Post on 24-Dec-2015
Universal Basic Income and Flat Income Tax (UBI-FIT)
Tax justice, work incentive, economic democracy
Richard Parncutt, Uni Graz
BIEN Congress, Ottobrunn/Munich, 14 September 2012
The context: Socialism vs capitalism
General features of group conflict– strong identities based on difference– ignorance of Other group prejudice, moral arrogance– unfair (one side is stronger)
General principles of conflict resolution– mutual recognition– fairness, transparency– contact and knowledge
• UBI-FIT approachIntegrate principles from both sides:– socialist: reduce wealth gap– capitalist: increase incentive
Cunning Strategy #1Avoid controversial ideologies
Not:
What would you do if you didn’t have to work?
anti-socialist knee-jerk
…but instead:
Let’s simplify tax-welfare system!
Make more efficient, transparent, democratic.
Both left and right wing are interested
Cunning Strategy #2Focus on universally agreed ideas
Two basic principles:
•Unemployed need enough to survive.
•The more you work, the more you get.
Who can disagree with that?
UBI-FIT simply realises these two principles.
Cunning Strategy #3 Focus on GINIR
Gross-Income-Net-Income-Relationship
- not the individual UBI rate or FIT rate
My bias
• Centre-left liberal-green
• Belief in – regulated free enterprise– eliminating poverty– left-right cooperation– transparency democracy
Dreamed up UBI-FIT in Australia in 1987
New to the current scene
Sorry for re-inventing the wheel
Problem #1Poverty
• One billion people are affected• High rate even in rich countries
• Rising wealth gap • Over 1000 US$-billionaires
UBI would (almost) end poverty
Problem #2Welfare traps
Die Zuverdienstgrenze als Sozialhilfefalle
As income passes the welfare cut-off… – welfare is suddenly or gradually cut– equivalent to a tax bracket of 100% or more!
Suppress incentive Reinforce class differences and conflict
UBI-FIT would eliminate welfare traps
Problem #3The cost of illegal activities
1. The poorWelfare fraud costs millions
2. Middle classTax avoidance costs billions
3. The rich Global financial games cost trillions
UBI-FIT stops #1 & tackles #2
Global transaction & wealth taxes tackle #3
Problem #4The cost of inefficiency
The cost of tax-welfare complexity:•Armies of accountants and bureaucrats•General public does not understand•Democracy does not work
The system is not inherently complex!•Origin of complexity: Politicians wooing voters
UBI-FIT reduces waste, increases transparency
Definitions
• Gross income does not include UBI
• Net income is disposable income
• UBI must be both universal and unconditional (as Van Parijs explained)
Progressive income tax in Austria2005-2009
Broken line: Extrapolated high rate BI = 8.5 k€/yr = 708 €/mo
Gross income (k€ /yr)
Ne
t in
com
e (
k€/y
r)
Progressive income tax in Australia1 € ≈ 1.7 $
Gross income (k$/yr)
Ne
t in
com
e (
k$/y
r)
23
0%15%
30%
40%
45%
Broken line: Extrapolated high rate BI = 23k$/yr = 13.1 k€/yr = 1090 €/mo
Progressive income tax in Canadafederal not provincial; 1 € ≈ 1.6 $
Gross income (k$/yr)
Ne
t in
com
e (
k$/y
r)
11.4
Parameter: marginal tax ratesBroken line: Extrapolated high rate 11.4k$/yr = 7.28 k€/yr = 607 €/mo
Unconditional Basic Income UBI
Advantages•Eliminates poverty•Reduces bureacratic interference•Wages more accurately reflect value
Disadvantages•May encourage long-term unemployment•Long-term unemployed are vulnerable
Flat income tax FIT
• Advantages– Payable immediately harder to evade/avoid– Perceived as fair by the rich politically stable
• Disadvantages (without UBI)– Increases wealth gap
• Disadvantages (with UBI)– ?
Universal Basic Income + Flat Income Taxcf. Friedman & Rose (1980); Atkinson (1995); Strengmann-Kuhn (2005)
0
1000
2000
0 1000 2000 3000
gross income (€/mo.)
ne
t in
co
me
(€
/mo
.)
Arbitrary parameters: BI = 500 €/mo., FT = 50%Could be: BI = 700 €/mo, FT = 40%
Main thing is the gross-net relationship, not the individual parameters!
basic income
break-even point
Setting the parameters
• Basic income (500…800 €/mo)– high enough to eliminate poverty
• poverty line in Austria: 60% median wage ≈ €900
– low enough to maintain incentive
• Tax rate (35…50%)– high enough to finance BI and the rest– low enough to maintain incentive
• Adjustment procedure– balance budget (zero deficit)– left-right negotiation
Progressive taxationUrgently need to reduce the wealth gap
• Flow– Consumption: Luxuries only! – Income: Flat (40%?) with UBI– Capital gains: Treat like income (gifts,
inheritance, interest, speculation…)– Transactions: To reduce speculation
• Stock– Households: none– Private wealth: flat (1%?), threshold ($1m?)– Companies, trusts: flat (1%?), no threshold
• Environment– Rich have bigger environmental footprint
Flat wealth taxesabove a threshold e.g. $1m
...are effectively progressive because only the rich have significant wealth
(middle classes have moderate income but low capital)
Example: 1% / year
Capital (€) Tax (€/yr)
1 000 10
1 000 000 10 000
1 000 000 000 10 000 000
Consumption taxes are regressivee.g. VAT, Mehrwertsteuer
Poor pay a higher & of income in tax
VAT contributes to growing wealth gap
VAT only on (genuine) luxuries!
•replace VAT by wealth tax
•UBI could be financed by wealth tax(or by combination of different taxes:
wealth, VAT, income, environment, transaction)
UBI-FIT is effectively progressiveExample: BI = 500 (€/mo) and FT = 50%
Gross income (K€/mo)
Net income (K€/mo)
Effective tax rate
0 0.5 - ∞
1 1 0
2 1.5 25%
3 2 33%
4 2.5 37.5%
5 3 40%
10 5.5 45%
100 50.5 49.5%
UBI-FIT:Progressive in only one way
• Allows for any level of progressivity or income equity• Progressivity can be directly adjusted transparency
Don‘t combine 2 progressive systems!• unnecessary complexity, reduced transparency• opportunities for clever tax advisers
Approaching UBI-FIT
Incrementalism
•Agree on long-term goal
•Gradually adjust GINIR over a few years
•Monitor effects of changes; adjust
Universal Basic Income and Flat Income Tax (UBI-FIT)
Tax justice, work incentive, economic democracy
Richard Parncutt, Uni Graz
BIEN Congress, Ottobrunn/Munich, 14 September 2012
Global Wealth TaxNational governments are steeped in debt, a billion people live in poverty worldwide, and urgent warnings about climate change are being ignored. In all three cases, the main problem is money. But the money is available - in abundance. Economic globalisation is making the rich megarich. Worldwide, there are now over a thousand US$-billionaires. As concerned citizens across the world, we call on relevant global organisations such as the UN, IMF, World Bank, and G20 to negotiate a global agreement to tax all wealth - including all companies, trusts, and wealthy individuals - at a single rate of about 1% per year, in addition to existing non-wealth taxes. Exceptions should be limited to genuine non-profit organisations and individuals whose assets are less than about US$ 1 million.
Global Wealth Tax
Please…
•Find the petition at change.org
•Sign it
•Forward the address!