bift graph

Eliminate Poverty with BIFT
Universal Basic Income and Flat Income Tax

Armut abschaffen mit bedingungslosem Grundeinkommen und pauschaler Einkommenssteuer

Richard Parncutt
 2011, revised 2019
Another text about the same idea: html 

Presentation at BIEN Munich 2012 - pdf - ppt

In France, the gilets jaunes are asking big questions about welfare and taxation. How can the system be reformed so working-class and (lower-) middle-class people feel fairly treated?

There's a simple answer that hardly anyone is talking about. What if everyone, rich and poor, paid half of their regular income (not including the basic income) back to the government as tax?
What if, in return, the government gave everyone, rich and poor, a basic income of €1000 per month, no questions asked? In other words, what if a universal basic income (BI) of €1000 per month was combined with a flat income tax (FT) of 50%

The numbers in this example (€1000 and 50%) are arbitrary. They have been chosen for illustration. They would be adjusted in a democratic political process. The value 50% is probably too high; depending on the level of basic income and other taxes and government expenditures, 40% might be enough to balance the books. There are other issues to address such as how much basic income to give children, pensioners, and non-nationals, implications for the migration of people and corporations, levels of corporation tax, and so on. But let's focus for the moment on the effect of such a reform on the majority.

The above graph encapsulates the main idea. The horizontal axis ("monthly income before BIFT") is the total amount of money an individual earns from any sources other than welfare/BI: wages, independent enterprise, interest, capital gains. The vertical axis ("monthly income after BIFT") is disposable income: the total amount of money an individual can spend, after FT is subtracted and BI is added.

Here, BI and FT are always considered together. It makes no sense to consider them separately. Hence the acronym BIFT. Because we are so used to the current system of giving here and taking there, this idea may be difficult to grasp at first. To understand BIFT, it is important to focus on the ascending line on the graph rather than the numbers (BI and FT) behind it. In the end, only the line oin the graph counts.


What if this kind of reform actually happened? Several major problems would be solved simultaneously: 
Too good to be true? 

BIFT and the far right

The rise of the far right has brought us Trump, Bolsonaro, and Brexit, not to mention Lega Nord, FPÖ, AfD, Golden Dawn, Le Pen, Orban, and countless others. The far right is steadily undoing decades of social-democratic progress made by previous centre-left governments, which is exactly the opposite of what most far-right voters need. The far right is also preventing projects to mitigate climate change. If the current fashion for imitating 1930s Germany continues, the results will be catastrophic.

If we ask why the far right is so popular, different people give different answers. The far-righters themselves tell us that "foreigners" are (i) taking their jobs, (ii) diluting their culture, and (iii) even killing people (terrorism). These misleading ideas come from private media such as the Murdoch press, which are controlling public opinion to serve the interests of rich elites, just as political media in Eastern Europe
used to control public opinion to serve the interest of communist rulers. In fact, "foreigners" are (i) doing work that locals don't want to do (such as caring for the elderly), (ii) enriching local cultures everywhere, and (iii) often fleeing from terrorists themselves.

Apart from the lies and distortions spread by the media, the main reason people are voting for the far right is presumably money. In the 1930s, a global depression was causing widespread unemployment. In Germany, Nazi conspiracy theorists blamed international Jewish networks for the 1929 crash. That was nonsense, but many Germans were looking for scapegoats and believed it. Meanwhile, the allies (including France, Britain, and Russia) had irrationally declared the Germans and her allies to be responsible for the Great War
in the treaty of Versailles, forcing them to pay massive reparations and shifting their borders. Without the depression combined with Versailles, the fascists (Nazis) would never have come to power.

Today, the gap between rich and poor (the "wealth gap") is growing in countries such as the US and the UK (more). In other countries, the income of working classes is stagnating or even falling in real terms. The unemployed and working poor are being unfairly treated, and they know it. Globalisation has left them in the lurch. Looking for scapegoats, they are blaming "foreigners".

