic dependency” (idem: 150).
To conclude, Pateman and Goodhart both see a BI like a NIT as the perfect solution to develop democratic citizenship. The unconditional nature of the policy makes it available for anyone, at any time. Citizens have the choice to engage in
relations they want to engage in, without being forced to do so. This gives the opportunity for citizens to be autonomous and self-governing. Self-governing citizens are the fundament of a well-functioning democracy. An institution like a NIT can help to develop these autonomous citizens because it provides a certain degree of economic security. How economic dependency is affecting democracy in concrete terms is being discussed in the next sections.
3. Improving Democracy: Economic Security and Political Trust
A policy change that incorporates a Negative Income Tax will have serious impact on the economic status of individuals in society as well as the economy as a whole. In political science literature, much is written about the effects the economy has on democracy. For instance, the assumption that democracy is linked to economic development is widely shared (Lipset 1959: 75). What is interesting for this paper, is to look at the work of scholars on the reported effects of national economic dynamics on politics and the functioning of democracy and how a NIT could influence the functioning of American democracy.
3.1 Declining Economic Security
The most significant consequence a NIT has on any individual in society is that it provides an economic floor nobody has to fall through involuntarily. Because the threshold of the tax is set around the poverty line, all citizens that earn less than the income line get compensated. For example, if you get an illness with a long recovery time; or you decide to work less hours to take care of your mother who needs the support; the NIT ensures you will get economically compensated to a certain threshold. The difference with the current welfare system is that the NIT is general. An influential study by sociologist Korpi and Palme have shown that universal policies dealing with poverty and inequality are more effective than policies with targeted benefits (Korpi & Palme 1998: 681). Thus, a NIT which is available for all citizens, is in line with their findings on policy effectiveness. A NIT then, is effective in providing an economic floor for everybody to stand on. It provides it citizens with a sense of economic security better than a welfare state is capable off.
Economic security has been a talking point on the political agenda for decades (Hetherington 2007: 1). Among scholars, economic insecurity is a concept with no agreed definition. There are multiple definitions leading to different research results (idem: 137). However, what is central to the concept is that economic insecurity is subjective to the individual in question. It measures the feeling of being economically insecure, not if they are indeed financially insecure. Following this rhetoric, in this paper economic insecurity will defined as “the perceptions of the risk of economic misfortunes” put forward in the article by scholars Dominitz and Manski (Dominitz & Manski 1997: 264).
Standing (2008) argues that economic security is influenced by three circumstances. First, the limited exposure to economic risks. Second, the ability to overcome those risks if they materialize. And third, the ability to recover from the risks being materialized (Standing 2008, 3).
Academic scholars have made four main findings about economic insecurity in the United States. Wroe gives a compelling summary: “Citizens in the United States are more insecure than their counterparts in other wealthy and mature democracies (1); economic insecurity in the United States increased in the late 20th and early 21st centuries (2); it did so at a faster rate than in other Organization for Economic Co-Operation and Development (OECD) nations (3); and the Great Recession accelerated the increase (4)” (Wroe 2016: 138). All four findings show that economic insecurity has been increasing in the United States. The risks of being economically secure have been put more and more on the responsibility of the individual, leading to a decline of economic security since the 1970s (Hacker 2013: 24). This is a worrisome development that has consequences on other aspects of life, including one with significant consequences, trust in politics.
3.2 The Importance of Political Trust
Unlike economic insecurity, there is a wider consensus in the literature regarding the definition of political trust. Political trust is seen defined as “the basic evaluative orientation towards the government founded on how well the government is operating according to people’s normative expectations” (Hetherington 1998: 791). Political trust then, is essentially about the perception of how government is functioning.
Trust in the government is central for a democracy to function well and have legitimacy. For instance, research has shown that political trust is beneficial for the members of government and political institutions (Hetherington 1998: 803). More trust gives leaders leeway to govern, while institutions get more support and stability. Trust in Presidents gives them more freedom to impose significant policy changes. On the flipside, low trust leads to dissatisfaction and a difficult political climate for politicians to succeed in solving problems (ibid.) Other research has shown that dissatisfaction can have negative effects on the functioning of the political system (Abdelzadeh et al. 2015). Dissatisfied citizens are more likely to break the law (idem: 430) and undermine the authority of the government (Idem: 431). A decline in political trust can be dangerous for the well-functioning of a democratic system.
