by Timothy Roscoe Carter | Aug 23, 2015 | Opinion
Image via FMDam.org.
[The following is an excerpt from a book in progress, The Poverty Abolitionist’s Handbook.]
Someone who offers a question that is really a challenge, like “Why would you believe something like that?”, will likely maintain their attention for about a minute. But someone who asks a more thoughtful question, even in a social situation, will likely maintain their attention a little longer, maybe three to five minutes. Nevertheless, brevity is a virtue, and the shorter the answer, the easier it is to understand and remember. So I have limited the speaking time of all of these answers to two minutes, and most are much shorter than that.
Q: Shouldn’t we lower the cost of a basic income through means testing? How does it make sense for the government to send free money to Bill Gates?
A: The taxes that pay for a basic income are the only sensible means testing, and Bill Gates would pay far more than he received. Means testing is itself a tax on the middle class that traps people in poverty by creating a strong disincentive to work and save for those already at the margins of employment. Means testing a basic income would transform a system of just predistribution into a redistributive welfare program. Means tested welfare programs are a way for the rich to make the middle class pay to stop the poor from revolting.
Q: Can we afford a basic income?
A: The gross domestic income for the United States last year was over $16 trillion and the total population was just under 320 million, giving us a mean average income of more than $50,000 per person. The 1950s and 1960s were known as decades of great economic growth in the United States. For most of the 1950s we had a top marginal income tax rate of 90 percent, and for most of the 1960s we had a top marginal rate of 70 percent. Our current top marginal rate is 39.5 percent. We could fund a basic income of $10,000 per person on top of all our other spending with an across-the-board income tax increase of 20 percent, and our top marginal rate would be 59.5%, still less than during the 1960s. That might not be the entire way we want to fund the basic income, but it does show we can afford it, and the cost would only go down from there as we started to cut now unnecessary welfare programs and began spending less on law enforcement and health care.
Q: What other government programs would we eliminate if we had a basic income?
A: Politics would not end if we had a basic income, and this is a point of contention among basic income advocates. There are socialists who see a basic income as just one of a large number of new government programs they want to implement, and there are libertarians who believe that their arguments for lower taxes, spending, and regulations will be more compelling if there are literally no poor people who need taking care of. But there is a quick and dirty compromise that could be implemented at the initiation of a basic income that would greatly reduce other welfare spending without raising or lowering our current welfare commitments. We could leave all current welfare programs on the books, but declare that the basic income will be treated as “unearned income” for purposes of determining benefits. For a basic income of $10,000 per year, federal SSI spending would cease, and food stamps likely would as well, and subsidies for housing, education, and health care would fall dramatically. Essentially, we would be treating everyone the same as we would now if they all started to receive an annual annuity, because they would.
Q: Wouldn’t giving everyone free money cause severe inflation?
A: It would if we just printed the money and gave it away. But as long as we pay for it through taxes, the money supply would remain stable and it would be no different than if everyone got more money from working. Alaska has a small basic income and there is no evidence that it has affected their inflation rate, nor is there evidence that prices rise when the minimum wage is raised. There is a potential for a basic income to cause a rise in the price of fixed assets such as land, but that is again no different from what would happen if everyone earned more money from wages, and those gains can be recaptured through land taxes.
Potential follow up Q: But if everyone were earning more money from working, wouldn’t the inflationary pressure resulting from greater demand due to higher wages be countered by the deflationary pressure resulting from the increased production due to more work? And wouldn’t giving free money to people who do not work tip that balance?
A: A market economy is not a Field of Dreams: Customers do not come because you build things, rather things get made because customers want them. Most items that would see a surge in demand due to a basic income are food or consumer goods that see reductions in prices from the economics of mass production. The exception would be where a seller has a monopoly, or in the case of fixed assets such as land, which I discussed before. Again, Alaskans do not work for their dividends, and when the minimum wage is raised there is no corresponding rise in production, yet neither of those causes inflation.
Q: Why do you want the government to give able-bodied people the same monetary benefits as the disabled? Shouldn’t people with special needs be entitled to more money to offset their tougher lot in life?
A: No. The communist idea of “to each according to their need” is patronizing in theory and degrading in practice. Currently in the U.S., disability payments are for the survival needs of those who cannot work. They are not intended to compensate for how bad your life is with a disability, and the amount you receive is not determined by what type of disability it is or even how bad it is, as long as it is bad enough that you cannot work. How could it be otherwise? Should a blind person get more or less than a paraplegic? Should a person bedridden from pain six hours per day get twice as much as a person bedridden three hours per day? How do you prove it? Of course, people shouldn’t have to prove their disability. No matter how long for, being bedridden is an awful thing for anyone to go through. It can be extremely difficult for people to remain comfortable, so some people have to get their mattresses changed on their beds more regularly. When doing this, it’s important that carers look for the Best Latex Mattress in Australia, for example, to make sure it will be comfortable and long-lasting. This is so important for anyone who is confined to their bed. They need to be comfortable.