The unemployed and working poor should instead be blaming the rich, who are promoting and defending an unfair economic system. The global rich do not belong to a specific religion or cultural group, nor are they working together against the rest of us (there is no conspiracy). It is nevertheless true that the global rich are collectively responsible for the growing wealth gap and all the problems that is causing, because they are best placed to solve it.

Why is the wealth gap growing?
One reason is globalisation. The rich have more access to international markets. Digital technology has helped them to increase profits without passing them onto workers (there is seldom a "trickle down effect"). The rich are increasingly avoiding taxation by transferring their wealth to secret accounts in foreign countries. That includes many leaders of developing countries whose people are living in poverty: tax havens cause poverty (more). 

On these points, most governments are dragging their feet and hardly anyone is telling the truth. The facts are clear:
All tax havens could and should be closed down by international agreement. Bank secrecy should be ended worldwide. The rich should obey the law like everyone else. Tax criminals should be identifed and fairly punished. Our governments should be implementing globally harmonized wealth taxes  (more). In general, the amount of tax that an individual pays should depend on their ability to pay, which depends on both wealth and income.

The
rich like things the way they are, and they are pulling the strings in the background. That may seem like a hopeless situation, but the rest of us still have our freedom of speech. If enough of us start telling the truth, the system will change.

Is progressive income tax really progressive?

A well-known instrument to reduce or control the wealth gap is progressive income tax. If your income is low, you pay no tax. The higher your income, the higher the proportion you pay in tax. The tax rate increases from one tax bracket to the next.

The rising wealth gap means that progressive income tax is not working. Here are two possible reasons for the failure of progressive income tax to stabilize the wealth gap:
These are central problems in modern international economics and politics, and although the task seems enormous, it is possible to solve them.

The following figure, copied from the Austrian newspaper Der Standard on 8 January 2019, illustrates the problem. The vertical axis is the percentage of income that each Austrian effectively pays in tax. The horizontal axis is income, starting with the lowest 10% of people and ending with the highest 10%. The graph shows that the rich, the poor, and the middle class are all ultimately paying between 40% and 50% of their income in tax. In other words, Austria is a "flat tax republic". But the problem is not confined to Austria. The situation is similar in most countries, including France.

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The lower red part of the graph shows the effect of income-tax progressivity: people with lower incomes pay a lower proportion of income as "income tax". The dark blue band at the top shows how that progressivity is cancelled out by the regressivity of VAT and petroleum tax. The result is close to a flat income tax system. No wonder the wealth gap is growing.

If everyone is effectively paying almost 50% of their income in tax and receiving all kinds of government benefits in return, the current system is already remarkably close to BIFT. Why not just give everyone the same basic income, tax all income at 50%, and get rid of the other taxes and benefits? Of course other taxes are necessary (environmental taxes to reduce pollution, transaction taxes to calm the markets, wealth taxes to reduce the wealth gap), but VAT on everyday purchases such as regular food is certainly unfair and should be eliminated. VAT for luxury goods is ok, especially if they cause environmental damage.

On the one hand, the gilets jaunes are right that it is unfair to raise the price of petrol. On the other hand, Macron is right that carbon needs to be taxed to save the climate. There is an easy solution: tax petrol (which is regressive) and divide the proceeds up equally among taxpayers (which is progressive). This idea could be applied in any country and has been recommended by economists for the USA. But the idea of giving the proceeds from a tax back to citizens, the same amount per person, is the same principle as BIFT. The current system can be radically simplified by giving people just one large basic income payment and canceling all other welfare payments (exception: compensation for disabilities that prevent people from working), while at the same time taxing carbon to save the climate for future generations, as well as taxing large amounts of wealth, international transactions, and luxury purchases.

Reducing VAT and introducing an unconditional basic income are two promising strategies for bringing back real progressivity and reducing the wealth gap. At the same time, progressive income tax scales should be abandoned, for two reasons:
  1. BIFT is inherently progressive. In the above graph, if you earn €2000 before BIFT, you get the same amount after BIFT, so you effectively pay no tax. If you earn €10000 before BIFT, you get €6000 after BIFT and pay effectively 40% of your income in tax. The more you earn, the higher the effective tax rate, on a sliding scale.

