US: Step by step implementation of basic income

by | Jun 12, 2017 | Opinion

The following is a step by step instruction for implementing a basic income in the United States.

Step 1: The government introduces a basic income of $40 per month for all citizens. 300 million of the 325 million inhabitants are US citizens.

The required funds are $40 x 12 x 300 million citizens = $144,000 million, $144 billion.

This is financed by a levy of 10 cents per kwh of electricity consumed by households, which is 1,440 billion kwh per year. So the levy amounts to 1,440 billion kwh x $ 0.1 = $144 billion.

Since all people who get the basic income consume electricity, in a way, they pay this basic income to themselves. However, big users of electricity will contribute more than those who consume less. Think about it. Electricity allows you to have a smartphone, a PC, a fridge, and even drive long distances with an electric car at a ridiculous cost. Yes, you will need to get surge protection (like that saltle.com/electrical-services-austin-tx/whole-home-surge-protection/ offer) to help keep those things safe, but the benefits outweigh the cost for most. Besides, the current price of electricity is much lower than its value.

Step 2: We increase the basic income with another $60 per month for everybody to reach $100 in total. The required funds are $60 x 12 x 300 million citizens = $216,000 million or $ 216 billion.

Financing

Most “productive” jobs are now done by machines which have replaced many of the workers in our factories. Stop dreaming of deriving social security contributions and income taxes from new jobs: 80 % of the GDP of the US are services, many of which have added value too low to contribute taxes. We should get taxes from the machines/robots which replaced the workers. However taxing robots would make them move to other countries where there are no taxes on robots. Therefore, we should not tax the robots themselves, but the products made by machines/robots, like cars, bikes, shoes, phones, PC’s, games, toys, furniture, carpets, fridges, and so on. That way, it doesn’t matter if the robots are in the US or China. Consumers will pay more for those products, but on the other hand they also will get an additional (basic) income to pay for such products. Those who spend more than others will contribute relatively more taxes. That is the beauty of taxes on consumption: you decide yourself how much taxes you pay, depending on how much you purchase. In the US, current sales of products which are typically and mainly produced by machines/robots are approximately $1440 billion. We introduce a “social” sales tax of 15% (on top of exiting sales taxes) on those products which will generate the required $216 billion.

You could argue, what is the point to give a total of $100 per month basic income to all citizens, if, on average, they spend it in increased prices of electricity and some goods? The point is that people who buy a lot contribute much more than the ones with a low income. Thus, it comes down to a (more or less voluntary) redistribution of purchasing power.

Step 3: The government will pay an extra basic income of $100 per month for all citizens of working age, 18 to 70, paid by employers. This will cost $100 x 12 months x 185 million citizens in this age group = $222 billion.

We finance it by a levy of 10 cents ($ 0.1) per kwh on non-household electricity consumption. So essentially, the electricity consumed by enterprises or other entities which typically employ workers. This comes down to $ .1 x 2,380 billion kwh = $238 billion paid by the employers since they pay the levy of 10 cents per kwh of electricity consumed by them (including residential, industry and transportation).

At the same time, the employers compensate this extra tax by reducing the wages of their employees with the same amount. For a worker who previously was paid $1700 net per month, his new wage bill will read: basic income grant $100 paid via the government (thanks to an extra tax paid by enterprises) + $1,600 net salary = total income $1,700. So, the total net income of the workers remains the same, the total cost for employers remains the same too. Electricity gets more expensive, wage cost less expensive.

Step 4: We increase the basic income with $200 per month for all citizens of working age, 18 to 70, paid for by employers, while at the same time the employers can reduce the wage bill with the same amount (as in step 3).

The cost is $200 x 12 months x 185 million citizens in this age group = $444 billion.

This is financed by a levy of 3 cents per kwh on gas and coal sold to industry, transportation, commercial and residential. This does not apply to such fuels sold to generate electricity, otherwise electricity would be taxed twice. Given the energy consumption of fuel, gas and coal for these sectors, this generates $ .03 x 16,617 billion kwh = $498 billion. The margin between $498 billion and $444 billion will be necessary because consumption will decrease given the increase in cost. CO2 emissions will improve, by the way. For fuel, the additional tax amounts to +/- $1.05 per gallon. Think about it. With one gallon of gasoline you can drive 40 miles. Imagine you need to walk or ride a horse or use a bike in bad weather. The cost of fuel, including for air travel, is indeed ridiculously low.