How can you judge who is “disabled enough”, and how do you compare one disability against another? Currently the process of applying for disability is long, arduous, arbitrary, humiliating, and demoralizing. We think we can easily tell who *really* needs our help, when the truth is that many – but certainly not all – people with traditional and obvious disabilities like blindness, deafness, and being confined to a wheelchair lead easier and more fulfilling lives than many people with invisible disabilities like depression, fibromyalgia, or chronic fatigue. Search High Quality Kratom Online – Free Shipping over $100 – Kats Botanicals if you are suffering from ailments like this and are willing to try something a little bit different to treat them. We force people who cannot work to convince skeptical judges about how pitiful their lives are and then we label them as being either lazy frauds or useless burdens. You really cannot know what another person’s life is like. You don’t know what goes on behind closed doors. Not least the silent battles that those closest to you deal with on an almost daily basis. For all you know, your next-door neighbor has been advised to take the best CBD products on the market because their stress and anxiety levels have completely taken over their lives. When it comes down to it, it’s impossible to know how others live their lives. To make someone prove they are disabled is to make them convince themselves they have no hope.
Health insurance should include paying for specific items that are needed for a specific disability, such as a motorized wheelchair for someone with severe neuropathy or para-transit services for people with epileptic seizures that make it dangerous to drive. But for our basic living expenses, we all deserve them equally, and no one should be forced to prove it, especially if it is the difference between whether or not they would be able to access buildings, since some people may require the aid of a portable wheelchair platform lift to come in and out of their homes and places of work. This type of equipment is essential for day to day living.
Q: If we gave everyone an unconditional income, would not some people just waste it, or spend it on stuff that is bad for them?
Confrontational answer: Maybe. It is their money. Do you want everyone telling you what to do with your money?
Likely follow up: But it’s *my* money. It is the money that I pay in taxes that will go to the people who do not work.
Confrontational response: First, probably not. Unless you earn significantly more than median income, you will likely be a net *recipient* of the basic income. Second, the taxes you pay are your fee for the benefits of government, such as infrastructure, protection of your life and property, and use of legal structures such as contracts, corporations, and various forms of property. Your basic income is part of your personal dividend as an equal owner of the government. Do you worry about whether your landlord will misspend what you pay for rent, or whether McDonald’s will misspend what you pay for a Big Mac?
Utilitarian answer: Maybe. But there is no evidence that the government can run people’s lives better than they can run their own. The government can cause people to make better decisions by educating them and providing resources. But when the government imposes regulations, demands paperwork, and takes enforcement action against people, the burden and stress discourages personal improvement. And experiments with direct cash transfers to the poor show they often come up with useful and responsible things to do with the money that the experts never thought of. Finally, the sanction of taking away money is counter productive. Becoming homeless almost never causes addicts to give up drugs, teenagers to study more, or the overweight to buy more nutritious foods.
Q: Wouldn’t a lot of people just stop working if they received free money?
A: Would you? A major goal of the basic income is to eliminate the poverty trap of welfare by paying people whether they work or not. Most lottery winners work. Most trust fund babies work. Basic income trials for families in poverty in the U.S. in the 60s and 70s did show a 14% work reduction. The largest cause of the reduction were teenagers who stopped working and secondary workers who became homemakers; these reductions were likely responsible for the extraordinary gains in education and health outcomes produced by the cash grants. Some primary workers with two jobs quit one, and unemployed workers took longer to find work, perhaps being more picky about finding a job that paid better and suited their skills more. Not a single case was found of a primary worker quitting all jobs and living solely off the basic income. In fact, the primary workers in recipient families still worked more than full time on average. More recent cash transfer experiments in nations with extreme poverty such as Uganda have shown *increases* in work, as people without jobs often use the money to start their own businesses. The pattern seems to be that almost all people want to spend a significant amount of time engaged in productive work, and a significant amount of time in leisure activities, and they will use whatever money they have to achieve that balance.
Q: It seems like you are striving for a BIG at a level to satisfy Maslow’s first two tiers (Physical and Safety needs). If those two are met without effort what is the incentive for a person to be societally productive instead of simply working on fulfilling their higher tier needs?
A: The ideal level of a needs-based basic income would include access to some things that go beyond Maslow’s first two levels in a strict sense, but could be conceived as being included in them in the modern world, such as transportation, communication, and gyms and parks. But roughly, yes, we would be looking at providing the first two tiers on the hierarchy.
The higher level needs are things that the government can not, or should not, provide for people. The only way the government can provide self-esteem to individuals is to give them privileges that elevate them over others. In past times and places, some people have be able to meet their self-esteem needs simply by remembering that they are an aristocrat or a Roman citizen or a Catholic or a man or a white person. But in a legally egalitarian market society, the primary path to self-esteem is financial independence. People working on meeting their self-esteem needs in a market society will want to achieve financial independence far beyond simply having their survival and safety needs met, and they will be the primary candidates for doing all of the jobs needed by society, but only at the fair wages that will not hurt their self-esteem by making them feel exploited, which they would be willing to work at to meet survival and safety needs.
Self-actualization needs are highly idiosyncratic, and whether people working on fulfilling those needs will do other productive work society demands depends on the requirements of their respective projects. If fulfilling your self-actualization needs requires you to write a novel, you can probably live off of your basic income, and you may not be motivated to do other work. If your self-actualization requires you to sail a boat to the Galapogos Islands, you probably will be motivated to go earn some extra cash. For some, their self-actualization involves building a business. These people will be actively seeking out needs of society to fill.
Those who reach transcendence will be devoting most of their time to helping society almost by definition.
by Vito Laterza | Jul 29, 2015 | Opinion, Research
Give a Man a Fish: Reflections on the New Politics of Distribution, by James Ferguson (Duke University Press Books, 2015).
