One of my favorite liberal policies is the basic income proposal. The idea is that all citizens have a basic guaranteed income, below which no one may fall. As the argument goes, this supplies more flexibility than basic provision of essential services, and renders recipients much more autonomous than they currently are, since the government tends to spend redistributed money on the things it values the most, rather than the things that the poor value the most. There’s also a fairly easy way to run such a program: instead of making the basic income available only to the poor, you can make it a citizenship grant available to everyone who files tax returns, like social security. This radically simplifies the administration and eliminates the wasteful need to inquire into the deservingness of the recipients. If you’re a citizen, you get a check. Alaska has a system like this for all residents.

As I wrote recently, the dark side of the basic income proposal is that it privileges citizens over non-citizens. Perhaps this dark side is mitigated a bit if every nation-state in the world enacts a basic income, but there’d still be horrible inequalities between nations. However, in this post I want to argue that this kind of inequality is better than the status quo: “second-best” ideal theorizing… with a dash of public choice caution for good measure.

With a guaranteed basic income we might object that this causes some to receive a basic income who don’t actually “need” it. But that’s not such a problem if we fund the basic income with a different kind of tax: a sales tax or value added tax. (A value-added tax, or VAT, is like a sales tax that is collected all along the supply chain rather than only at the point of sale: it’s cheaper to administer and harder to cheat than a sales tax.) That way, we can recapture the basic income grant paid to the very rich, who will spend more of their earned and basic incomes on consumption and thus repay the basic grant. An ideal level for both the VAT and the basic income might be to cause the bottom two quintiles of the population to receive a subsidy paid by the top three quintiles. In the US, this would be about $34,738: anyone earning less than this would be subsidized by anyone earning more. Other proposals might aim to redistribute around the median income of $44,000, such that a household earning the median income would receive exactly the same amount in basic income that they pay out in VAT (if they spent every penny they earned.) Since the basic income is designed to supply the poorest with the means of subsistence, the VAT might be as high as 30%: in the median proposal, each household would receive 30% of the median income (about $13,200) as a guaranteed payment, but the median income household would pay out the same amount over the year in sales tax, thus breaking even.

The Basic Income + VAT proposal has a number of non-immigration-oriented advantages:

1. It reduces the pressure on the poorest to work at whatever menial or degrading job is available.

2. It serves as an automatic stabilizer against the vagaries of recessions and unemployment.

3. It eliminates the sometimes massive disincentives to remain jobless. With programs targeted at the poor, it can sometimes be very expensive to have income rise about EITC line or the qualifying line for other social services: for workers at a certain wage, additional income becomes a net loss. (This is the marginal taxation issue generally associated with arguments about progressive taxation, but it can also have pernicious effects on the poor and is currently under discussion in Great Britain.)

4. Because it boosts income and taxes consumption, the incentive structure tilts towards savings and investment.

5. Since only domestic consumption is taxed, a VAT encourages export-oriented industries.

Of course, there are some probable disadvantages, as well:

1. A basic income would increase the cost of labor, which would reverberate throughout the labor market and increase the corresponding cost of everything. This would hurt the poorest the most, since the urban poor depend on the rural poor for affordable food.

2. A VAT would further exacerbate consumer price effects by raising the price of the very subsistence goods that we all consume.

3. There’d still be a massive population of illegal immigrants in the United States who were paying VAT but not receiving the stabilizing basic income to conteract its effects.

Both of the first two things can be counteracted by increasing the value of the basic income. It’s not an insurmountable problem, at all, and it has been seriously defended by both marxists like Jerry Cohen and conservatives like Milton Friedman. In that sense, it’s a classic “liberal” (what is now sometimes called “liberaltarian“) proposal encompassing the whole sweep of freedom-oriented political theorists.

The third disadvantage gives me pause. If you’re an old-school patriotic leftist, you may say that punishing undocumented workers is fine: perhaps you believe it is not our obligation to take care of criminals and line-jumpers who could not wait to enter the US through the legal process.

As a “cosmopolitan lefist” I think this is jingoistic nonsense, but I can still see reasons to support a plan like this, so perhaps we need not disagree so vehemently, or even be so callous to the needs of non-citizens. In a certain sense, a basic income + VAT might actually help to solve the immigration problem once and for all. Let me explain:

Many illegal immigrants now pay a portion of their incomes to dummy social security numbers that they have made up or stolen. Though they will never be able to collect benefits from the Social Security Administration, they still pay the taxes as a necessary prerequisite for employment. I happen to think this is radically unjust, but what’s important is that these fees hardly prevent massive numbers of immigrants from coming to work here. Even paying these taxes, it’s worth it for them to stay and labor, because the job opportunities are so much better, and so much better paid, than they would be in their home countries. What’s more, I find that this tax burden undermines the claims that immigrants are social leaches.

To anyone who’s paying attention, the system as it is grants illegal immigrants a striking nobility. They’ve come all this way just to do the jobs we don’t want at a wage we won’t accept, all while paying fees for services they’ll never receive and suffering the contempt and persecution of the natives for whom they labor! While it’s definitely an unjust arrangement, it’s also unimaginably charitable and altruistic of these workers to do all this for us while we treat them so badly! The fact that many such undocumented workers also remit money to their families in the home countries makes the whole story seem like a saccharine Christmas tale of divine generosity. It reminds me of the Christian story of Jesus, forsaken by his father, then tortured and reviled by those he came to save.

Of course, illegal immigrants don’t just pay Social Security taxes; they also pay sales tax on everything they purchase! And so they would also pay the VAT, which would be much higher than the current sales taxes, and without receiving a corresponding basic income. This would make it very remunerative to have undocumented workers in the country: more money payed in VAT would mean a higher basic income payment for all citizens. So it might finally legitimate the flow of workers into the US.

Even though this seems like an unfair burden to place on those who are here illegally, I believe it would be much fairer for them to pay higher taxes than for them to face the current threats of detention and deportation under a system that grants very few due process rights. What’s more, the US could avoid the German problem of reserving lucrative citizenship rights only for certain ethnicities because of our birthright citizenship standards. So there would be no longterm communities of second-class inhabitants: within a generation, all of these undocumented workers would be replaced by their documented and legal children, who would be entitled to receive the basic income and treated as equals before the law. It’s not a perfect solution, but I do suspect it comes closer to “solving” the problem of borders and labor flows than some of the other proposals, and it has the added benefit (from my perspective) of eliminating the need for the militarization of the border. Rather than building walls and training paramilitary units to round up undocumented workers, we could hire customs agents who were focused on policing imports and taxing goods. Admittedly I’m prejudiced in favor of proposals that generate more revenue, distort fewer markets, and legitimate fewer men with guns, but can you blame me?