Review: Policy and Politics, volume 39, number 1, January 2011, Special issue: Basic Income

by Citizens' Income Trust | Jan 28, 2012 | Opinion

Policy and Politics, volume 39, number 1, January 2011, Special issue: Basic Income, Policy Press, 2011, 144 pp, pbk, ISSN 0305 5736, online ISSN 1470 8442

This substantial collection of articles rehearses a plethora of arguments for a Citizen’s income (here termed a Basic Income), arguments both pragmatic and visionary; and an important byproduct for the reader is a distinct sense that the pragmatic and the visionary are related in a way more complex than we might at first have thought.

Guy Standing calls a Citizen’s Income an ‘economic stabilisation grant’ because it would boost aggregate demand, more efficiently allocate resources, and tackle uncertainty and rising inequality. As he suggests, times of crisis can lead to major change, and a failing paradigm can find itself displaced – but only if a new paradigm is ready to take its place (p.21):

One modest recommendation is that the emerging generation of economists and social policy students should urge their peers, and particularly the new political leaders, to match their rhetoric about being ‘radical’ by assessing genuinely radical ideas. Economics is a constantly unfolding body of thought, and those charged with implementing economic and social policy should face demands to think afresh and evaluate alternatives with open minds. (p.22)

Almaz Zelleke suggests that a feminist theory of justice requires a Citizen’s Income, and that such a universal unconditional income would promote a more gender-inclusive citizenship. ‘Most importantly, basic income indirectly compensates care and society’s other unpaid work without reinforcing the existing gendered distribution of labour or the primacy of the public sphere by equating care with work’ (p.38). Louise Haagh’s following article notes the correlation between a country’s level of equality and its citizens’ control over their time, and seeks a balance between employment and non-employment which she believes would be best served by a Citizen’s Income in a social insurance context.

Stuart White discusses two different ‘citizen’s endowments’: a Citizen’s Income, and universal capital grant. ‘Freedom’ and ‘entitlement’ arguments fail to separate the two options, and the way in which different ‘freedom’ arguments lead in different directions suggests that a combination of a Citizen’s Income and a universal capital grant might be the best option. Leading to the same conclusion, Tony Fitzpatrick discusses the concept of paternalism, distinguishes between a variety of types, recommends a ‘social paternalism’ that prioritises autonomy but doesn’t exclude other values, and suggests that a Citizen’s Income and a universal grant together will best promote such a social paternalism.

Bill Jordan recognises that the UK Government’s current benefit reforms as a useful step along the way to a Citizen’s Income, and raises the question: Will a small Citizen’s Income, established to make labour markets more flexible, then be increased in order to create a new basis for citizenship, or will it remain small and fulfil only its initial purpose? ‘The first steps towards basic income may become politically feasible for a variety of reasons, at a number of different developmental stages, all of which will also be perilous for the principle in various ways’ (p.112) – but those steps should not for that reason be rejected: ‘Social policy can seldom deal in pure principles or utopian solutions, and basic income is no exception. It cannot resolve all the challenges of globalisation … in a single reform, but these measures may be a step in the right direction’ (p.112).

Finally, Jürgen De Wispelaere and Lindsay Stirton study ‘the administrative efficiency of basic income’. Identifying those people entitled to a Citizen’s Income would be a necessary administrative task, and a variety of payment methods might be needed in order to reach the maximum number of payees, so administration of a Citizen’s Income would not be as simple as some might think. The authors discuss a dilemma: ‘Proponents can claim important administrative savings for basic income, provided they restrict those arguments to the most radical paradigmatic form, while simultaneously having to face up to the reality that this radical version of basic income may face insurmountable political obstacles’ (p.121: their italics). De Wispelaere and Stirton also quite properly suggest that a Citizen’s Income isn’t the only way to make administrative savings: other forms of administrative simplification are possible, such as the sharing of information between tax and benefits authorities and aligning tax and benefits rules with each other.

