OPINION: FEDERAL INCOME SUPPLEMENT: FINANCIAL INDEPENDENCE FOR ALL

by | Jun 6, 2011 | Opinion

INTRODCUTION

Over the decades economists have suggested many forms of minimum income, most recently the Basic Income Guarantee or BIG which is an unconditional regular payment from the government to everyone. The objective of this paper is demonstrate the financial feasibility of a specific $12,000 per year per person U.S. federal government program financed entirely by cutting only existing federal welfare associated programs and changing the federal personal income tax to a flat rate of 16.2% but allowing no deductions. This program would not add to nor reduce the federal deficit. Other potential avenues for federal deficit reduction such as defense, Medicare, Medicaid, foreign aid, wealth taxes or gas taxes have not been preempted.

FEDERAL INCOME SUPPLEMENT

The Federal Income Supplement (FIS) program would take the form of an unconditional taxable government payment of $12,000 each year to every adult US citizen. The cost would be approximately $2.6 trillion per year for the 218 million recipients. Half would come from eliminating multiple forms federal welfare and reduction of other federal programs. The other half would come from a 16.2% flat rate personal income tax with no deductions. For the sake of greater income equality, Progressives would give up sacred social programs such as Social Security and welfare. Libertarians would buy into income redistribution for the sake of major reductions in the size of government. It would not increase the federal deficit.

A convenient truth is that not everyone needs to work. Full employment is not necessary for the production of sufficient goods and services for everyone. Not everyone needs to work fulltime, but everyone needs money to buy these goods and services

This Federal Income Supplement (FIS) is a straightforward uncomplicated solution with little government intrusion and little opportunity for fraud, abuse or bureaucracy. It is similar in concept to the current Alaska Permanent Fund annual dividend and a proposed Basic Income Guarantee (BIG).

The following direct savings and increased income tax revenues would finance the entire cost:

1. Elimination of all Federal welfare programs
2. Elimination of Social Security
3. Elimination of Federal unemployment benefits
4. Elimination of Minimum Wage laws
5. Elimination of Farm Subsidies
6. Elimination of Federal subsidies for student loans
7. Elimination of Federal retirement breaks for employers and employees
8. Elimination of Federal financial benefits for married couples
9. Elimination of Federal tax exemptions for “non-profits”
10. A flat 16.2% Federal income tax rate and elimination of all deductions

The benefits would be:

1. Elimination of poverty
2. Elimination of unemployment
3. Maintenance of a viable economy with only partial employment producing enough goods and services for everyone
4. Decoupling of old age income from employment
5. All citizens would pay federal income tax, becoming stakeholders with greater interest
6. Elimination of the bulk of retirement tax breaks going to the wealthiest
7. Security for people of any age or any circumstance who are not employed
8. Elimination of the minimum wage would make the US labor more flexible and competitive in the global market
9. Drastic simplification of the tax code

It is different from welfare or unemployment as it is paid out to everyone. There is no stigma. It is not lost by working. It is different than a negative income tax because it is issued as a separate payment similar to how Alaska pays oil dividends to each resident. It can be characterized as a birthright, a common share of America that pays a dividend, or as an inheritance, or as a trust fund.

Financial Summary (in billions)

Tax revenue from supplemental payments themselves $ 352
Increased revenue from a 16.4% flat tax rate and elimination of deductions 1136
Eliminations of Social Security 755
Reduction of Discretionary Programs (Education, HUD, etc.) 200
Reduction of Mandatory Programs (Commerce, Agriculture, etc.) 165
TOTAL (revenue increases + spending cuts) $2,608

Please note that all these program reductions are at the Federal level and do not necessarily affect any welfare programs at the state or local level. Also, these program reductions for FIS only affect welfare related programs. This FIS program does not reduce or increase the federal deficit. Other federal programs such as Defense, Medicare, Medicaid, and Foreign Aid are not affected. Cost reductions in these Federal programs are still available for reducing the federal deficit.

