Op-Ed; Opinion

Social security and social inclusion

Social security emerged in Western Europe with voluntary solidarity contributions within labour unions in the late 19th century developing into a mandatory insurance contribution organised by the state in 1950. A mandatory insurance payable to the state is a tax, in this case a tax on labour. Because the employer pays all if it, it does not matter if legislation categorises it as employee’s contribution or employer’s contribution.

In addition, the 20th century saw the birth of a new type of tax: the income tax, designed to capture the total income of wealthy people. However, after 1950 the income tax started to hit the rising incomes of the working class. It became the second component of the tax on labour. Zero in 1930, insignificant in 1950, the total tax on labour is now by far the most important tax income for Western European states. It varies between 50 to 200 percent of the net labour income of the workers, making the cost of labour on average twice as high compared to what the worker gets.

The history of its creation explains why social security is linked to labour participation. The political class assimilates “job creation” to welfare: the more people work, and the longer they do, the more taxes are paid and the better for the state budget. This thinking induced many countries to increase the age of retirement. Obliging older people to work longer when there is a five-fold increase of unemployed young people waiting for a job, is absurd. It is an example of wrong collective thinking by people indoctrinated by the “Labour Church”, because they assume “full employment” is still possible.

In the cultural sector, the high tax on labour is a problem. We can watch fantastic artists for free on television. High taxes on labour increase the wage cost of artists. Most local performances cannot compete unless they get subsidies, which is now current practice in most Western European countries. Would it not be more straightforward to have no taxes and no subsidies in the cultural sector?

Education and healthcare are heavily subsidised in many countries to cover the cost of their employees including the tax on their labour and other expenses. Their net finances would be the same if taxes on labour would be set to zero and subsidies lowered with the same amount.

Same for services completely paid by our tax money like police, justice, the military, federal and local administration: the labour tax cost included into the payroll expenditure of the state is paid and collected by the state, the same wallet. Setting their labour tax to zero would not affect their net finances.

In Western Europe, 40 to 50 percent of employment is publicly funded which means the corresponding labour tax has no effect on net state receipts.

For a state, the real proceeds of labour tax come from the non-subsidised private sector. Hence, the proceeds are much lower than what policymakers are tempted to believe while looking at public accounts which provide gross rather than netted labour tax income figures.

Meanwhile, the high tax on labour effectively increases the cost of services for those who want their shoes, a washing machine or a bike to be repaired.  Mind that the “Labour Church” does not allow citizens to trade services.  Services should be acquired from service companies because allowing citizen’s to work for each other by exchanging services would be unfair competition to the firms selling such services.

These firms charge a labour cost at least twice as high as what their workers get, because of the tax on labour. This higher price obviously reduces the demand for repair services and many people try to paint their house themselves, maintain their garden themselves and their kids drive bikes without proper lights or brakes.  The tax on labour reduces exchange of services, hence it reduces the creation of wealth in the proximity economy.

In Western Europe, the labour Church created this barrier to social inclusion by segregating contractual labour from voluntary and informal work. Helping each other in an informal way, like our grandparents did, is not permitted anymore: the labour tax collectors are chasing offenders. However, poor people can get help from subsidised workers if they successfully find and convince the right state personnel that they are really poor. Clearly, the economic religion put in place by the “Labour Church” does not empower the population to help each other.

Would it not be more effective to convert the directive, complex, fraud-prone and costly social security allowance system into its basic income equivalent and allow the social economy to thrive again by allowing people to work for each other in an informal way, like our ancestors did until 50 years ago? 

About Roland Duchatelet

Roland Duchatelet has written 10 articles.

The views expressed in this Op-Ed piece are solely those of the author and do not necessarily represent the view of Basic Income News or BIEN. BIEN and Basic Income News do not endorse any particular policy, but Basic Income News welcomes discussion from all points of view in its Op-Ed section.

5 comments

  • Steve Godenich

    “Social security emerged in Western Europe with voluntary solidarity contributions within labour unions in the late 19th century developing into a mandatory insurance contribution organised by the state in 1950.”

    1889: Otto Von Bismarck is credited with creating social security for Germany in 1889[1]. Original retirement age was 70, but later reduced to 65.
    1908: Parliament is credited with creating the Old-Age Pension for the UK in 1908 for persons over the age of 70.
    1935: Franklin Delanoe Roosevelt is credited with creating Social Security in 1935 for the USA for persons over the age of 65.

    “In addition, the 20th century saw the birth of a new type of tax: the income tax, designed to capture the total income of wealthy people.”

