by Citizens' Income Trust | Mar 3, 2014 | Opinion
This essay begins and ends with a genuine question: Given the proven desirability and financial feasibility of a Citizen’s Income, why does a Citizen’s Income not appear to be politically feasible?
Briefly in the Citizen’s Income Trust’s introductory booklet, 1 and at greater length in Money for Everyone, 2 the case is made for the desirability of a Citizen’s Income’s desirability. Because it would not be withdrawn as earned income rose, a Citizen’s Income would reduce marginal deduction rates for any household currently on means-tested benefits (including ‘tax credits’) and would make it more worthwhile for every one of those households to seek new or additional employment. Everyone of the same age would receive a Citizen’s Income of the same amount every week, and this would create social cohesion in place of the social division currently created by our means-tested and contributory benefits systems. Because a Citizen’s Income would be paid at the same rate whatever someone’s employment status, it would enable individuals to seek the labour market involvement that their circumstances required and it would provide a more flexible labour market for both employers and employees. Since neither the Citizen’s Income nor the higher Citizen’s Pension would be reduced as savings rose, they would not discourage savings as means-tested pensions and other benefits do now. A Citizen’s Income would be extremely simple to administer and it would reduce drastically the cost of benefits administration and would eliminate fraud and payments errors. Computerisation would be easy.
Both the introductory booklet 1 and Money for Everyone 2 (along with its website appendices 3 ) show that a Citizen’s Income could be paid for by reducing existing benefits and tax allowances and in such a way that no additional public expenditure would be required. Further, few households would suffer appreciable losses at the point of implementation, and that those households that do experience losses could easily recover their economic position by seeking relatively small amounts of additional earned income because that extra earned income would not result in the Citizen’s Income being withdrawn.
Unfortunately, arguments and evidence do not necessarily add up to political feasibility. Pilot projects in Namibia 4 and India 5 have exhibited significant improvements in labour market activity and in a variety of other social and economic indicators: but however persuasive the evidence might be, politicians have found it hard a) to recognise that this is the case, and b) to commit themselves to the policy that generated that evidence. In India, initial political enthusiasm for the pilot projects, for the evidence generated, and for unconditional cash transfers, has given way to a re-emphasis on the distribution of subsidised food to the poor: a process that provides plenty of opportunity for corruption, waste, and all of the usual problems that afflict means-tested benefits. In Namibia, a press release issued by the Namibian Basic Income Grant Coalition represents the problem:
Despite the positive results, the Namibian government has still not committed itself to the introduction of a BIG [Basic Income Grant: Citizen’s Income] in Namibia. Instead, senior government leaders have raised concerns that the grant would make people lazy and dependent on hand-outs. Such perceptions are rooted in prejudices rather than being based on the evidence provided by Otjivero! We wish to point out that the BIG Coalition arranged for many Namibians, including Members of Parliament (MPs), to visit Otjivero and to witness the developments there first-hand. The honourable MPs were free to assess the impact of the BIG themselves and they were impressed with the results achieved in Otjivero. However, they preferred to express their views in private instead of speaking out publicly in support of a national BIG. 6
A Negative Income Tax would be administratively different from a Citizen’s Income, but in other respects it would be similar: and Negative Income Tax experiments in the USA between 1968 and 1980 exhibited the same problem as that suffered by the Namibian and Indian Citizen’s Income pilot projects. In this case, discussion of initial positive results in relation to poverty reduction and labour market engagement was submerged by heated debate about what appeared to be a rise in the number of divorces: and even though it was shown that there had in fact been no rise in the divorce rate discussion of a Negative Income Tax did not resume. 7
In the UK, politicians and those who advise them have sometimes studied the evidence and come to the conclusion that social security reform in the direction of a Citizen’s Income would be worthwhile.