CALCULATIONS

Tax Revenue from federal supplements themselves
Adult Citizens in US
   Total US Resident Population 2009
   Less		 307,000,000  (1)
   US Resident under 5 2009 21,000,000  (1)
   US Resident 6-9 2009 21,000,000  (1)
   US Resident 10-14 2009 20,000,000  (1)
   US Resident 15-19 2009 22,000,000  (1)
   Foreign Born under 5 263,000  (2)
   Foreign Born 5-14 1,600,000  (2)
   Foreign Born 15-24 3,730,000  (2)
Total 218,000,000  US Adult Citizens
Federal Income Supplement 12,000  $/year per adult
Total Federal Income Supplement payments 2.62 trillion  $/year
Tax rate 16.2%
   Flat rate no deductions
   Income, cap gains & interest same rate
Tax Revenue from tax on FIS payments 424,000,000,000  $/year
Current Tax on Social Security Benefits
   Total SS payments 720,000,000,000  $/year (3)
   Income tax rate paid, marginal 10%  Estimate
   Current tax revenue from Tax on SS benefits to be 72,000,000,000  $/year
   subtracted to avoid double counting tax revenue
Net Tax Revenue increase from tax on FIS payments 352,000,000,000  $/year

Additional Tax Revenue from a flat income tax rate and no deductions
Personal Income (PI) 2008 12,547,000,000,000 (4)
Capital gains in 2010, not included in (PI) 504,000,000,000 (5)
Social Security/Medicare contributions not included in (PI) 1,004,000,000,000 (4)
Total taxable personal income under FIS 14,055,000,000,000      
Flat tax rate with no deductions 16.2%      
Tax Revenue from flat tax rate and no deductions 2,277,000,000,000      
Obama 2012 proposed budget personal income tax revenue 1,141,000,000,000 (3)
Net increase $1,136,000,000,000

Replace Social Security with FIS

Eliminate Social Security Retirement 762,000,000,000 (3)
Eliminate Social Security Admin 7,000,000,000 (6)

Reductions in Discretionary Spending from Obama 2012 Proposed Budget (1)

Reductions in Dept. of Agriculture 10,000,000,000
Eliminate Dept. of Education Discretionary 74,000,000,000
Eliminate SBA 2,000,000,000
Reduce Health Discretionary 60,000,000,000
Eliminate HUD 49,000,000,000
Reduce Dept. of Labor Discretionary 5,000,000,000
Total Discretionary Reductions $200,000,000,000

Reductions in Mandatory Spending from Obama 2012 Proposed Budget (1)

Agriculture 116,000,000,000
Commerce 2,000,000,000
Social Security Admin 47,000,000,000
Total Mandatory Reductions $165,000,000,000

CONCLUSION

The numbers can work. Real incomes would be increased by more than 50% for individuals now receiving maximum welfare benefits, those making minimum wage and students with federal loan support. Middle-income individuals would realize a modest net income increase that would decline to zero for those making about $125,000 per year. Individuals now making over $125,000 would realize a lower net income.

Notes:

1 Resident Population by Sex and Age 198-2009, US Census Bureau
2 Table 42 Foreign Born Population 2009, US Census Bureau
3 Table S-4 Obama Proposed Budge 2009, Office of Management and Budget
4 Table 2.1, Personal Income and Its Disposition Bureau of Economic Analysis
5 Table 4.3 Actual and Projected Capital Gains Realizations and Tax Receipts, Congressional Budget Office.
6 Social Security Administration, Pg. 165, Obama Proposed Budget 2009, Office of Management and Budget.

ITO, Makoto (2011), 'Verifying the Basic Income Concept: Its Potency and Extent'

by | May 18, 2011 | Research

ITO, Makoto (2011), ‘Verifying the Basic Income Concept: Its Potency and Extent’ (‘Basic Income-ron wo kensho-suru: sono kanosei to genkai’), in Sekai [The World], Vol. 814, March 2011, published by Iwanami Shoten.

Due to growing financial deterioration of the government and weakened family ties and company welfarism, “new poverty” (such as an increasing number of “working poor”, single mothers and the elderly with low or no pension, etc., unable to respond to with existing social security schemes) is spreading in Japan. Against this situation, the Basic Income (BI) vision is drawing increasing attention. The interest in it, as for now, stays mainly in the academic circles specializing in social security studies. Though, tomes and answer books on BI have been published one after another. Basic Income Japan Network (BIJN) was launched in April 2010.

The definition of BI by Van Parijs is commonly referred to in Japan, and BI variants including proposals of ones at the supranational level have been brought to the knowledge. The background of the rise of the BI vision in the West consists of the blank wall of social welfare schemes developed during the high economic growth after the World-War 2 and employment policies based on the Keynesianism as well as the disappointment and antipathy to socialism of the Soviet-type. Meanwhile, neo-liberalism aspiring revitalization of individual liberty in free market has swept through the society. Under the circumstance, BI with individual payment, no means test and no work condition aspiring liberation of individuals from bureaucratic control attracts even libertarians. On the other hand, thinkers aiming at revitalization of socialism, feminists, ecologists, and so on support BI combining their own ideal with BI. In Japan, however, being introduced to BI about two decades later from the West, it is conceived as only an alternative to existing social security schemes, and few people discuss it in the aspect of social reformation thinking. Marxists have little contribution to the BI discussions.