To round off the substantive articles section of this focused and comprehensive edition of Policy and Politics with De Wispelaere’s and Stirton’s article, which concludes that ‘administrative efficiency … is … political’ (p.128), seems really quite appropriate.

Review: James Alm (ed.), The Economics of Taxation

by Citizens' Income Trust | Jan 27, 2012 | Opinion

James Alm (ed.), The Economics of Taxation: The International Library of Critical Writings in Economics 251, Edward Elgar, 2011, 2 volume set, xxxvii + 592 pp, and x + 695 pp, hbk, 1 84844 829 2, £435

The title of the series to which these volumes belong contains an important ambiguity. A critique is a careful examination of a subject, so a critical writing is a careful study of the subject under review; but in common parlance ‘critical’ also means ‘significant’. (We might say that the title of the series contains a critical ambiguity.) It is in this double sense that the writings contained in these volumes are ‘critical’. They are careful studies of aspects of taxation, and they are also significant, in relation to the study of taxation, in relation to the social policy field as a whole, and because they have been seminal in their field. The book James Alm (ed.), The Economics of Taxation and these accounting career tips were fantastic resources for me when I was studying to become a tax accountant.

As the editor’s introduction states, taxation policy has multiple goals: adequacy (to collect enough revenue – we see the consequences of not doing so in the current plights of a number of Eurozone countries), equity, and efficiency (in the sense that taxation should interfere as little as possible with firms’ and individuals’ decisions in markets for labour and other commodities).

The papers collected in these two volumes fall into sections on the effects of taxation (equity, income distribution, efficiency, revenue collection, economic growth, and politics), optimal taxation, tax reform, individuals’ decisions (in relation to incentives, labour supply, saving, portfolio choice, capital gains, estate taxes, tax evasion, and income reporting) and business decisions (in relation to capital taxation, investment, and financial structure). Many of the papers, and the collection as a whole, offer a good balance between theory and practice. A good example of such balance is Fullerton’s paper ‘On the possibility of an inverse relationship between tax rates and government revenue’ – and it is in this paper that we find a clue to an important problem related to any attempt at a collection of papers on taxation. ‘Welfare programs that make recipients ineligible at a given income level imply effective marginal tax rates of 100 percent or higher’ (p.20 of Fullerton’s article, p.272 of volume I of the collection). For UK residents in receipt of the means-tested ‘Tax Credits’, the rate of withdrawal of the benefit is at least as important a determinant of labour market decisions as is the income tax rate. Similarly, Slemrod’s conclusions about behavioural responses to changing tax rates and changing tax avoidance possibilities apply as much to benefit rates and income non-declaration as they do to tax rates and tax avoidance, which wouldn’t happen if people decided to seek out tax-resolution-services to help them manage their own personal financial situation.
Hausmann’s paper on labour supply correctly identifies transfer payments’ effects on net income as an important factor (p.37 of his article, p.27 of volume II of the collection). All this is to say that many of the conclusions drawn in the papers are generalizable to the characteristics and effects of means-tested and other benefits, and to the combinations of benefits and taxes that many people experience. To incorporate consideration of household-based means-tested benefits into the theoretical models employed by many of the papers (and particularly in papers such as Atkinson’s and Stiglitz’s on the design of tax structures) would considerably complicate the mathematics, but it is surely essential to attempt this, which suggests that many of the papers here really are, as they themselves suggest, starting-points still awaiting further development.

It is a pity that this two volume collection contains no index. To have included one would have considerably enhanced usefulness of the set to researchers. But that is the only problem. This collection, which will be consulted mainly in libraries, will give to students of taxation a valuable source of critical writings to aid their studies. What we need now is a similar collection of papers which study tax and benefits systems together, which study their combined behavioural effects, and which discuss the policy consequences of those effects. Atkinson’s work on a flat tax and a Citizen’s Income would surely find an honoured place in such a collection.

