About the author
Back Truly Progressive Taxation and Eliminate Poverty with
Income BI and Flat Tax FT
vision for a better world
studied physics and publish research in psychology. I am interested in
clear thinking and the correct use of mathematical arguments.
following is intended for a popular audience and presented from a
European perspective. But these ideas could be realised anywhere.
is a small but interesting body of academic literature on BIFT. I'm not
very happy with it, and I explain why at the end of this page.
would be grateful for advice on how to publish this text, which I will
gladly revise accordingly.
Imagine solving eleven big
problems, all at once:
it, at last.
- The wealth gap
(difference between rich and poor):
- The gender gap
(difference between male and female incomes):
- The incentive to work:
Increase it across the board.
- The freedom to work
as little or as much as you want:
- Working conditions:
bureaucracy and invasion of privacy by tax/welfare offices: Reduce
- Cheating the system,
including tax evasion and welfare fraud: Reduce
- Extremist politics,
especially the far right: Reduce
- Democracy (people
power!): Improve it. Bring it
- Big global problems
such as climate change: Solve
but true: The government of any country in the world
could achieve all eleven points by radically simplifying the
system along the lines of the above graph, as follows:
unconditional basic income (BI):
Give everyone a BI corresponding roughly to the poverty line.
In Western Europe, that's about 1000 Euros per month. Give
people with disabilities (up to double) and less to children and
non-nationals (at least half).
Just to clarify that before we proceed:
means that absolutely everyone
would receive the full BI, and "unconditional" means
they would receive it regardless of any other income.
income tax (FT): Tax all
at a relatively high flat rate, between 40% and 50%. The exact
rate would be determined politically, and it could be
reduced toward 30% by introducing or increasing wealth,
environment (carbon) taxes.
exact amount of BI would be determined in
a democratic political process. Socialists would prefer a higher rate
and capitalists a lower rate, and they would meet somewhere in the
middle. For this text, I have chosen 1000 Euros per month for the
purpose of argument and illustration, for two reasons: it is a round
figure, and it is close to the European poverty line. But the main
arguments do not depend on this number.
A couple of further clarifications:
am assuming that the government will roughly balance
the books, paying out the same amount in BI as it receives in
income tax. In reality, things are not quite like that, but for the
purpose of argument it's a reasonable assumption.
- The numbers
(30%, 40%, or 50% tax) are not
thing. The main thing is the line on the above graph -- the actual
relationship between gross and net income. That relationship would be
remarkably similar to the current relationship. In mathematical jargon,
the new graph would be similar to a straight line of best fit or
regression line through the old relationship.
To those who are thinking that up to 50% income tax is too much:
Imagine the government is giving everyone 1000 Euros a month, tax free,
questions asked. Regardless of your regular income, you get 1000 Euros
addition. Nothing like that ever happened before.
In exchange, the government is asking you to pay up to 50% tax on all
That is surely a good deal! On the one hand, you will never fall below
the poverty line. On the other hand, you can become as rich as you
like. Why would anybody in their right mind object to that?
The income tax rate would depend how government income is
distributed across different forms of tax. Some BI fans are talking
about financing it with entirely different kinds of tax.
Consumption tax (value-added tax,
Mehrwertsteuer) on luxury items is an additional possibility. I believe
that a tax on
all consumption should be avoided because it is regressive, increasing
the wealth gap rather than decreasing it (i.e., taxing the poor more
the rich relative to income). That is why I am focusing on income tax.
Another approach is so-called Modern Monetary Theory. MMT is one of the
countless tricks of the rich and their sidekicks to avoid paying
reasonable amounts of tax. The idea of MMT is that governments create
money, so they can easily finance a BI just by creating as much money
is necessary. The trouble is, that causes inflation: money
less valuable. That's one way of reducing the wealth of the rich, but a
more transparent and sustainable method is to tax them. Good
old-fashioned tax. Another problem with so-called Modern Monetary
Theory is that it promotes economic growth at a time when we
to be talking about sustainability. To get back into balance with
nature, we need a more modest and less extravagant approach that
acknowledges the limits of natural resources. We need to balance the
budget and approach sustainability. BIFT is a possible way forward.
Combined and inseparable
I am only
proposing a combination
and FT - not one or the other.
am not proposing BI without FT. If I am receiving an
unconditional , I should also pay tax on any and all
income, regardless of how rich or poor I am. The great advantage of
BIFT is that it treats everyone equally, abolishing the
of unemployment, abolishing class differences. Under BIFT, everyone has
the same rights and the same
obligations, regardless of income.
another way: We all want a peaceful society with a high
standard of living. We also want a sustainable economy, so that in
future our children
will continue to enjoy high standards. We can have both if we
strive for a balance between two principles: the right-wing principle
to work and the
left-wing principle of fairness.
am I proposing FT
without BI. Conservatives who
want flat income tax at the same time as reducing welfare want the rich
to become even richer and the poor even poorer. No way.
don't have to choose between those two alternatives. We can have both,
and BIFT shows how it would work.
FT means everyone is equally motivated to
Universal, unconditional BI means
everyone is valued and
On the political spectrum, BIFT is centre-left. It lies between the
traditional left (Labor) and the centre. The introduction of BIFT would
be a transition, not a revolution. The result would be a sustainable
economic system, after which we would wonder why we had waited
Imagine what would happen if the tax-welfare system were
radically simplified and BIFT were introduced tomorrow:
- The end of poverty:
would correspond to the poverty line, ending poverty.
- A smaller wealth
gap: The income of lower
earners would increase. At the same
time, tax evasion and avoidance would be prevented, increasing tax paid
by higher earners.
- A smaller gender
gap: Women more
often work part-time. With , that work would become more
worthwhile. Women are also
more likely to receive and manage benefits for children. Those benefits
would increase. Beyond that, it would become easier to organise
feminist families in which old gender roles (childcare, money earning,
and so on) were equally shared. Once a baby was a few or several months
old, parenting could become equal and both both parents could work part
- Universal work
incentive: Welfare traps
would disappear. People would no
longer lose benefits as their income increased. The motivation
work would be constant and independent of income.
- Better working
conditions: A BI would give
workers bargaining power. They would be free (or freer) to leave at any
job and thereby put employers under
- More personal freedom:
People would be free to work as much or
as little as they wanted.
Fear and stigmatisation of
unemployment would disappear.
- Less meaningless
bureaucracy. Tax and welfare
offices would no longer invade
people's privacy. The system would be more efficient and
- Less cheating:
It would be harder to cheat either the welfare or the tax system. There
would be fewer legal loopholes for the accountants of the rich to
- A weaker far
right: There would be fewer
dissatisfied citizens for populist
politicians and corporate-controlled media to prey on.
- More democracy:
The system would be simpler and more transparent. Voters would have a
better understanding of what they are voting for at elections. The
power of democratically elected governments would increase relative to
that of corporations.
- Fewer global
problems. The revival of
democracy would make it easier to
solve big problems like climate change.
you are unemployed, you get unemployment benefit.
If you then get a chance to earn a small amount of money, the money is
deducted from your benefit. So there is no point doing that work!
That's why the unemployed often refuse job offers. It's called the welfare trap.
this problem, as shown in the figure above. No matter how much
money you have to spend every month, under "BIFT" the amount will go up
if you do extra paid work. In this way, motivates
people to work
more, regardless of their current income.
no. 1. BI makes people lazy. The
truth: The current system
makes people lazy.
reduce the waste that is inherent in the present system.
example of waste is the money paid to employment
officers to monitor recipients of unemployment benefits. (Are they
really looking for work? Are they attending job interviews?) BIFT shows
this work is unnecessary.
example is taxes not collected. The rich
often pay little or no tax. They
achieve that by playing with loopholes and international differences in
taxation law. Governments typically lose much more in tax evasion
international tax havens) than in welfare
The solution is to require everyone to pay fair amounts of
tax, and BIFT makes that possible.
could unleash an unprecedented surge
of individual creativity -- the opposite of waste. For the first time,
people would be free to
choose what kind of work they do. As long as that is not happening, an
enormous amount of human potential is going to waste.
no. 2. We can't afford BI.
The truth: We
can't afford the
plenty of money.
has never been so rich, and the
rich are hoarding
unimaginably enormous amounts. There
billionaires and 50
million millionaires in today's world, and both groups are
steadily. Governments just need to tax them in a normal way.
can afford to be generous. When
it comes to bailing out banks or airlines, increasing
spending for the military, or subsidizing environmentally destructive
fossil fuel industries, enormous amounts of money suddenly become
available, which increases national debts.
