Benoit Hamon has been stimulating a lot of debate because he has been arguing for the progressive introduction of an Unconditional Basic Income (Revenue Inconditionnel d'Existence). Many politicians and commentators have tried to argue that such a move would be unworkable, because it would not be possible to finance it. Hamon proposes to raise the current RSA (which is conditional on resources) by 10% to €600 a month in 2018 but to provide the same sum unconditionally to those aged 18-25. Progressively, he would increase the coverage so that the entire adult population would get €750 a month. A quick calculation shows that this would cost between €350 and €450 billion a year, and some people claim that this is totally unrealistic.
Hamon himself has argued that one source of finance would be to recover something like €80 billion a year lost because of tax evasion, or a tax on robots. He has also said that he would not feel obliged to stick to the 3% deficit limit imposed by Europe. But even I, a staunch supporter of an Unconditional Basic Income, don't find his replies very convincing.
So, here, for anyone who is interested (including perhaps Benoit Hamon himself!) are a few other ideas that can make the whole idea more satisfactory.
The first point to make is that Mario Draghi, president of the European Central Bank, has been merrily pumping between 60 and 80 billion euros of freshly created money into the financial markets every month since March 2015. By the end of 2016, the total had reached €1532 billion. The vast majority of this money was used for the Public Sector Purchase Program, essentially buying up government bonds on the secondary markets, which totalled nearly €1272 billion. For France, the total has reached €241 billlion. You might have thought that by buying French government bonds, this might have reduced the level of French Public Sector debt, but you would be wrong. When the ECB's program started in March 2015, the debt was €2089.4 billion. The latest numbers for the end of the third quarter 2016 stood at 2160.4 billion, an increase of 71 billion euros. No, the only real beneficiaries were the financial markets, although I suppose you could say that the ECB's purchases helped keep the interest rates on French Government debt low - they are currently running at 0.75% per annum.
The fact is that this massive injection of fresh money into the markets has done almost nothing to improve the Eurozone economy. It may have boosted the markets, and allowed Companies to pay out massive dividends to sharesholders - totalling €55.7 billion in 2016 for the top 40 companies on the French stock market - the CAC 40. But there is precious little evidence that it did anything to boost the general economy, where inflation was 1.1% at the end of 2016, well below the 2% target imposed on the ECB.
Many economists are starting to say that if Draghi really wanted to use his almost unlimited abilty to create new money to really boost the economy, he should stop pumping money into the financial markets, and instead put it directly into the economy. For example, he could be funding direct infrastructure projects including renewable energy programs. But he might also simply put money directly into the pockets of Eurozone citizens. The €80 billion a month that he is currently injecting into the markets would, if split between the 340 million Eurozone citizens, provide €235 for every man, woman and child. For a family of 4, the total cash injection of €940 would be considerably more than the minimum wage in several Eurozone countries, including Greece (€579.08 a month Portugal (€530 a month) and Spain (€655.20).
So, that's one place that Benoit Hamon could go to look for ways to fund the Basic Income. And, given the precarious state of Europe at the present time, and the real risk that the whole thing could fall to pieces with the rise of post-Brexit independence movements including Marine LePen's Front National in France, it might be a very good move to force the EU and the ECB to start thinking more about citizens and less about the banks and financial markets.
A second idea that seems to have been almost totally forgotten is the idea of imposing a Financial Transaction Tax. This was an idea that several European Governments had been talking about, but which seems to have stalled. In France, the BIS figures over the past 10 years reveal financial transactions averaging €275 trillion per year. OK, the figure was down to a mere €213 trillion in 2015.
Such figures are certainly modest compared with the UK which managed £979 trillion in 2015, or the USA which systematically reports around $3 quadrillion a year. Nevertheless, a modest 0.05% tax applied to French transasctions could raise €100 billion - enough to finance a substantial proportion of the cost of the Unconditional Basic Income.
But the final, and most simple solution to the problem of financing a Basic Income would be to combine its introduction with a radical reform of the tax system. In many ways a Basic Income payment can be compared with Negative Income Tax, an idea that was proposed as long ago by no lesser person than the freemarket proponent Milton Friedman - as you can see in a famous interview from 1968. The idea is that when an individual earns less than a certain critical amount per month, they actually recieve money from the tax system. Suppose that with no income at all, we fix the negative tax payment at €400. What happens when someone starts earning extra income, for example €400? Well, suppose that additional income was taxed at 25%. Instead of €800, they would earn 400 + 75% of 400 = €700. If they earn enough, the taxation they pay on their additional income would be compensated by the Basic Unconditional payment. In this case, this would happen if their earned €1600, because at that point they would be neutral because the 25% tax on the €1600 would exactly match the amount paid as a basic income.
Above €1600, they would continue to pay 25% tax on any additional income such that at €2000 they would pay €100 in tax, at €3600 they would pay €500 in tax, at €5600 they would pay €1000 in tax and so forth. This can be seen int the following graph. The green line provides a reference corresponding to a situation with no tax and no basic income. The red line shows how, for people earning less than €1600 they get a boost from the system in the form of a negative income tax that reaches a maxium of €400 for someone with no earned income at all. Above €1600, people become net tax payers.
Functionally, this is something very close to a normal tax system with a tax threshold set at €1600 and a tax rate set at 25%. But an important point is that there are simply no threshold effects in such a system. At no point would anyone be forced to ask whether, by working a bit more, they would run the risk of losing some conditional support only available to people earning up to a certain value. This surely has to be a major advantage. Another point is that the adminstration costs of such a system are almost non-existant - no need to employ large numbers of staff to verify that citizens are indeed eligable for handouts.
The vast majority of commentators apparently fail to understand that all tax systems are just an elaborate way of trying to determine who pays most and who gets the most support. More importantly, it is simply ridiculous to claim that providing an unconditional basic income of €400 would cost €400 * 12* 52 million = €249.6 billion a year. Everything depends on the structure of the tax system, which can be set as you wish. If you want 75% of citizens to get no additional money, you just need to adjust the tax rates so that net taxation is unchanged by the introduction of the basic income payments. If you want the top 25% to contribute enough to pay for the 25% who get a net boost by the payments, again it's just a question of setting the tax rates to fit.
Hopefully it is clear that this sort of system doesn't need to cost any more than the current one.
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