Christopher Monckton, who worked in Margaret Thatcher’s policy unit from 1982 to 1986, recommended a Citizen’s Income because it would meet basic needs, reduce employment disincentives, reduce administrative costs, encourage family cohesion, redistribute from rich to poor ‘but only mildly’, be revenue neutral (or involve only a small increase in the basic rate of Income Tax), stimulate many beneficial secondary effects, and be ‘politically neutral’: that is, it would both require and generate a political consensus. The problem that Monckton encountered was that the Treasury counts benefits as public expenditure but does not count tax allowances in the same way. If a tax allowance is turned into a cash payment of the same value, then public expenditure looks as if it has increased even though it hasn’t. As Monckton puts it:
Does all this matter? Yes it does, vitally, because national accounts prepared using this daft accounting principle are useless as a starting-point for policy formation. In particular, unless the Treasury is forced to mend its ways, it will always block the consideration of any universal benefit scheme, erroneously believing it to be in all circumstances unaffordable. 8
During the 1980s there were ‘One Nation Conservatives’ who advocated a Citizen’s Income because it was
about changing attitudes all the way down the income distribution instead of just at the top. For there is no reason to suppose that people on low incomes react differently to increased economic incentives than people who are rich. (Brandon Rhys Williams MP) 9
A little later, and a little further to the left, the Labour Party’s Social Justice Commission argued that
the case for Citizen’s Income is partly moral and partly economic. The moral case rests on the principle of social citizenship … civil and political rights must go hand in hand with economic and social rights. And just as civil and political rights belong unconditionally to all citizens as individuals, irrespective of need or desert, so all citizens have a right to a share in the social and national product sufficient to make it possible for them to participate fully in the common of society … the state is no more entitled to say which citizens have a right to a sufficient share in the common stock to participate fully in the life of the society than to say which citizens have a right to vote or to a fair trial. And in modern conditions that principle can be realised more simply and more completely by a Citizen’s Income than by any other mechanism. The economic case rests upon the falling demand for unskilled labour. … a Citizen’s Income … enables those without saleable skills to take low-paid or casual jobs of some kind, while at the same time receiving an income large enough to enfranchise them, without the stigma of a means test.’ 10
To the left of the political spectrum, and in response to what he believed to be an unnecessarily non-committal Social Justice Commission report, Meghnad Desai, a Labour peer and Professor Emeritus of Economics at the London School of Economics, recommended a Citizen’s Income simply because it would ‘reduce poverty and allow for greater flexibility in labour markets’, and because it would be possible to fund it by reducing tax allowances and other benefits. 11
Somewhere on the political map lie the Liberal Democrats. Paddy Ashdown, who was leader of the party from 1988 to 1999, was a firm advocate of a Citizen’s Income because it would be non-stigmatising, it would encourage work and saving, it would provide the labour market flexibility required by a modern economy, it would be
well targeted because people with higher earnings automatically pay back more than the value of the [Citizen’s Income] through tax
and it would
provide a basis that people could use to gain education and training, and to retrain during their working lives. 12
These political voices suggest that a Citizen’s Income is in principle politically feasible. All it would take would be for MPs, and particularly party leaders, to study the arguments and the evidence, to draw the obvious conclusion, to reach all-party consensus, to pass legislation, and then to implement the policy.
Instead, a constellation of ideas appears to be firmly lodged in the minds of politicians across a variety of cultures, including ours: that universal benefits make people lazy, even though the opposite has been shown to be the case, both in theory and in practice; that it is essential to means-test benefits, even though means-testing is known to be expensive, inefficient, and prone to error and fraud; that those on benefits need to be treated as households rather than as individuals, even though household claimant units generate complexity, expense, error, and fraud; and that as people on benefits increase their earnings their benefits should be taken away from them, even though such withdrawal of benefits is known to disincentivise labour market activity. A classic expression of the current political mindset can be found in a speech that the leader of the Labour Party made on 6th June 2013:
It doesn’t make sense to continue sending a cheque every year for Winter Fuel Allowance to the richest pensioners in the country. … When it comes to the decisions of the next Labour government it won’t be our biggest priority to overturn the decisions this government has made on taking child benefit away from families earning over £50,000 a year. 13
Ed Miliband offered no argument or evidence, and in the speech we find no consideration of the substantial administrative cost of sending the Winter Fuel Allowance to some pensioners and not to others as opposed to the very small administrative cost of sending it to everyone in receipt of a state pension; nor do we find any recognition of the fact that the wealthy pensioners about whom he was speaking are paying far more in Income Tax than they receive in Winter Fuel Allowance. On top of this, wealthy pensioners may be more likely to contributing financially to plans such as a pre-paid funeral, meaning they have less money free to spend on essentials like winter heating. Even if they are using a website like Discountcaskets.com to keep costs low, a funeral still remains very expensive and could put a strain on their finances.