Step 5: We increase the basic income with $1,000 per month for all citizens over age 70.

The required funds are $1000 x 12 months x 28 million people = $336,000 million, $ 336 billion.

This is financed by a decrease of military spending of the same amount over a period of 10 years, 30 billion per year, such that, in the end, for each military dollar spent we also give one dollar to the elderly.

Indeed, is it ethically acceptable to spend money on defence and not spend the same amount to support our elderly people? A fair deal is that for each dollar spent on military matters, another dollar should be distributed to them. Of course we cannot decrease military spending in one go. Therefore, this step counts as 10 sub-steps in which we decrease military spending by $36 billion per year over 10 years, moving the yearly military spending from $672 billion to $336 billion, which is still five times more than the current Russian military spending. Because military veterans will get basic income like other citizens, it will become a part of their compensation. The expense to the military budget would be reduced with the same amount.

Elderly people can be seen as being pushed aside in society as they age, so it is important that their care is constantly looked at to see that they are getting the best care for their age and their disabilities/illnesses, otherwise, they could be overlooked causing terrible outcomes. This type of care also comes with a lot of additional needs that have to be used by carers, for instance, the use of NDIS software solutions is important for keeping on top of billing, timesheets, etc. so that everything is regimented. This, as well as other elderly care services, is an important factor and must not be overlooked by those within this industry. This goes to show how important it is to have financial backing within these areas.

Step 6: We increase the basic income with $200 per month for the age groups 0 until 17 and $400 for over 64. This relates to 70 million citizens of under 18 and 46 million over 64.

The required funds are $200 x 12 months x 70 million + 400 x 12 months x 46 million = $389,000 million, $389 billion.

The basic income per age category per month in total then becomes:

0 to 17: $300 (steps 1, 2 and 6)

18 to 64: $ 400 (steps 1, 2, 3 and 4)

65 to 70: $ 800 (steps 1, 2, 3, 4 and 6)

70 and older: $ 1500 (steps 1, 2, 5 and 6)

This step is financed by using most of the budgets for welfare since the basic income system gives a higher purchasing power to them. In 2016, welfare spending was $430 billion. Only an average of 25% of the funds went to cash assistance. The problem with the means tested welfare system is that the administration necessary to do the testing takes up a huge part of the budget. Wyoming currently gives the highest benefit to TANF families (a single parent with two children): $657 per month. Worst case, it compares with $300 x 2 +$ 400 = $1000 from the proposed basic income scheme above. The basic income system advantageously replaces the welfare system in any of the 79 existing systems. The food stamp system for example emerged in 1939, when the cost of food was still very high in household budgets, especially for poor households with many children. Food is now very cheap compared to then.

Step 7 When looking at further opportunities to fund basic income, we should look at inefficient parts of the US economy.

By far, the most inefficient part is health care. Not only because medical doctors have a nice income, generally speaking, but because the US health consumer not only pays for the health care itself,he pays also for the insurance people as well as lawyers and other legal people involved in disputes. No wonder the cost of health care per inhabitant in the US is twice as high in comparison to European countries. In France for example, there are no legal and insurance parasites draining the standard health care system, which is directly organised by the state. And even that system is not efficient, because there is a lot of overconsumption in France. The current cost of health care in the US is $3,300 billion including the $ 1,520 billion paid for by government.

Education is an outdated economic sector. The recent IT and internet revolution did not induce many institutions to review their business model. The “productivity” of the learning process would be less than 10% if measured by standards used in industry. Currently, until age 16, schools serve two purposes: education and babysitting. Lots of things in education should be re-engineered. If education were to be invented today, would we build schools? Would we have classes of pupils all the same age yet with different knowledge and skills? What about virtual classes, at least part-time? The cost of education funded by the US tax payer is $960 billion.