As for the feasibility of BI in Japan, Shuji Ozawa first estimated in 2002. He conceived of a BI scheme at the level of 80, 000 JPY per person a month taking the levels of existing money grant schemes into account relying on a new revenue from raised income tax rate at the level of 50 % (maximum rate at that time was 37 %). When it is applied to a standard household with two parents and two children, their net income will decrease by 940 thousand JPY per year. But if the household has one more child, the loss will be almost cancelled. He later redesigned his BI scheme (at the level of 50,000 JPY per person a month) maintaining ongoing tax rate and integrating pension schemes with the BI. In the days ahead, design and discussions of BI schemes are expected. In any case, they may be gradual introduction of partial BI schemes. The newly born administration of the Democratic Party of Japan introduced a child benefit scheme without income test alternating the similar scheme at a far lower level with income test in 2010. The monthly amount per child is 13,000 JPY, a half of the amount the party promised in their manifesto for the lower-house election the party won. In the continuing budgetary distress, however, the administration is now giving up doubling the amount for over four-year-old children and is even bringing back income test. Thus, the partial BI scheme at entry level is still halfway in Japan.

BI can be conveniently used by neo-liberalists to further increase irregular employment, restrain wage and alternate company welfarrism with government expenditures. Therefore, one should not be in an autotelic approach toward BI but in unity with worker/citizen campaigns demanding upraise of wage level, employment security and improvement of public care services, and one should emphasize that BI is to complement public functions of a social-democratic welfare state and promote BI pursuance as part of social movement to realize such state.

Ito Makoto is Emeritus Professor at the University of Tokyo, and a Member of the Japan Academy. The above summary  was written by Takeshi Suzuki.

Review: BIEN-Suisse, Le financement d'un revenu de base inconditionne

by | Apr 30, 2011 | Opinion

BIEN-Suisse, Le financement d’un revenu de base inconditionnel, Seismo, 2010, 204 pp, pbk, 2 88351 049 4, 38 SFr

We normally only review books in English, but with this edited collection we make an exception, not because it contains translations from our own publications, but because it is a sustained argument for the necessity and feasibility of a Citizen’s Income.

Peter Ulrich’s preface suggests that if Switzerland is to experience a society of citizens then it needs more equal incomes and more permeable social class boundaries. Increasing automation and the demands of sustainability will between them mean that not everyone will be employed full-time, so a Citizen’s Income will be needed to provide for the necessary more equal incomes and to enable everyone to be employed part-time. Ulrich recommends that 25% of Swiss GDP (the same proportion as is spent on income maintenance in Switzerland today) should be spent on providing every Swiss citizen with a Citizen’s Income of 1,500 SFr Citizen’s Income. Higher taxes would make a Citizen’s Income of 2,500 SFr per month possible.

Bridget Dommen-Meade’s introduction to the book summarises the chapters and links their discussions into an argument for a Swiss Citizen’s Income’s feasibility. Then come three chapters arguing for the feasibility of a Citizen’s Income in Switzerland: Bernard Kundig’s insightful study of long-term changes in the economy and in Swiss society leads into an argument for a Citizen’s Income funded by an increase in consumption taxes and flat income tax; Albert Jörriman suggests a mechanism which would result in the employed giving back an amount equal to the Citizen’s Income, and he suggests how provision for unemployment and disability might relate to a Citizen’s Income; and both Kundig and Jörriman suggest that a Citizen’s Income of 2,500 SFr per month should be feasible. [This is approximately £1,500 per month or £18,000 per annum]; and Jörriman argues that a Citizen’s Income of this level would not discourage paid employment and would encourage self-employment and co-operatives (p.81). Daniel Hani and Enno Schmidt argue for the same level of Citizen’s Income and also argue for funding by an increase in consumption taxation, and emphasise the additional labour market choices in which a Citizen’s Income would result.

The next few chapters are translations of published material about other countries. Marc de Basquiat argues for the feasibility of a Citizen’s Income of €12.60 per day in France; Ingmar Kumpmann and Ingrid Hohenleitner suggest a phased implementation of a Citizen’s Income in Germany, so that the effects on national income can be evaluated; and Pieter le Roux argues for a Citizen’s Income of R100 (about £10) per week per adult. He shows that even though a consumption tax increase considered by itself would be more regressive than an income tax increase, when considered alongside the establishment of a Citizen’s Income it would be progressive. The other two chapters are a translation of Anne Miller’s article on minimum income standards in the third issue of the Citizen’s Income Newsletter for 2009 and the Citizen’s Income Trust’s introductory booklet.

