To recap, my starting point is the idea that we force Central Banks to introduce a flat rate financial transaction tax on all transactions denominated in the currency of that Central Bank - wherever they occur in the world. Thus the European Central Bank could impose a tax of (say) 0.1% on all transactions denominated in Euros. I suspect that Euro based transactions are running at a minimum of €2 quadrillion a year (although this can only be an estimate, since amazingly, noone appears to know). But, if that number is correct, we can assume revenues of around €2 trillion a year, enough to provide every man, woman and child in the Eurozone (there are 330 million of us) with an annual revenue of €6000 - €24,000 for a family of four.
All this could be achieved without the need to create any new money... thus completely demolishing the standard argument that giving money to citizens would lead to uncontrollable inflation. Indeed, the mechanism would simply have the effect of moving money from those who currently have lots of it (in particualar the financial markets and traders who have been the main beneficiaries of Quantitative Easing measures), to those who don't - namely, the average man and woman in the street.
Some Conservatives and Right-wingers might protest that this is some sort of outrageous left-wing plot to rob the rich and give to the poor.
Wrong. While I might agree on the first point, namely that the tax will have a larger effect on those who are currently the ones with the money (i.e. the Uber-rich), the system is not favouring the poor selectively, because every citizen will benefit from the Unconditional Basic Income payments - rich and poor alike.
But there are other reasons why such a plan should really appeal to Conservative and Right-wing voters. One of the most important is that it would allow a massive simplification of state-run benefit systems. Rather than employing armies of civil servants to verifying that all those people claiming unemployment benefits are truly looking for work, the payments would be made without any need for verification.
It would also mean that many of the poverty traps built in to to the current system would disappear overnight. Currently, many people on benefits have the impression that it is not in their interest to go out and work, because they would lose some of their precious benefits.
There is a beautiful illustration of this in France at the moment. Currently, French families all receive a fixed monthly allowance according to the number of children. If you live in mainland France, you get an allowance if you have two or more children as explained on the website:
- 2 children : 129,35 € ;
- 3 children : 295,05 € ;
- 4 children : 460,77 € ;
- per additional child : + 165,72 €.
This is very close to being a true Unconditional Basic Income (except that the first and second children are treated relatively badly), especially since historically these family allowances were not subject to tax. This is something that could change though - Didier Migaud suggested early in 2013 that including these allowances in taxable income could be a good way to increase government revenue.
But François Holland's government has just pushed through a modification to the rules so that the amount paid will now vary according to income. Starting in July 2015, the amount of the allowance will be reduced by 50% for families earning more than €6000 a month, and by 75% for families earning over €8000.
This is so stupid. It's just going to mean that filling in tax forms will be even more ridiculously complicated. And since the amount of the allowances will depend on taxable income from the previous year, a family whose income is cut because one of the members loses their job, they will be very hard hit the following year.
Please, please, just think about this. Why on earth can't we simply give everyone a universal family allowance and include the allowance in taxable income. That way, people on low incomes will get to keep all the payments. In contrast, those on high incomes will find that the amount they get to keep will be less. There is absolutely no need to modulate the allowance with income.
In fact, it is the same thing with all benefits. It never makes any sense to make the system complicated by modulating the benefits according to income. Just give fixed payments to everyone, and if you want the effect to more beneficial for lowpaid households, you just need to make the payments subject to tax.
It's true for family allowances, but it is also very true for an Unconditional Basic Income. Just give the sum to everyone, with no questions asked. But simply make it so that the payments are subject to tax, with the result that the net payments to higher earners will be a lot less - 50% less if the marginal rate for them was 50%.
Few people find the concept of a basic family allowance shocking. It's a cornerstone of the welfare systems of many developed countries, including France and the UK. Nor do people find the idea of providing a basic state pension for all objectionable. The idea of an Unconditional Basic Income simply means that instead of stopping those payments between the ages of 18 and 65, you just keep making the payments from cradle to grave - with no holes. A vastly more simply system than the one we have now.
