Welfare System Pros And Cons

“In recent years we have spent more and more money on more and more poverty reduction programs, but seen few, if any, additional gains”, states Michael Tanner (2015) in his policy analysis on guaranteed national income. The guaranteed minimum revenue is defined as an unconditional cash grant paid out to every citizen or resident of a country without means test or work requirement. It is more commonly known as universal basic income (UBI). Since current welfare systems have failed to show progress on the poverty front, the concept of UBI has gained popularity among the entirety of the political spectrum. The motives for replacing the current welfare system with this alternative concept are evident: theoretically, it represents the ideal way

Present welfare systems are frequently criticised because it provides such a high level of benefits and this discourages individuals to work. In certain countries social benefits could even amount to a higher level than the minimum salary, which frequently causes individuals to be worse off financially, at least in the short-term. In comparison, the UBI could reduce or even eliminate the bias against work, since it does not penalise individuals for earning additional revenues. A great example are single mothers who live just above the poverty line, but if she were to marry a husband with income, it could push the family over the threshold and would not receive any social benefits. A guaranteed minimum revenue would solve this problem and wouldn’t actually demotivate single women to find a job or

Nevertheless, this utopian image which has been painted by numerous politicians and philosophers is being challenged by economists who are concerned with the costs of such a policy. Tanner highlights the fact that in the United States alone, the implementation of a universal basic income would amount to an estimated $4.4 trillion. Even by replacing all existing welfare system, they would still be $2.5 trillion short. The lack of capital will be directly transferred onto the citizens in form of substantial tax increases. In consequence, despite the fact that a guaranteed minimum revenue si the key to solving major issues theoretically, it would not be accurate to state that it could easily be implemented in the real world.

Working Disincentives

The previously discussed working incentives which would occur with the introduction of a guaranteed minimum income, are challenged by the beliefs of Preston and Haywood. By taking into account the major increase in taxes, one can argue that the average and marginal tax rates will also increase. This will lead to the work disincentive, as recipients retain far less of any additional dollar that they