  2. It is simpler and more transparent to adjust progressivity by adjusting the relationship between BI and FT and nothing else. Voters are more likely to understand a simpler process, which is therefore more democratic.
These are not political demands. They are mathematical facts.

The main aims should be
  1. to make the whole system more progressive and not just a part of it, and 
  2. to simplify the system to make it harder for the rich to avoid or evade tax. 
The red area in the above graph shows that although income tax in Austria is progressive, the big picture is not progressive. BIFT without VAT is a way to make the entire system more progressive. Progressivity can be further improved by adding transaction and wealth taxes.

A new approach to income-tax progressivity

There many misunderstandings about tax, but there is one misunderstanding that really takes the cake. Almost no-one understands the following proposition. But it could be the key to eliminating poverty for the first time! Imagine that: a world without poverty in which the rich are still rich, which makes the proposition politically realistic. Here it is:

Income tax becomes progressive when you combine BI (universal basic income) with FT (flat income tax). BIFT is inherently progressive.


This is not a political or economic claim. It is purely mathematical, and the maths could not be simpler. To understand it, imagine what the world would be like if income tax and welfare worked as shown in the graph. 

bift graph

The horizontal axis
is what employees get from their employers, before adding welfare and subtracting taxation. If you are self-employed, the horizontal axis is what you earn in the marketplace. The vertical axis is how much money you can spend every month, after adding welfare to, and subtracting taxation from, your earned income.

According to the graph, if you have no income before BIFT (zero on the horizontal axis), you receive a benefit of €1000 per month. This universal, unconditional basic income is sometimes called negative income tax. Everybody gets it, rich or poor, so there would no longer be means tests for benefits. Imagine that: no stigmatization and no infringement of personal privacy. The value 1000 is arbitrary and has been chosen here for purpose of illustration. The exact amount would be adjusted by a democratic political process.

In this scenario, if your income before BIFT is €2000 per month, then your income after BIFT is the same. The tax you pay is equal to your basic income, so they cancel. This is called the break-even point.

As your income increases beyond €2000, you start to pay tax. If your gross income is €3000, your net income is €2500, so you are effectively paying
500/3000 = 17% in tax. If your income before BIFT is €4000, your income after BIFT is €3000 and the effective overall tax rate is 1000/4000 = 25%. If your income is much more, the tax rate approaches 50%. In other words, the effective tax rate gradually increases as your income increases. This is a progressive taxation scheme, but because there are no tax brackets, the scheme is continuously progressive.

The scheme has two main adjustable parameters. To draw the graph, these have been set to
50% (the flat tax rate) and €1000 (the basic income). These numbers are round and arbitrary. They have been chosen only for the purpose of illustration. I wanted to make the graph as simple as possible, to illustrate the basic idea. In reality, both numbers would be adjusted in a democratic political process.

Some people are worried about giving basic income to the rich. But in this proposal the income tax paid by the rich would be much bigger than the basic income. What matters in the end is the relationship between income before and after BIFT, as shown in the graph. Welfare and tax always interact. We need to focus on the final result of the calculation (the "big picture") and not get distracted by detail. 

Imagine what would happen if welfare and tax really worked like this. Everyone would be treated equally; there would be no stigma attached to poverty. In fact, there would be no poverty at all! Everyone would get the same basic income (with different rates for people with disabilities and children, see below) to cover their basic needs and everyone would pay the same rate of tax. Everyone would be motivated to work, so the economy would be healthy and stable (there would be no "welfare trap" when people lose benefits if they get part-time work). Wage earners would not need to file annual tax returns, because income tax would be paid in full with every dollar earned, and there would be no tax deductions to calculate at the end of the year.

You may be thinking that this will be too expensive. Governments won't be able to afford it. In fact, the cost of the system depends on how the two parameters (basic income and flat tax rate) are chosen. If the basic income is relatively low, the budget can be balanced with a relatively low tax rate. That's the right-wing approach. The left-wing approach is to aim for higher levels of both basic income and tax. In both cases the budget can be balanced.