Policy-makers need to integrate tax and benefits policies, and preferably tax and benefits. A collection on the economics of tax and benefits as good as Alm’s on the economics of taxation would be of considerable assistance.

Review: Stuart Adam – The Mirrlees Review

by Citizens' Income Trust | Jan 26, 2012 | Opinion

Stuart Adam et al (eds), Dimensions of Tax Design: The Mirrlees Review, Oxford University Press for the Institute for Fiscal Studies, 2010, xii + 1347 pp, hbk, 0 19 955375 4, £90

Stuart Adam et al, Tax by Design: The Mirrlees Review, Oxford University Press for the Institute for Fiscal Studies, 2011, xvii + 533 pp, hbk, 0 19 955374 7, £45 (both volumes £110)

Fiscal Studies , vol.32, No.3, September 2011: a special issue on the Mirrlees Review

The completion of the Institute for Fiscal Studies’ review of taxation, chaired by Sir James Mirrlees, Nobel Laureate and proposer of a theory on optimal taxation, has given rise to three valuable volumes.

Dimensions of Tax Design contains thirteen papers given at conferences organised as part of the review, along with numerous associated commentaries. It would be difficult to envisage a more comprehensive discussion of UK taxation policy, and even if there had been no outcomes of the review beyond this collection of papers, then the review would still have been worth conducting.

Of particular interest to readers of this Newsletter will be the paper on ‘Means-testing and Tax Rates on Earnings’. Unfortunately, the paper starts off badly, as it suggests that there is ‘a trade-off between the goals of equity and efficiency: governments want to transfer resources from the rich to the poor; on the other hand, such transfers reduce people’s incentive to work’ (p.91). This is patently not true of Child Benefit. It is only true of means-tested transfers. The rest of the paper is better informed, and, on the basis of the evidence, it recommends that ‘marginal rates … when people enter work should be set low (and perhaps even negative) for potential low earners rather than set high as the standard model suggests’ (p.91). The authors recommend a scheme which looks rather like Universal Credit (pp.150-62). Also of interest will be the papers on labour supply and taxes, on the tax base for direct taxation, on administration and compliance, and on the political economy of tax policy.

Nowhere in the collection is there any discussion of Child Benefit. This is a major omission.

The review’s conclusions are contained in Tax by Design, the title itself suggesting that a piecemeal approach to taxation policy needs to be replaced by a more co-ordinated approach. Of particular interest will be the chapter on integrating tax and benefits, which can’t find a good word to say about either our current benefits system or Tax Credits. Again, there is no mention of Child Benefit. The authors propose that Income Tax and National Insurance Contributions should be integrated, that benefits should be integrated with each other, and that tax and benefits should remain separate but their behaviours studied together. These suggestions reappear in the report’s final conclusions, as does the suggestion that effective tax rates should be lowered for low earners. ‘The current tax and benefit system is unnecessarily complicated and induces too many people not to work or to work too little. By creating a simpler and more rational system, minimizing disincentives where they matter most, the reforms we propose have the potential to deliver major economic gains’ (pp.483-4). Yes; and to have asked about the current effects of Child Benefit, the likely consequences of increasing its value, and the likely effects of extending universal benefits into working-age cohorts, would have enabled some even more important overall effects to have been achieved.

The September 2011 edition of Fiscal Studies repeats the recommendations contained in Tax by Design. It contains a comparison of Tax by Design with the Meade Report of 1978 and with taxation reviews in Australia and New Zealand (where government sponsorship of the reviews has resulted in less radical proposals but ones which might have more chance of immediate implementation); and a comparison of Tax by Design with recent literature in the field. It also contains an article which employs Tax by Design’s systemic and revenue-neutral approach to question some of the report’s conclusions, including its suggestion that effective tax rates should be lowered for people potentially or actually in low-paid employment.