The US has the highest cost per student world-wide, after Luxembourg. Just recently, in an address in May 2017 at Harvard, Mark Zuckerberg, the founder of Facebook, said we should introduce basic income. He also said that the time has come to introduce lifelong personal education, which we can refer to as “coaching”. Now think about it. Health depends a lot on education, not the least our mental health. While health care should evolve from curative to preventive care, there is a huge synergy between education and the future of health care, to the extent that they should be regarded as one and the same venture. Therefore, the government should move the budgets for health care and education to private “care organisations” or “coaching organisations”, which should offer lifelong health care and education to their “members” while government pays the member fees. We can do that by using the current government budgets for health care ($1,520 billion), education ($960 billion) and pensions ($1,380 billion). Mind that the basic income for > 70 will be $1,500 which is higher than the current OASDI benefits) and therefore replaces OASDI to a very large extent. Possible residual differences in income need to be covered by the coaching organisation. The budget of $3,860 billion dollar amounts to $1,070 per citizen per month. When comparing with costs of education and health care in well managed countries, this looks like a good business opportunity for enterprises which want to become active in the social economy. Obviously, the cash obtained by these coaching companies from the government may differ depending on some characteristics of the members, like age. Citizens who want to change from a coaching service provider should face some penalty since continuity is important to provide a good service.

A possibility to launch such a system would be for the government to organise a tender offer followed by the granting of licences to big system companies willing to apply. There are several such companies well positioned to tap this new market. Think of IBM, Microsoft, Oracle, GE, Intel, Google or Facebook. They could design new health care/education products and bring those services to the market while using subcontractors, which they would manage. A special US problem has to be dealt with to make that possible. Legal proceedings and the “insurance” logic are not part of such a model. Those who want to keep the ability to sue teachers and nurses in court should continue to use the current private health care/education system.

Conclusion: Basic income can become the core of the social security system in the US. This is just an example of how it could be done. The guiding principles in this proposal are:

-Basic income is linked to citizenship combined with residency in these calculations. Other options imply other numbers.

– Money is not falling out of the sky. The sources of funds to finance each step are identified and realistic.

– Information sources for energy: https://www.eia.gov/energyexplained and https://en.wikipedia.org/wiki/Energy_in_the_United_States

– A step by step approach may lead to the recognition of the viability of a significant number of steps.

– A basic income is a “social dividend”. Just as the shareholders of enterprises get a dividend because they own shares, all citizens derive a right to get a social dividend because their parents and grandparents have put a society in place which is able to produce a large surplus of food and goods, such that we can pay a dividend from this surplus to all citizens.

– The basic income replaces, to a very large extent, the current social security and other benefits. For those who have a job, and the companies employing significant numbers of workers, the net effect of the introduction of a basic income system should be, more or less, neutral. When employees get a basic income from the state which replaces a part of their salary, the cost to the employer will be lower with the same amount (at the moment of the transition). However, the employers will be faced with an increase in other costs due to new taxes which will be levied to pay for the basic income.

– The basic income is distributed electronically, for example via an automatically charged debit card. It could actually be a smart phone if properly protected. Government can organize a bid process for organisations willing to distribute the money one way or another. It is highly likely technology businesses or communication operators would apply to distribute the basic income. However, it could be banks as well, or big retailers. It is likely that the cost of the distribution of the basic income to the government would be around zero. It could even turn out to be a small revenue for the government, when interest rates move up again.

– After a while the basic income should be disconnected from a precise mechanism of funding.

– The basic income should evolve with the cost of living. It would make sense however, to use it as a tool to influence the economic cycle – increase the basic income to increase demand; wait to increase it if the economy gets overheated.

NETHERLANDS: A radical new way do fund science

NETHERLANDS: A radical new way do fund science

by | May 16, 2017 | News

Back in 2014, Johan Bollen and four other colleagues published an EMBO report, presenting a new and radical approach to scientific funding. Since then, Johan has paired with Marten Scheffer so as to develop and communicate further the notion of SOFA – Self Organized Fund Allocation. Scheffer has recently led the Dutch parliament to ask the Netherlands Organization for Scientific Research (NWO) to start a SOFA test pilot.

 

But what is a SOFA? It is a new way to allocate funds for scientific research. The traditional approach usually means a funding agency receiving many applications, which entail a time-consuming process in itself. Plus, it costs a large percentage of the funding amount to run and manage this top-down driven system. According to a recent article on the issue, by Jop de Vrize, that percentage can be as high as 25%. On top of that, it has been proven highly inefficient, since the success rate of these application is usually below 20% (19.1% in 2016 according to the US National Institutes of Health, and 11.3% at the European Research Council Starting Grants for the same year). The result is that some scientists get lots of money, while a lot of others get a fraction of that money, or even nothing.