    1798-1816: William Pitt is credited with creating the income tax for England in 1798 to finance the Napoleonic Wars.
    1842: Robert Peel reinstated the income tax for England in 1840 to meet government budget.
    1862-1867: Abraham Lincoln is credited with creating the income tax for the US to finance the war between the states.
    1913: Woodrow Wilson is credited with reinstating the income tax for the USA in 1913 shortly before the outbreak of WWI in Europe.
    1943: The Current Tax Payment Act of 1943 (withholding tax) required employers to collect income tax from employees to increase revenue flows to the government during the height of WWII and the Revenue Act of 1943 increased. (Can be confused with the Revenue Act of 1943, as I have been until now double-checking)

    “Would it not be more effective to convert the directive, complex, fraud-prone and costly social security allowance system into its basic income equivalent and allow the social economy to thrive again by allowing people to work for each other in an informal way, like our ancestors did until 50 years ago? ”

    Yes, with at least six provisos. The first is basic income must match the poverty threshold and not exceed current expenditures (may require income tapering). The second is to allow current elder recipients the choice of being phased out of the system. The third is to compensate remaining stakeholders for prior contributions with real dollars and real, risk-free ROI. The fourth is that Medical goods and services must be provided to sick and disabled. The fifth is not to raising taxes on individual income or business revenue. The sixth is that tax revenue lost from informal income must be offset in some fashion and the marginal tax rate be negated from any necessary tapering to meet revenue-neutrality, e.g., an APT tax[1] on all economic transactions[2].

    [1] APT TAX | Youtube
    [2] Intraday Liquidity Flow | FRBNY

  • G HALL

    How about just change the debt money system. Allow new money to be created by the basic income. Pay a higher basic income to anyone over 60 or the disabled. Allow local economies to thrive because the basic income would be spent locally creating local jobs and populations would not have to move around as much to find the higher paying jobs. People don’t change as fast as economies in the current system and all the stress factors degrade health

    • Steve Godenich

      Green-Seal Federal Reserve Notes (dollars) could be replaced by Red-Seal US Treasury Notes (dollars). Green-Seal Federal Reserve Notes (dollars) impose a debt on the public in the form of US Treasury Securities, collectible by your friendly neighborhood IRS man. Red-Seal Treasury Notes (dollars) do not carry that debt burden with them, however they were backed up by a commodity, like gold or silver to have worth. The counterfeit-like form of money is printing up paper notes with nothing backing it except the implied threat of force that mandates it as legal tender. In any case, expanding the money supply (by printing or digging it up) devalues the currency and reduces purchasing power, commonly referred to as an inflation tax. Productive growth does fight this inflation, but wages have to rise sufficiently to maintain the same or improved purchasing power. The other way to raise purchasing power is to lower taxes.

      Now, governments have learned ways of circumventing inflation, and retaining purchasing power, in a similar manner to a magician making a person disappear on stage, but eventually the secret of the trick is discovered, e.g., lowering taxes and increasing national debt, trading US military goods & services in exchange for petrodollar recycling,… cheap foreign goods & services and US Treasury Bond recycling for greater US trade deficits that increase the national debt,… spending money abroad to receive goods & services from abroad, then discouraging it’s return to the domestic economy in various ways,… or importing cheap sources of labor and tax revenue sources in exchange for lower wages, fewer jobs, increasing land and house prices, increasing infrastructure and welfare costs.

      The history of fractional reserve bank lending (FRBL), the history of the federal deposit insurance company(FDIC) and the history of Glass-Steagall is an entirely different sleight-of-hand feat. That’s my current understanding of the situation, anyway.

    • Victor Bobier

      @ Steve Godenich: The Gold standard is not coming back, the Fed is also here to stay, the Fed acts like a Central Bank and sets Monetary policy for the entire US. FDIC is insurance on deposits people make, meant to keep runs on Bank accounts from happening, like during the Great Depression, when people wanted to withdraw all their money and close their account(s). Glass-Steagall needs to be brought back, to separate Banks from Wall Street Investment Banks

      Me I like the idea of a Basic Income, but one at 150% of the FPL, 150% = $17,820.00 a year in 2017 or $1,485.00 a month.
      https://liheapch.acf.hhs.gov/news/july16/FPG.htm

      Consolidate SS, SSDI, SSI, UI, SNAP, Liheap, Housing subsidies, Heap, Oil/Gas subsidies, a Robin Hood Tax on all Wall Street Transactions, Tax all types of Incomes in the Income Tax(instead of only Earned Income, the exception being Basic Income), establish a Carbon Tax, Tax off shore US Corporate income and money, forbid US Corporate Inversions(I’m sure there is more ideas there, but for the moment I can’t think of any), all what I mentioned could be used to pay for Guaranteed BI w/NO work or other onerous limits beyond US Citizenship and a minimum age of collection(10-12yrs?), though a $2,400.00 stipend per year would be there for Children @ $200.00 a month. In consolidation that would lay off some Government employees, but with Basic Income, they could maybe find work somewhere else.

    • G HALL

      Some people may not understand my comment but “new money” is created by bank loans. New money would be created not using taxes but by the basic Income. The exact amount can then be removed from circulation by the very way the Fed does the books therefore it would not create inflation. Then it could be given and removed year after year thus still allowing the fractional banking system to be the main creator of new money based on the production need for new money of the country. No new tax schemes are needed.

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