More people who can’t do numbers

Called a universal basic income by supporters, the idea has has attracted support throughout American history, from Thomas Paine to Martin Luther King Jr. But it has also faced unending criticism for one particular reason: the advocates of “austerity” say we simply can’t afford it – or any other dramatic spending on social security.

That argument dissolved this week with the release of the Panama Papers, which reveal the elaborate methods used by the wealthy to avoid paying back the societies that helped them to gain their wealth in the first place.

Sure, I support a universal basic income. But I am also able to do maths.

The Tax Justice Network estimates the global elite are sitting on $21–32tn of untaxed assets. Clearly, only a portion of that is owed to the US or any other nation in taxes – the highest tax bracket in the US is 39.6% of income. But consider that a small universal income of $2,000 a year to every adult in the US – enough to keep some people from missing a mortgage payment or skimping on food or medicine – would cost only around $563bn each year.

A larger income, to ensure that no American fell into absolute abject poverty – say, $12,000 a year – would cost around $3.6tn. That is a big number, but one that once again seems far more reasonable when considered through the lens of the Panama Papers and the scandal of global tax evasion.

The $20 trillion (rather an over estimate but still) is wealth, a stock. Let’s apply a 5% return to that, about right for capital these days. So, $1 trillion of income. A tax rate of 40%. $600 billion a year. The US is about 25% of global GDP, so allocate 25% to the US. $150 billion.

Lots of money, entirely true, but not going to pay for a ubi is it?

53 thoughts on “More people who can’t do numbers”

  1. Wouldn’t vast number of Americans (and certainly UK citizens of one applies the same logic here) already receive considerably more in State payments than $2000 (or £1400 ish)? And thus would be no better off than they are now if they got a UBI of $2K, but lost their existing payments pro-rata?

    Isn’t this the problem with UBIs in Western welfare state economies – we already give huge numbers of people vastly more than any UBI ever could, and therefore either a UBI is on top of existing welfare (which would most likely make it cost more than annual GDP or some equally massive number) or its instead of existing welfare, in which case huge numbers of people actually lose out when its introduced, making it politically impossible?

  2. So Much For Subtlety

    I am not sure why we would want a UBI?

    The best thing that a modern Western, that is, White- and to a lesser extent East-Asian-run, economy provides is lots of job opportunities. You are vastly better off being poor in the UK than you are in India. Much less in Rhodesia rather than in Zimbabwe. That in itself is a gift of incredible value.

    So we have people who do not want to take the opportunity of this society? People who would rather pretend they are poets or musicians until they are 35? Fine. It is a free society and if their parents are willing to pay, I am willing to let them.

    But why should anyone else pay? Why should we run down that very productive free society to pay for a bunch of free-loaders? I think adults have a moral responsibility to support themselves and their dependents. Why shouldn’t they?

    Rather than a UBI I suggest a negative UBI. We deport anyone who can’t show they are 1. retired, 2. in education, real education, or 3. earning a certain minimum. Then people would not be taking Masters degrees in puppetry.

  3. SMFS

    The reason why Friedman and others like it is that we can then remove all the barriers to participation – every penny earned after this can be taxed. So no high marginal tax rates when people come off benefit. Note that this 12K would replace unemployment benefit, all in work benefits, housing benefit, pensions, child benefit and everything else that the state gives in welfare. Sure a few people would not bother working, but others would be freer to participate rather than trying to maximise their benefits + a few hours of work.

  4. So Much For Subtlety

    ken – “Sure a few people would not bother working, but others would be freer to participate rather than trying to maximise their benefits + a few hours of work.”

    Sure. But under my scheme they would also be freer to participate – or they would be deported. They wouldn’t be trying to maximise their benefits because there would be none. Instead they would have to work, adding to the GDP and making the world a better place.

    How is a UBI an improvement?

  5. SMFS

    Two answers to this. First one may appeal, the second may not.

    1) It will (probably) make the economy more efficient – we know that in countries with low unemployment benefits people take the first job they can rather than engaging in a longer search that will match the job to their skill set (so a lathe operator does not take a job as a brickie).