Anyway, BIFT is remarkably similar to the
present system. It
costs nothing to draw a line
of best fit through the current
graph of gross
income against net income (see the graph above).
people work for no money, and their work is absolutely
essential. Without them, the system would collapse. Some are
voluntarily looking after other people: children, the elderly, the
disabled. These "carers" are more often women than men, which explains
why women have less money than men on average, and more often live in
poverty. Others are educating themselves (e.g., school children).
is inherent in today's economic systems. Economists agree that it will
never go away. There is an obvious reason. the better technology gets,
the less work
there is to do. You cannot expect people to work for every bit of money
they get when there is not enough work to do.
no. 3. You
have to work for every bit of money that you get. The
cannot possibly work.
society works that way.
rich can be
as lazy as they like as long as someone is looking after their money.
Most of the rich got most of their money without working. They
either inherited it or manipulated the system to ensure the big money
flowed their way. Billionaires never earn more than a tiny fraction of
their money. To earn a billion dollars at 10 dollars per hour (24 hours
a day, 7 days a week) would take 100 million hours, that's over 10,000
work. So why do we believe it? Ideas that we take for granted are often
socially constructed by powerful people to serve their interests. The
idea "everyone has to work" is promoted by the rich to ensure that the
poor will keep working for them. The idea is also promoted by the
middle classes, whose position in the pecking order depends on their
support for the rich.
true is first that everyone
needs enough money to live on, to ensure
quality of life and second that everyone
needs to be motivated to work, to ensure that
the important work is done.
is a fair deal that is offered to everyone. The
everyone the BI, and in exchange, everyone pays a relatively high FT on
all further income, to finance the BI. Everyone is treated equally. For
the first time ever, rich and poor are treated equally. The rich won't
like that: they can make more money the old way (no BI, less income
tax). BIFT will stop the rich playing games with the system by
legally requiring everyone to accept the same simple, transparent, fair
- Myth no. 4:
It's a bad idea to give to the rich. The truth: It's
bad idea not
to give to the rich.
like to claim that they are using public money
making sure those who need it get it, and those who do not do not. From
that perspective, BIFT is a bad idea. It is too inflexible! In other
words, politicians can no longer manipulate welfare and taxation to
attract voters in specific
categories and win elections.
- Myth no. 5:
BIFT is bad because it is inflexible. The truth: BIFT's
inflexibility guarantees that everyone will be
In fact, when it comes to ensuring people’s livelihoods,
inflexibility is a virtue. The risk of arbitrary exceptions,
discrimination, favoritism and so on is avoided. What is
flexible is the numerical value
of the BI and the FT, both of which can be adjusted in
political processes. After that, both values apply to all people
The universal declaration of human rights is similarly inflexible.
Everyone has the same rights and obligations, period.
The need for left-wing
article in The Guardian
entitled "The new left
Andy Beckett observed that
almost half a
century, something vital has been missing from leftwing politics in
western countries. Since the 70s, the left has changed how many people
think about prejudice, personal identity and freedom. It has exposed
capitalism’s cruelties. It has sometimes won elections, and
sometimes governed effectively afterwards. But it has not been able to
change fundamentally how wealth and work function in society
even provide a compelling vision of how that might be done. The left,
in short, has not had an economic policy.
BIFT is a response to that challenge. The world needs new
left-wing economic theory and policy that can eliminate poverty and
reduce the wealth gap in the 21st century.
BIFT is also a response to
the challenge of climate change. If society is going to reduce
emissions at all levels, and the economy depends considerably on
burning carbon, the structure of the economy needs to be radically
particular, people on low incomes will need extra money for carbon
taxes on car driving, meat eating, and so on.
Left-wing economic theory is a diverse thing, and it even includes
objections to . Many on the left have been suspicious about
BI ever since Milton Friedman, a conservative US economist, proposed
negative income tax, which is almost the same thing. Milton Friedman
also inspired the unmitigated disaster of neoliberalism. It was part of
his theory of freedom.
But something is not bad just because a bad person proposed it.
Vegatarianism is not bad because Hitler was a vegetarian. The concept
of BIFT that I am proposing is a general foundation that both the right
and the left can use for their own purposes. The right can reduce BI
way beyond the poverty line while at the same time reducing FT, which
of course I totally oppose. The left can elevate BI above the poverty
line while increasing FT to finance it. The point is to find a middle
path that allows everyone to enjoy the benefits of both appropriately
tamed capitalism (the source of wealth and abundance) and appropriately
democratic socialism (the source of community and solidarity). The aim
of this document is to describe how that middle path can be achieved in
The political left generally benefits from simplification of
tax-welfare systems. That is because only the right can afford
expensive accountants to play games with the system. The simpler the
system is, the less games can be played. An important advantage of BIFT
is its lack of loopholes, especially if tax deductions (which
traditionally benefit the rich more than the poor) are no longer
The main aim of right-wing politics is to maintain or increase the
wealth of the rich, which usually means maintaining or exacerbating
poverty. One important strategy is to lie about economics, and it helps
to own the media. In fact, lying is the only way the right can win
A good way to
stop the lies, or help people to see through them, is to radically
simplify the system. A simple system is more transparent, and hence
This, then, is the left-wing economic theory that I am proposing:
radical simplification of both tax and social security so that poverty
can be eliminated and everyone is motivated to work (but free not to).
Measures to ensure that the right can no longer trick and deceive the
left. Democracy based on human rights and honesty.
slave is a person who is forced to work or face serious
consequences. The most serious
consequence is death. Less serious consequences include punishment and
Democratic countries decided to end slavery long ago. But
system that forces people to work is a form of slavery: those
reject inappropriate work are threatened with poverty.
would abolish slavery completely, for the first time. No one would be
forced to work against their will. At the same time, everyone would be
motivated to work, because welfare traps would be eliminated.
people would be free to choose their occupation
depending on their skills and interests. The result would be an
unprecedented outburst of creative energy that would benefit society in
unforeseeable positive ways.
unemployed would no longer be stigmatized or
victimized. The working
class would no longer be discriminated against. The
poor" would disappear.
would have to offer
their employees what
their work is actually worth in a free and open market. For the first
time, earnings would correspond
to value of work.
equality has a long and shocking history. The Nazis coined the
(life unworthy of life) for people who were considered biologically
inferior, including those that could not work for health reasons. Many
of those people were murdered. Today, we want to ensure that nothing of
that kind ever happens
again. Universal can contribute by acknowledging the equal
intrinsic worth of every person in a concrete and tangible way.
would reflect the equal inherent value of every
Humanity has achieved many things, including
eliminating slavery and promoting democracy and human
rights, including equal rights for women. All of these goals
achieved to a large extent, if not perfectly.
Today, the world is richer
than ever before. It's time to eliminate poverty. That can be
done if three
conditions are fulfilled:
present system does none of these things -- a massive failure.
including the unemployed must receive enough money to live on.
unemployed must be rewarded for any paid work (if and when they find
it) by financial
incentives -- like everyone else.
unemployed must be free not
to work, and to accept the consequences -- again, like everyone else.
solves all three problems
most countries, long-term unemployment
benefits are not enough to live on.
you are unemployed and get a part-time job, you lose your unemployment
benefit. People are not rewarded for small amounts of work. Welfare
traps of this kind are highly demotivating: people are
often better off if they reject job offers.
below the poverty line are forced to work in order to survive.
They have no choice. Even then, many don't have enough (the working
poor). That's hardly different from slavery. We may pride
ourselves that we
got rid of slavery long ago, but today's welfare systems show that we
Simplicity and transparency
is eliminated. BI is enough to live on.
is motivated to work. Regardless of
how many hours you
work, you keep a large part of your earnings (after paying FT).
dignity is respected. Everyone is free not
to work, for any period of
time. Everyone is free to contribute to society by working for free.
Think about the complexity of tax and welfare systems
and how that relates to transparency, fairness, and democracy.
tax and welfare are
currently so complicated that veritable armies of bureaucrats and
accountants are needed to understand and administer them. Like
specialist surgeons that understand only one part of the body, experts
in tax or welfare are typically responsible for only one part of the
system and have trouble seeing the big picture.
That gives the rich an
advantage. They pay accountants to exploit the system's
complexity, finding loopholes that will enable them to evade or avoid
tax. The implications are enormous. The accountants of the rich are
constantly reducing their tax bills and depriving governments of
revenue. They do this in both legal and illegal ways. The rich can
easily succeed spectacularly in this game. For
the middle classes, it's not so easy. Their accountants are more honest
or less clever. The poor have no chance at
all. They can't afford accountants.
The solution is not to give everyone a free accountant. The solution is
to simplify the system. Clearly, that should be a central left-wing
Astonishingly, it is not.
to the complexity and opacity of
both welfare and tax that we forget what a simple system would
Economic equity does not mean equal income or equal wealth. It means
equal economic rights and opportunity. It means equal pay for equal
work. Anything else would be arbitrary discrimination.