The current relationship between income before welfare and/or tax and income after welfare and/or tax is already remarkably close to the above graph in most countries (some examples are below), but unnecessarily arbitrary and complex. BIFT would simplify that. In fact, it is the the simplest and most effective way to make income tax progressive. Consider the following two arguments:

1. Progressive income tax scales are supposed to benefit the poor, but in fact they benefit the rich. Every unnecessary complexity in the system generates loopholes that the accountants of rich people use to reduce their taxation and thereby increase their income. A classic trick to avoid tax is to redistribute income so it falls in different tax brackets with lower tax rates. In the proposed system, tricks of that kind would no longer be possible.

2. Inherent in the current system is the welfare trap: If you are receiving unemployment benefit and get a part-time job, you generally lose part or all of the benefit. Often, you are better off not accepting the job. No wonder the poor sometimes give the impression of not wanting to work! The current system directly encourages laziness and depression! The proposed system would make welfare traps a thing of the past.

If the entire system was simpler, more people would understand it and democracy would work better. If people were paid fairly for every bit of work they did, they would be more motivated. But the rich evidently don't want either of those things to happen, which is why we are struck with the current problematic system.

The gender wealth gap

Women usually have less money than men and there are several reasons. One is that women still tend to earn less money than men for the same work. A possible solution is to ban pay secrecy: everyone should be required to publish their income in the internet. That would also help reduce the gap between rich and poor.

Another reason why men tend to have more money is sexist inheritance traditions. When parents die, many still tend to give more of their estate to sons than to daughers. Scandalous but true. That should also be published.

BIFT cannot address those two problems, but it can address another two:

First, women who decide to go back to work after having a child often choose to work part time, to have more time for the family. In an ideal feminist world, this would be no problem: men would do the same. But there is another problem. In the current system, a part-time worker doesn't earn much more than an unemployed person. The reason is the welfare gap: unemployment benefits are means-tested, and benefits are cut when income exceeds a given threshold. That makes it hardly worthwhile to work part-time. BIFT solves the problem.. Everyone gets the basic income and it is never cut. No matter your income: the more you work, the more money you have.

The second problem that BIFT addresses is that women tend to do more unpaid family work than men. The solution is to remunerate childcaring. BIFT does this indirectly by giving basic income to children via their parents. The rate for children is lower than for for adults, but still more than the child support payments that parents typically get in the current system. Today, there is a high rate of poverty among single mothers. BIFT could completely solve that problem. In fact, it could eliminate poverty altogether.

What would happen if our system of income tax and welfare payments followed the graph?

Everyone would receive a basic income. Most would receive the standard amount. The disabled would get more, children would get less, and there might be special rates for pensioners. For illustration, I have set the basic income in the graph to €1000 per month, which is where the straight line crosses the vertical axis. This number is arbitrary. The exact amount would be determined in a political process: the left would constantly want to raise it and the right would keep trying to lower it.  Everyone (rich, poor, and in between) would be motivated to work, because everyone's income would go up at the same rate as they earned more money. Any increase in income before BIFT (large, small, or in between) would produce a corresponding increase in income after BIFT. That is not the case in the present system: welfare recipients lose their benefit at some point as their income increases (the "welfare trap"). No wonder the unemployed sometimes give the impression of not wanting to work! The fault is in the system, not the people.  The rate at which income after BIFT increases relative to income before BIFT corresponds to the gradient of the graph. For purpose of illustration, I have set this rate to 50%. It corresponds to a 50% income tax rate - similar to the highest tax brackets in current progressive tax scales. If the old, corrupt tradition of tax deductions was also ended (more of which below), a lower flat income tax rate would be possible, perhaps 40% or even 30%. That is a bargain if you consider that everyone would also receive the basic income. The final rate would be determined by a political process: the left would push for a higher tax rate, the right would push for a lower one, and they would meet somewhere in the middle.