James Ferguson’s latest book focuses on the rise of social welfare programs in southern Africa, in the form of grants to low income and vulnerable groups, primarily the elderly, women and their children, and the disabled. Post-apartheid South Africa has led the way. It has an extensive system which administers grants to 30 percent of the population. Other countries like Botswana, Namibia, Lesotho, Swaziland, and Mozambique have also implemented nationwide programs, while pilot programs are being tried elsewhere in the region.
Ferguson’s goal is not to provide an extensive ethnographic treatment of these developments, but rather to analyze their implications and the field of political possibilities they might open up. Half comparative ethnography, half political pamphlet, Ferguson’s impressive narrative is a tour de force questioning, deconstructing and reconstructing classic and contemporary notions of poverty, development and the welfare state in the region and beyond. Through a focus on direct cash transfers, the author brings together the anthropology of southern Africa, with the latest debates in development practice and anti-poverty activism.
Written in a highly readable style, the book is structured around a series of self-contained chapters, originally given as the Lewis Henry Morgan lectures in 2009 at the University of Rochester. One can easily read the chapters independently or as part of a larger whole.
Ferguson’s starting point is the contradiction between dominant narratives on the relentless expansion of the neoliberal state, and the substantial extension of state social provisions through grants. The modest size of these social payments sets them apart from more comprehensive welfare measures in Nordic countries, yet the author believes that this phenomenon marks the rise of what can be legitimately called “welfare states” in southern Africa. While their impact might be limited in the present form, the systems in place lay the foundations for more radical possibilities.
Breaking away from conventional welfare and poverty interventions, grants are not delivered with the final goal of reproducing a healthy and productive workforce in the cities, or creating a class of productive farmers in the rural areas. The eligibility criteria are simple – mostly age for pensions and child care grants – and do not include conditions like searching for employment or investing in productive activities.
This hints at economic structures that affect the vast majority of southern Africans: the rural areas are witnessing a constant decline in agricultural production, while the formal sector in urban areas, even when experiencing high growth, simply fails to absorb most people who are in need of employment. Far from being a temporary situation that can be rectified through economic policies, this is a chronic feature of contemporary capitalism in southern Africa and increasingly in other parts of the world, including Northern economies like the US and Europe.
The author points out that production remains the dominant paradigm in economic anthropology, development discourse and practice, and radical left thinking. He calls for a radical shift away from “productionist” tenets towards distribution. His wide-ranging critique builds on a re-elaboration of key themes in classic and contemporary southern African ethnography, from kinship-based reciprocity across the rural-urban spectrum to a mix of moral and economic concerns at play in sex, love and intimacy in times of precarious livelihoods.
The “distributive political economy” mapped by Ferguson is characterized by a myriad of acts of wealth distribution, entangled in multiple and complex relations of dependence influenced by configurations of gender, kinship, labor, community, ethnicity, society and the state. Rather than producing more wealth, this “distributive labor” is primarily directed at dividing sources of wealth into “smaller and smaller slivers as they work their way across social relations of kinship, clientage, allegiance, and solidarity” (p.97). It is this kind of activity that sustains and reproduces society, more than engagement in production as defined by macro-economic frameworks centered on the labor of able-bodied men in the formal sector and the reproductive work of women as wives and mothers. One powerful example of this reversal in South Africa is the shift from dependence of women, children and rural relatives on remittances from men working in the mines in the heyday of the apartheid economy, to the central distributive role played today by women and elderly people. The latter are the main beneficiaries of state grants, and disenfranchised men at the margin of the productive economy have increasingly come to rely on them.
Establishing and maintaining dependence on others who have access to wealth becomes a full-time job for those who are excluded from the benefits of middle class life. Dependence, in Ferguson’s treatment, has more to do with sharing than either gift or market exchange. Sharing and dependence cannot be easily subsumed under the conventional opposition between equality and inequality. These relations hint at a “new politics of distribution” beyond these two poles.
Within this framework, Ferguson convincingly reinterprets varied political movements calling for redistribution in the region, from the populist socialism of new radical movements in South Africa to the region-wide basic income grant campaign, and debates around land reform and resource nationalism. Calls for redistribution go beyond narrow views of African patrimonialism. People demand what Ferguson labels their “rightful share” in wealth that is owned collectively. Legitimate participation in this process can be framed along citizenship lines at the state level, but there are other levels of belonging too when local communities and traditional leaders are involved. These claims are not exercised from a position of inferiority or supplication. People own collectively all the resources of their community of belonging, hence they have a claim to a share of the wealth produced from these resources.
By inserting the normative and political dimensions of these movements into a long history of local idioms and practices, Ferguson provides a different angle on activist discussions around radical measures like the basic income grant (BIG). BIG is argued from a variety of perspectives, ranging from radical Marxism to left-leaning libertarianism and technocratic social democracy. The distinctive feature of a basic income is that it should not be tied to any condition and everybody should be entitled to it. The ideal world imagined by BIG activists is one where all human beings receive a basic income that would afford them a decent livelihood, with no compulsion to work for a wage or generate income through other activities. This is a radical break from existing welfare measures that tie unemployment benefits to the reintegration of beneficiaries in the labor market. In line with other activist scholars, Ferguson notes that these emerging state systems of cash distribution provide an essential infrastructure for the possible establishment of BIG. At the same time, his anthropological analysis develops moral and political arguments in favor of BIG that are grounded in local discourses and aspirations, a dimension often missed by global activist groups and regional campaigners.