    2) In any civilised society we agree to an element of social insurance – the safety net. If we make it a UBI, it does not affect work incentives.

  6. I just cannot get away from the intuitive notion that a UBI is an SCB (stinking commie bastard) scheme.

    Ken,

    If everybody gets it and it is enough to live on, how can it not affect work incentives?

    I don’t want it, I’d just like to keep more than half of what I work hard to earn. I work hard for my family and myself. I don’t mind the genuinely needy receiving benefits, but I fail to see why others should receive state largesse at my expense (yes, I am very much a net donor to state coffers).

  7. If everybody gets it and it is enough to live on, how can it not affect work incentives?

    As I understand it, not being an economist, the key is the Basic part.

    That is, living on it you’re not going to starve or have to sleep in a hedge, but if you want anything more in life you’re going to have to work for it. And the beauty is anything you earn you keep, subject to normal tax rates etc: by replacing the current welfare system it avoids the massive marginal tax rates from phased withdrawal of benefits.

    The problem of course then becomes stopping the SJWs turning the UBI into a Universal Living High On The Hog Income.

  8. Jim

    You are off course 100% correct and prior to suffering the excommunication from TRUK/ Classification as a ‘Troll’ that is the fate of anyone criticising Ritchie it was one of the few times I silenced him by getting an admission that disincentives affect the lowest income levels as well as the highest. A UBI would be the single biggest hit on productivity I could possibly consider – why work if you just get given whatever the Murphyites/Corbynites perceive to be an ‘acceptable’ standard of living? This really is the road to Pyongyang…….

  9. What % of the secret off-shored assets that make up the TJN’s $21-32 trillion figure is in things that only have value because someone else is prepared to pay for them?

    i.e. Bentleys, $200 million yachts, country estates, daschas and penthouse apartments, private islands, ski lodges, etc.
    i.e. all the things that have almost zero value if you seize them.

    Who are the TJN and their UN court going to sell this stuff to realise the cash value of those assets?

  10. DocBud

    if you read ‘In Our Hands’ by Charles Murray it might change your mind (it did mine).

    Mostly because of the possible social effects, because it’s on its way anyway, and because much as we may try to ‘adult’ our way out of this most people think childishly in terms of fairness. If Dave and Pete and Mary are all getting the same, and so am I, then Dave can’t moan if the other three of us all work to get more and he decides not to. (Sort of thing.)

  11. ^also the way Murray explains it it will cost us no more than the current mish mash (a bit more at first, then the same or less).

  12. Mea cupla, I misread $12K as $2K, but my point remains – many get more than that today from existing welfare programs, so they’d lose out under UBI.

  13. DocBud

    The reasoning is that at the moment there are many people who would work but find the marginal tax rates prohibitive and thus end up working very little. Going the other way are those who would drop out of work if they just had the basic income. Note also that even those who are happy with the basic might want to top it up and do some work.

    The real problem with this is not the basic concept, but the fact that some people may need more and if we try to accommodate them, it is a slippery slope. Who needs more? The very sick, the disabled etc. And as we saw with the PIP any attempt to control excessive spending on this causes political outrage. Yet the PIP is clearly going to the wrong people. I find it disgusting that disabled charities jumped on board the outrage bandwagon – no more donations to them.

  14. UBI replaces all benefits, except for:
    * pensions (42% of the welfare budget)
    * disability-related benefits (17% of the welfare budget)
    * care services for elderly/disabled (13% of the welfare budget)

    The elderly and disabled take up a large (and rising) proportion of the welfare budget, not to mention the NHS budget. UBI simplifies things a lot less than most amateur economists realise.

  15. Bloke in North Dorset

    And how long before a smart phone and the latest trainers become a necessity and are added to the basic income basket?

    Great idea, doomed to fail at the hands of politicians.

  16. @ Rob April 8, 2016 at 9:02 am

    “would cost only around $563bn each year.”

    Only $563bn? Loose change.

    A trillion here, a trillion there and pretty soon you’re talking serious money.