BIFT shows that it is possible for governments to treat everyone
equally while at the same time
eliminating poverty. That is not only a matter of handouts
left-wing approach). It's also a matter of motivating people to work
(the right-wing approach) and maintaining individual freedoms (which
everyone should be concerned about).
a combined tax-welfare system that
(ii) is so simple and transparent that
everyone can understand it. A system that treats people of all incomes
with equal dignity and fairness, but also with equal strictness. Too
good to be true?
In such a system, welfare and tax would change in several ways:
regardless of wealth or income, would be treated equally according to
the same simple rules. That's equity!
and tax would be applied in the same way to everyone, regardless of
and tax would be treated as equally important.
and tax would be combined with each other and always treated
rules would be very simple, making the system transparent.
that: a world in which people are not only equal on paper, but equal in
on high incomes would be
considered equally deserving of BI (given the
increased tax they are paying) as people on low
- People on
low incomes would be equally responsible for paying income tax (giving
the BI they are receiving) as people on high
would be eliminated and the situation of the unemployed, the unwaged
(domestic/family work, caring, community service, art), and low earners
would generally improve, regardless of how much paid work they had or
the nature of their employment.
The combination of BI and FT is progressive.
The total tax paid relative to total income increases as income
increases. Moreover, BIFT makes it harder for the rich to evade tax.
That makes BIFT effectively more progressive than the current systems.
that the more you earn, the more income tax you pay as a percentage of
all earned income. The system that we have at present in most countries
low income earners pay tax at a lower rate than high income earners
(there are different income tax brackets).
BIFT is implicitly
progressive. Mathematically, it is a combination of a highly
progressive element (BI) and a regressive element (FT). The result is
progressive. The more you earn, the greater proportion of your earnings
are paid in tax, at the end of the day.
BIFT has an additional advantage: the rich can no longer evade or avoid
tax by employing smart accountants. Because the system is so simple and
transparent, there are hardly any tricks left to play. For
reason, BIFT is more progressive than
system, in practice.
graph is drawn on the
assumption that BI
would be €1000/month
for people with disability, less for
see below, but otherwise the same for everyone) and
would be 50%. Before readers jump to conclusions about these
numbers, allow me to insist on another important point. By
themselves, these numbers are misleading.
The system I am
very different from a BI
of €1000/month considered
alone, without fundamentally changing taxation. It is also very
different from an FT of
50%, introduced without
at the same time fundamentally changing welfare. Besides, these figures
more than initial round-figure estimates.
main point is that the line in the graph
straight and does not go
through the origin. These two principles would be enshrined into law --
preferably the constitution. Bending the line in any way, or allowing
it to approach the origin, would be illegal.
briefly explain the progressivity of BIFT with reference to the graph.
No matter how much
money you earn, you are bound to be happy about this graph.
shows the relationship between income before BIFT and
income after BIFT for two arbitrary parameter values:
BI =1000 €/month
FT = 50%
The parameter values can be set in different ways. This is only an
your monthly income before tax/welfare is zero,
will be happy that the government is giving you €1000
per month, no questions asked, to make sure you get by, and not
threatening to reduce it in the future.
is €1000, your
income after tax/welfare is €1500.
You are happy that no unemployment office is interfering in your
affairs or threatening to cut your benefit. Like everyone else, you are
motivated to work in the sure knowledge that the more you earn, the
more you take home.
your income after tax/welfare is the same. You
not to have to pay any tax at this level. Your effective overall tax
rate is 0%.
You are happy
that your effective overall tax rate is only 17%.
€3000 and effectively pay 25%
tax. The effective overall tax rate is rising as
your income rises, which is only fair.
€10,000, you keep €6,000.
You're rich. If you're not happy about something, it's not because of
your money. You
certainly can't be
unhappy about a tax rate of 40%.
With income of that kind, 40% tax is only fair.
graph shows at a glance how BIFT works.
parameter values, the line always goes straight uphill and
not go through the origin.
you keep €51,000.
Per month! What
are you going to do with all that money? Your effective overall tax
rate is 49%.
You are grateful
version of BIFT limits income tax to 50%. Just to put that in
perspective: some lefties have been talking about raising it to
70% (Alexandria Ocasio-Cortez) or even 90% (the top US marginal income
tax rate under Eisenhower). BIFT would stop that from happening. (The
rich should also pay wealth tax in addition to income tax, but that is another story
Capitalism has achieved a lot, but it never managed to eliminate
poverty. In a rich society,
and regardless of the challenge of climate change, poverty should not
The communists tried valiantly and idealistically to eliminate poverty
and failed. The
reason is simple:
Someone has to be in
charge, and power inevitably
corrupts. Communism sounds great in theory, but in practice
it tends to make everyone poor except
for a small elite. It also has a remarkable tendency toward
That does not make capitalism any better. In a capitalist economy, a
is in charge (democracy is not working), most people are struggling to
get by (poverty is intrinsic), and the system is gradually destroying
itself (biodiversity loss, climate change, nuclear threat).
tried repeatedly to make either communism or capitalism work,
but neither solution was stable or sustainable.
BIFT is not anti-communist, nor is it
anti-capitalist. It is about finding the best compromise. We
already have a compromise of sorts,
but it is
not working very well. The compromise adopted by modern
democratic states accepts capitalism as the main driver of wealth and
tames it, preventing its more destructive laissez-faire tendencies.
good, but we can do better.
BIFT is not
about BI considered by itself, nor is it about FT considered
by itself. BIFT is only and
exclusively about the inseparable combination of BI and FT.
Frank Sinatra crooned: "Love and marriage go together like a horse and
Check out the graph. There is
only one line on it. The
line shows the combined effect of BI and FT. That is
matters. It makes little sense to consider BI alone, or FT alone.
on two well-known and widely accepted ideas:
of your political ideology, you can hardly disagree with either
proposition. If you are poor and suddenly start to earn good money, you
surely deserve to keep most of it. If you are rich and suddenly lose
everything, you surely deserve a meal and a roof over your head.
Nothing could be fairer than to treat everyone equally according to
these two principles.
of income, everyone should always have enough money to live on. Freedom
from poverty is a
more you earn, the more you take home. People should be fairly
rewarded for their
hard work, good ideas, and social contributions.
A new perspective
people would receive the same BI. Women and men would be
treated equally. There would be special rates for selected minorities:
more for the disabled; less for children and foreigners. Exactly how
these special rates would be calculated is a different discussion. The
main thing to note for the moment is that the majority of people would
get the standard rate.
tax rate would be the same for low and high income earners. We are used
to progressive tax scales in which the rich pay a higher proportion of
their income back in tax. But as I will show, BIFT is inherently
degree of progressivity can be adjusted by adjusting the two
parameters: BI and FT. The bigger BI and FT, the more progressive (and
the more left-wing). The smaller BI and FT, the less progressive (and
the more right-wing).
a world in which everyone pays FT and receives BI
according to the same simple rules. A system that does
distinguish between rich and poor. A system in which poverty is
eliminated and the gap between high and low
incomes/wealth is reduced.
It's possible if we adopt a new perspective.
people actually adopting that perspective.
a system that motivates
to work without forcing
to work. Imagine a world in which
freedom from poverty is
guaranteed and the BI
that is necessary to achieve freedom from poverty is a legal right that
applies to everyone equally -- not a free handout or charitable
donation that people have to beg for and be ashamed of.
Under BIFT, everyone, regardless of income, would receive BI,
and everyone would pay FT.
would no longer divide society into two groups, because
your BI was greater that your FT, you would receive money
from the government.
your FT was greater than your BI, you would pay money to the
a bit like having solar cells on your roof. When the sun shines, you
send electricity to the grid and earn money. When it's dark and cloudy,
you take electricity from the grid and pay for it. The
transition between these two "states" is continuous and (in a fair
world) (and I know, this particular world is often not fair) you
receive as much for the electricity you give as you are charged for the
electricity you take.
the same rules would be applied in both cases and
transition from one group to the other would be completely continuous
with no category boundaries, irregularities, or special cases of any
end of tax deductions,
system, income earners pay tax on their income throughout the year. At
the end of the year, they submit a claim for a tax return. The final
amount of tax paid depends on this yearly statement.
benefit of flat tax (FT) is it can be collected
immediately and not at the end of the year. If in addition there are
no tax deductions, making the system simpler and more transparent, most
people would no longer need annual financial statements and tax
returns. Accountants would have less work to do.
would be no tax
deductions, no tax statements, and no tax returns for most people. All
This radical simplification is possible because both BI and FT
involve flat rates. It would no longer be necessary to wait until the
end of the year to calculate your tax. More often than that (probably
every month) there would be an electronic financial transaction between
each individual and the government. Those on low incomes would receive
money and those on high incomes would pay. The amount woudl be
calculated according to the above graph. Each transaction
closed and complete.
