5 Jun 2017

Martin Farley's proposals for a UK Basic Income based on Negative Income Tax

I've just been having a very interesting exchange concerning my recent proposals for implementing a UK Basic Income via a Negative Income Tax with Martin Farley, who has proposed a whole set of reforms that togeher he calls the "Transformation Deal". His proposals integrate several key ideas including Unconditional Basic Income (UBI),  a Land Value Tax, a Flat Tax on ALL income,  and Commons Licences that would require businesses to pay to use common resources.

I got  in contact with Martin because I had seen his post from September 2016 on "How a Negative Income Tax could more effectively deliver a Basic Income" and found it very interesting - as well as being very similar to my own suggestions! Martin proposed the following numbers for Basic Income, which would vary with age according to the following arrangement
  • £8,400 per year to every person over 65 years of age
  • £6,000 per year to every person between 21 and 64 years of age
  • £3,600 per year to every person between 18 and 20 years of age
  • £2,400 per year to every person between the ages of 0 and 17 (for 16 and 17 year olds, the payment will be made directly to the recipient. For those 0-15, payment will be made to the named guardian/primary carer)
These seem like pretty reasonable numbers that take into account the fact that people over 65 are less able to go out and work to earn additional income than those between 21 and 64. I presume that Martin's proposal would replace the UK's state pension (currently £122.30 a week, or £6359.60 per annum). Giving more to the elderly seems justified, in the same way as it would be normal to pay more to those of working age who have physical or mental handicaps that reduce their ability to obtain additional income. Martin and I agree that while the Basic Income would allow many of the current means tested benefits to be scrapped, it is necessary to keep at least some of the existing benefits in place.

Specifically, Martin suggests that those benefits would add £50 billion to the cost of the system, broken down as follows:
  • Disability benefits -£18bn
  • Housing benefit for OAPs - £5bn
  • Second Earnings-Relation Pensions Scheme - £10bn 
  • Attendance Allowance - £6bn
  • Various other random allowances - around £10bn
He also points out that my figures, which uses the percentiles among tax payers fails to take into account the existence of a substantial number of people who would also be eligible for the Basic Income, but didn't figure in my original calculations. Specifically:
  • 4m people who work, but earn less than £10k
  • 2m people in full time study/training
  • 1.2m pensioners who have no income other than the state pension
  • about 6m other people who have no income (stay-at-home parents, unemployed, the sick etc)
It's a fair point. Clearly, I will need to make adjustments to the precise values for the values for the Basic Income and the flat tax rate to make the system balance. But I feel that whatever the final numbers, the overall scheme which sees the Income Tax system as a way to provide a Basic Income and redistribute revenue from the highest earners to the rest of the population will work.

Indeed, on his website Martin gives a specfic implementation in which he proposes a Basic Income of £7200 a year, coupled with a flat tax of 35% that allows the Goverment to raise £63.5 billion a year. In that simulation, he takes into account the numbers of people who are currently non-earners. The result is actually very close to what I am proposing, with the difference that the point at which people stop being net receivers from the tax system is shifted left to the 44th Percentile point. It is this that allows the proposal to generate revenue for the government, whereas my proposal which has the neutrality split at around 66% is deliberately designed to be a self-contained redistribution system. My own view is that Income tax should not be used for raising revenue for the government - raising revenue would be easier to do with a Financial Transaction Tax, that would also be a flat rate tax, paid by all - citizens, businesses and banks alike.

One reason I think this may be a good ploy, especially in the USA where there are a lot of people who object to giving any of their hard-earned money to the government. With a scheme where their tax money only goes to other citizens, it is a lot less easy to object.

I note that Martin has also done some calculations that show how the same scheme could be used to provide a Basic Income of $9000 a year in the USA with a flat income tax rate of 27%.  It's very close to my proposal, posted yesterday, where I suggested a Basic Income of $10 000 a year, entirely financed by a flat rate income tax of 18.5% - the only real difference being that my proposal does not try to raise revenue for the government.

As you can hopefully see , it looks like Martin Farley's proposals and my own are really remarkably closely aligned. Great minds think alike?

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