    DP

  17. Mark Wadsworth , the British tax expert,( and blogger) has created a sound Basic Income system from Land Value Tax which sounds like the use of untaxed assets above.
    A majorly radical proposal is the once very influential Douglas Scheme of Social Credit which calculated the difference in value between the national total for the production of goods and services working at full capacity and the earnings of the entire population and planned to bridge the gap with a National Dividend or unearned Basic Income for all,( so that, it was envisaged, people could sit round unemployed and pay for the products of robot factories with the National Dividend).The Dividend was to be provided by nationalising the Banking System and simply creating the money the way the commercial banks do now. Saves an awful lot of bovver wouldn’t you say?For some reason Social Credit was considered awfully right-wing possibly by left-wingers frightened of losing the right to work.

  18. The difference, Interested, is that I’d simply get back a small portion of what I pay in, whereas the likes of Dave will be getting what others have worked for. I don’t see that as remotely fair.

  19. DBC Reed, how do you tax an asset? Who decides the value of that asset?

    One person may be asset rich but cash poor and unable to pay the tax. What then? Are you forced to sell the asset?

    Oh, and for our entertainment, please explain how commercial banks create money. Do they have printing presses in the back office?

  20. DBC Reed

    Once more I ask if an LVT can cure Cancer, end war and suffering and indeed make an adherent immortal?

  21. Henry,
    It’s simple to tax a real asset. In Britain we have a little thing called council tax, based on the estimated value of your property in 1991. In California the value is defined as the price paid at the time of purchase, so if you don’t move house for 30 years you’re sitting pretty. In France the property tax is based on how much you could earn by letting the property, which any lettings agent can tell you in about thirty seconds.

    Take your pick of valuation methods; but don’t come crying that it’s not possible.

  22. In a complex economy we are none of us self-sufficient and a return to the world of the noble savage a fantasy. Yet there do seem to be a lot of people —candidates for the B Ark— who don’t seem to add much to the sum of things, maybe it would be better if they were given some pocket money, told to go away and play, and leave the rest to do some real work unhindered. But, as has been said up-thread, how do you stop the notion of ‘basic’ income being stretched, and how do you ensure that all the really useless people take the money and get out of the way.

  23. Council tax is merely payment for council a d other local services. Why it can’t be a flat rate is beyond me.

    Explain how a land value tax works in reality.

  24. “maybe it would be better if they were given some pocket money, told to go away and play, and leave the rest to do some real work unhindered.”

    Isn’t that what happens at the moment?

  25. But under my scheme they would also be freer to participate – or they would be deported.

    To where?

  26. We already have a universal basic income for a large chunk of the population – the state pension. You* get it regardless of what you put in. If you haven’t put in enough NI contributions to get the full £155 you get pension credits to top it up to £155. Regardless of your feckfullness or not.
    *if you were born after 1952-ish.

  27. @Henry Crun
    The Bank of England issued a bulletin called” Money Creation in the Modern Economy” (on Net) which kicks off with “This explains how the majority of money in the modern economy is created by the commercial banks making loans.” It is deliberately written in very simple language that even very simple people can understand. Except you, evidently.
    Do you also believe that the earth is flat: that babies are found under gooseberry bushes? Heed the wise words of Tim Worstall (BVI) on this blog: “No banks don’t create money” 14.vii.12 ; “The short explanation is that banks do indeed just create money out of thin air” 19.iii.14.An episode better known as’ how to destroy your credibility as a blogger on economics.’

  28. In days now long gone I would have assumed that the UBI would have been far more popular here than it is. The advantages of UBI over the current system is that everyone gets the same thing without the need for complex means testing or restrictions on where the money can be spent. We could cover consumer choice, equality, and simplicity all at the same time.

    As, hopefully everyone here knows by now, I would prefer to get rid of the welfare state completely. The problem is that is just not a political reality. Assuming we can find a way to pay for the costs why isn’t UBI preferable to the current mess?

  29. So Much For Subtlety

    dcardno – “To where?”

    Who cares. I don’t expect many people would end up being deported. The threat would make most of them get a job. Even if they had to drop out of Mime school.

  30. I always thought the idea of negative tax rates was a more useful idea than a UBI. In NZ Labour been pushing the UBI idea a bit, not to a lot of support it has to be said, but they really have made a hash of it.