Many people find it hard to imagine a world without tax deductions. Let
People love tax deductions because they reduce their tax bill. The
trouble is, tax deductions also reduce the tax bill of the rich, and
the rich save much more. The
richer you are, the more you can pay accountants to dream up brilliant
tax deduction schemes. In
the end, tax
deductions mean that people with low or medium incomes pay
tax, not less.
The government has to get its income from somewhere. Tax deductions are
like a department store offering a 20% discount on items that
are 50% overpriced. From
tax deductions are a gigantic trick,
people seem to fall for it. It
would be easier to
reduce the tax rate and eliminate the deductions.
In a world without tax deductions, if you earned money, you would pay
Full stop. If you had
additional expenses as a result of your income-earning activities, or
if you invested in the development of your business, that would be your
and not the government's. If you needed extra money to invest in your
business, you would borrow from the bank, which is what banks are for.
Too good to be true? Too hard to implement?
Not really. Governments often change which expenses count as deductions
and which do not (more).
The solution is to phase out all tax deductions altogether over a
period of a few
years. That could be the same transition period during which BIFT is
Why am I interested in
my point will become clearer if I
add a bit of
I first became interested in the idea of combining BI with FT when I
was unemployed myself. In 1987, I finished writing my doctoral thesis
at the University of New England in Armidale NSW Australia. I then got
the chance to publish it as a book. But for that I needed another three
months to revise the thesis, taking into account the examiners' many
helpful suggestions. During that time I would have no income.
So I went to the local unemployment office and applied for the "dole".
There was a form to fill in. It asked me to declare all
which would be deducted from the handout. I did indeed have other
income: I was playing the piano in a restaurant and being paid in cash.
But there was no record of that income. I guess only the restaurant
manager and myself knew about it. Should I declare it or not?
Then I looked at the other people standing in line. They were being
asked the same question. The government was generously believing their
answers, but at the same time encouraging them to be dishonest about
their income. The system was also discouraging them to work. If an
honest person was offered a few hours work for cash in that situation,
s/he would be motivated not to accept the offer. How crazy is that?
The importance of encouraging honesty should not be underestimated. We
live in a world of lies and liars.Trumpism is the tip of an iceberg.
Dishonesty is paralyzing our political systems and our democracy. Take
for example the climate denial that is regularly published in the
Murdoch media (Newscorp). Climate denial is
the future survival of humanity. The same applies to international tax
evasion, and many other political problems. Most of our existential
human problems involve lying and dishonesty. We need to improve school
education in the general area of morality and ethics and to promote a
positive society based on personal trust, in which each individual's
personal dignity depends on her or his own honesty and reliability.
Back then in Armidale, I had been studying physics and doing a lot of
mathematical modeling and computer programming. With that in mind, the
solution was obvious: just take the current rather complex graph of net
income against gross income and draw a straight line through it ("line
of best fit", "regression line"). In other words: give everyone the
"dole" and tax all income at the same flat rate. Treat everyone equally
and close the unemployment office. Suddenly everyone would have enough
to live on, everyone would be motivated to work, and the government
would no longer encourage people to lie about their income. Bingo!
I also realised that BIFT is implicitly progressive, and realised how
important it is for people to understand two points: First, under BIFT
the more you earn the higher proportion of your income is paid in tax.
Second, the tax brackets of the present system encourage dishonesty.
Creative accounts use them to avoid tax by shifting income around. Tax
evasion is regressive, if people on higher incomes (the ones who can
afford good accountants) end up paying a smaller proportion of their
income in tax than people on lower incomes. The best way to ensure that
all income tax is paid in full is to make the tax rate flat.
Ever since then I have been trying to explain this idea to other people
-- mostly in vain. What could be more surprising than an idea that
hardly anyone understands -- although it would clearly benefit everyone
and the whole society. And the idea is so simple!
I started by publishing a short article in Nucleus,
the student newspaper of the University of New England. Later, I found
out that the idea of negative
income tax had been around for
decades, but for some reason no-one
had managed to introduce it and there was almost no discussion about
it. It's a bit like global warming -- in the 1980s, as now, it was the
most important thing I should have learned about in my physics
training, but to my knowledge none of my teachers ever mentioned it.
It should be clear by now that BIFT is a left-wing idea. It would
eliminate poverty and poverty traps. The rich would pay the bill, but
the rich would also benefit from a more productive, dynamic society.
Many conservatives would like BIFT, even if it forced them to
pay a bit more tax. BIFT would be fairer than the current system,
taking some of the guilt out of being rich. BIFT would also reduce the
size of government. Unemployment and tax offices would be
smaller, which would save the government a lot of money. Most
interestingly, BIFT would motivate the unemployed to work more than the
present system does,
by eliminating poverty traps. Conservative dreams would come true.
All the same, some left-wingers throw up their arms in
horror. There are two main left-wing objections, and both are based on
- Why give BI to
the rich? First,
because under BIFT the rich would pay more in extra tax than
the BI, so at the end of the day their disposable income would be
less than it is now. For them, BI would be the only remaining
tax deduction, just as for most low-income earners BI would be the only
remaining benefit. All other tax deductions and most other benefits
would be history. Second, BIFT would eliminate means testing, which in
the current system
is applied to the unemployed as a prerequisite for unemployment
benefit. Means testing stigmatizes unemployment and infringes the right
right-wing readers will also object to BIFT; but for
entirely different reasons.
- Why propose a flat income
tax? FT is a
right-wing idea! We need progressive tax scales - not FT!
But that is exactly my point. I am equally horrified
by the idea of FT when presented in isolation. But when FT is combined
with BI, the combination becomes progressive, as the above list of
examples illustrates. BIFT increases the income of people on low
incomes and reduces that of people on high incomes. That is what
progressivity is about, but BIFT does it more consistently than the
current system. In
this way, BIFT has the
potential to eliminate poverty for the first time
We urgently need
truly progressive taxation to eliminate poverty, improve the lives of
people on low incomes (the "working poor"), improve gender equality,
and reduce the wealth gap.
- We can't afford it. What
mean by that is they don't want to pay their fair share according to a
fair and transparent system. They prefer to keep the present system
that is tricking people into believing it is progressive when in fact
it is causing the gap between rich and poor to get steadily bigger.
They would prefer to keep a complex system that almost no-one
understands except their smart accountants, who are constantly ripping
us off in the background.
we afford it?
- No-one will
want to work again if you give them a BI. Quite
the opposite is
the case. At the moment people on welfare don't want to work because if
they do their welfare will be cut. Under BIFT, BI would be a legal
right and would never be cut, so everyone would be motivated to work
more, to increase their income. This luxury, which is currently enjoyed
only by people with a good job, would suddenly become available to the
unemployed, motivating them to work like never before -- but also
giving them the freedom not to work, without constant interference from
the unemployment offices.
Indeed. Since political conservatives like this question so much, let
me get to the point. The question is
not whether we can afford BIFT. The
question is whether we can afford the current system.
First, BIFT is not about giving people a new handout. It is about
fundamentally restructuring the entire tax-welfare system. It is about
drawing a line of best fit (a regression line) through an existing
current complex relationship between income before and after
tax/welfare, as it
exists in different
modern democratic-capitalist economies.
The handouts exist
already and they will not disappear. But the ways in which handouts are
calculated and interact with each other and with taxation are urgently
in need of repair.
Second, the present system is enormously inefficient. The
and tax systems of modern democracies both have massively expensive
welfare systems still feature poverty traps that encourage the
unemployed NOT to accept offers of employment. It is often better for
them to stay on welfare than to accept an offer! Imagine
how many billions of dollars this built-in disincentive is costing
taxation is not working. Big corporations and billionnaires are not
paying their fair share of tax. They are successfully and
legally playing games with taxation laws. Again,
this practice is
costing governments untold billions. The
games could be
avoided if the system were simpler.
and individuals are spending enormous amounts of money on
bureacrats and accountants. These experts are needed to
and manipulate complex tax and welfare systems. Their skills could be
put to better use.
of this kind can be addressed by fundamentally restructuring and
simplifying tax-welfare systems. At the same time, other social,
economic, political, and ethical goals can be achieved. The idea behind
the graph (a straight line that does not go through the origin)
is flexible enough to allow for a wide range of solutions:
whole global economic system is unstable and
barely resilient in the face of future crises.
The economic problems of 2008 have been solved only in part.
New existential challenges such as global climate change are
question at the start is not which of these options we want. The
question is whether we have the courage to fundamentally reform the
system, to allow future politicians, economists, and the general public
to choose freely between options of this kind in an open democratic
process. The optimal solution for everybody (the utilitarian goal of
the greatest good for the greatest number) is in any case somewhere
near the middle, in between the above four options.