From a theoretical perspective, trust in politics is seen as an important factor in the stability of a government. In the works on civic culture by Almond & Verba (2015) and Putnam (1994), these scholars emphasize the importance of high level institutional and interpersonal trust on making democracy function (Mischler & Rose 2005: 1050). Political trust is a factor that influences the perception an individual has on democratic values as well as the contribution an individual makes in the political sphere (idem: 1051). In general, trust in government is seen as vital in explaining public support for democratic regimes. It not only affects the functioning, but as well as the very survival
of a democratic system (idem: 1052). Empirical evidence shows that political trust indeed boosts political activity of individuals along with providing a boost in support for democratic ideals (idem: 1069). These factors are important for the well-functioning of a democratic system put forward by Dahl (Dahl 2008: 156-158).
3.3 Economic Security and Political Trust: A Causal Link
Wroe’s article (2016) looks at the connection between economic insecurity and political trust. Following from empirical data, he finds evidence that economic insecurity negatively affects political trust in the United States: “Americans who perceive themselves as economically insecure have lower levels of political trust than their more secure peers. And the difference is large” (Wroe 2016: 151). Moreover, he finds a significant causality between the two different variables. He backs this causation up by looking at psychological behavior theory that correlates to the subject and confirms the data. Individuals blame politicians for their economic insecurity, since citizens have the expectation that the government has the duty to provide security for its citizens. Failing to do so, causes citizens to increasingly distrust those in power. In the end, citizens lose confidence that the government is looking out for them.
Other research shows that if there are a lot of citizens at economic risk in society, the support for a bigger and better welfare state is higher (Hacker et al. 2013, Rehm et al. 2012). Thus, citizens look to their government to provide economic security against big risks. There is an increased support for programs where “its core goal is to protect people from major economic dislocations induced by interruptions to income or unpredictable nondiscretionary expenditures” if their risks and economic security is increasing (Rehm et al. 2012: 387). A NIT is a solution to this demand and can provide such a stable and secure economic guarantee to fall back upon.
The links between economic security, political trust, and democratic performance are important for this paper because a Negative Income Tax has the ability to set this causal reaction in motion. Since a NIT provides an income floor nobody has to fall through, the probability that the sense of economic insecurity of individuals will drop is very likely. A NIT will improve two of the three circumstances that influence economic security according to standing (2008).
First, a NIT improves the ability to deal with economic risks that are being realized such as losing your job. Losing your main income source is worrisome since it is the cornerstone of living a worthy life in today’s society and is therefore one of the main causes of economic insecurity. A NIT gives you the certainty your income can never fall below the poverty line, securing an income for every citizen. Second, a NIT makes it easier for citizens to recover from economic risks as the guaranteed income floor in place makes working beneficial. Therefore, the perception, confidence and actual ability to recover from risks is improved.
In conclusion, because a NIT provides a general income floor citizens will not fall through involuntarily, there is a high probability of them feeling more economically secure. The increased feeling of economic stability will result in a higher trust of government. This increase in political trust will support better functioning of the American democracy because it leads to more political participation by its citizens and an increased belief in democratic values. These two consequences are vital in the well-functioning of the democratic system. Therefore, a Negative Income Tax could be a policy measure that shows positive effects for society, as well as the functioning of the American democratic system via the causal chains mentioned above.
4. Improving Democracy: Poverty & Economic inequality
If the threshold of the NIT were to be set on or above the poverty line, the biggest impact it would have on society is ensuring that no one has to live in poverty involuntarily. Friedman was not in favor of redistribution by the state except for his proposal of a NIT. Friedman was interested in ruling out the most extreme version of poverty (Friedman 2009: 191). He was especially wary of the counterproductive effects that the means-tested welfare programs produced. Next to this, other scholars have linked his NIT with his thought about political inequality as a product of economic inequality. A guaranteed income like a NIT would not only provide citizens the ability to get their basic needs, but also to collect the resources that are necessary to influence “the rules of the political game” (Preiss 2015: 183). A NIT helps to liberate citizens from political dominance by the economic elites and improve democratic legitimacy (idem: 182-183). This section will focus on the effects of a NIT on poverty & economic inequality and what that means for the democratic system.