Both social welfare and income tax would be radically simplified, improving transparency. The new system would be easier for everyone to understand, especially those who cannot afford accountants; and easier to adjust democratically, making it harder for politicians to trick voters. For these reasons, both accountants and politicians may oppose this idea, which is another reason why hardly anyone knows about it.
Good economics versus good ethics

BIFT boils down to two general principles:

1. No one should have to live in poverty.
Everyone, rich or poor, has the same intrinsic value and the same basic needs.

2. Everyone should be able to keep a reasonable proportion of every dollar they earn. 
Incentives are important. The system should motivate everyone to work. 

The first point is socialist in nature and no-one but the most extreme capitalist would dare to disagree it. The second point is capitalist in nature and no-one but the most extreme communist would dare to disagree with it. So just about everyone on both the left and the right should agree with the present proposal, which is simply an implementation of those two ideas. 

Many economists will dismiss BIFT because it is not properly embedded in economic literature. But the main two points that I am making are ethical, not economic, in nature, and the economic implications that I draw from them are direct and simple. The two points are even included in the Universal Declaration of Human Rights:

1. Article 25 (1) states that "Everyone has 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 his control." An unconditional basic income is the simplest way of ensuring that this right is respected. 

2. According to Article 23 (3), "Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection." This article implies that the more or better one works, the higher one's income should become. 
 
The economic literature on unconditional basic income is big, but only a handful of articles and books considers the combination of basic income and flat income tax. Those contributions tend to be neutral about its benefits (Atkinson, 1996;
Scutella, 2004). The authors attempt to evaluate the proposal by considering its economic consequences: how will it affect the motivation to work, economic growth, inflation, umemployment? The results of such considerations are generally inconclusive and depend strongly on how the two free parameters (basic income and tax rate) are set. But I believe those articles are missing the point. The main point is ethical, not economic: every human being has the right to enough money to survive and every human being has the right to keep a reasonable fraction of each dollar earned. 

Economists may be curious about my economic qualifications. I never studied economics, nor have I published in an academic economics journal. Instead, I have many frequently cited academic publications in related disciplines (psychology, sociology) and a Master's degree in physics. My everyday teaching and research in the interdisciplinary area known as "systematic musicology" also involves neuroscience, philosophy, computer science, and philosophy of science, all of which are relevant to economics. I have a strong interest in history, politics, ethics, and law.

New ways of thinking

To understand BIFT, we need to radically change how we think about income tax and welfare. 

Effective progressivity

I am a strong supporter of progressive taxation - a tried and tested way to reduce the gap between rich and poor. The way the wealth gap is increasing today, progressive taxation is more important than ever.

The above graph shows an effectively progressive relationship. The tax paid, expressed as a percentage of gross income, increases as gross income increases. At low incomes, the tax is effectively negative (basic income is sometimes called "negative income tax"). At medium incomes (€2000 in this example), a break-even pointis reached where income before and after BIFT are the same. At higher incomes, the effective tax rate increases with income, approaching the flat rate for very high incomes.

Here are some examples, based on the arbitrary values of basic income and tax rate in the graph. If you earn €4000 before BIFT, your income after BIFT is €3000 and your effective tax rate, averaged over all earnings, is 25%. If you earn €10 000 before BIFT per month, your income after BIFT is 6 000 and the effective tax rate is 40%. At very high incomes, the effective tax rate approaches 50%. Recall that all these figures are tentative and approximate. The numbers would be adjusted in a political process. 

The system is progressive although 
the line is straight ("flat tax"), because the line does not pass through the origin. The offset from the origin is the basic income. The bigger the offset, the more progressive the system becomes. In a democratically regulated system, the left would try to make the system more progressive by increasing the basic income, and the right would strive for the opposite.

We have to stop thinking about income brackets. They are not necessary to create progressivity! Another way to create progressivity is to shift the line on the graph so it no longer passes through the origin (the point where the two axes intersect). 

Difficulties of understanding

The graph illustrates a simple mathematical relationship between flat tax and progressive tax. To understand this proposal, you have to understand this simple relationship. Unfortunately, many don't. No matter how long you try to explain it, they still don't get it.