 

The new SOFA funding scheme is, at its core, a distributed, self-allocating system. The funding agency still attributes a certain amount of money to a research community, but then, instead of going through a cumbersome, time-consuming, unfair and inefficient process of distribution, the idea is to get the researchers themselves to allocate funds to other researchers. Specifically, the SOFA system would attribute an equal, unconditional amount of money to each researcher – a certain earmarked value by the agency, divided by all researchers in the community – and then each one would donate 50% of their present and past funding [1] to other scientists, trusting their best judgment.

Proposed funding system (Johan Bollen et al.)

Proposed funding system (Johan Bollen et al.)

 

Of course, this new system is not devoid of problems, or potential challenges. Freed to allocate 50% of their research income to other scientists, researchers could choose to give money only to their friends, collaborators or mentors. Also, the problem of the money not reaching those who are needing it the most may still arise, only partially offset by the unconditional amount that will be equally distributed (50% of each year’s grant). However, Bollen and Scheffer are confident, after running many simulations, that “rather than converging on a stationary distribution, the system will dynamically adjust funding levels to where they are most needed as scientists assess and re-assess each other’s merits”. They also agree that the system would have to be include programmed features to avoid self-attribution and hide funding decisions (to keep decisions unbiased), for instance. An important feature of the SOFA system is that no one individual researcher has access to enough information so as to try and influence the attribution mechanism (contrary to the present system, which is more easily politically malleable).

 

The unconditionality associated with the SOFA scheme, plus its widely-distributed nature draws some similarities with the basic income concept. Basic income, as defined at the Basic Income Earth Network (BIEN), rests on the independence of income and work-status, or even willingness to work. Granted, the SOFA scheme implies that the money is distributed among scientists, devoted and committed to scientific work, with clear and established study plans. However, it is also clear that some of the previous conditions associated with funding decisions – mainly a discussable notion of merit coming from a very small group of peer-reviewers who end up allocating the grants – will collapse if SOFA is introduced. Another similarity with basic income proposals has to do with de-complexification of the attribution system, also reducing its overhead costs, as a function of both distributing 50% of the grants unconditionally and putting in the hands of the researchers themselves the responsibility of distributing the other half of each grant. In the basic income arena, that advantage usually takes the form of reduced costs with social security management, and lowering complexity through existing program’s extinction and remodeling. A third similarity has to do with trust. Unlike the present system, SOFA inherently trusts researchers to allocate 50% of their grants to others. This trust is also present in most basic income proposals, which allow recipients to spend their basic income as they see fit, hence furthering their personal freedom and capacity to more efficiently solve problems in their own lives.

 

The SOFA scheme has been presented to Eppo Bruins, a member of the Dutch House of Representatives, who proposed a call for a SOFA test pilot in June 2016, which was approved by the parliament. However, the NWO, the agency which would start and manage the experiment, has resisted the initiative. According to Scheffer, that is understandable, since “if applied universally, the novel system would make the agency redundant”.

 

Notes:

[1] – Management of past funding options is still not included in the proposed model, but is considered important by the authors, to better use of unused funds.

 

More information at:

 

Johan Bollen, David Crandall, Damion Junk, Ying Ding, Katy Börner, “From funding agencies to scientific agency”, EMBO reports 15 (2), September 7th 2014

 

Jop de Vrize, “With this new system, scientists never have to write a grant application again”, Science (American Association for the Advancement of Science), April 16th 2017

Funding social security after automation

Funding social security after automation

by | Jan 18, 2017 | Opinion

Finding the money to pay for our social security is becoming more difficult, because paid work is being replaced by robots — the financial foundation of the social security system is crumbling. This is true whether we talk about financing basic income or any other social security system. Increasingly, automation is replacing “productive” jobs. There is still room to create jobs in basic services. However, such jobs do not create enough “added value” to “contribute” to the financing of our social security system. We are happy that these new jobs provide an income to those families. But it is too far stretched to believe that prices for such “proximity” services, helping each other, can be inflated by social security contributions.

Because the distribution of purchasing power is essential to fuel our economic system, time has come to search for other sources of funding, other than “social security contributions” from labour.