When I explain a Citizen’s Income to a group of people, the normal experience is for the penny to drop for most members of the group – and you can sometimes watch it happen as furrowed browns turn to affirmative concentration – but for some members it never does. They simply cannot see that it would be both feasible and desirable to turn both tax allowances and means-tested benefits into unconditional payments, and by those means to pay to every citizen an unconditional and nonwithdrawable income. Means-testing is so securely lodged in their minds that no alternative proposition is able to dislodge it. Means-testing appears to be similarly lodged in the minds of Members of Parliament, except that in each generation there is a handful for whom the penny has dropped (of whom the late Malcolm Wicks was one). What appears to be happening is that Members of Parliament, and particularly ministers, are not doing their own reasoning. They are seeking evidence for public opinion in the print and other media, and they are finding articles and programmes in favour of paying more to poor people than to those less poor (‘because they need it more’), in favour of extracting benefits as quickly as possible as people’s earnings rise (‘because they don’t need it’), and in favour of imposing conditions on the receipt of benefits (to ensure that benefits recipients ‘deserve’ their benefits). Such articles and programmes may be a fair representation of public opinion because the vast majority of the public have not experienced an educational opportunity that might enable the penny to drop.
De Wispelaere and Noguera suggest that ‘psychological feasibility’ is prior to ‘strategic feasibility’ and that both are required for political feasibility. By this they mean that the public needs to be persuaded of the rightness of a new course of action before policy makers can be persuaded of it, and that both the public and policy makers need to be persuaded of the rightness of a new policy before it can be implemented. 14 There are of course counterexamples. Equalities legislation has often led public opinion, and the new behaviour generated by the legislation has helped to form new public opinion on a variety of equalities. Legislation to ban smoking in public places was ahead of the public mood in terms of its stringency, but public opinion soon followed. However, these counterexamples might not be relevant to the present case.
Starting with equal pay for men and women, and then moving on to other equalities legislation, most members of the public would have been clear about what the proposed legislation would achieve, and would have had some understanding of the reasons given for equalities legislation, even if they disagreed with it. Similarly, most members of the public would have been clear about what legislation to ban smoking in public places would achieve and would have had some understanding of the arguments for banning smoking in public places.
There were many people, particularly smokers, who were very against banning smoking in public areas. But once the legislation came in, public opinion started to change. It almost definitely led to people turning to things like Shiro tobacco-free pouches instead and quitting smoking altogether. Slowly, people realised that perhaps the legislation was a good thing. It has also led to vaping, which has become a popular alternative for smokers. It is a lot less damaging to our health as a vaporizer contains a small amount of nicotine compared to cigarettes. Not to mention, you avoid the by-products of smoking such as tar and carcinogens. They aren’t that hard to get hold of either, as a lot of stores have now been set up around the world, as well as websites such as Gourmet E Liquid.
These are both examples of what we might call ‘prohibitive’ legislation, because they prohibit part-icular easily identifiable types of behaviour. Legis-lation to establish a Citizen’s Income would be very different. It would be ‘positively innovative’, and would involve a transition from a current complex system to a future somewhat less complex one, rather than the easily understood prohibition of a single behaviour. Whilst the Citizen’s Income would be simple enough in its operation, transition from the current system to one based on a universal benefit could be far from simple. Members of Parliament would not find it easy to explain to their constituents either the proposal or its effects. The penny might not have dropped for them; and, if it had, then they might still find it difficult to enable it to do so for others.