4.1 Poverty & Democracy
In 2007, the percentage of Americans living below the poverty line was 12.5 percent. This is a total of 37.3 million people living in poverty. Even after taking the benefits from means-tested programs into account, 27.6 million were still below the poverty line. Poor people often behave in a certain way that reinforces poverty, like playing lotteries, saving too little and borrowing too much (Shah et al. 2012: 682). Why do poor people make poor decisions? Theories have stressed the importance the environment plays on making poor decisions such an education and health. Other theories focus on the personality traits of the poor (ibid.). The research of Shah and his colleagues show
that a deficit of resources creates a mindset which alters how people look at problems and make decisions (ibid.). A possible explanation is that scarcity creates a cognitive overload leading to worse long-term performance. The important finding of their studies is that being poor reinforces itself and that poor people are not destined to be poor. Or like Margaret Thatcher once famously said that being poor is a cause of a “personality defect” (Dowden 1978). Poor people are poor because they have a lack of resources.
Poverty has multiple effects on society ranging from criminality to health and education. For example, the influential study by Brooks-Gunn and Duncan (1997) looks at the effect of poverty on children. A child’s parent’s income is the main determent in predicting a child’s ability and achievement in life (Brooks-Gunn & Duncan 1997). Children living below the poverty line suffer the worst outcomes. Next to this, the economic costs for society are huge. Child poverty is costing society about 500 billion dollars a year (Holzer et al. 2008).
Poverty has negative effects on the functioning of democracy as well. Poverty is negatively related to the belief in values that are essential for the functioning of a democracy. For instance, poverty leads to a decrease in equal respect for other citizens, decrease in an equal concern of every individual’s interest and most importantly it leads to unequal political participation (Lötter 2008: 179-184). The low participation by the poor is explained by factors such as not having enough time to participate politically, not having the capacities and resources to participate and not being listened to by politicians (idem: 183). Poor people feel disconnected from society which sociologist call relative deprivation (idem: 184). Relative deprivation occurs when people feel like they are treated unfairly and unjust and can lead to social unrest if highly intensified. Also, they don’t have the most important tool in influencing
American politics, money. Poverty isn’t healthy for the functioning of a democracy and can even be dangerous if the poverty percentage is too high.
The American government tends to respond poorly to the preferences of the least well-off when making policies (Bartels 2016: 257-268). By contrast, affluent citizens have a high influence on democratic decision making in the United States (idem: 268). One of the main reasons why poor people are underrepresented in American democracy is that they don’t participate in the political system in the same numbers as more affluent citizens. For instance, the group of citizens who earn less than 10.000 dollars per year had a voter turnout of 24.5 percent in the 2014 mid-term election (File 2015). Voter turnout rises if income increases, with the highest income bracket having a voter turnout of 56.6 percent (ibid.). What is worrisome, is that millions of individuals have no clear influence on the policy that the United States government makes (Bartels 2016: 267). From a democratic theory perspective like Dahl’s, this is a troubling fact.
A solution proposed by scholars to make poor people participate in politics more and thus improve the functioning of democracy is to provide information on the short and education on the long term (Krishna 2006: 453). He says: “One need not wait for economic growth to reduce poverty and enhance participation” (ibid.). However, a NIT would provide that economic deficit that is missing for poor people to get engaged with politics more actively. It would provide the poor some relief from the scarcity mindset and open up space to focus other things beyond economic survival. A NIT would benefit society because it could literally and figuratively raise every citizen out of poverty, largely erasing many of the negative effects poverty has on democracy. Erasing poverty is in fact a benefit to all members of society because poverty “threatens the interests and well-being of all members of contemporary democracies” (Lötter 2008: 192). Reducing poverty will improve the functioning of democracy and provide the
sense that the government is really both from the people and for the people. It will allow the poorest citizens to be politically active again, giving this section of society a more equitable larger voice via higher voter turnouts. However, it is important to note that a NIT doesn’t change the fact that the highly affluent exert much greater influence on politics than the rest of society. This is in great part caused by the high economic inequality in American society.