We are in the review team’s debt for their committed work on a wide-ranging review. The two volumes and the September edition of Fiscal Studies will inform debate on tax policy for many years to come. However, one omission does need to be remedied. The Mirrlees Review did not review income maintenance, and it should have done. In particular, there is no study of the different effects of contributory, means-tested and universal benefits, nor of the ways in which they interact with each other and with the tax system. We now need to see income maintenance tackled by a review team with the same level of expertise and the same resources as the Mirrlees Review.

Review: Emilio Albi and Jorge Martinez-Vazquez (eds), The Elgar Guide to Tax Systems

by Citizens' Income Trust | Jan 25, 2012 | Opinion

Emilio Albi and Jorge Martinez-Vazquez (eds), The Elgar Guide to Tax Systems, Edward Elgar, 2011, xi + 462 pp, hbk, 0 85793 388 1, £145

The editors’ introduction to this volume of thoroughly researched conference papers shows just how much has changed in OECD tax systems during the past few decades: flatter income tax rates, ubiquitous VAT, the almost complete disappearance of wealth taxes, a substantial reduction in excise duties, and much more. The separate chapters discuss the reasons for these changes, and also such fields as corporate taxes, environmental taxes, decentralized taxation, tax administration, and the relationships between tax policy, politics, and research. The important debates within taxation policy are discussed: the balance between direct and indirect taxation; different types of taxations’ relationships to economic stabilisation, growth, competitiveness, and income redistribution; whether capital income should be taxed (yes, minimally); how viable (national) corporate taxes are in a globalizing world; whether the decline of wealth taxes and of excise duties is inexorable; how VAT and environmental taxes are best designed; whether anything other than a property tax is a good candidate for subnational taxation; and the extent to which administrative feasibility should drive taxation policy. The final two chapters tackle two different influences on tax system reform: politics, and research. The authors conclude that political considerations are important determinants of tax systems, and particularly of their complexity, and that research is more likely to follow policy change than to lead it. Given this, the researcher’s task ‘is the long-term game of building up the institutional capacity both within and outside governments to articulate relevant ideas for change, to collect and analyze relevant data, and of course to assess and criticize the effects of such changes as are made’ (p.443).

Of particular interest to readers of this Newsletter will be chapter 3 on individual income taxation. True tax credits are correctly understood as income tax allowances which are paid out proportionately to the amount that earned income falls below a threshold, and these are rightly seen as enhancing progressivity and as being efficient to administer. (The UK’s current ‘Tax Credits’ are a means-tested benefit, and not tax credits.) ‘To the extent that all tax credits and exemptions were made refundable, this would turn the income tax system into a full-fledged negative income tax system,’ (p.105). The chapter identifies as problematic both income transfers not delivered through the tax system, and tax credits which change with a household’s circumstances. It notes that enhancing refundable tax credits delivered through the tax system to complement stand alone transfer programs could go some way to alleviating poverty in the lower income range (p.106). This is a lesson that the UK Government learnt during the early 1970s, but has forgotten since.

At a point in the discussion at which the UK’s Child Benefit might have been discussed (where universal education provision and the Child Trust Fund are discussed), there is no mention of it; and what I didn’t find in this collection was any understanding of the administrative and other efficiencies related to a combination of universal benefits and a progressive income tax. This is a pity in such a wide-ranging collection.

Positively important to the Citizen’s Income debate is the light which this collection throws on a variety of possible funding methods. The chapter on environmental taxes is relevant, as is the mention of land tax (p.337). What isn’t in the collection is any discussion of a field which will one day be important: transnational taxation. There is now wide recognition of the possible utility of a ‘Tobin’ financial transaction tax, including the European Commission’s welcome recognition that this kind of taxation would best be administered at regional level, and therefore by the EU. Any future collection of papers on taxation policy really will need to discuss the feasibility of transnational tax collection and whether a financial transaction tax might fit into this category.

Perhaps it isn’t fair to say too much about what a book hasn’t done when it’s done so much already. The book discusses many of the issues facing tax systems and attempts to reform them, and it will be of considerable value both to policy-makers and to students of taxation policy.