An obvious tax-free way to help fund social security is to reduce the cost of public administration and public services through productivity gains. Another tax-free way is to use the profits of state owned companies to fund social security. Many countries own companies, in full or in part, such as in transportation, mobility, housing, banks, car manufacturing, electricity, water distribution, telecommunication etc. Some of those companies do well, others do not. In most countries, the sum of the profits (and losses) derived from those state-owned companies is low in comparison to the cost of the social security system. Sovereign wealth funds are a special category of state owned companies. Their goal is to generate profit out of the collective savings by the country to cover future social security expenses, like retirement benefits, but also to conduct economic stimuli programs in periods of economic decline.

This induces a discussion regarding to which part of the social security should be funded by savings and which part should come from “redistribution” (sometimes referred to as “repartition”). There are both public and private schemes to fund retirement benefits out of savings. However, in most countries repartition funds the biggest part of the retirement budget. In most countries, the non-retirement social security benefits like child allowances, unemployment, illness, and health care are almost entirely funded by redistribution. It is largely recommended that no matter what state your country’s economy is in, you should always save money yourself for your retirement too. It is possible that you might become incapacitated and unable to decide how this money is handled due to old age, therefore electing someone to have power of attorney on your behalf is also a crucial part of planning for your future. You can learn more about power of attorney here.

Very little academic work has been done on the ideal mix of social security funding between savings or repartition. Imagine a social security system which would be completely funded by (public and private) savings. That would be a huge challenge for any economic system because the percentage of required savings in the real economy would be extremely high. Moreover, there would be huge asset inflation leading to high volatility in stock markets and perceived personal wealth, this in turn yielding high instability in spending in the real economy. The short answer therefore is that the part of savings in our social security system should be relatively low.

Some defend the idea of money creation to fund basic income. The problem with this proposal is that it supposes an expanding economy while the population in most European countries are starting to shrink.

What would happen if we dig a hole into the ground and we discover tonnes of gold, gold available in massive quantities, just like water? What would be its value? Except for a few industrial applications, gold is useless. The reason it is used in jewels is based on its scarcity rather than its beauty.

However, we found something more useful while digging: oil. It can be used to make plastics and all sorts of other useful materials. Moreover, it can be used to produce heat or electricity. In oil or gas-rich countries the oil industry is massively contributing to the state income: social security is funded, at least in part but often completely, by this “black gold.”

Astonishingly, so far, the benefits of the black gold bonanza were only moderately used in countries which do not have these natural resources. They could have levied far higher import or consumption taxes on oil products than they actually did.

Higher taxes on energy consumption is an obvious way to finance social security in 2017, rather than demanding low income workers to share a big part of their small income to fund their health care and future retirement. Such a tax would surely reduce energy consumption and lower CO2 emissions. What is wrong with that? Either way when it comes to finances and especially retirement in our day in age now, more people are in fear of their own instability, if you’re one of these people you should be looking at ways to increase your retirement pot.

Maybe there are other “good” taxes? In Macau, the gambling tax, which is mainly contributed by visitors, finances a yearly basic income for all inhabitants as well as a fair share of the health care system. While in Sweden, their gambling tax seems to be in order to regulate their gambling market, preventing it from spiraling. You can read more here – https://battrenyheter.se/artikel/spelskatten-taljer-guld-at-svensk-ekonomi/. Different countries require gamblers to file their winnings in different ways, so it’s important for people to check their country’s regulations on gambling income. For anyone who is interested in bringing in some gambling income, it might be worth looking for an online livemobile66 slot game. That will give users the option to play for money, allowing them to start bringing in some gambling money.

Any other taxes?

Taxes should fulfill 3 requirements:

  • They should be significant enough such that the cost of enforcing and collecting them is small compared to the revenues.
  • They should be socially desirable. For example, a tax on exchanging services with each other is undesirable. A tax on cigarettes is a very good tax, a tax on alcoholic beverages as well, just like a tax on electricity or oil products.
  • They should be difficult to avoid or defraud.

Why not a smart tax on robots? For example, a tax on products made by robots, while it doesn’t matter if those products are made in the country or elsewhere. However, even if a smart phone would cost twice the current price, we still would buy it, just like we would buy our PC or fridge at twice the price. The easy way to implement such a tax in practice is to increase the value added tax or the sales tax on such products. The goal is to replace the “social security contributions” on low wage labour, because tax on low paid jobs is a bad tax. The problem is that the political world is not aware of that yet.

The replacement of high added value jobs by robots undermines the current mechanism of redistribution of wealth, such that some political voices emerge which are pleading to reduce social security benefits. We need to find a better way to fund our social security. This is essential to win the battle for basic income.