Ferguson joins a growing number of anthropologists who subvert the conventional boundaries between analysis and engagement. With his creative and flexible analysis, he provokes thinking for action beyond narrow ideological boundaries. One could imagine enthusiastic endorsements of his work by Marxist campaigners, World Bank technocrats and traditional leaders alike. This highly original book is likely to leave a lasting mark not only on contemporary anthropological debates around poverty and development, but also policy and activist thinking in southern Africa and beyond.
This review was originally published in Anthropology Book Forum.
by Citizens' Income Trust | Jul 11, 2015 | News
(First published in the Citizen’s Income_newsletter, issue 3, 2015)
Abstract (Note 1)
A Citizen’s Income – an unconditional and nonwithdrawable income for every individual – would offer many advantages, but because the UK’s current benefits and tax systems are complex, transition to a benefits system based on a Citizen’s Income could be difficult to achieve. This paper builds on the results contained in a previous EUROMOD working paper by proposing two financially feasible ways of implementing a Citizen’s Income. The first method would be an ‘all at once’ method. That is, it would establish a small Citizen’s Income for every citizen of the UK, of whatever age. This paper shows that a strictly revenue neutral scheme is available that could be paid for by raising Income Tax rates by 3%, by abolishing Income Tax Personal Allowances, and by making adjustments to National Insurance Contributions. This scheme would impose almost no household disposable income losses on low income households at the point of implementation, and manageable losses on households in general. A second method – a ‘one step at a time’ method – would turn Child Benefit into a Child Citizen’s Income, then establish a Young adult Citizen’s Income, and then enable those in receipt of the Young adult Citizen’s Income to keep their Citizen’s Incomes as they grow older. This method of implementation would impose almost no losses in household disposable income at the point of implementation. The paper concludes that both ‘all at once’ and ‘one step at a time’ methods would be financially feasible.
Introduction
A Citizen’s Income is an unconditional, nonwithdrawable income for every individual as a right of citizenship. A benefits system based on a Citizen’s Income would offer many advantages over our current largely means-tested system. A Citizen’s Income would deliver reduced marginal deduction rates and so would increase employment incentives; it would offer greater social cohesion; it would not create the stigma that means-tested benefits generate; it would substantially reduce fraud and error rates; and it would be easy to administer. (Note 2)
Research note: A feasible way to implement a Citizen’s Income showed that in 2012/13 a Citizen’s Income of £71 per week (with less for children and young people, and more for elderly people) could have been largely funded by abolishing the Income Tax Personal Allow-ance and means-tested benefits (except for Housing Benefit and Council Tax Benefit), but that at the point of implementation such a scheme would have imposed losses of over 10% of disposable income on 21.12% of low-income households (defined here as households in the lowest disposable income decile) and losses of over 10% on 9.28% of all households. An alternative scheme that retained means-tested benefits and took households’ Citizen’s Incomes into account when means-tested benefits were calculated, and which could have been largely funded by abolishing the Income Tax Personal Allowance and raising all Income Tax rates by 10%, would not have imposed losses on low income households and would have imposed losses of over 10% on only 5.38% of all households. A second alternative scheme, and with a Citizen’s Income of £50 per week, that retained means-tested benefits and took households’ Citizen’s Incomes into account when means-tested benefits were calcul-ated, and that could have been largely funded by abol-ishing the Income Tax Personal Allowance and raising all Income Tax rates by 5%, would not have imposed losses on low income households, and would have imposed losses of over 10% on only 1.09% of all households. (Note 3)
The problem with all three of the schemes tested for Research note: A feasible way to implement a Citizen’s Income is found in the term ‘largely funded’. Each simulation delivered a funding gap of between £20bn and £24bn per annum – similar to the gap discovered when the costs of the first scheme were calculated using the national accounts. (Note 4) The proposal made then was that the gap would be partly filled by administrative savings, and that much of the rest could be found by restricting tax relief on pension contributions to the basic rate of Income Tax. (Note 5) However, as Donald Hirsch has pointed out (Note 6), this method of funding a Citizen’s Income is different in kind from changes in the Personal Allowance, in Income Tax rates, in National Insurance Contributions rates and earnings limits, and in means-tested and other benefits. It would be different from changes that would be intimately linked to the implementation of a Citizen’s Income. Rather proving this point, before the General Election the Labour Party said that it wanted to restrict tax relief on pension contributions and to use the additional revenue to reduce university tuition fees. (Note 7) I therefore propose that we should distinguish between ‘revenue neutrality’ and ‘strict revenue neutrality’. The schemes tested in Research note: A feasible way to implement a Citizen’s Income are revenue neutral: that is, the costs of the Citizen’s Incomes are met from elsewhere in the tax and benefits systems. In this paper I shall restrict myself to schemes that exhibit strict revenue neutrality: that is, the Citizen’s Incomes will be paid for by reducing or abolishing means-tested and other benefits, by reducing or abolishing Income Tax Personal Allowances, and/or by raising Income Tax and/or National Insurance Contribution rates.
I shall apply the following criteria to the schemes that I shall regard as feasible:
• Strict revenue neutrality (as above)
• Income Tax rates to rise not more than 3% (see below) (adjustments to National Insurance Contributions earnings limits, and of National Insurance Contributions up to 12% of earnings, are permitted)
• No more than 2% of low income households should suffer losses of over 5% of disposable income at the point of implementation
• Any redistribution should be modest and should be from rich to poor.