The chapters which advocate consumption taxes as a method of financing a Citizen’s Income give pause for thought to those of us in the UK who have for so long assumed that reduction of income tax allowances and possibly adjustment of income tax rates would be the best method. Also of interest are discussions about the labour market effects of a Citizen’s Income. If a partial Citizen’s Income is likely to provide greater employment market incentives than a full Citizen’s Income then it should be possible to find an optimum level of Citizen’s Income, though probably only from practical experience of different levels. As Dommen-Meade suggests, the long-term effects of a Citizen’s Income are more important than the short-term ones. She thinks the Swiss welfare system ripe for major change, and that a Citizen’s Income is the way to do it. ‘We are convinced …’ (p.27).

Perhaps the most significant finding is that in every European country studied a partial Citizen’s Income is found to be feasible. This raises again the question as to whether a pan-European partial Citizen’s Income might be possible. Not only would this offer all of the benefits which a Citizen’s Income in each country would offer, but it would also promote the efficiency of the European labour market, to the benefit of every European economy. The discussions of funding in the book suggest that such a pan-European Citizen’s Income should be funded by a European consumption tax collected nationally.

Such a Citizen’s Income would probably require Switzerland to join the EU: but that’s another discussion.

Review: Ruth Lister, Understanding Theories and Concepts in Social Policy

by | Apr 30, 2011 | Opinion

Ruth Lister, Understanding Theories and Concepts in Social Policy, Policy Press, 2010, xii + 311 pp, hbk 1 861 34794 7, £60, pbk 1 861 34793 0, £19.99.

Not only is this a most useful textbook, but it is also a sustained argument for the usefulness of theory. The back cover says that the book is for students and their teachers, but because it constantly draws connections between social science theory and practical social policy it will also be read with profit by social policy practitioners.

Most of the book’s chapters start with a set of theories or ideologies and then relate them to policy areas. Thus moral hazard and public choice theory inform our understanding of Thatcherism’s quasi-markets; feminism has changed the position of the public-private divide and thus our treatment of domestic violence; post-Fordism has contributed to the change from comprehensive education to niche-marketing academies; Foucault has uncovered the disciplinary networks which now influence many areas of our lives; and the idea of ‘social construction’ tells us where ‘the underclass’ comes from – to mention just a few of the many connections to be found in the book.

Three important chapters then start with social policy concepts – needs, citizenship, community, liberty, equality, and social justice; and these too are related to practical social issues: mental health, the relationship between social security claimants and the state, and press censorship – again, to name just a few.

The structure and method of the book reflects the author’s experience with the Child Poverty Action Group and as a university teacher, and the clarity of expression and organisation of the material have clearly benefited from her teaching experience. The final chapter on social movements similarly reflects Lister’s constant engagement with social policy issues through her involvement in organisations, through her speaking at conferences, and through her articles and books. This chapter would have benefited from a rather more personal approach and perhaps should have included an account of issues she faced while at the Child Poverty Action Group. In general, the last few chapters would have benefited from more practical examples.

This is a marvellously comprehensive and comprehensible textbook. There is bound to be a second edition. It should contain a chapter on future directions in social policy which outlines the options for reform of the welfare state, and in particular extends the material on the argument between universalism and means-testing briefly begun on p.191. The debate over the feasibility and desirability of universal provision will be increasingly important in an age of austerity, and students and practitioners would benefit from an extended treatment of the field.

IRAN: Economic reforms usher in a de facto basic income

by | Nov 9, 2010 | News

A report by Hamid Tabatabai

The concept of a Basic or Citizen’s Income is virtually unknown in Iran. In nearly three years of discussion and debate over the government’s new economic reforms, there has been no mention of it at all in political, academic or media circles. And yet, the country has just launched a nationwide cash transfer programme that has the hallmarks of a Basic Income in disguise. Some 60.5 million Iranians, or 81 percent of the population, have just had the first payment of 810,000 rials (about US$80) per person deposited in their bank accounts. The payments will be made every two months, involve no means testing, and are unconditional. They are also likely to double in amount over the next few years as implementation proceeds. The remaining 19 percent of the population opted out of the programme voluntarily, mainly because they do not need the money.