BI and/or higher FT (to approach communism)
BI and/or lower FT (to approach laissez-faire capitalism)
BI and/or higher FT (to eliminate government deficit or increase
BI and/or lower FT (to reduce surplus or increase deficit)
would be cheaper than the current
system in a broad
perspective, and it would motivate people to work more than the current
system. By improving transparency and reducing the wealth gap, it would
facilitate the transition to a sustainable future economy. It is not
possible to check these claims empirically in advance, although
economic models could make interesting predictions. A more reliable
option is to accept the clear arguments in favor of BIFT and introduce
it on a large scale during a transition period of a few years,
carefully monitoring how things develop.
adjustment of BIFT
values of BI and FT would be determined
by a democratic
Politicians on the left would try to increase both, while
politicians on the right would try to reduce both.
Because BIFT is so simple, it would be easy to predict the consequences
of such changes, so people would really understand what they were
voting for. People
privilege of a good education would no longer be
tricked into voting conservative by privately owned media. They
could make informed decisions
and act in their self-interest.
Regardless of the outcome of such a process, BIFT would be a victory
for the left. It would eliminate poverty if BI was high enough (I mean
actually gone -- can you imagine that?) and reduce the gap between rich
and poor if FT was high enough.
Speaking of democracy, imagine a situation where BIFT is already in
force. Some people look at the straight line in the graph and start
thinking about bending it. The following arguments suggest that they
would never succeed in doing that. Instead, they would learn the
virtues of keeping the line straight. Here is how it might happen:
left might argue that the marginal tax rate should increase as income
increases. Economists would then point out that BIFT is
inherently progressive, and that progressivity can be increased or
decreased simply by adjusting BI and FT. Instead of bending the line,
why not increase both BI and FT for everyone? It would have a similar
another way: life becomes much simpler when the line on the graph is
kept straight by law, which prevents such misleading discussions from
even starting. The only real question is how to set the two parameters
BI and FT.
the right might argue that the marginal tax rate should decrease as
income increases. After all, they might claim, if the rich have to pay
50% in income tax, it will reduce competitivity or cause capital flight
-- the usual misleading arguments. In reply, one could suggest
decreasing both BI and FT, which would have a similar effect. But that
would probably be bad for the majority of people, so the majority would
vote against it.
BIFT is not
To avoid inevitable misunderstandings, allow me to emphasize what BIFT
is not, before continuing:
- BIFT is
not about expensive government handouts (BI). On the
contrary, BIFT supersedes the idea of "handouts"! BI would be a right
and not a
current system has been tacked together by generations of politicians
trying to win elections. In order to attract a particular group of
voters, politicians try to do them a visible financial favor. Often, it
is not a favor at all, because it interacts with other influences
on income. There is no such thing as a free lunch, as they
many such elections, the result is a mess.
not about ending progressive tax scales. On the contrary, the
combination of BI and FT illustrated in the graph is inherently
progressive. Unlike the present system, the progressivity of BIFT would
actually work. It would actually reduce the gap between rich and poor,
as I will explain below.
BIFT would clean up the mess by making this familiar
election trick impossible or illegal. The government would be required
by law to treat different groups of people equally (that is, according
to the same simple mathematical principles) when calculating welfare
and tax. There would be a few well-defined exceptions: for example,
capable of earning money due to a disability would get more BI or pay
less tax or both. In this way, BIFT would explicitly avoid
arbitrary discrimination or special treatment.
The paradox of simplicity
BIFT is often misunderstood, as if people didn't want to solve
problems. That is a very strange phenomenon and I wish I understood it
better. For the moment, let me clarify two points:
many people refuse to believe that a system of welfare and taxation
could be either simple or fair, let alone both at the same time. It's
are so used to the
current complicated system that we have lost the ability to
appreciate the benefits of simplicity and clarity. We have forgotten
what it is like to actually understand how the system works. We are so
used to politicians and economists trying to trick people or rip them
off that we expect every economic reform proposal to be a trick or a
ripoff. Because in truth, most of them are.
is a very simple
idea. It is
very easy to understand.
is inherently fair.
To my knowledge, there
cannot possibly be anything unfair about it.
For a change, BIFT is not a trick. It is too simple for that. Its power
lies in its simplicity. So please trust me long enough to read another
couple of pages below before making a judgment or surfing elsewhere.
Nor is BIFT politically left or right. It is politically neutral. It
is a new foundation for productive, fair collaboration between
left and right. Whereas the most immediate benefits would be felt on
the left as poverty was effectively eliminated, the right would also
benefit from improved long-term financial stability.
In case you suspect a conflict of interest, which is always possible in
any text of any kind about money, I should clarify that I, the author
of this text, have
only one thing to gain from this idea being more widely understood, and
that is the satisfaction of living in a saner world. Spreading
sanity can be a very satisfying activity! At least I think it can be.
I haven't done the calculations, but I guess that BIFT would increase
my annual income tax bill a little (after subtracting the new BI). My
take-home pay, averaged over the year, would be less. That is
surely a small price to pay for the satisfaction of seeing poverty
eliminated and living in a fairer, more democratic society.
What is the right level of
Some have proposed a BI of more than €1000/month.
I have seen proposals
for €1200, €1700
It's not a good
will only happen with majority political support. We have to
practically about what both conservatives and progressives might
consider a reasonable amount.
It's unlikely that a
political majority will approve of more than €1000/month.
will eliminate poverty if it corresponds approximately to the poverty
line -- usually estimated at €1000/month
would cover basic
needs, eliminating poverty for the first time in history. What an
Further arguments for BI
system should motivate people on low incomes to work without forcing
them to work. Motivate without
forcing is an important
economic and ethical principle. "Work"
includes trying out new part-time opportunities or creating new
employment. The higher the BI, the lower the motivation. Some lefties
seem to be in denial about that, just as some right-wingers are in
denial about the importance of eliminating poverty.
There are so many good arguments, it's hard to know where to begin.
Politics needs visions. Without
visions we would never have achieved democracy, the end of slavery,
women's rights, or the separation of church and state.
a world of individual freedom, human rights, and equal
opportunity. A world in which these ideals were not only talked about
but actually achieved, for everyone -- regardless of cultural
background, gender, age, disability and so on. What would that
world be like?
value of actions. Money is
supposed to reflect value, and capitalism is supposed to value actions
(good ideas, hard work) that benefit society. The system doesn't work
very well: a lawyer may earn ten times what a nurse earns, but only
nurses save lives. A CEO may "earn" a thousand times more than a worker
in the same company and amass a million times more wealth. In such
cases, the "invisible
hand" of the
free market fails spectacularly.
capitalism can be improved by adapting and regulating it. At the very
least we should avoid poverty, the worst economic consequence.
the current system, employers sometimes complain that they can't find
people to fill jobs, although there are plenty of unemployed. Those
employers need to understand the free market. If you can't find someone
to do a particular job, you have to either look harder or or offer a
higher wage. When you finally find someone, the wage you are offering
is an estimate of the current value of that work.
value of people.
Imagine a world in which, in addition to the value of actions,
every person is valued, regardless of his or her actions. A world in
which the equal, inherent, and inalienable value of every person is
recognized in national constitutions as the ultimate foundation of
national and international politics.
privilege more equally. Many
of those who oppose BI have been receiving a kind of BI all their
lives: the privilege of being born into the middle or rich class in a
rich country and going to a good school. That is surely the main reason
why some people enjoy wealth and success and others get stuck in a
cycle of poverty and failure. BI would be a big step toward equality of
opportunity, which many consider to be the foundation of capitalism.
resources are often taken without replacement and traded on markets.
Wealth of this kind should be distributed equally as BI. A
good example is fossil fuels. CEOs of big oil, coal and gas companies
get ridiculously rich from natural resources that did not originally
belong to them. Depending on your political or legal philosophy, fossil
fuels "belong" to either everyone equally, no-one at all, or
indigenous landowners. Fossil fuels also cause environmental damage
that will cost future generations trillions in storms, crop failures,
water shortages, and coastal flooding.
value = BI.
a world in which the inherent value of each person is not just an empty
phrase but something that is actually implemented. A world in which
everyone, regardless of their independent income from different
sources, receives an
unconditional BI corresponding approximately to the poverty line in
country of residence -- automatically, no questions asked. (The exact
value of BI would not be determined by the poverty line, for which
different definitions exist, but by a political process, explained
with disabilities would get more than the standard rate, whereas children
and non-nationals would get less. But most people in a given country
would get the same standard amount.
about the "working
poor"? There would
no longer be any
"working poor". The BI would avoid poverty even for the completely
unemployed. Beyond that everyone would be free to work as little or as
they could or wanted and keep about half of their earnings.
goodbye to welfare traps! In
benefits are cut when people find jobs. So it's often not worthwhile to
take a poorly-paid part-time job. But a poorly-paid part-time
often all the capitalist economy can offer the unemployed. The
result is well-known, because we are surrounded by it: chronic
long-term unemployment, psychological depression, inter-class conflict,
and the political far right. The
welfare trap is one
of our most serious problems. In fact, it is
strangling our society. Countless people are stuck inside this trap. No
wonder they are frustrated. Eliminating the welfare trap is one of the
great challenges, and BIFT would achieve it.
give BI to
For many, this is a stumbling block. But there is an easy answer. WIth
BIFT the rich will have less net income than the have now. It makes no
sense to consider BI by itself without simultaeously considering FT:
benefits create a
Someone has to decide who gets the benefits and who doesn't. That
involves applying arbitrary criteria and snooping into people's private
lives. Unemployment offices all over the world employ countless people
to carry out this unnecessary and degrading work. It's time to stop
treating the unemployed as second-class citizens.
