In an attempt to regain the confidence of the French public, the government is launching a "Grand Debat National". Everyone is invited to make suggestions - citizens, associations, local councils, elected representatives.....
So, since this is a question that is very close to my heart, here are some of the proposals that are at the top of my list of suggestions.
A Basic Income for all using Negative Income Tax
First, I am totally convinced that we need to introduce the idea of a Universal Basic Income. This idea was supported by Benoit Hamon, the Socialist Party's candidate at the 2016 presidential elections. However, his proposal was roundly criticised by people who complained that he failed to explain how it could be financed.
However, my proposal is that it would be remarkably simple to introduce such a scheme if it was accompanied by a radical reform of the entire tax system. Specifically, I would argue that we need to have a Negative Income Tax for people below a certain level of income. It's actually an old idea that was touted by someone who could hardly be described as a rabid left-winger. Negative Income Tax was seriously proposed by Milton Friedman - see for example his presentation in 1968 - and the idea very nearly got implemented by Richard Nixon!
The idea is really very simple. You provide a basic payment to every adult with absolutely no conditions attached. After that, everyone would be required to pay tax at a fixed rate on all additional income. Two numbers need to be fixed - the level of basic income, and the rate of taxation. But, my calculations have shown that the following numbers work nicely in France (see my post in May 2017 for more details).
With a basic income set at €600 a month and a flat rate tax on additional income set at the very same rate as the one that Macron's government imposed on all unearned income (dividends, sales of shares rents, etc), namely 30%, it turns out that the whole system actually pays for itself.
With €600 as the basic income, you would have to earn €2000 a month to reach a level where the tax you pay (30% of €2000, or €600) cancels out the basic income payment. Thus anyone earning under €2000 will actually receive a net payment from the tax system - essentially negative income tax. The distribution of pay in France means that this would apply to around 61% of the population. Median income is actually around €1700, meaning that half the population earn less that this amount.
Now, if you do the calculations (for the details see this earlier post), it turns out that the amount of tax that would be paid by the 39% of the population earning over €2000 is almost exactly the amount needed to pay for all the negative tax payments for those earning less. In other words, the income tax system would simply function to redistribute income from those earning large amounts to those earning less.
Intesestingly, even though the flat tax rate of 30% sounds like it could not be progressive, in fact it is. Someone earning €3000 a month would pay €300 in net tax - a rate of 10%. At €4000 a month, ne tax would be €600 (effectively 15%). At €6000 a month, net tax would be €1200 (i.e 20%).
This tax curve is actually very similar to the one in existence already, but it is way simpler to understand. I suspect that many French people would much prefer such a system. At the same time as introducing the Basic Income payment, it would also be possible to scrap the hundreds and thousands of complex loop holes that make declaring taxes in France such a complex process. Indeed, it might be possible to virtually eliminate the need for filling in tax forms!
France has literally just switched to a "pay as you earn" tax scheme where tax is deducted at the moment you recieve your salary. The timing is perfect, because it will soon be possible to ask for all income tax to be paid at the flat rate on all income - both from salaries and from financial income.
This will immediately remove one of the major complaints about Macron's government - the fact that rich people only pay 30% tax on their unearned investment income, whereas people who actually work for their money end up paying 45%. The same rate would apply for everything.
Simplification of the Child Benefits system and other Benefits.
Inroducing a Univeral Basic Income via a Negative Income Tax is also a way to enormously simplify the current French Benefits systems. There are currently a large number of different benefits that are available to French citizens. But many of them are complex and involve some form of means testing. For example, until recently every parent or guardian recieved a fixed child allowance for each child (although the amount varied with the number of children). However, it was recently decided to make the payments depend on level of income - households earning more than a certain amount are no longer able to claim the full amount.
Such complexities could easily be avoided by giving the parents and guardians the equivalent of a Basic Income for each child in their charge, using the same negative tax mechanism mentioned earlier. The amount of Basic Income could be less than the full adult amount. For example, it might be set at €300 instead of the €600 paid to those over 18, meaning that a family of four would start with a Basic Income of €1800 and would only start paying net tax if they earned more than €6000 a month.
Similar mechanisms could be used to replace the existing benefits for other types of situations. For example, people who are disabled and are unable to work to earn money, or require additional care, could be given an increased Basic Income to compensate. That amount could reach €2000 or more in the case of people with severe problems.
The Basic Income could also be used to effecively replace the existing minimum payments to pensioners. For a single person, this is currently €868,20 for a single person, meaning that replacing it with the Basic Income would require a bit more than the €600 value used in my earlier calculations. But the amount for a couple with no resources is currently €1347.88 per month, which is actually quite close.