Left-wingers may object to giving basic income to the rich. That is missing the point. The main thing is not the basic income, nor is it the tax rate. It is the relationship between income before and after BIFT. It is the straight line on the graph! It doesn't matter whether the rich get their basic income as a payment or a tax deduction, because the result in the end is the same, namely the line on the graph. In any case, the basic income that the rich receive would be small compared to the tax they pay. It would also be small compared to the tax deductions they normally get today. The whole system of tax deductions is problematic and needs to be phased out.

Right-wingers may object to giving basic income to the poor. That again is missing the point. The unemployed are getting unemployment benefits anyway. This proposal merely eliminates a bureacratic system that is constantly trying to get the unemployed into jobs that don't exist anyway. Those right-wingers who want to reduce the size of government and make it more efficient should love this proposal, as should all those who believe in preserving personal liberties and preventing government interference in the private lives of citizens. Moreover, technological advances mean that there is less work to do than there used to be; trying to "create jobs" won't change that. Besides, it doesn't help anyone when the unemployed have no money. They are consumers and part of the market. You can't make money out of selling to consumers if they haven't got any money. 

You can avoid the pitfalls of both the left and the right by trying to stand in the middle and understand both sides. That can solve the political bias problem. But there is another problem. Some people cannot understanding the simplest of mathematical concepts, it seems, such as how a simple graph works.

Imagine this: What if our ability to eliminate poverty depended on a simple mathematical idea? What if we failed to eliminate poverty because we failed to understand that idea? Or refused to take that idea seriously or give it a chance?

Conversely, what would happen if both the left and the right suddenly realised that the elimination of poverty serves the interests of both, because welfare payments "trickle up" into markets? What if both decided together to implement a simple strategy that combines socialist and capitalist principles? What if both jumped at the chance of reducing the administrative load of both welfare and taxation? Imagine that: Freedom from meaningless paperwork! Freedom from the stigma of unemployment!

Bringing together capitalism and socialism

You may be surprised to see a "capitalist principle" in a paper about unconditional basic income. I am a lefty, but I am also self-critical. Capitalism, for all its problems, is the motor that generates the necessary finance. I also know that an idea like this will only work if a majority of people support it. It so happens that half the population tends to vote for the right wing, often against their personal interests. To be successful, a proposal of this kind needs to balance left and right wing ideologies. Left-wing friends: please don't stop reading. 

Humans have made big progress before. Slavery was banned, women got the vote, human rights were signed into law. Now it is time to eliminate poverty. We have taken a while to get to this point - but we can now do it, by combining socialism and capitalism in the right kind of way. With the above graph in mind, the task is easier than most people think.


Of course there will be other details to consider. For example, basic income may be different for children, pensioners, the disabled, or foreigners; and the tax rate may be different for income, capital gains, and company tax. But the main point that I want to make is made in the graph. The graph is like the proverbial picture that paints a thousand words. 


The main points again


This idea is so great it is worth repeating the main points in a different way. Here goes:

Both welfare and income tax can be radically simplified by combining them into a single system called BIFT, which stands for (universal, unconditional) Basic Income and Flat (income) Tax. Under BIFT, the relationship between income before and after BIFT is a straight line, as shown in the graph.

bift graph

Basic income is the point where the rising line crosses the vertical axis. For the sake of argument I have set this at1000/ month; the exact amount would have to be determined in a separate political process. Similarly, the flat tax rate has been arbitrarily set at a round number, 50% - but it could be much less than that if for example tax deductions were phased out and wealth, carbon and transaction taxes were phased in.

Here is how BIFT would work:

Too good to be true?

After this tax reform to end all tax reforms, the relationship between income before and after tax/welfare for individuals, which is what counts in the end, would change remarkably little. At the same time, it would be possible and feasible to eliminate the following: 

BIFT would also reduce the wealth gap (between rich and poor) and the gender wealth gap (between men and women) by eliminating poverty, improving disposal income for part-time work relative to unemployment benefits, effectively remunerating childcare through basic income for children, and making it harder for the rich to evade or avoid tax.