The solution is to
give everyone BI and ensure the rich pay their taxes, by
simplifying the system and making it more transparent. In the end, the
rich will have less money and
low-income earners will have more security.
last: A fair income tax system
By "fair" I essentially mean
treating everyone equally.
end to tax evasion and tax
avoidance. Everyone has to
pay a fair amount of tax. Imagine a
which that included the rich. As
soon as anyone earned money, a percentage (flat rate) would go to the
government. As soon as your wealth increased, or the wealth of the
company that you own, a percentage of the increase (flat rate) would go
to the government. Straight away, or as soon as conveniently possible.
Law and order.
worry about welfare fraud. Of course it exists. But
tax evasion is a much bigger problem, especially when you think of
global tax havens. If welfare fraud costs millions, tax evasion costs
billions. BIFT would reduce welfare fraud by
putting everyone on
welfare, and it would save much more by reducing tax avoidance.
would reduce the wealth gap, but not enough. We also need additional
taxes on wealth, environmental damage, and
international transactions. Like BI and FT, these would be applied by
simple rules that are the same for everyone. But the present proposal
would work even
those extra taxes.
Realising human rights
Freedom from poverty is
included in the Universal
Declaration of Human Rights. The trouble is, no country in the world is
actually implementing this agreement, because no country in the world
has an unconditional BI. That is a pretty bad track record for humanity
in the early 21st Century. We had better get a move on.
According to Article 25 of the
of Human Rights,
the right to a standard of living adequate for the health and
well-being of himself and of his family, including food, clothing,
housing and medical care and necessary social services, and the right
to security in the event of unemployment, sickness, disability,
widowhood, old age or other lack of livelihood in circumstances beyond
Motherhood and childhood are entitled to special care and assistance.
All children, whether born in or out of wedlock, shall enjoy the same
These things can be guaranteed with a universal BI. Whether
they can be guaranteed any other way is a good question. Many countries
are trying to solve these problems by conventional welfare payments,
but data on poverty rates suggest that not many are succeeding. When
bureacrats try to evaluate countless individual cases, their work is
expensive, their success is limited, and they constantly infringe the
right to privacy of their clients. Article 12 of the Universal
Declaration of Human Rights provides that
12. No one
shall be subjected to arbitrary interference with his privacy, family,
home or correspondence, nor to attacks upon his honour and reputation.
Everyone has the right to the protection of the law against such
interference or attacks.
Unemployment offices are infringing this right all the time! They
believe that they have no choice but to pry into people's
lives, in order to guarantee that the welfare system is fairly
administered. This is not true. It
is fairer, more
efficient, and more respectful -- all three of these things -- to give
everyone a BI (flat rate) and tax all other income
In short: BIFT would allow economic rights that are guaranteed in the
Universal Declaration of Human Rights to be actually achieved
the first time.
a radically simplified tax-welfare system that makes it harder for the
rich to avoid
or evade tax. For an individual rich person, the difference between tax
paid before and after
introducing the new system would be bigger than
the BI that everyone receives. At the end of the day, the
rich would have a little less
money (relative to what they have now) and the poor (or those that used
to be poor) would have a lot
more money (relative to what they have now).
is a lot of money in the world. There
were 1,810 dollar
billionaires on the 2016 Forbes list, 89% of whom were men. They
altogether owned $6.5 trillion – as much as the
of humanity (more).
this money was distributed equally among
world's population, each woman, man and child would get $1000.
That's enough to live on for more than a year above a
This example shows that there is now enough money in the world to
eliminate poverty everywhere, by redistributing part of the
of the rich. It would not be necessary to redistribute all of their
wealth. The rich would stay rich and there would still be a big gap
between the rich and the not so rich.
How could governments get hold of this money? It's not as hard as many
people think. The government just has to change the law. By
introducing or increasing wealth
By harmonizing wealth taxes internationally to prevent capital flight.
By simplifying the law both within and between countries to reduce
opportunities to evade or avoid tax. By improving international
agreements to suppress tax havens. All of these things are possible if
politicians have a clear approach that voters can understand.
That makes eliminating poverty a realistic, win-win
proposition. It is no longer a dangerous
So why don't we go ahead and do it?
Of course, the rich (with some refreshing exceptions) would try to
block such a development. But that's not the only problem.
is another big obstacle, it seems. The
rest of us find it hard to imagine a world without poverty, because it
never happened before.
a different world
Can you imagine
the grim predictions of climate science actually coming true? Most
people can't, because they are unprecedented. That is why so little is
being done to prevent a future
global climate catastrophe.
Going back in time, it was hard to imagine
the French revolution before it happened, or the vote for women, or the
universal declaration of human rights. But today, after these important
historical developments, we take them for granted and consider them
essential. We have no intention of going back to a world without
freedom, equality, and solidarity, or without equal rights for women,
or without human rights.
Now, imagine a world in which we take
it for grantedthat
poverty has been eliminated and will never come back. The real
possibility of introducing a universal BI means that a
world of that kind is now possible. So there is no longer any
particular reason why we should not
decide to achieve it.
It could merely be a matter of attitude! Imagine
the global environmental
Economies have always needed natural resources, and natural resources
have always been limited. "Economic growth" is traditionally presented
as something positive, but today it may be the biggest force driving
In rich countries, we have passed the limit of ecological
sustainability. To get back on track, we need a sustainable economy
with zero or negative economic growth. Poorer countries still need
economic growth, but the growth must be environmentally sustainable.
BIFT would move the economy in the
direction of a new ecological balance, in
two ways. First, it would eliminate the existential necessity of work.
BIFT, work and its benefits would become voluntary. Second, it would
the incentive to work more equally across socio-economic classes.
Both of these features mean that BIFT would be fairer than the current
system. Everyone would be treated equally. Low income earners could
survive without working, but working would always improve their quality
and enable them to transition to different socio-economic levels. High
income earners would pay more tax, but they would still be
financially rewarded for their
work or success.
poverty in poorer and
Many people think that only rich countries can afford BI.
Not true. Every country has its own tax/welfare system and its own
graph of income after tax/welfare against income
Even without wealth taxes, BI can be financed by converting that graph
to a straight line
-- a "line of best fit" or a "regression line" that balances
budget. The point where the line crosses the vertical axis would be the
BI. This process could happen in any country, because the existing
relationship between income before and after tax/welfare in
countries is already
surprisingly close to that straight line. To finance a BI,
could also get additional revenue from wealth, transaction, or
especially if there were international agreements to introduce,
gradually increase those taxes.
would differ a lot from country to
introducing BI in different countries could help reduce the
According to the World Bank, the poverty line in poorer countries is
$1.90 per day or $60 per month. But in the USA,
the poverty line is about $1000 per month, according to the Census
Bureau. In Europe, when the poverty line is defined as 60% of median
income, it is about €1000
can make capitalism
In a market-based economy characteristed by long-term unemployment, a
BI that corresponds roughly to the
line is the only reliable way to eliminate poverty. In a
free market, there are always winners and losers, so there
is always unemployment. Governments need to ensure that
can participate in the market and human rights are respected.
the only reliable solution to this problem.
That's why, in the board game of Monopoly,
every player, rich or poor, gets a
BI of $200,
every time the player passes "go". Without that BI, you
play Monopoly. Of
course, capitalism is only sustainable if monopolies are prevented by
democratic and legal mechanisms, but that is a different issue (more).
Equality of opportunity can only be guaranteed if
governments give everyone (regardless of other wealth or income) an
amount corresponding to the poverty line, on the condition that in
return everyone (regardless of wealth or income) gives back a certain
proportion of all wealth and a certain proportion of all income. That's
a fair deal for everyone, regardless of differences in wealth in income.
BI is consistent with human rights. It not only treats
everyone equally and with dignity, regardless of wealth or income -- it
also controls and reduces
the gap between rich and poor. The rising
wealth gap is one of the world's most pressing problems, and BI could
be part of the solution; we also need new wealth,
transaction and environment taxes.
BI could help humanity address the challenge of climate
change. Climate today's biggest issue, because everything depends on
it. Many people regard climate change as a consequence of capitalism.