Having said that, if a genuine Citizen’s Income were to be established, the benefits would be clear – as they were in the Namibian and India pilot projects. At that stage psychological feasibility would no longer be an issue. The problem is now. If psychological feasibility has to precede strategic feasibility, and if both are required before political feasibility becomes a possibility, then there really is a problem. However clear the benefits of a transition to a Citizen’s Income are to those for whom the penny has dropped, the penny has not dropped for the vast majority of the public, and there is little likelihood that it will do so in the near future for three reasons. Firstly, an educational process is required which begins with gaining an understanding of our current benefits system, moves on to an understanding of how a Citizen’s Income is different and better, and then moves to seeing how the transition could occur. Secondly, a Citizen’s Income is counter-intuitive because our intuition has for so long been formed by a benefits system characterised by means-testing. Thirdly, a transition that the public does know about – to Universal Credit – has so far been a disaster. Universal Credit is not universal, but members of the public might perceive the truly universal Citizen’s Income to be a kind of Universal Credit, and therefore decide that it must have all of the problems associated with Universal Credit.
Let us suppose for the sake of argument that public education has occurred, and has been of sufficient quality and depth to enable the majority of the British public to understand a Citizen’s Income and its benefits. Let us further suppose that ministers now find themselves carefully considering establishing a Citizen’s Income. Then another obstacle will appear.
Amongst proposed reforms of the UK’s tax and benefits systems that have failed to be implemented are the tax credit proposals 15 of the early 1970s, Brandon Rhys Williams’ proposal 16 for a Citizen’s Income in 1982, and his mother Juliet Rhys Williams’ similar idea 17 during the Second World War. Amongst proposed reforms that have been implemented are Family Allowance and then Child Benefit; 18 and amongst those about to be implemented is something like a Citizen’s Pension. 19 Three patterns emerge:
- The patterns that have changed the system, or that are likely to do so, have been for identifiable groups of people
- Those proposals that have changed the system have benefited from longstanding and widespread debate and a reasonable level of public understanding of what was intended
- Those proposals that have become Acts of Parliament are those that have not reduced the number of civil servants, and those that have not become Acts of Parliament would have done so. 20
The first pattern suggests that a Citizen’s Income ought to be implemented one demographic group at a time. Child Benefit is currently paid at a different rate for the first child, and equalising the rate for all children would give us a Citizen’s Income for children. Removing the link between the proposed Single Tier State Pension and National Insurance records would give us a Citizen’s Pension. Next could come a Citizen’s Income for young adults ( –this would facilitate university and other education). Then a Citizen’s Income for the over 55s (to ease the transition into retirement); and finally a Citizen’s Income for other working-age adults. 21
The second pattern requires a sustained and deep educational exercise by all possible means, of Members of Parliament, of others with an influence on the policy-making process, and of the general public. This will be a far from easy task.
The third pattern commits us to a significantly difficult task. The reason for the pattern is obvious. Civil servants brief ministers. If a proposed policy would increase the size of a department then a departmental head would be likely to brief in its favour, whereas a policy that might reduce the size of a department might generate negative or neutral briefings. A Citizen’s Income of almost any size would mean fewer households on means-tested benefits and therefore fewer benefits administrators; and the largest Citizen’s Income that could be financed by reducing tax allowances and means-tested and other benefits might significantly reduce the number of civil servants. We can therefore see that ministers thinking of exploring the feasibility and desirability of a Citizen’s Income might find their civil servants either advising against the proposal or amending it and therefore establishing something other than a Citizen’s Income. Anything more complex than an unconditional and non-withdrawable income for every individual would require additional civil servants to manage its regulations and yet more civil servants to administer it.
We have arrived at an understanding of the conditions that might make implementation of a Citizen’s Income possible: a substantial educational effort to enable the general public to see that a Citizen’s Income would be both desirable and feasible; a similar educational effort to enable ministers and Members of Parliament to develop the same view; a Citizen’s Income implemented one demographic group at a time; and ministers sufficiently convinced of the rightness of implementing a Citizen’s Income that they were able to listen to and then ignore any biased civil service briefings against a Citizen’s Income.
The conditions for implementation are perhaps both ‘additive’ and ‘conjunctive’: additive, like a tug of war team, because the strength of each element of the feasibility mix will enhance feasibility overall; and conjunctive, like a relay team, because the strength of the weakest element will determine whether implementation occurs. 22
We are asking a lot of the policy process: we are asking that a substantial and deep educational effort should succeed in changing millions of minds for which means-testing is intuitive; that Members of Parliament and ministers should give both time and sustained attention to a highly complex policy field; that policy makers will understand that the Citizen’s Income concept is non-negotiable and non-revisable: that is, that it is an unconditional and nonwithdrawable income paid to every individual; that ministers would be able to question negative briefings and maintain a steady course in the face of civil service attempts to complicate the proposal; and that interest and energy should be sustained as the different demographic groups receive their Citizen’s Incomes.
