richard parncutt, uni graz bien congress, ottobrunn/munich, 14 september 2012
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Universal Basic Income and Flat Income Tax (UBI-FIT) Tax justice, work incentive, economic democracy. Richard Parncutt, Uni Graz BIEN Congress, Ottobrunn/Munich, 14 September 2012. The context: Socialism vs capitalism. General features of group conflict - PowerPoint PPT PresentationTRANSCRIPT
Universal Basic Income and Flat Income Tax (UBI-FIT)
Tax justice, work incentive, economic democracy
Richard Parncutt, Uni GrazBIEN Congress, Ottobrunn/Munich, 14 September 2012
The context: Socialism vs capitalismGeneral features of group conflict
– strong identities based on difference– ignorance of Other group prejudice, moral arrogance– unfair (one side is stronger)
General principles of conflict resolution– mutual recognition– fairness, transparency– contact and knowledge
• UBI-FIT approachIntegrate principles from both sides:– socialist: reduce wealth gap– capitalist: increase incentive
Cunning Strategy #1Avoid controversial ideologies
Not:What would you do if you didn’t have to work? anti-socialist knee-jerk
…but instead:Let’s simplify tax-welfare system!Make more efficient, transparent, democratic. Both left and right wing are interested
Cunning Strategy #2Focus on universally agreed ideas
Two basic principles:•Unemployed need enough to survive.•The more you work, the more you get.
Who can disagree with that?UBI-FIT simply realises these two principles.
Cunning Strategy #3 Focus on GINIR
Gross-Income-Net-Income-Relationship
- not the individual UBI rate or FIT rate
My bias• Centre-left liberal-green• Belief in
– regulated free enterprise– eliminating poverty– left-right cooperation– transparency democracy
Dreamed up UBI-FIT in Australia in 1987New to the current scene Sorry for re-inventing the wheel
Problem #1Poverty
• One billion people are affected• High rate even in rich countries
• Rising wealth gap • Over 1000 US$-billionaires
UBI would (almost) end poverty
Problem #2Welfare traps
Die Zuverdienstgrenze als Sozialhilfefalle
As income passes the welfare cut-off… – welfare is suddenly or gradually cut– equivalent to a tax bracket of 100% or more!
Suppress incentive Reinforce class differences and conflict
UBI-FIT would eliminate welfare traps
Problem #3The cost of illegal activities
1. The poorWelfare fraud costs millions
2. Middle classTax avoidance costs billions
3. The rich Global financial games cost trillions
UBI-FIT stops #1 & tackles #2Global transaction & wealth taxes tackle #3
Problem #4The cost of inefficiency
The cost of tax-welfare complexity:•Armies of accountants and bureaucrats•General public does not understand•Democracy does not work
The system is not inherently complex!•Origin of complexity: Politicians wooing voters
UBI-FIT reduces waste, increases transparency
Definitions
• Gross income does not include UBI• Net income is disposable income• UBI must be both universal and
unconditional (as Van Parijs explained)
Progressive income tax in Austria2005-2009
Broken line: Extrapolated high rate BI = 8.5 k€/yr = 708 €/mo
Gross income (k€ /yr)
Net
inco
me
(k€/
yr)
Progressive income tax in Australia1 € ≈ 1.7 $
Gross income (k$/yr)
Net
inco
me
(k$/
yr)
23
0%15%
30%
40%
45%
Broken line: Extrapolated high rate BI = 23k$/yr = 13.1 k€/yr = 1090 €/mo
Progressive income tax in Canadafederal not provincial; 1 € ≈ 1.6 $
Gross income (k$/yr)
Net
inco
me
(k$/
yr)
11.4
Parameter: marginal tax ratesBroken line: Extrapolated high rate 11.4k$/yr = 7.28 k€/yr = 607 €/mo
Unconditional Basic Income UBI
Advantages•Eliminates poverty•Reduces bureacratic interference•Wages more accurately reflect value
Disadvantages•May encourage long-term unemployment•Long-term unemployed are vulnerable
Flat income tax FIT
• Advantages– Payable immediately harder to evade/avoid– Perceived as fair by the rich politically stable
• Disadvantages (without UBI)– Increases wealth gap
• Disadvantages (with UBI)– ?