Capitalism created climate change and is preventing solutions;
therefore, we need to throw it out. Or so the logic goes. But
capitalism could only be ended violently, and the result is unlikely to
be democratic. We need a more moderate solution that maintains a
reasonable level of democracy (better than what we have now).
Capitalism needs to be tamed and brought under democratic control. BI
is a promising way to achieve that.
poverty and climate change at
the same time
fee and dividend (CF&D)
to reducing carbon emissions is to tax carbon (or charge a "fee", for
those who are allergic to the word "tax") and give the entire proceeds
back to the general population, divided equally ("dividend"). That way,
everyone could afford the tax (there would be no French yellow
vest effect). In fact, people on low incomes would generally be better
The carbon fee would also apply to imported goods that have not already
been carbon-taxed, which would put other countries under pressure to
adopt a similar system. Both fee and dividend would be introduced
idea is nicely
explained by Californian entrepreneur Dan Miller (Roda group) in a Ted talk.
is the same as BIFT (introduced below) with one exception: it taxes
carbon rather than income. The rate of tax is flat in both cases. If
the two ideas co-existed, income tax could be reduced by increasing
carbon tax and vice-versa. In that way, could CF&D
stepping stone toward a simpler, fairer, more motivating tax-welfare
system that eliminates poverty.
In both cases, the rich will resist, because in both cases they would
pay more than they receive and it would be harder for them to play
their usual tricks with legal loopholes. But if more people vote on the
left-green side of politics such reforms are possible.
good or bad?
what would happen if BI was financed with FT.
Everyone would receive a BI and everyone would pay the same
rate of tax on all additional income. Poverty would be eliminated and
the gap between rich and poor would be reduced.
has an important advantage: simplicity.
Everyone has to
pay it, including the rich. It's hard to evade or avoid a FT by
tricking the taxation office, as the accountants of rich people are
wont to do.
FT has a bad reputation. Many rich selfish right-wingers don't
like paying high rates of tax. They think the solution is for everyone
to pay the same relatively low rate of tax on all income. Many of those
also want to reduce or eliminate welfare payments. Both proposals
are a recipe for disaster.
those right-wingers are
not talking about
combining FT with BI, which is an entirely different
Imagine what would happen if
everyone got the same
BI and paid the same rate of income tax. The
same proportion of all the money that anyone earned would go back to
the government to finance the BI and other government
A glass that is half empty is also half full. No matter how little or
how much people earned, everyone would keep the same proportion of
their earnings. That is not the case today. Today, if you are on
welfare and get a part-time job, you may end up with the roughly same
amount of money, as if all the work was for nothing! You may therefore
decide not to take the job! This frustrating situation is called a
When people complain that welfare recipients are lazy, they are
misunderstanding their situation. Welfare recipients may be unlucky,
but they are not lazy. It's the system that is making them
lazy by motivating them to stay on welfare and not to work. If the
system motivated people to work, unemployment offices would
progressive income tax
We are told that our taxation system is progressive. The more money you
earn, the higher the proportion you pay in tax. The trouble is, the
system is not working. It is not eliminating poverty and it is not
reducing the wealth gap between rich and poor.
has an important advantage for governments: it is hard to evade or
avoid. Every time you buy something, you have to pay it. FT has a
similar advantage: every time you earn money, however you do that, you
have to pay the tax.
system is too
complex, which makes it too easy for the rich with their smart
accountants to evade tax.
are getting a lot of
income from consumption taxes (value-added tax, VAT) which are
regressive: the poor pay a higher proportion of their income in VAT
than the rich. Income tax may be progressive if people actually paid
it, but the combination of progressive income tax and VAT is not.
solution is to combine these two forms
of FT (flat
income tax and value-added tax) with a universal,
unconditional BI. If
BI is high enough (e.g.,
if it approaches the poverty line), the combination
and FT is progressive, and the
combination of BI and VAT
is progressive. In both cases, if your income is low you receive money
from the government, and if your income is high you give to the
government. Unlike the present system, the transition between these two
states is entirely smooth and continuous. In general, the more
money you earn, the higher the proportion you pay in tax.
BIFT is based on two numbers. Possible values for a European country
FT = 50%. Both
arbitrary and would be adjusted in
a democratic political process. It might be possible to eliminate
poverty if both were lower (e.g. €800
and 40%), because this approach would benefit unemployed
supplement their income with casual work. But
let's go with €1000/month
purpose of argument.
Here is what would happen:
would be a "break-even point" where your income before BIFT is the same
as your income after BIFT. Using these parameters, the break-even point
would be €2000/month.
was your income, you would
in income tax
the same amount
back as .
income before BIFT was less than €2000,
after BIFT would be
more than your income before BIFT. You would effectively be a welfare
income before BIFT was more than €2000,
your income after BIFT would be
less than your income after BIFT. You would effectively be a
transition between "welfare
recipient" and "taxpayer" would be completely smooth with no hiccups.
Regardless of your income, if you earned more, you would take home
more. There would be no demotivating, demoralizing "welfare
traps". Benefits would not be means tested and would therefore never be
cut. In fact, everyone would be treated equally. The system would not
distinguish between the employed and the unemployed. The stigmatisation
of unemployment would disappear.
would be effectively
effective tax rate would increase with
income. Under €2000/month,
would effectively pay no tax. As income increased beyond €2000,
the effective tax rate would gradually increase.
high incomes, BI would be small relative to income, and the effective
tax rate would approach 50%.
FT be progressive?
tax system is progressive if the proportion of your income that you pay
in tax increases as your income increases. It is regressive if the
proportion decreases as your income increases. Currently in many
countries (e.g., the USA), the system is nominally progressive but
effectively regressive. Nominally, the income tax rate increases with
increasing income. In reality, the rich can evade or avoid a lot of
tax, so the tax rate effectively falls as income increases.
In such arguments, we also need to consider welfare payments. Tax and
welfare should be combined together, and we should consider the
progressivity of the whole system. A
tax-welfare system is only progressive for a given individual if the
sum of all
welfare for that individual minus the sum of all tax for that
individual is progressive relative to income. As
one supermarket chain once advertised: it's the total
of the tape that counts.
income tax (FT) is nominally neutral
with regard to
progressivity. It is a simple system with no thresholds and no
income tax brackets. No
matter how much you
earn, you pay the same proportion of
your income in tax. The trouble is, in untamed capitalism, of which FT
is a part, the gap between rich and poor naturally increases.
The traditional solution is to make
income tax explicitly
progressive. In most countries today, if your income is low,
no tax. When you income passes a certain threshold you start
paying tax, at a low rate. When your income passes a second
threshold, you start paying a higher rate, but only for income
beyond the last threshold. The intervals between the thresholds are
called income tax brackets. "Progressive"
means that when you earn more money, you
pay a greater proportion of your income in tax.
But there is a much easier and more effective way to make income tax
progressive, and hardly anyone is talking about it. That is
FT with BI. The combination is inherently progressive. Those on low
incomes receive money from the government. Those on high incomes pay
tax to the government. Unlike the current system, the transition
between these two states is absolutely continuous, which makes it
Here is how progressivity would work under BIFT. If your income was low
and you were effectively receiving welfare, your tax would be
effectively negative. As your income grew, your negative tax would
gradually decrease until it hit zero. This is the break-even point
where BI and FT
are equal. In the graph, it happens when your income before tax
and welfare is €2000/month.
As your income continued to increase, the effective tax rate would
gradually increase until it approached 50% for very high incomes.
In this way, a combination of BI and FT is
more you earn, the more
income tax you pay relative to
your income, effectively. That
is not a political claim, nor is it a trick. It is a mathematical
truth. Moreover, BIFT is not sometimes progressive and sometimes not.
always inherently and
provided BI corresponds roughly to the poverty line, below
people are regarded as "poor". BIFT
progressive even for the lowest plausible estimates of the poverty line
in any country, rich or poor.
BI fans imagine combining it with
progressive taxation, with different rates in different brackets. The
trouble with that idea is its complexity. A
complex system discriminates against low-income earners
you need a tax consultant to understand it. A complex system invites
tax consultants to find ways to avoid tax. To eliminate this form
of discrimination, we need a simple, transparent system.
Imagine a world in which BIFT is already implemented. The left
wants to make the system more progressive. There are two ways
do that: increase BI, which automatically makes the system more
progressive, or bring back traditional income tax brackets. The best
choice is to increase BI, because it keeps the system as
and transparent as possible. It does not create opportunities for the
rich to evade or avoid tax by accounting tricks, or to pull the wool
over voters' eyes by discussing a complex system in a misleading way.