In search of an ‘all at once’ Citizen’s Income scheme
The first two schemes that I have tested for this research paper are similar to the first and third schemes tested in Research note: A feasible way to implement a Citizen’s Income. I have omitted the second of those original schemes because it required Income Tax rates to rise by 10% as well as leaving a large funding gap, so to remove the funding gap would have required an even larger increase in Income Tax rates. In this paper I have added a third scheme – scheme C – because I have been asked what Income Tax rates would be required to pay Citizen’s Incomes equal to the Minimum Income Standards published by the Joseph Rowntree Foundation. (Note 8) Characteristics that apply to the schemes are as follows:
• For the first scheme, Citizen’s Income rates are pegged to 2013/14 means-tested benefits rates (rather than to 2012/13 rates, as in the previous research note). (Note 9)
• For all three schemes, National Insurance Contributions (NICs) above the Upper Earnings Threshold are raised from 2% to 12% and the Lower Earnings Limit is reduced to zero. This has the effect of making NICs payable on all earned income at 12%. This seems to me to be an entirely legitimate change to make. The ethos of a flat rate benefit such as Citizen’s Income is consistent with both progressive tax systems and with flat rate tax systems, (Note 10) but not with regressive tax systems.
• For all three schemes, all Income Tax Personal Allowances are set at zero.
• As suggested above, the schemes are strictly revenue neutral. The net cost of each scheme is at or below £2bn per annum.
• Estimates of administrative savings are conservative. In the first and third schemes, means-tested benefits are abolished (apart from Housing Benefit and Council Tax Benefit (Note 11)). Given that current DWP running costs are £8bn per annum, we can assume savings of £4bn per annum. For the schemes that do not abolish means-tested benefits, large numbers of households will no longer be receiving means-tested benefits, but the means-tested structure will need to stay in place. So in the case of scheme B I assume a saving of £1bn per annum.
As in the research for Research note: A feasible way to implement a Citizen’s Income, I have studied the gains and losses experienced by households, and not those experienced by individuals. There are good arguments for both approaches. It is individuals who receive income, so gain or loss is an individual experience; and within households income is not necessarily equitably shared, so the amounts that individuals receive might be more relevant than the amount that the household receives. However, we can assume that in most cases income is to some extent pooled within households, so if one member gains and another loses then the household might be better off, which might be more significant than that one member of the household suffering a loss. Another point to make about households is that they are of different sizes, so the absolute gain or loss is not particularly relevant. However, percentage gains and losses are relevant, so this is the measure that we shall use.
Particularly problematic is knowing how to order households. A household of two parents and three children with twice the disposable income of a household containing just one adult will not be as well off as that individual adult. For the purposes of this exercise I ignore the different sizes of households. More detailed research, employing household weights so that the disposable incomes of households of different sizes could be more relevantly compared, would constitute a further research project. (Note 12)
The following table summarises the characteristics of the schemes and the results of the simulations:
(See the footnote for the method (Note 13) )
Discussion
In relation to schemes A and C, while it is true that the high losses imposed on households at the point of implementation are the result of the complexity of the current tax and benefits scheme, and not of the Citizen’s Incomes, such losses would make the schemes impossible to implement. And while it is true that higher tax rates in the context of Citizen’s Incomes that are worth more than the Personal Allowance ought not to be a problem, and that what matters is the overall gain or loss in disposable income, Income Tax rates are a psychological as well as a financial issue, (Note 14) and to raise them by more than say 3 per cent would probably make a scheme impossible to implement. So while all three schemes would be revenue neutral in the strictest sense, the only scheme likely to be viable would be scheme B. There are three additional advantages attached to scheme B:
a) On average, it would deliver a modest redistribution from rich to poor: (Note 15) the Gini coefficient for disposable income would be reduced from 0.3 to 0.28.
b) In relation to the income component of poverty, the number of children in poverty (Note 16) would be reduced from 12.16% to 9.19%, i.e., by nearly a quarter.
c) Because all existing benefits are left in place, this scheme could be implemented both easily and quickly. All that would be required would be for the Citizen’s Incomes to be paid, Income Tax Personal Allowances and the National Insurance Contributions Lower Earnings Limit to be reduced to zero, Income Tax rates to be adjusted, National Insurance Contributions to be collected at 12% on all earned income, and means-tested benefits to be recalculated – which would be easy to do as every household’s Citizen’s Incomes would be of entirely predictable amounts.
A long term aim
However, having made the case that only a scheme that satisfied the criteria suggested above would be politically acceptable, there is no reason why a Citizen’s Income based on Minimum Income Standards should not remain a longer term aim. Such a scheme would have a considerable effect on inequality ( – it would reduce the Gini coefficient from 0.3 to 0.2), and it would reduce from 12.16% to just 1.60% the number of children in poverty. Redistribution would be largely towards the middle range of incomes, which could be politically acceptable – although a reduction of 20% in the disposable incomes of the highest disposable income decile might be contentious for some.
A “one step at a time” method
In the UK there is a tradition of cautious and piecemeal change to the benefits system. This has its disadvantages – particularly when the current system no longer fits the society, economy and employment market that it needs to serve – but the advantage is that new approaches can be tested out without causing too much disruption to administrative systems or to household budgets. But let us assume that the arguments for Citizen’s Income are understood by policymakers, and that only the difficulties relating to the transition from the current system to one based on a Citizen’s Income stand in the way. In this situation it could be useful to have asked about the financial feasibility of taking the first steps towards a universal unconditional and nonwithdrawable income for every citizen.