Universal Basic Income + Flat Income Taxcf. Friedman & Rose (1980); Atkinson (1995); Strengmann-Kuhn (2005)
0
1000
2000
0 1000 2000 3000
gross income (€/mo.)
net i
ncom
e (€
/mo.
)
Arbitrary parameters: BI = 500 €/mo., FT = 50%Could be: BI = 700 €/mo, FT = 40%
Main thing is the gross-net relationship, not the individual parameters!
basic income
break-even point
Setting the parameters
• Basic income (500…800 €/mo)– high enough to eliminate poverty
• poverty line in Austria: 60% median wage ≈ €900– low enough to maintain incentive
• Tax rate (35…50%)– high enough to finance BI and the rest– low enough to maintain incentive
• Adjustment procedure– balance budget (zero deficit)– left-right negotiation
Progressive taxationUrgently need to reduce the wealth gap
• Flow– Consumption: Luxuries only! – Income: Flat (40%?) with UBI– Capital gains: Treat like income (gifts,
inheritance, interest, speculation…)– Transactions: To reduce speculation
• Stock– Households: none– Private wealth: flat (1%?), threshold ($1m?)– Companies, trusts: flat (1%?), no threshold
• Environment– Rich have bigger environmental footprint
Flat wealth taxesabove a threshold e.g. $1m
...are effectively progressive because only the rich have significant wealth
(middle classes have moderate income but low capital)
Example: 1% / year
Capital (€) Tax (€/yr)1 000 10
1 000 000 10 000
1 000 000 000 10 000 000
Consumption taxes are regressivee.g. VAT, Mehrwertsteuer
Poor pay a higher & of income in tax VAT contributes to growing wealth gap
VAT only on (genuine) luxuries!•replace VAT by wealth tax•UBI could be financed by wealth tax
(or by combination of different taxes: wealth, VAT, income, environment, transaction)
UBI-FIT is effectively progressiveExample: BI = 500 (€/mo) and FT = 50%
Gross income (K€/mo)
Net income (K€/mo)
Effective tax rate
0 0.5 - ∞1 1 02 1.5 25%3 2 33%4 2.5 37.5%5 3 40%
10 5.5 45%100 50.5 49.5%
UBI-FIT:Progressive in only one way
• Allows for any level of progressivity or income equity• Progressivity can be directly adjusted transparency
Don‘t combine 2 progressive systems!• unnecessary complexity, reduced transparency• opportunities for clever tax advisers
Approaching UBI-FIT
Incrementalism•Agree on long-term goal•Gradually adjust GINIR over a few years•Monitor effects of changes; adjust
Universal Basic Income and Flat Income Tax (UBI-FIT)
Tax justice, work incentive, economic democracy
Richard Parncutt, Uni GrazBIEN Congress, Ottobrunn/Munich, 14 September 2012
Global Wealth TaxNational governments are steeped in debt, a billion people live in poverty worldwide, and urgent warnings about climate change are being ignored. In all three cases, the main problem is money. But the money is available - in abundance. Economic globalisation is making the rich megarich. Worldwide, there are now over a thousand US$-billionaires. As concerned citizens across the world, we call on relevant global organisations such as the UN, IMF, World Bank, and G20 to negotiate a global agreement to tax all wealth - including all companies, trusts, and wealthy individuals - at a single rate of about 1% per year, in addition to existing non-wealth taxes. Exceptions should be limited to genuine non-profit organisations and individuals whose assets are less than about US$ 1 million.
Global Wealth Tax
Please…•Find the petition at change.org•Sign it•Forward the address!