4.2 Economic Inequality and Democracy
Poverty and economic inequality are two diagnostically different concepts. The relationship between the two is neither clear nor direct (Beteille 2003: 4556). Poverty is about people living under a certain line, while inequality looks at how the economic resources are divided among all. It is possible for poverty to reduce while inequality rises. At the same time, it is possible for poverty and economic inequality to be reduced simultaneously. If a society wants to effectively increase the political equality of its citizens, reducing both poverty and economic inequality is an effective way to do so. A NIT could be capable of achieving these aims. As previously discussed, as a progressive tax, a NIT would deal with reducing the poverty levels and if laws impacting economic inequality stay in place it is possible that this gets reduced as well. A NIT, as proposed in this paper, will replace the current welfare programs, however, the end result of this swap on economic inequality cannot be foretold. For example, the rich could get richer at a higher rate than the poor get less poor, which means economic inequality rises despite introducing a NIT. The reason economic inequality is mentioned is because of the visible effects it has on American politics.
There is a wide consensus among scholars about the effects economic inequality has on the well-functioning of democracy (Solt 2008, Gilens 2012, Bartels 2016).
According to those scholars, we live in a ‘New Gilded Age’ where rising economic inequality is leading to increased political inequality (Bartels 2016: 15). According to Winters (2011), political inequality has risen to such extreme levels, that it is more appropriate to look at American political system as an oligarchy where the rule is dominated by the rich few (Winters & Page 2009: 744). The political system is much more responsive to its affluent citizens resulting in unfair political opportunity and skewed policies. The evidence suggests that American democracy today does not follow Dahl’s key characteristic of democracy where each individual is regarded as a political equal. Economic inequality depresses the political engagement of people with lower incomes and increases the influence of the affluent (Solt 2008: 57). To name a few negative effects; Economic inequality reduces support for a democracy as a political system (Krieckhaus 2013) and reduces the likelihood for citizens to vote (Solt 2010).
A NIT will give the poorest section of society the ability to be more engaged with the political system by relieving them with the burden of scarcity. With political equality as an ideal, this is a desirable development for a democracy. While it also has the potential to decrease economic inequality in the United States, this isn’t a given. A NIT is not efficiently dealing with the issue of the disproportionate amount of political power the richest have on policy making. It is empowering more citizens politically which can lead to a democratic response against the influence of the affluent. For a NIT to effectively deal with this problem other provisions which stop economics to corrupt politics should be implemented such as restrictions on campaign contributions (Preiss 2005: 182).
5. Conclusion
“We can either have democracy in this country or we can have great wealth concentrated in the hands of a few, but we can’t have both” – Louis Brandeis - U.S.
Supreme Court Justice, 1856-1941.
Democracies will always differ from the ideal concept of a democratic system. However, it is important to learn from democratic theory and improve the democratic system where possible. Some factors are essential for a democracy to function well and in the case of American democracy, the situation looks worrisome. Trust in the political system and active citizen participation are low in comparison with other countries and big sections of society are not being represented. The United States has a big proportion of poor people who hardly get involved in democratic decision making process. To effectively deal with these issues, this paper discussed how a Negative Income Tax can reduce the poverty levels of the United States and if it can lead to desirable political effects that improve the functioning of the democratic system.
A NIT will improve the functioning of democracy in multiple ways. It ensures that nobody has to live in poverty involuntarily. The citizens who live below the poverty line are disproportionally underrepresented and don’t have the resources to be engaged with politics. A NIT will give them those resources and creates the ability to participate more politically, which leads to a more complete representative system.
Also, a NIT is beneficial to the functioning of the non-poor in the political system because it makes all citizens feel more economically secure, which in turns improves political trust and the support for democratic values. It reduces the economic dependency of its citizens which makes it possible to be an autonomous self-governing
citizen and gives citizens political freedom. These effects are essential in improving the functioning of a democracy and can be achieved through a NIT.
The democratic effects a NIT can produce combined with the fact that a NIT as proposed in this paper is economically feasible; is superior to the existing welfare state in multiple ways; creates work incentives and eradicates the welfare trap; and is a policy proposal that can potentially get political support from the left as well as the right, makes a strong case in favor of implementing such a tax. A NIT can be the future of the American welfare system and let the political system flourish simultaneously. These factors make a Negative Income Tax a policy proposal worth consideration.
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