  31. > UBI replaces all benefits, except for:
    > * pensions (42% of the welfare budget)
    > * disability-related benefits (17% of the welfare budget)
    > *care services for elderly/disabled (13% of the welfare budget)

    The first two would be replaced by a UBI, wouldn’t they? If everyone gets a no questions asked flat rate income to live on, there’s no longer any need for pensions simply because you’re not working. Covered.
    The third item would need to be addressed, but it’s also the lowest.

    A UBI is quite an attractive proposition, and in many ways it’s a natural progression from subsistence living, to having enough money for a safety net, to everyone getting a basic amount that they can top up with whatever level of work meets their needs. As pointed out, not all the impact would be deciding they didn’t need to work, especially when it takes the high marginal rates inherent in welfare to work transitions out of the equation. And people will still want luxuries.

    But:
    – We simply can’t afford it yet. There just isn’t enough surplus income in the pot to redistribute at that level.
    – How long before the inequality crusaders start complaining about how unfair it is for people on the UBI to not have the choices of richer people, like where they live, what services they can access, etc. Over time a raft of local adjustments and compensation is applied, and there goes your reduced compliance costs. Plus of course the definition of basic would be a major problem.
    – Are politicians and the people ready for a universal (as opposed to ubiquitous) income? Everyone means everyone, rich or poor (no means testing). That’s going to go down well when Richard Branson gets his first UBI cheque. No specific groups to lobby for or pander to. Highly progressive income taxation would no longer be required (technically no poor to exclude), or possible most likely.

    Still, it’s an attractive idea from a theoretical standpoint.

  32. So Much For Subtlety

    Ltw – “A UBI is quite an attractive proposition, and in many ways it’s a natural progression from subsistence living, to having enough money for a safety net, to everyone getting a basic amount that they can top up with whatever level of work meets their needs”

    Why is it attractive? If you give people a safety net, they will use it. I suggest, again, a poll tax. The exact opposite. People need to earn. Or they will suffer. If they have money and can be useless, they can be useless. But if they don’t they will have to get a job.

    That way children will be raised to pick sensible major, to work hard, to avoid tattoos and criminal records. There is no obvious downside. If we are going to normalise anything it might as well be hard work, not idleness.

  33. @DBC Reed

    I don’t think taxing assets is going to make a UBI possible. For the asset owners to pay the tax, they’ll need to be able to make an income from it or sell to someone who can. At which point, you may as well just tax the income and be done with it.

    The fundamental problem in asset taxation is that you’re making a judgement as to what level of income is achievable from the asset and taxing on that basis. If you guess (and it is a guess) under, the asset owners happily pay the tax and make out like bandits. You miss out on the extra. If you guess over, the price of the asset drops to match, and asset owners squeeze every dollar out of their renters. Neither is especially conducive to a rich social fabric.

  34. Why is it attractive? If you give people a safety net, they will use it. I suggest, again, a poll tax. The exact opposite. People need to earn. Or they will suffer.

    Because I doubt you’ll get anywhere with ‘tough luck’ as an answer when people complain about suffering. Also, what ken said.

    If you want to encourage hard work, here are some of the advantages that a UBI could provide. Subject of course to the political will to enforce them.
    – No more unfair dismissal or due process in hiring/firing. Since everyone is assured of a basic level of subsistence, these could go away. If you repeatedly show up late to your couple of shifts a week at McDonalds, they can sack you without any angst or guilt about putting you on the street.
    – Shame at living on the UBI would still work. I doubt that many people would be happy just taking the money and vegetating. Those that would are probably on welfare already. No net loss. Most will want to buy a house, go on holidays, get the latest gadget – time to earn.
    – You could think about retraining/shifting careers with assurance that at least you’re not going to starve if it works out wrong. Labour supply inertia is a massive problem in Western societies (steelworks shuts down, where do the steelworkers go?). Freeing people up to experiment without risking bankruptcy would be a major benefit to labour market flexibility.

    The biggest key is separating survival from income. People will really have to offer value in return for their wage. Those who don’t will be adequately penalised.