Clearly a possible method would be to start with children and young people, say up to the age of eighteen, and then as they grow into adulthood to allow them to keep their Citizen’s Incomes. If at the same time the new Single Tier State Pension were to be turned into a genuine Citizen’s Pension, then it would take about fifty years to implement the Citizen’s Income ( – a period that could be shortened by thirteen years if a pre-retirement unconditional and nonwithdrawable income were to be paid to everyone over the age of 55).
The first step: raising Child Benefit for children up to the age of 15 (i.e. to their sixteenth birthday) and equalising the Child Benefit paid for every child. Here, the only other change made is to increase National Insurance Contributions by 4% above the Upper Earnings Limit. (Note 17) Income Tax Personal Allowances and tax thresholds remain as they are.
The results for two different rates are as follows:
Discussion
Scheme b fulfils our criteria, but the Income Tax rate for scheme a is too high. However, as we can see from the following chart, the number of children in poverty would be reduced by a tenth if a single rate of £40 were to apply to children under the age of 16, and to raise Child Benefit to £56.80 would reduce by a quarter the number of children in poverty. Such reductions in child poverty would in themselves be an excellent reason for raising Child Benefit immediately to a single rate of £40, and then to £56.80. For such a virtuous purpose, increasing Income Tax rates by 4.5% might be acceptable.
The modest rise in National Insurance Contributions, and bearable rises in Income Tax rates, would in either case suggest political feasibility for such a worthwhile outcome. To establish such a Citizen’s Income for children would be a useful first step on the road to a Citizen’s Income for every age group, and one that could be achieved with public acceptance simply because children are universally regarded as a deserving demographic group.
The second step: implementing a Young adult CI of £56.80 per week for young adults between their sixteenth and their nineteenth birthdays. (This could be paid to the main carer until the eighteenth birthday, and then transferred to the young adult; or a staged transfer could occur.)
The only change to be made would be to increase National Insurance Contributions, in this case by 6% above the Upper Earnings Limit. (Note 18) Income Tax Personal Allowances and tax thresholds remain as they are, except that for those young adults now receiving a Citizen’s Income all earnings would be taxed, thus enabling their Citizen’s Incomes to be paid for as they grew older.
Discussion
This relatively modest proposal would not raise Income Tax rates, could generate savings (which would be useful), and would begin to sort out the income maintenance of a demographic group that is currently ill served by a patchwork of provisions that makes little sense and that doesn’t provide the kind of flexibility needed during a period which is inevitably one of transitions.
Discussion of both of the above steps taken together
Comparing the two schemes b and d with scheme B above shows that the increases in National Insurance Contributions above the Upper Earnings Limit and in Income Tax rates required by scheme B are generated by the Citizen’s Incomes granted to children and young adults, and that the working adult Citizen’s Incomes are effectively paid for by the loss of the Income Tax Personal Allowance, as we would rather expect.
If both the increased Child Benefit and the Young adult’s Citizen’s Income were to be implemented, then National Insurance Contributions would be at 12% on all earned income. The recipient year groups would not receive Income Tax Personal Allowances, and as they grew older they would continue to receive Citizen’s Incomes (while everyone older than them would not be receiving Citizen’s Incomes and would retain their Personal Allowances). The means-tested benefits structure would still be in place, and we would be well on the way to implementing scheme B (but with a genuine Child Citizen’s Income, rather than a combination of Child Benefit and Child Citizen’s Income). Gradual increases in the Citizen’s Income rates for children and young adults would be both affordable and acceptable, enabling a Citizen’s Income of £56.80 to be paid to all adults. Further rises might be acceptable. Because of the gradual nature of the implementation, nobody would ever need to suffer the modest losses in disposable income that would occur if the entire scheme were to be implemented all in one go. Income Tax rates might have to rise slightly, but the simulation of scheme B suggests that they would not need to rise by more than 3% over the fifty year implementation period if the adult Citizen’s Income were to be at £50 per week.
Conclusion
In his new book Inequality, Tony Atkinson makes a number of proposals for reducing inequality: a more progressive Income Tax; Child Benefit paid at a substantial rate; an EU-wide Child Basic Income; and a Participation Income that looks as if it has been modelled as a Citizen’s Income. (Note 19) It is perhaps no surprise that Atkinson’s agenda and the content of this paper are similar; and equally no surprise that the steps that both Atkinson and this paper envisage would be steps towards a Citizen’s Income. We need a new approach to tax and benefits in the UK, and a Citizen’s Income offers precisely what we require. Increasingly objections are not to the principle of a Citizen’s Income, but to its feasibility. In this paper I have shown that there are feasible ways of implementing a Citizen’s Income, either all at once or by one step at a time. There would of course be other ways to implement a Citizen’s Income, and more research in this area would be most welcome.
What matters above all is that at every stage it should be a genuine Citizen’s Income that is implemented, because it is the characteristics of universality, unconditionality, and nonwithdrawability, and the fact that every individual receives their own Citizen’s Income, that deliver the many social and economic advantages of a Citizen’s Income. Those advantages will need to be experienced at every stage of any implementation method if the population as a whole is to appreciate the advantages that a Citizen’s Income for every citizen would offer. The implementation methods outlined above are for genuine Citizen’s Incomes, and research on additional implementation options should follow the same rule.
