Left-wing readers will be thinking: What are the words flat
in that heading? Isn't flat income tax what the radical right wants so the rich can get richer and
the poor poorer, further increasing the wealth gap? Which is
already catastrophically big?
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
Before we continue, I should explain "progressive income tax for
dummies". In most countries these days, if your income is low you pay
no income tax. When it 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. The system as a whole is progressive, which
means that when you earn more money, you not only pay more tax -- you
pay a greater proportion of your income in tax.
Flat income tax is a system where there are no thresholds and no income tax brackets, so the system is not progressive. No matter how much you earn, you pay the same proportion of
your income in tax. Without progressive taxation, the wealth gap
naturally gets wider, because it is easier to make money (income) if
you already have some (capital).
The rich naturally get richer and the poor either stagnate or get
poorer. Which is exactly what I (and hopefully you too) want to avoid
at all costs, although unfortunately in recent decades with the rise of
neoliberal economic ideologies it has been happening under our noses.
The reason why I am presenting myself as a leftie and talking about flat income tax is that I am interested in combining flat income tax with basic income as a sustainable strategy to eliminate poverty. Let me explain:
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 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. According to the World Bank, the
international poverty line is $1.90 per day or $60 per month. But there
is an enormous difference between rich and poor countries. 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.
Imagine a world in which everyone, rich and poor, got a basic
income of €1000
per month and paid 50% tax on all other income. These two numbers
(let's call them "parameters") have
been chosen arbitrarily for the sake of argument, assuming we are in a
rich country (although BIFT can work equally well in any country). In
reality, the parameters would be adjusted in
a democratic political process. It might be possible to eliminate
poverty (for the first time!) even if both were lower (e.g. €800
and 40%), because BIFT would benefit unemployed people who
supplement their income with casual work by eliminating welfare traps
(of which more later; the disabled would of course receive a higher
BI). But let's go with these initial estimates for the moment:
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. 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.
The tax rate for people with very high incomes would approach 50%.
BIFT, 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
income tax by itself is far-right lunacy. But flat tax combined with
basic income (BIFT) is a left-wing strategy. It is inherently and continuous
people don't know that, and here's something else that most people don't
know: Value-added tax is
inherently regressive. The more you earn, the less you pay
in VAT relative to your income. 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 VAT. No wonder the wealth gap is increasing!
That must be one of the greatest scams of all time.
problem is easily solved: 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. BIFT solves this problem.
From a human-rights perspective, BIFT is based two basic assumptions:
Everyone deserves enough money to live on (BI).
Everyone who earns money deserves to keep a reasonable proportion of it (income minus FT).
these points are obvious. 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 of them.
From this viewpoint, BIFT is politically realistic.
Two objections to 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.
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