As I argued in my earlier posts, this would provide a very intelligent way to provide an effective subsidy for manufacturing industry, because employers would be able to emply people at lower wages than is currently the case. And yet it is at the same time far more palatable than providing housing subsidies to people on low incomes, because those payments are necesarilly cut when the person starts earning.
With the Unconditional Basic Income, people will work if and when they are motivated to do so. There would also be no need to have fixed rules for the number of hours that need to be worked per week. If people only want to work for 10 hours or less, that's fine. And if someone wants to effectively retire from directly paid work at 55 years old, that's fine too.
Surely, you don't have to be a left-wing communist conspiritor to see that all this make perfect sense. Even for conservatives keen on reducing the involvement of the state, this has to make sense. Let's do it.
Hi Simon,
ReplyDeleteI've been reading some of your articles with interest, at least someone is proposing an alternative to the usual "give money to the rich to save the economy".
However, I originally come from a country (Argentina) where there has been some sort of allowance for many people for some time now, however I believe because the way is implemented, it has caused more harm than good:
1) Money doesn't come from a small tax to e-transactions, but directly for government money. Since the amount of these allowances have spiralled out of control in recent years (because the government use them to "buy votes", but that's another story), the gov has no other option than to print money; this has cause inflation has has been rising in recent years up to 40% currently.
2) Apart from a child allowance, this is not for everyone, only for people who is out of work, or students, or disabled. Child allowance is a fixed amount paid for every single child. All of this is tax free.
So there are quite a lot of differences with what you are proposing, but looking at what's going on in Argentina might help avoid committing the same mistakes again.
1) A poor family would receive out-of-work allowance (x2), child allowance (for every child) and student allowance (for every child who attends school), this is roughly enough to make a living, albeit not a good one.
2) The parents don't work, never did, and they're not interested in ever do it. So their children are raised without seeing their parents work a single day. So they don't care about work, they're not motivated to learn a trade or have a profession, and they're condemned to a life of living barely above poverty.
3) Many couples will have more children simply because that will mean more money for them. This might seem crazy and make no sense for you and me, but believe me, it happens all the time.
4) These people will have too much time on their hands, and nothing to do with it. This easily leads to alcoholism, drugs, and we all know what comes after that.
5) There's a big, growing sense of injustice among the people who doesn't receive any of these allowances (and I'm not talking of rich people, but low and middle working classes), because their taxes are used for the allowances and to support people who doesn't do any work or do anything productive, instead of being used to improve the health system, just to give an example.
I know a few things would not apply in Europe, but others will. What do you think?
Hi Alejandro,
ReplyDeleteThanks for you comments. I get the impression that many of the points that you raise don't apply with my proposal. First, governments do not see any of the money - and therefore corruption of the politicians is not going to be an issue. It's simply a way for the Central Bank to get money into the real economy.
Second, it is vital that the payments are universal, and with no means testing. That makes the system perfectly fair. Any system where you pay more to people who don't work is likely to cause problems from people who do, and object to others getting benefits that they lose because they are working.
Third, the idea is not to provide so much money that you can live well - just enough to cover the basic rights - food, clothing, a roof over your head. Anything above that would need to be earned. But, importantly, you would always keep any money you earn. No question of earning $100 then losing more than that because you lose your other benefits.
Fourth, I agree that you don't want to give people a too strong an incentive to have large numbers of children. But it is perfectly reasonable to have a lower payment for children. Alternatively, you could put some of the child payments into a personal account that they could use when they reach 18 - either to pay for education, or to help them start up a career.
Finally, the fact is that there are huge numbers of useful things that people do that doesn't count as paid employment. Looking after children, elderly parents, the sick are all very important things to do. So is voluntary work for charities, sports clubs etc. So is educating yourself, or studying to start a business. So is being involved in cultural projects - writing, theatre, music, dance etc. The quality of life for everyone would be massively improved by releasing all that untapped potential.
Yes, there may be a small percentage of people who would might be tempted sit watching the television all day. But I believe that the vast majority of people would get out and do something rewarding.
The fact is that there simply are no longer enough paid jobs around to keep everyone active.