  35. “I don’t think taxing assets is going to make a UBI possible. For the asset owners to pay the tax, they’ll need to be able to make an income from it or sell to someone who can. At which point, you may as well just tax the income and be done with it.”

    This is what I’ve always said – a LVT cannot by definition be paid out of the income generated by the land for the vast majority of people, because they are being taxed on their house, which generates no actual cash income because they live in it. Therefore an LVT is an income tax by proxy, because income from employment is all most people have. And ironically the very people who do generate income from land (businesses) would make out like bandits from an LVT because they already pay a fairly hefty one, plus lots of other taxes.

    Thus the actual effect of LVT in the long run would be that everyone ended up living in a house that they could afford the LVT on from the income they made, so everyone’s income would be taxed at roughly the same rate. People with more income would afford the nicer (and higher LVT) houses, poorer people would have to move to lower priced and lower LVT houses. They’d end up paying the same proportion of their income in LVT. So its just an income tax via a very circuitous route.

  36. Ltw

    Politics.

    “No more unfair dismissal” – Yeah right!

    “Shame at living on the UBI” – What, like the shame at being on benefits? Actually, this risks making the concept of “free handouts” even more normal to millions who might currently abhor the idea (outside of things like pensions which most of us would regard as “earned”)

    “You could think about retraining/shifting careers with assurance that at least you’re not going to starve if it works out wrong” – But no one starves today in the west? Benefits.

    I’ll be honest, I’ve not read up lots on the pros and cons of UBI – hence apologies for the brevity – but intuitively, I would would happily bet that total productivity declines as a result?

  37. PF

    Many people send an inordinate amount of time working out exactly how to game the existing welfare system. With a UBI this is pointless. In which case their effrt can go on earning money instead.

    Some people will fall back on UBI, but I’m guessing that the net result will be a return to work and we know that work, any work, is good for people.

    Anyway, as our host has said, Finland is experimenting with this. We will soon have data.

  38. A point about UBI and disability: some disabled people will have to be given a supplement above the level of UBI, because they have financial needs arising from their disability that could simply not be met from a UBI. Not compensation for inability to work, but in order to pay for ongoing care needs etc. To be fair, quite a lot of disabled people only really suffer financially from the “inability to work”/”difficulty finding suitable work” spectrum of problems – they may not need care visits, and necessary conversions to house/transport may already have been undertaken – in which case a UBI would be fine for them. But it wouldn’t be fine for everyone.

  39. “So, $1 trillion of income. A tax rate of 40%. $600 billion a year.”

    Income tax of $400 billion.

    The TJN are missing the point. In the UK, what a Citizen’s Income boils down to is chucking most of the welfare system, tax credits and the income tax/NIC personal allowance into a pot and dividing it out equally.

    It works out at about £70 – £75 per week per working age adult, i.e. most people end up with much the same net income (give or take £10 a week).

    And we already have Child benefit and old age pensions which are pretty close to UBI, so we don’t need to worry about “paying” for those.

  40. “A point about UBI and disability: some disabled people will have to be given a supplement above the level of UBI, because they have financial needs arising from their disability that could simply not be met from a UBI.”

    And therein lies the flaw. Once you start giving section X of society (however needy they may be) more UBI that everyone else, the game becomes ‘How do I get myself categorised as part of section X of society, because I get more money for free that way, rather than working for it’. And you’re back to square one – a growing benefits (or UBI) bill as everyone want to live off everyone else.

  41. Jim

    Yes, this is what happened with PIP this year. And the disabled charities jumped on board the bandwagon. No more donations for them.

  42. Rational Anarchist

    Asset valuation needn’t be difficult. Let the owner value it themselves and pay tax accordingly. Then add a clause that says that any offer they receive in excess of that value must either be accepted or the value reassessed at a level above the offer and back taxes paid for 5 years at the higher value.

    Then LVT (or any other kind of asset taxation) becomes easy. You don’t even need to try valuing the land, let people do it themselves. All you have to add is a publically available list of values.