Remarkable as this is, the novelty does not end there. The tens of billions of dollars involved each year will not come from oil exports, or from government coffers. The transfers will be financed entirely through the higher prices the nation will henceforth pay for a variety of basic goods and services — mainly fuel products — that have been massively subsidised for decades. (Until now petrol has cost US$0.10 a litre and diesel fuel under $0.02. The same applies to natural gas, electricity and water charges, and bread.) Such subsidies have benefited the well-off far more than those with modest incomes (70 percent going to 30 percent of the population) and resulted in wasteful consumption of energy and foodstuffs, inadequate investment in new technology, and environmental pollution, not to mention smuggling to neighbouring countries. In order to put an end to this inefficient and unfair system, the “Targeting Subsidies Law” of earlier this year mandates the gradual phase-out, over five years, of nearly all implicit and explicit price subsidies, to be replaced with regular cash transfers to households and various economic and social sectors. The scale of price increases are not yet known (as of mid-November 2010) but they are likely to be huge, in some cases severalfold. Official announcement is expected towards the end of November with new prices coming into effect immediately.

Interestingly enough, the universality and uniformity of cash grants came about without anybody really pushing for them or even wanting them, either from the government side that put forward the original plan, or from those opposed to the plan in the parliament who wanted it modified, if not scrapped. The intention was firmly to target the cash transfers on the less well-off sections of the population, the haggling being over whether the beneficiaries should be the lowest two, or five or seven deciles of the population on the income scale. The idea was also to pay more to those with lower incomes, in the interests of social justice. If in the end it was decided to pay the same amount to everyone who bothered to register, it was only because a massive exercise in means-tested targeting (over 17 million household questionnaires were filled out and analysed) turned into a fiasco as public protests mounted over the results. The principle of equal payment to all forced its way in because it just made sense under the circumstances. There could hardly be a more dramatic vindication of Philippe Van Parijs’s characterisation of Basic Income as a “simple and powerful idea”.

To be sure, Iran’s ‘cash subsidy’ (that’s the official designation) falls short of a fully-fledged Basic Income grant as commonly understood. The entitlements of all household members go to the head of the household alone, not to individual members, even if adult. There is no word on the duration of the programme, although it should in principle continue as long as Iran is able to produce oil for its domestic consumption. Means-tested targeting has not been abandoned altogether and may be resurrected if the government decides at some point that it can do a better job of targeting than its last attempt. The rights-based underpinnings of the Basic Income have no place in the current Iranian discourse on cash grants. The payments are not regarded as ‘income’ to which the citizens are entitled by right, but as another type of subsidy to compensate for the loss of price subsidies (though whether this makes any practical difference is an interesting question). Neither do they come anywhere close to a decent subsistence income (the US$200 of a family of five per month is about two-thirds of the monthly minimum wage). They also exclude more than two million Afghan and Iraqi refugees who have been living in Iran for years, sometimes decades, and will now have to bear the full brunt of price hikes. And last but not least, once price rises go into effect in the days ahead, and if inflation gets out of hand due to mismanagement, there is genuine fear that the whole edifice might come crashing down.

On the other hand, it might be argued that the hardest obstacles towards a national Basic Income have already been overcome. The programme is enshrined in law. The payments are universal (except for those rich enough to forfeit their right by simply not signing up). Funding is assured and looks destined to continue in the medium term. And if the reforms succeed even partially in achieving their stated objectives of rationalising consumption patterns, boosting investment and efficiency, redistributing incomes in favour of the have-nots and reducing poverty, their future should be fairly secure. The continuation of the programme will also allow its shortcomings to be identified and put right, particularly if this enormously important shift in social policy is subjected to rigorous, comprehensive and continuing impact evaluation as it unfolds and progresses in the months and years ahead.

The replacement of price subsidies by a cash transfer system of unprecedented scope and scale has placed Iran in the forefront of all countries in advancing towards a nationwide Basic Income. The fact that such a transition takes place first in a developing, Middle Eastern, Islamic state, not in a developed country in Northern Europe as many had presumed, underlines the relevance of the concept of Basic Income for a broad range of countries. The specificities of the Iranian experience should of course not be ignored. It is in large part the combined availability of domestic fuel resources and an exceptionally distorted pricing policy that has made it possible, indeed almost inevitable, for a de facto Basic Income to emerge as part of the solution. But the model may still have some relevance for other countries, in particular mineral producing nations. There may also be scope in some countries with large subsidy bills to explore the feasibility and wisdom of rerouting subsidies to fund a Basic Income, without additional taxation. Iran’s experience may hold some lessons of wider applicability, if they are properly drawn and are convincing.

For more on the subject, see Hamid Tabatabai, “The ‘Basic Income’ road to reforming Iran’s subsidy system”, in Basic Income Studies, forthcoming, or contact hamtab@gmail.com.