following is intended for a popular audience and political realisation
in a European context. For a more academic economic approach that
focuses on another
country (New Zealand), try this.
Eliminating poverty with basic income
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. Can you imagine that?
What would that
world be like?
Imagine a world in which everyone, rich and poor, received an
unconditional basic income corresponding to the poverty line in their
country of residence -- automatically, with no questions asked. People 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.
Imagine this basic income being distributed in a way that motivates people
to work without forcing them to work. That's freedom! The motivation would be purely
financial: the more you work, the more you money you take home.
current system does not motivate people in this way. Unemployment
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 job is
often all the capitalist economy has to offer to 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.
There 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 bottom 70%
of humanity (more).
If this money was distributed equally among the entire world's population, each woman, man and child would get $1000. That's enough to live on for more than a year above a poverty line of $2 per day.
This example shows that there is now enough money in the world to
eliminate poverty everywhere, by redistributing part of the wealth
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? By changing the law. By introducing or increasing wealth taxes.
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 revolutionary battle-cry. 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. There is another big obstacle, it seems. The
rest of us find it hard to imagine a world without poverty, because it never happened before.
Imagining 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 basic income 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
Eliminating poverty in poorer and richer countries
Many people think that only rich countries can afford a basic income.
Not true. Every country has its own tax/welfare system and its own
graph of net income against gross income -- a bit like the graph above. "Net
income" is disposable or take-home income, after adding welfare or
subtracting tax; "gross income" is income before tax/welfare.
Even without wealth taxes, basic
income can be financed by converting that graph to a straight line
-- a "line of best fit" or a "regression line" that balances the
budget. The point where the line crosses the vertical axis would be the
income. This process could happen in any country, because the existing
relationship between net and gross income in most countries is already
surprisingly close to that straight line. To finance a basic income,
could also get additional revenue from wealth, transaction, or
especially if there were international agreements to introduce,
gradually increase those taxes.
income would differ a lot from country to country, but introducing
basic income in different countries could help reduce the differences.
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 per month.
Basic income can make capitalism sustainable
In a market-based economy, a basic income that corresponds to the poverty
line is the only reliable way to eliminate poverty. The reason is this: in a
free market, there are always winners and losers, so there
is always unemployment. Governments need to ensure that everyone
can participate in the market and human rights are respected. Basic income is the only reliable solution to this problem.
That's why, in the board game of Monopoly, every player, rich or poor, gets a basic income of $200, paid every time the player passes "go". Without that basic income, you can't play Monopoly. Of
course, capitalism is only sustainable if monopolies are prevented by
democratic and legal mechanisms, but that is a different issue.
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.
Basic income 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 basic
income could be part of the solution; we also need new wealth,
transaction and environment taxes.
Basic income 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.
Basic income is a promising way to achieve that.
Flat tax: good or bad?
what would happen if basic income was financed with a flat income tax.
Everyone would receive a basic income 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.
Flat income tax has an important advantage: simplicity. Everyone has to
pay it, including the rich. It's hard to evade or avoid a flat tax by
tricking the taxation office, as the accountants of rich people are
wont to do.
tax 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 rate of tax on all income. Many of those same people
also want to reduce or eliminate welfare payments. Both proposals
are a recipe for disaster. But those right-wingers are not talking about combining flat tax with basic income, which is an entirely different thing.
Eliminating welfare traps
Imagine what would happen if everyone got the same basic income 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 basic income 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 look
lazy by motivating them to stay on welfare and not to work. If the
system motivated people to work, unemployment offices would become
BIFT is a combination of Basic Income BI and Flat Tax FT. It is a tax/welfare system in which everyone, rich and poor, gets the same BI and pays the same FT.
Under BIFT, welfare traps and poverty would disappear. For the first time, everyone would have a reasonable
chance to participate and compete in a democratically regulated open
This reform would produce a cascade of social benefits (listed below). Perhaps most importantly, it would promote human rights. BIFT is based on two assumptions:
Everyone has the right to enough money to live on (BI) -- a "slice of the cake".
who earns money has an obligation to pay a certain amount to the
government (to finance BI, infrastructures, government) and the right
to keep the rest.
first point is about freedom from poverty. The second is about the
right to own property. These are universal human rights, and you can
hardly argue with them. Although the
first point has a socialist flavor and the second seems capitalist,
both the centre left and the centre right agree about both.
From this viewpoint, BIFT is politically realistic.
Effectively progressive income tax
BIFT is based on two numbers. Possible values for a European country are basic income BI = €1000/month and flat tax FT = 50%. Both parameters are 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 people who
supplement their income with casual work. But let's go with €1000/month and 50% for the 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. If that was your income, you would
pay €1000 in income tax and get the same amount back as basic income.
income before BIFT was less than €2000, your income 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 taxpayer.
Tax would be effectively progressive: the effective tax rate would increase with income. Under €2000/month, people would effectively pay no tax. As income increased beyond €2000, the effective tax rate would gradually increase. At very high incomes, BI would be small relative to income, and the effective tax rate would approach 50%.