  43. RA

    An interesting idea and one I’ve not seen before, I can think of a couple of problems though. The first is simply getting the idea of self assessment past the politicians and the treasury, good luck with that. Second, wouldn’t it be likely to lead to a great many people assessing their property at below market rates, hence causing a shortfall in tax revenue, see objection 1 and leading to a bottleneck in the property market as a large number of potential sellers decided to stay put rather than pay back taxes ?

  44. Anarchist

    Let the owner value it themselves and pay tax accordingly. Then add a clause that says that any offer they receive in excess of that value must either be accepted or the value reassessed at a level above the offer and back taxes paid for 5 years at the higher value.

    Aren’t we heading towards bat shit crazy territory here?

    I have a personal reason for wanting a particular property. The ‘owner’ – you can google it – doesn’t want to sell. Hey ho, we can have some fun with this.

    DBC Reed – As the name says, an entirely rational proposal

    Actually, for once I believe you…

    Yeah, yeah, I know, it really wasn’t worth responding to.

  45. “‘A point about UBI and disability: some disabled people will have to be given a supplement above the level of UBI, because they have financial needs arising from their disability that could simply not be met from a UBI.’

    And therein lies the flaw. Once you start giving section X of society (however needy they may be) more UBI that everyone else, the game becomes ‘How do I get myself categorised as part of section X of society, because I get more money for free that way, rather than working for it’.”

    Why does the government have to provide the needs of a small majority?

    I would think that with UBI the charity money that goes to things like soup kitchens could now be refocused. This doesn’t seem to be a major problem to me.

    I still don’t know where we are going to come up with then tax revenues to pay for UBI. If we take all of the current welfare programs in the US and split the amount spent among all Americans we are looking at $6700* per person. The UBI would add another, approximate, $1.6 trillion to government spending. Once we solve this then we can look at the easier to solve issues.

    *Source wikipedia so I only bothered using 2 significant figures.

  46. Aren’t we heading towards bat shit crazy territory here?

    Given that the idea is lifted directly from Robert Heinlein (Number of the Beast if I recall), quite possibly 🙂

  47. RA’s proposal seems to be designed to terrify people into overvaluing their property for fear of the consequences so that they pay more tax. The sort of evil, statist proposal that a courageous stater would endorse.

  48. Ltw,

    After some digging the core idea can be traced back to More(1516) and Vives(1526) which predate Heinlein.

    The more I dig the better UBI looks if we can find a way to pay for it. The results from Namibia and India are particularly promising. The big question is what will happen in a developed country and hopefully Finland can help out.

  49. LVT self assessment has been proposed quite often. You have to discover the value of the land under a house, in most cases. You consult the ABI public Insurance calculator and discover how much it costs to rebuild the bricks and mortar; you deduct this from your estimate of what the whole property (land and buildings is worth) : what is left is the land value.
    It is quite common in the US for tax demands to split land value from “Improvements” (buildings). Texas relies more on property taxes than on income taxes: it is evidently more prosperous.
    One feature of Texas is low house prices so with no income tax they are doing alright.( I haven’t checked Texas recently mind you).
    The likelihood is that people will under estimate their land value so faced with any penalties for trying to sell under the declared value of LVT house prices will drop to a realistic level in macroeconomic terms.
    In deSovietised Estonia they just went round sticking up land tax maps in post offices etc and got near 100% compliance.For the Northern Ireland Rates revaluation ,they just motored round very slowly and assigned a value to the houses as they passed: no problems here either.

  50. “Texas relies more on property taxes than on income taxes: it is evidently more prosperous.”

    I doubt that the tax situation is the most important factor in Texas’s economic standing. This type of comment was most common after the great recession when oil was very high. Having a higher proportion of immigrants driving down labor costs could also be more important depending on how you define prosperous.

    Around here the local government decides about once a century** how much your property is worth. My house is taxed at a value of about 6 times* what I paid for it and I can’t get that corrected. I can’t even get the government to believe there are 2 bedrooms and 1 full bathroom instead of the 3/2 they claim.

    *Before intervention some properties were last assessed in the 1890s, yes that is not a typo.

    **My house got reassessed near the market peak but I purchased at the market low, with cash.

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