This really is asking a lot, and it is highly unlikely that it will happen. This means that however desirable and however financially feasible a Citizen’s Income might be, we might never see one implemented.
There is, of course, another possibility, and that is that policy-making does not always happen according to the logic that we have carefully constructed. We have looked back and found some patterns, and we have assumed that we can read off from them the future trajectory of tax and benefits policy. A brief look at one of the policies not implemented will help us to see that other possibilities might present themselves. The Heath Government’s tax credit plans of the early 1970s would have been implemented if a General Election had not intervened. It is true that the proposal was somewhat complex and would not have reduced the number of civil servants, but it would have represented a major change in the way in which Income Tax and social security benefits were understood. It was a political accident that meant that Tax Credits were not implemented and that means-tested in-work benefits have been normative for the past forty years.
Political circumstances could equally well generate a very different outcome, and, somewhat surprisingly, Iran might provide a useful lesson. When the Iranian Government decided to withdraw subsidies on food and petrol, and to compensate poor households for their additional costs by establishing a means-tested benefit, the administrative system collapsed and the only way to ensure that poor families had sufficient income to pay for the now more expensive essential commodities was to pay the benefit at the same rate to every individual. Iran had arrived at a Citizen’s Income by accident. 23 It is not beyond the bounds of possibility for the complexly computerised administrative systems for Universal Credit to collapse and for the only solution to be to pay a Citizen’s Income. Whilst a rapidly implemented universal benefit, paid for by abolishing means-tested benefits and tax allowances, would be likely to generate immediate losses for some households, these would not necessarily be large in comparison to losses sustained by large numbers of households in relation to recent cuts in benefit levels and entitlements.
The abolition of means-tested benefits, or the drastic reduction of households receiving them, would reduce the number of civil servants, but, in this age of austerity, we should no longer assume that the pattern discovered by surveying attempts at benefits reform during the last century will apply to this one. The implementation of the ‘small state’ is a permanent UK government project, even if more in theory than in practice, and the implementation of a Citizen’s Income could easily be justified on that basis as well as on the basis that there would be substantial administrative savings: a policy aspect always popular with Treasury ministers. Equally, a Citizen’s Income could be argued to be a step on the same road down which Universal Credit was already taking us, thus turning the exit from Universal Credit into a PR success.
Nobody can predict that such a scenario will occur, because accidents are precisely that: accidents, and therefore unpredictable. However, the scenario is a possible one; and there might be other possible scenarios that would require a government to react quickly on tax and benefits policy. Contingency planning is never unhelpful, and it might be that contingency planning in the direction of a Citizen’s Income is already in place, perhaps in preparation for the next financial crisis, so that quantitative easing can be paid out via a Citizen’s Income, thus increasing the consumption of goods and services as well as increasing the money supply. But if contingency planning is not in place then it ought to be. A useful mechanism would be a Royal Commission on income maintenance: a policy instrument that we ought to have seen considered before. Where a policy field is complex, where a long-term plan is needed, where an all-party approach is therefore required, and where multiple and changing factors need to be taken into account, a Royal Commission is a tried and tested means of considering the policy options available, of drawing together the necessary evidence, and of coming to a considered decision as to the best options. Little use has been made of Royal Commissions during recent history, but that is no reason for not considering the possibility in today’s particular circumstances. Whether a Citizen’s Income would be the best option for the reform of the tax and benefits system would be for the Royal Commission to decide. Whatever the outcome of the Commission’s research and discussions, a Citizen’s Income, and the ways in which it might be implemented, will at least have been carefully considered. A Citizen’s Income would in this way become a practical option; and, if one were to be needed in the midst of a crisis, then its implementation will already be a known quantity.
Good government requires nothing less.