Of course those minimum payments are currently for people with no other resources. With the proposed scheme, they would simply pay the standard 30% flat tax rate on other sources of income, such as private pensions and other unearned income. The result would be much simpler that the current system that requires a complex procedure to prove that the person is truly with no other resources.
Basic Income as a means to subsidize French industry
Some will no doubt complain that giving money to people who are not necessarilly working is a bad idea - it would be better to provide money specifically to people in work. Indeed, the French Government often provides specific benefits to people on very low wages. For employers, this is actually an encouragement to keep their workers on low wages, because under such conditions, a larger percentage of their salary costs is effectively covered by payments from taxpayers. I know people who work just 80% of the time, because if they worked a full five day week, their income would exceed some threshold that means that they lose some of their benefits. Such poverty traps would be eliminated by the proposed change - you would always keep precisely 70% of any additional income, irrespective of your level of earnings.
But consider the effect of giving the Basic Income to everyone - including all those in work, at all levels of the salary scale. This means that, as far as the employer was concerned, the French Taxpayers is effectively providing a boost for all their employees - not just those at the bottom of the payscale. This is actually very close to providing a taxpayer subsidy for producing goods and services in France!
To see why, imagine that you are a company that wants to build cars and you are trying to decide where to do it. Yes, you could do it in somewhere like Marocco where wages are lower. But you might also decide to do it in France where a worker with a family of four is effectively getting a €1800 a month subsidy from the government. Essentially, it's very like the situation with other universal benefits that are provided to people working in France like free education, health care, inexpensive public transport and so forth. Every one of those benefits effectively acts as a hidden subsidy for production in France - in a way that is almost as direct as the tens of billions of aid currently provided to French industry in the form of tax breaks.
In fact, it amazes me that apparently noone in the pro-business lobby in the US seems to have cottoned on to the fact that the US's hugely inefficient Health system is totally disastrous for US business. All those inflated health care costs are paid by employers who have to pay their staff way more than in countries with a more sane system.
Basic Income as a way to force lifestyle change
These proposals for a Basic Income make good sense for many other reasons. I am totally convinced that the AI and automation revolution is going to mean that many people will lose their jobs and be unable to find enough paid work to cover their living costs and the costs of raising their families. Some people naively believe that as millions of jobs disappear as autonomous vehicles become the norm, new paid jobs are going to appear out of thin air to compensate. I think this is totally delusional. It is far more likely that the total amount of paid work will gradually decrease.
Currently, the average worker in France works 1510 hours a year, but there are around 10% of people who are unemployed. With around 25.5 million in work, that makes around 38.5 billion hours a year.
Suppose that, over the next decade or two, the number of hours of paid employmet drops by 50% because of automation and robotics so that there is only 19 billion hours of work. There are obviously various ways that this reduction in the number of hours could be implemented.
One scenario would uniformly reduce the standard working week by 50% so that the 25 million people currently working just work for 18 hours a week, instead of 35 hours.
But this doesn't seem particularly intelligent. Why not let those who want to work and earn lots of additional money do so? They would simply pay 30% tax on all their additional income. Others might like to reduce the amount of time they spend doing paid work to that average 18h value. This might involve working just 3 days a week, or just mornings, for example. The rest of the time they could decide to get involved in really important activities like caring for loved ones (children and elderly relatives), voluntary work, or they could get involved in cultural activities such as theatre, music, literrature and so forth. Yet other people might choose to abandon paid work completely. They might move to the country, buy a plot of land, grow their own food, and make their own furniture.
In fact, in an ideal system, each citizen would choose precisely want they want to do in terms of paid work and decide precisely when they do it. Yes, they might decide to work all year round. But they might also like to work just one week a month, or a couple of months a year.
There would be no such thing as unemployment. The only thing that would change would be the amount of time that people decide to spend doing paid work. That would be a question of personal choice, and could very across each persons lifespan. Some could effectively retire early. Others would keep going if they so desired.
Let me note one final radical effet of this sort of Basic Income scheme. Currently the most unpleasant jobs are often very badly paid. Since people have no choice (they have to do something to pay the bills), the most unpleasant jobs are often done by people who have no alternative. But in a system where there are real alternatives because people really can go an live in a remote rural place and live with essentially just their basic income, nobody would accept the crappy jobs unless they were sufficiently well paid. Unblocking sewers and garbage collection would suddenly become very well paid!
I hope that this first presentation will get some people interested. I very much hope that the French Governments "Grand Debat National" will indeed be an opportunity to try out some truly radical new ideas. We certainly do need people to start thinking out of the box.
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