Similarly, to be politically feasible, proposed Citizen’s Income schemes should be strictly revenue neutral, should not propose large increases in Income Tax rates, and should impose very few losses on low income households, either at each stage of the implementation process or at full implementation for the entire population. As we have seen, such losses can be eliminated if implementation begins with children and young adults and they keep their Citizen’s Incomes as they grow older. A Citizen’s Income implemented for every individual at the same time will always generate some initial losses, simply because the current benefits system is so complicated – but, as we have seen, it would still be possible to implement a Citizen’s Income scheme all in one go while imposing relatively few losses on low income households.
The difficulties facing our current tax and benefits systems, and the importance of fashioning a benefits system that will better serve our society and our economy, suggest that the Government, think tanks, and academic institutions should now be applying substantial research and policy analysis resources to the subject: and the many arguments for a Citizen’s Income, (Note 20) along with the results in this Working Paper, suggest that a considerable proportion of that effort should be spent on fashioning a tax and benefits system based on a Citizen’s Income.
References
Anthony B. Atkinson, Inequality, Cambridge, MA: Harvard University Press, 2015
Citizen’s Income Trust, Citizen’s Income: A brief introduction, London: Citizen’s Income Trust, 2007
Citizen’s Income Trust, Citizen’s Income: A brief introduction, London: Citizen’s Income Trust, 2013
House of Commons Work and Pensions Committee (2007) Benefit Simplification, the Seventh Report of Session 2006–7, HC 463, London: The Stationery Office, pp Ev.84–90
Malcolm Torry, ‘Research note: A Citizen’s Income scheme’s winners and losers’, Citizen’s Income Newsletter, issue 3 for 2012, London: Citizen’s Income Trust, pp 2-4. www.citizensincome.org
Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Bristol: Policy Press, 2013
Malcolm Torry, ‘Research note: A feasible way to implement a Citizen’s Income’, Citizen’s Income Newsletter, issue 1 for 2015, pp 4-9
Malcolm Torry, 101 Reasons for a Citizen’s Income: Arguments for giving everyone some money, Bristol: Policy Press, forthcoming, 2015
Notes
Note 1 – This paper uses EUROMOD version G2.0++. The contribution of all past and current members of the EUROMOD consortium is gratefully acknowledged. The process of extending and updating EUROMOD is financially supported by the Directorate General for Employment, Social Affairs and Inclusion of the European Commission [Progress grant no. VS/2011/0445.] The UK Family Resources Survey data was made available by the Department of Work and Pensions via the UK Data Archive. All remaining errors and interpretations are the author’s responsibility. Opinions expressed in this paper are not necessarily those of the Citizen’s Income Trust.
Note 2 – Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Bristol: Policy Press, 2013, pp 81-186
Note 3 – Subsequent to the paper’s publication I discovered that as well as Child Citizen’s Incomes being paid I had left Child Benefit switched on. This was of course a major reason for the low levels of losses.
Note 4 – This scheme was first prepared for submission to the House of Commons Work and Pensions Committee enquiry on benefits simplification in 2006. See the committee’s report, Benefits Simplification, HC 463, vol.I, London: The Stationary Office, July 2007, paragraphs 51, 55, 148, 176, 262, 381. www.publications.parliament.uk/pa/cm200607/cmselect/cmworpen/463/46302.htm. The Citizen’s Income Trust’s evidence to the committee can be found in the second volume on page Ev 84 at www.publications.parliament.uk/pa/cm200607/cmselect/cmworpen/463/463ii.pdf. The Trust subsequently published the scheme in its booklet Citizen’s Income: A brief introduction, London: Citizen’s Income Trust, 2006. In 2013 the figures were updated to 2012/13 values and the booklet was republished in 2013.
Note 5 – Currently higher rate taxpayers can claim tax relief at the higher rate. Department for Work and Pensions running costs are currently £8bn per annum. An assumption is made that administration of Citizen’s Income would cost 1% of the total paid out – the same proportion as for Child Benefit and the Basic State Pension – which would amount to £3bn. A saving of £5bn is therefore assumed. For the sources, figure, and calculations, see Citizen’s Income: A brief introduction, London: Citizen’s Income Trust, 2013, www.citizensincome.org/filelibrary/booklet2013.pdf.
16 Donald Hirsch, ‘Could a “Citizen’s Income” work?’ York: Joseph Rowntree Foundation, 4th March 2015, p.33. www.jrf.org.uk/publications/could-citizens-income-work.
Note 6- Donald Hirsch, ‘Could a “Citizen’s Income” work?’ York: Joseph Rowntree Foundation, 4th March 2015, p.33. www.jrf.org.uk/publications/could-citizens-income-work
Note 7 – https://press.labour.org.uk/post/112217705819/a-better-plan-for-a-better-future-fairer-for
Note 8 – Minimum Income Standards for 2013 can be found at www.jrf.org.uk/site/files/jrf/images/MIS-2013-figure2.jpg. Deciding the levels of Citizen’s Incomes that would match the Minimum Income Standards is not a simple matter as MIS levels are calculated for households whereas Citizen’s Incomes are paid to individuals. The weekly MIS levels for 2013 are as follows (excluding rent and childcare): single work-age person, £200.64; pensioner couple, £241.25; Couple and two children, £471.16; Lone parent and one child, £284.57. Citizen’s Incomes based on the smaller assessment units would be higher than Citizen’s Incomes based on the larger units. I have chosen to be guided by the larger units. I have set the young person’s Citizen’s Income rate half way between the adult and child rates.