Notes
1 Citizen’s Income: A brief introduction, Citizen’s Income Trust, 2013
2 Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Policy Press, 2013
3 www.citizensincome.org/MoneyForEveryone.htm
6 Malcolm Torry, ‘Can unconditional cash transfers work? They can’, Citizen’s Income Newsletter, issue 2 for 2009
5 Guy Standing, ‘Can Basic Income cash transfers transform India’, Citizen’s Income Newsletter, issue 2 for 2013
6 Press release, ‘The Basic Income Grant (BIG) is Government’s responsibility’, Basic Income Grant Coalition, Namibia, 1st March 2012, https://bignam.org/Publications/Press_release_March_2012_to_Government.pdf
7 Robert A. Levine, Harold Watts, Robinson Hollister, Walter Williams, Alice O’Connor, and Karl Widerquist, ‘A retrospective on the Negative Income Tax experiments: Looking back at the most innovate field studies in social policy’, pp 95-106 in Karl Widerquist, Michael Anthony Lewis and Steven Pressman, The Ethics and Economics of the Basic Income Guarantee, Ashgate, 2005
8 Christopher Monckton, ‘Universal Benefit’, pp 3-6 in Citizen’s Income Bulletin, issue 16, July 1993, Citizen’s Income Trust
9 Brandon Rhys Williams, Stepping Stones to Independence, edited by Hermione Parker, foreword by David Howells MP, Aberdeen University Press for the One Nation Group of Conservative MPs, 1989, pp 35-6
10 Commission on Social Justice, Social Justice: Strategies for national renewal, London, Vintage, 1994, pp 261-2
11 Meghnad Desai, ‘Borrie is no Beveridge. Citizen’s Income now’, pp 7-8 in Citizen’s Income Bulletin, issue 19, February 1995, Citizen’s Income Trust, p 8
12 Paddy Ashdown, ‘Breaking the poverty trap: A Basic Income’, pp 5-6 in BIRG Bulletin, no 10, 1989, p 6
13 www.labour.org.uk/one-nation-social-security-reform-miliband-speech#
14 Jürgen De Wispelaere and José Antonio Noguera, ‘On the political feasibility of Universal Basic Income: An analytic framework’, pp.17-38 in Richard Caputo (ed.), Basic Income Guarantee: International experiences and perspectives on the viability of Income Guarantee, Palgrave Macmillan, 2012
15 Her Majesty’s Government, Proposals for a tax-credit system, Cmnd 5116, Stationery Office, 1972
16 House of Commons Treasury and Civil Service Committee Sub-Committee, The structure of personal income taxation and income support: Minutes of evidence, HCC 331-ix, Stationery Office, 1982, p.423
17 Juliet Rhys Williams, Something to look forward to, MacDonald and Co., 1943
18 Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Policy Press, 2013, pp 22-7
19 Department for Work and Pensions, A state pension for the 21st century, Cm 8053, The Stationery Office, 2011
20 Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Policy Press, 2013, pp 43-5
21 Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Policy Press, 2013, pp 49-50
22 Ivan D. Steiner, Group Process and Productivity, Academic Press, 1972, pp 17-18
23 Hamid Tabatabai, ‘From Price Subsidies to Basic Income: The Iran Model and its Lessons’, pp 17-32 in Karl Widerquist and Michael W. Howard (eds) Exporting the Alaska Model: Adapting the Permanent Fund Dividend for Reform around the World, Palgrave Macmillan, 2012; Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Policy Press, 2013, pp 67-9
by Citizens' Income Trust | Feb 28, 2014 | Opinion
Karl Widerquist and Michael W. Howard (eds), Exporting the Alaska Model: Adapting the Permanent Fund Dividend for reform around the world, Palgrave Macmillan, 2012, 1 137 00659 2, hbk, xix+ 291 pp, £65
In 1797 Thomas Paine suggested that, because in principle the land belongs to everyone equally, those who occupy it should pay a ground rent to the whole community. We can generalise the profits that landowners reap from the occupation of land into the concept of ‘economic rent’: if someone uses natural resources that belongs to all of us in order to make money, then any income greater than the cost of production is ‘economic rent’. Paine would have made the point that the economic rent belongs to all of us.