The political left needs to learn an important lesson. Poverty will
only be sustainably alleviated, and the wealth gap sustainably reduced,
when the left starts to promote the idea of systemic simplicity and
financial transparency as a means of alleviating poverty and creating a
is particularly true today, in the
midst of the 4th
industrial revolution -- the
"smart" automation of industry and manufacture. The solution is not economic
growth -- we have already passed
the planet's resource limits --
but a new tax-welfare structure.
The regressivity of VAT
is tax on everyday
purchases such as clothes and food.
inherently regressive: the more you earn, the less you pay
in VAT relative to your income. That's
with less money spend a larger
proportion of their income on items that are subject to VAT: food,
clothes and so on.
People with more money spend a smaller proportion of their income on
those things. VAT hits the poor harder than it hits the rich.
But that is not all. In most countries, the
regressivity of VAT approximately cancels out the progressivity of
income tax, so in
the end people are effectively paying FT. Regardless of
income, roughly 40% of it ends up going to the
government by different routes. The details vary from one country to
the next, but the general trend is the same.
to drive that point home: FT is not
It is already here,
in many countries. It has
been created by combining progressive
tax with regressive VAT. No wonder the wealth gap is
problem can be solved doing either or
(better) both of
myths about BI
VAT on everyday consumption
regular groceries: vegetables, bread, milk and so on), but keep it for
and services that are luxuries
or environmentally damaging (e.g. expensive cars)
VAT with BI: the combination is progressive, just as the combination of
BI and FT is progressive.
have been talking
for a long time, but it still isn't happening. A possible reason is
The rich and their sidekicks are spreading rumours. We need a reality
1. Can we afford BI?
Misleading question. It is the
current system that is too expensive,
first because it is too complicated (necessitating a giant bureacracy
to administer both welfare and tax), and second because it makes it too
easy for the rich
to avoid or evade tax (after which the government cannot afford social
services). In fact, any
country, rich or poor, can afford BI. It's just a matter of
line of best fit through the current relationship between income before
and after tax/welfare on the above graph. The
two parameters, BI
and FT, need to be adjusted in a
political process, making sure government expenditures are covered by
government income. The
question is rather: How do we want to set those two values? People on
the right wing will prefer relatively low BI and low FT; on the left,
high BI and high FT. In both cases, the budget can be balanced. Of
course other taxes will be necessary (environmental, transaction,
wealth), but they can be considered separately.
Won't BI make people lazy? Another
misleading question. It is the
current system that is making people lazy!
Currently, if you have no income, you get welfare. If you then get a
part-time job, your welfare is cut. So it's not worth working! This
called the welfare trap. BIFT removes the welfare trap forever by
giving BI to everyone and taxing all income at the same rate. So no
matter how much income you have -- if you work more, you take home
more. In other words, if your income before BIFT increases, your income
after BIFT increases, as shown by the ascending line on the graph.
People have been conducting experiments to find out
people lazy (e.g. in Finland).
The people behind those experiments should learn something about
formulating experimental hypotheses and creating experimental
designs. Regarding hypotheses, it is the present system that is making
lazy. Really! There's nothing more demotivating than welfare
hypothesis is therefore that BI will
make people less
lazy. That's what we want to find out! But laziness is not necessarily
the main point. Of course there is work to
be done and of course BIFT motivates people to work. But what we really
want from a modern economic reform is globally sustainable social
well-being. There is one thing that all BI-experiments show: people are
happier if their existential fears are removed and their freedom
design, you can't perform a controlled
experiment that compares the current system with if the
participants are simultaneously living in both systems. The
confounds are large and impossible to avoid. The only way to test BI is
to introduce it.
It's obvious that the world needs BIFT. Once you understand how it
works (and nothing could be simpler), it is difficult to imagine what
other system could possibly be better. That may sound arrogant, but I
have been struggling with this question for many years. At some point,
one has to draw conclusions and consider the implications.
disadvantages of BIFT
None are currently known. Please write to the author if you know of any
Some economists have claimed that BIFT would be too expensive. What
they mean is the rich would have to pay a bit more tax. That is
certainly not a disadvantage.
There is surprisingly little economic literature on BIFT. Many experts
in public economics must have considered it -- the benefits, after all,
are obvious. But the few who write about it avoid
benefits and instead tend to
reasons why it should not be introduced. Either that or they exaggerate
the problems relative to the benefits. At the end, they
short of recommending it.
reason is presumably that the rich don't
like BIFT. It's
It treats everyone equally! The rich prefer the
giving them a free ride. BIFT exposes this gigantic trick. No
wonder it's unpopular.
The present system claims to give special
treatment to the poor: welfare payments and progressive tax scales. But
the present system also gives special treatment to the rich, and at the
end of the day the rich gain much more than the poor. The rich are
hiding their money in tax havens and taking advantage of tax
deductions, hedge funds, black-box charities, donor-advised funds with
huge tax benefits ("philanthropic fracking"), and other accounting
tricks and neoliberal fraud. That is why we still have chronic poverty
and a wide and widening wealth gap. The rich would like to keep things
which is one way of defining "conservative".
The solution is to radically simplify the system, making it more
transparent so that tricks of this kind are no longer possible. As an
example of such simplification, BIFT should be an important part of
are economists so reluctant to talk
about BIFT? I am not
an economist, so I can only guess the reason. If you are an
economist in mid-career, you are
looking for a permanent position. You know you will only get one if you
publish material that is acceptable to the rich. That is an unwritten
rule in general, but especially in the academic discipline of
economics. If you have ever noticed a certain
political conservatism among professors and leading journals of
economics, that could be the reason.
Seen from this perspective, the discipline of economics may be even
more distorted and corrupted than other academic disciplines. It's not
the fault of individual
economists, many of whom are brilliant mathematicians and sociologists.
It's because economics is about money, which everyone wants. Beyond
that, there are everyday existential reasons. Like everyone else,
an income to feed their families and pay their mortgages, so they have
to be careful what they say. There are limits to what you can
reasonably talk about, and successful economists know intuitively
where those limits lie.
From this perspective it may be interesting to compare the discipline
of economics with the global community of climate deniers. For decades,
professional deniers have been creating and propagating misleading
theories about climate change, with the aim of preventing urgently
necessary climate action. Behind the global climate denial movement are
massive financial interests. There are similarly massive financial
interests behind the discipline of economics, and they stand in the way
of any attempt to make tax more
fair and transparent, or to expose what is really going on when
governments demand tax from the rich.
So it is no surprise that some economic studies of BIFT have
concluded there is something wrong with it, or it needs
further investigation before it can be taken seriously or implemented.
Many claim that BIFT would be "too expensive" without considering the
extraordinary inefficiency of the current system. The current system is
not only enormously expensive, it is also contributing to
self-destruction by climate change, because significant emissions
reductions will only be possible if people can pay high carbon taxes.
For that to work, we need to eliminate poverty first.
Here are a few articles that I found about BIFT and some brief
comments. Articles in which BI is (somewhat misleadingly) called
"negative income tax" are not listed.
The author of this book evidently believes in BIFT, otherwise he would
not have written a book about it. But he claims to be neither
or against BIFT, and merely suggests that it should be seriously
investigated, knowing full well that it won't.
A. B. (1996). Public economics in action: the basic
income/flat tax proposal. OUP.
The authors find that "to ensure that no current social security
beneficiaries become worse off under such a system would either be very
expensive to introduce or require a tax rate that is likely to be
unacceptably high". By "very expensive" I guess they mean that the rich
have to pay fair levels of tax according to a transparent system,
following the same rules as everyone else.
P., Johnson, D., Scutella, R., Beer, G., & Harding, A.
(1998). Towards a negative income tax system for Australia. Australian
Economic Review, 31(3), 237-257.
This author genuinely believes in BIFT and may have taken some risks by
proposing it directly. In his paper he focuses on some of the real
benefits. He points out that "in New Zealand at least, a de facto BIFT
tax-benefit regime already exists, and that therefore there need be no
significant transitional redistributions arising from a formal adoption
of a Basic Income Flat Tax structure". The same could be said for many
K. (2011, June). Basic income flat tax and public property
rights. Proceedings of the 2011 Conference of the New Zealand
Association of Economists.
The author compares the implications of left-wing (high BI and
high FT) and right-wing (low BI and low FT) versions of BIFT and finds
neither be an acceptable alternative to the current system. By
"acceptable" I guess she means "acceptible to the rich". Everyone
else would love it.
R. (2004). Moves to a basic income-flat tax system in
Australia: Implications for the distribution of income and supply of
labour. Working paper, Melbourne Institute of Applied Economic and
This is a genuine attempt to propose an urgently needed reform. Figure
4 (Abbildung 4, Abb. 4) of this paper
is essentially the same
as the graph the present paper. It shows
how FT goes up as BI goes up and vice versa.
W. (2007). Finanzierung eines Grundeinkommens durch
eine „Basic Income Flat Tax“. Grundeinkommen und
Konsumsteuer, Karlsruhe, 140-153.