Note 9 – The most recent tax and benefits regulations available in EUROMOD version G2.0++ are those for 2013/14, and the most recent Family Resource Survey data is for 2009, uprated to 2013 values. It is therefore not currently possible to simulate Citizen’s Income schemes for more recent periods. ‘The factors that are used to update monetary variables (parameter sheet Uprate_uk) from the mid-point of the data year (October 2009) to the mid-point of the policy years applying on June 30th (i.e. October 2010 to October 2013) are shown in Annex 1 of the EUROMOD UK country report. No other updating adjustments are employed. Thus the distribution of characteristics (such as employment status and demographic variables) as well as the distribution of each income source that is not simulated remain as they were in 2009/10′ (Paola De Agostini and Holly Sutherland, Euromod Country Report: United Kingdom 2009-2013, Colchester: Institute for Social and Economic Research, Essex University, 2014)
Note 10 – A.B. Atkinson, Public Economics in Action: The Basic Income / Flat Tax Proposal, Clarendon Press, Oxford, 1995
Note 11 – In 2013/14 Council Tax Benefit was centrally regulated. Under the Government’s localisation agenda, its replacement, Council Tax Support, is locally regulated as well as locally administered. This means that every borough in the country can invent its own regulations, and, in particular, its own taper rate. It will be far from easy to include Council Tax Support in future tax and benefits simulations.
Note 12 – Malcolm Torry, Research note: A feasible way to implement a Citizen’s Income, Institute to Social and Economic Research Working Paper EM17/14, Colchester: Institute for Social and Economic Research, University of Essex, September 2014, www.iser.essex.ac.uk/research/publications/working-papers/euromod/em17-14, pp. 3-4
Note 13 – The method is as follows: A new set of benefits is created in the UK country system in EUROMOD: a Citizen’s Pension (CP) for over 65 year olds, a Citizen’s Income (CI) for adults aged between 25 and 64, a young person’s Citizen’s Income (CIY) for adults aged between 16 and 24), and a Child Citizen’s Income (CIC) for children aged between 0 and 15. In the definitions of constants, levels are set for these Citizen’s Incomes, and all Personal Tax Allowances are set at zero. So that the additional taxable income is taxed at the basic rate, and not at the higher rate, the first tax threshold is changed from 32010 to 42010. The National Insurance Contribution Lower Earnings Limit is set to zero, and the NIC rate above the Upper Earnings Limit is set to 12% (to match the rate below the limit). For the first scheme, Working Tax Credit, Child Tax Credit, Income Support, Income Related ESA, Pension Credit, and Income based Jobseeker’s Allowance are no longer added to the total for means-tested benefits. Incapacity Benefit, Contributory ESA and Child Benefit are removed from non-means-tested benefits (except that in the second scheme Child Benefit is left in payment). For all schemes, the Citizen’s Income total is added to non-means-tested benefits, and for the second and third schemes Citizen’s Incomes are added to the means applied to means-tested benefits. The state pension is no longer added to the pensions total in the first and third schemes (as the Citizen’s Pension has already been added to the non-means-tested benefits total). Where benefits are no longer in payment they are removed from the tax base. Simulations of the 2013 system and the system being tested generated two lists of survey sample size in terms of household disposable incomes for the entire Family Resource. These then generate a list of gains (negative gains are losses), and the total of the gains gives the net cost of the scheme for the sample. To convert EUROMOD’s monthly figures to annual figures, and the sample size to the total population, a multiplier of (12 x 64.1m / 57,381) = 13.4m gives the cost for the UK population. A process of trial and error adjusts the Income Tax rates until the net cost minus the assumed administrative saving is below £2bn per annum. The initial disposable incomes are then ordered, the bottom 10% are selected, and the percentage gains are evaluated. The process is then repeated for all households.
Note 14 – Donald Hirsch, ‘Could a “Citizen’s Income” work?’ York: Joseph Rowntree Foundation, 4th March 2015, pp. 25-28. www.jrf.org.uk/publications/could-citizens-income-work
Note 15 – Table generated from the results of statistics obtained from EUROMOD simulations for the current tax and benefits system and for scheme B.
Note 16 – Children in poverty are those living in households with income below 60% of median income. For detailed discussion of the percentage figures generated by the summary statistics function of EUROMOD, see Paola De Agostini and Holly Sutherland, Euromod Country Report: United Kingdom 2009-2013, Colchester: Institute for Social and Economic Research, Essex University, 2014, pp.71-2.
Note 17 – Purely for the purpose of modelling the net cost, we eliminate Child Benefit for 16 to 19 year olds by adjusting the definition of a dependent child in both the current system and in the system with raised Child Benefit.
Note 18 – The results are modelled by removing Child Benefit for everyone aged 16 and above, and instead paying a Young adult Citizen’s Income. In this case the results are extracted from simulations of individual rather than household disposable incomes. As above, the removal of Child Benefit over the age of sixteen is achieved by adjusting the definition of a dependent child.
Note 19 – Anthony B. Atkinson, Inequality, Cambridge, MA: Harvard University Press, 2015, pp. 303-4. The text offers some pointers towards social participation conditions for receipt of the Participation Income, but no such conditions are mentioned in the text relating to the results of EUROMOD modelling on p.297.
Note 20 – Malcolm Torry, Money for Everyone: Why we need a Citizen’s Income, Bristol: Policy Press, 2013; Malcolm Torry, 101 Reasons for a Citizen’s Income: Arguments for giving everyone some money, Bristol: Policy Press, forthcoming, 2015