Oil companies extract oil from Alaska, and the Alaskan State Government taxes the oil companies and pays a proportion of the tax revenue into a permanent fund. The fund pays an equal annual dividend to every citizen of Alaska. Thus the economic rent relating to oil extraction benefits the whole community. The Alaskan Permanent Fund Dividend is not a Citizen’s Income because it is an annual payment and it varies with the profits made by the Permanent Fund. Recently the dividend has been rather lower than previously – but, as the book points out, wherever economic rent arises from the exploitation of natural resources, a government can collect tax on private profits and use the tax revenue to pay a Citizen’s Income.
The editors are candid about the genesis of this book: it contains material by a variety of authors that would not fit into their earlier Alaska’s Permanent Fund Dividend: Examining its suitability as a model; but having said that, all of the material is directly relevant to the theme expressed by the title of this second book.
Part I employs the Alaska model – natural resource tax revenue, a permanent fund, and an equal dividend to every citizen – to ask where similar circumstances might make a similar dividend possible. Hamid Tabatabai tells how Iran has stumbled into paying a Citizen’s Income ( – though here natural resource tax revenue pays directly for a Citizen’s Income without building a permanent fund). Angela Cummine asks why other similar permanent funds do not pay dividends to citizens, and concludes that the root reason is probably government desire to retain control over the funds and their incomes; Alanna Hartzok suggests that the Alaska Permanent Fund should be invested in more environmentally and socially responsible ways before the idea is exported; and Groh asks what will happen when oil revenues dry up.
Part II asks how the Alaska model might be applied where natural resources are not being extracted. Flomenhaft shows that if other such public assets as water, public forests, broadcast spectrum, and land value were to be treated in the same way as Alaska treats its oil, then taxes on the exploitation of such common resources could easily fund a permanent fund that would pay a dividend at least as large as Alaska’s. Segal shows that employing such a policy in developing nations could cut world poverty by half. Hickel finds that South Sudan could fund both a substantial dividend and infrastructure improvements by employing the Alaska model. Hammond suggests that Iraq should employ the Alaska model to enable all of its people to benefit from oil revenues ( – Jay Hammond was the Governor of Alaska who achieved the Permanent Fund and the Dividend, and his chapter is published posthumously). Howard suggests that governments should cap carbon emissions and then sell the rights to emit carbon up to this cap in order to fund a permanent fund and therefore a dividend. Widerquist studies the feasibility of a US fund paid for by taxing the exploitation of a variety of common resources, and suggests that this approach should be employed in Alaska in order to maintain the fund and dividend as oil revenues decline.
Part III explores Widerquist’s proposal for capital accounts ascribed to each individual citizen at birth. The funds’ owners can spend the dividends whenever they wish, but cannot spend the capital, which is passed on to their future generations.
The editors’ final chapter suggests that the Alaska model should be viewed more as a list of questions inviting answers than as a fixed detailed policy to be applied in its entirety: Does the government wish to capture some of the economic rent generated by resource exploitation? Does the government wish to create a permanent fund? Does the government wish to pay a dividend to citizens? How large should it be? What proportion of tax revenue will relate to natural resource exploitation? Does the government wish to pay a variable annual dividend, as in Alaska, or does it wish to pay a more regular and less variable Citizen’s Income?
As the proportion of gross domestic product distributed as wages declines, and a greater proportion accrues to capital (an inevitable process in a globalising economy), and as taxing corporations becomes increasingly difficult (another consequence of globalisation), governments will need to find new ways to fund both government expenditure and individuals’ incomes. The obvious way to do this is to tax the value of common resources, and particularly the value of land and of natural resources extracted from it (because however global the economy, nobody can remove land or the resources contained under it, including water). Using the proceeds to fund a Citizen’s Income would benefit both society and the economy. If economic rent from declining natural resources is used to fund a Citizen’s Income then a permanent fund will ensure that revenue can be generated when the natural resource runs out. If economic rent from the exploitation of a natural resource that is in constant supply (such as land) is used to fund a Citizen’s Income then a permanent fund is not required.
This book is a most useful companion to Alaska’s Permanent Fund Dividend: Examining its suitability as a model, and is a book that any government concerned about falling tax revenues should read.