The 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.
Can flat tax be progressive?
Flat income tax 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.
Progressive income tax is more complex. If your income is low you pay
no income tax. When you income passes a certain threshold you start paying
income tax at a certain low rate. When your income is even higher and
passes a second threshold you start paying a higher rate for the income
beyond the last threshold. The intervals between the thresholds are
called income tax brackets. "Progressive"
means that when you earn more money, you not only pay more tax -- you
pay a greater proportion of your income in tax.
My proposal is to simplify and improve tax progressivity by combining
flat tax with basic income. This combination is inherently progressive.
Allow me to introduce myself. I am a leftie. I want to eliminate
poverty, improve the lives of
people on low incomes (the "working poor"), improve gender equality,
and reduce the wealth gap. I also studied physics and do research in
psychology. I am interested in clear thinking and the correct use of
proponents of unconditional basic income 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 because
you need a tax consultant to understand it. A complex system invites
tax consulants to find ways to avoid tax. To eliminate this form
of discrimination, we need a simple, transparent system.
Without basic income, flat tax increases the gap between rich and poor, because it is easier to make money (income) if
you already have some (capital). In this way, flat income tax is effectively regressive. If we want to reduce the wealth gap, it is important to avoid this
kind of flat tax.
But when flat tax is combined with basic income, the
situation changes. Combining flat income tax with basic income is a sustainable strategy to eliminate poverty:
income (BI) is progressive: relative to total income, it represents a
larger proportion for the poor than for the rich. Therefore, it reduces
the wealth gap: the poor get richer while the rich are relatively
income tax (FT), when considered alone, is neither progressive nor
regressive. But in an economic context, in which it is easier make
money if you have more capital, FT is regressive (the opposite of
progressive): the result is inevitably a widening wealth gap.
A combination of unconditional basic
income (BI) and flat income tax (FT), here called "BIFT", is progressive: the more you earn, the more income tax you pay relative to
your income, effectively.
is not a political claim, nor is it a trick. It is a mathematical
truth. Moreover, BIFT is not sometimes progressive and sometimes not.
BIFT is always inherently and continuously progressive,
provided BI corresponds roughly to the poverty line (or poverty
threshold), below which people are regarded as "poor". BIFT is strongly
progressive even for the lowest plausible estimates of the poverty line
in any country, rich or poor.
The regressivity of VAT
Value-added tax (VAT) is tax on everyday purchases such as clothes and food. It is
inherently regressive: the more you earn, the less you pay
in VAT relative to your income. That's because people 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 a flat income tax. Regardless of your
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.
Just to drive that point home: Flat income tax is not a far-right dream. It is already here,
in many countries. It has been created by combining progressive income
tax with regressive VAT. No wonder the wealth gap is increasing!
That must be one of the greatest scams of all time.
The solution is to end VAT on everyday consumption (especially
regular groceries: vegetables, bread, milk and so on) and get the
rich to pay reasonable
amounts of tax. VAT is only ok for goods and services that are luxuries
or environmentally damaging (e.g. expensive cars). The failure of
rich individuals and corporations to pay
up is a chapter of its own, of course. They are busy both avoiding tax
(legally) and evading tax (illegally). This makes the system as a whole
regressive. No wonder the rich keep
Given this background, we can take a new look at the idea of income tax progressivity. A
tax 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. As one supermarket chain once advertised: it's the total
of the tape that counts.
Debunking myths about basic income
People have been talking about basic income
for a long time, but it still isn't happening. The reason: fake news.
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 gross and net
(disposable) income 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.
2. 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 if basic income makes 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 people
lazy. Really! There's nothing more demotivating than welfare traps. The hypothesis is therefore that BI (corresponding to the poverty line) 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
restored. Regarding experimental design, you can't perform a controlled
experiment that compares the current system with basic income 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.
The disadvantages of BIFT
None are currently known. Please write to the author if you know of any disadvantage.
The advantages of BIFT
BIFT would solve a long list of political and economic
The end of poverty: basic income would correspond roughly to the poverty line.
A smaller wealth gap: less difference between rich and poor.
A smaller gender wealth gap:
less difference between disposable male and female incomes (part-time
work would become worthwhile; parents would receive their children's
Universal work incentive: no welfare traps (you don't lose your benefit as your income increases).
More personal freedom: work as much or as little as you want; no stigmatisation of unemployment; freedom from poverty.
Less meaningless bureaucracy and invasion of privacy by tax and welfare offices; less financial waste.
Less corruption: fewer legal loopholes for accountants of the rich to explore.
A weaker far right: fewer deeply dissatisfied citizens for populist politicians to prey on.
More democracy: a simple, transparent system that is easier for voters to understand; more power for democratically elected governments and less for corporations (e.g. to address climate change).
For more details on these points, including the question of how best to transition from the current system to BIFT, click here.
opinions expressed on
this page are the
opinions. Readers who know and care about this topic are asked to
contact the author with suggestions for improving or extending the content: parncutt at
gmx dot at. Back to Richard Parncutt's homepage