Speaking of tax evasion/avoidance, at the same time as introducing BIFT it may be appropriate and opportune to phase out tax deductions to cover expenses associated with earning money (e.g. the cost of setting up a business). The way tax deductions work in practice is generally complex and unfair - they tend to favor the rich. The easiest and fairest solution may be to get rid of tax deductions altogether. If the rich want a "free market", they should take responsibility for their own investments and stop accepting massive government rebates. That would allow the tax rate for everyone to be reduced. BIFT could also work without changing the current system of tax deductions.

Is this list of benefits too good to be true? Not really. The graph shows that these benefits are mathematically possible. They are also politically possible, because they would benefit both poor and rich, left and right:

Eliminating poverty would be the greatest achievement. Communism was supposed to do that, but failed; instead it made almost everyone poor. Capitalism pretends to be superior, but it too has failed to eliminate poverty. Capitalists believe that every individual should have the right and freedom to amass unlimited capital. From an ethical viewpoint, this stance can only be acceptable if poverty is eliminated. BIFT would achieve this goal for the first time. It would take the guilt out of being rich, and make capitalism more sustainable.

The end of the cash economy

Things are changing, but many people are still living in the past. Union leaders and politicians are still dreaming of "full employment" although we knew decades ago that technology would gradually reduce the amount of work that had to be done, making unemployment unavoidable and intrinsic. The solution is basic income. And we are still defending the importance of the cash economy although, again for technological reasons, cash is on the way out. In Sweden, for example, people are seriously thinking of getting rid of cash altogether, and there are good arguments for that.

An unconditional basic income would not be paid in cash. Everyone would need a bank account. That being the case, it is also reasonable to require by law that any further earnings must be registered electronically in a bank account and taxed. The bank account should be in the same country, of course - not a foreign tax haven (I am  assuming that law and order will be restored and tax havens eliminated by global agreement, but that is not a precondition for BIFT to work). This way, everyone would be treated equally. The unemployed would no longer be stigmatised. Low wages would increase to reflect the true value of the work being done. The foreign cleaners in middle- and upper-class homes, to take one example, would get proper contracts, insurance and security.

Managing the transition from the current system to BIFT

A country that wanted to introduce BIFT would do so in stages. They would first agree in principle to the idea of BIFT, by which I mean a graph like the one above, with a straight line that does not pass through the origin, but well above it. In the first stage they would also agree that during a stepwise transition from the current system to BIFT the relationship between income before and after BIFT should change as little as possible (perhaps specifying limits on the size or rate of changes). The exact level of basic income and the exact rate of incoine tax would then be determined in a later process, after discussion between political parties, and guided by economic advisors. It would be periodically adjusted in response to changes in inflation and other economic circumstances.

A sudden transition to BIFT is not possible because of differences between social security systems in neighboring countries. If basic income in a neighboring country suddenly becomes very attractive, many people will try to migrate. This might be prevented by giving different levels of basic income to nationals and foreigners, but it may not be legally possible to give a different level of basic income to nationals of different countries.

Take the case of Austria. EU law would require that all EU citizens in Austria get the same (higher) level of basic income and all non-EU citizens get the same (lower) level. It is legally possible to discriminate in favor of nationals and against foreigners, but not to favor one group of foreigners over another group. Countries within the EU differ considerably in cost of living and average income.

The solution might be to introduce basic income gradually. After each incremental increase, evaluate the result for a year before introducing the next increment. The transition to flat tax might also happen incrementally. The transition would reduce differences in cost of living between different EU countries, promoting European "unity in diversity".

This is clearly a complex issue that requires economic expertise that I do not have. But the advantages of BIFT are surely clear enough that it is worth investing time and effort into carefully designing and monitoring a stepwise transition.

What is stopping this simple idea from catching on?

The most puzzling aspect of this simple proposal is the failure (refusal?) of many people to understand it. Most people, it seems, do not believe that things could be so simple. People on both sides of the political spectrum are astonishingly reluctant to accept that their financial dealings with the government are at present ridiculously complex and unfair, and could be much more transparent, and consequently much fairer. The left is reluctant to believe that a flat rate of income tax becomes effectively progressive when combined with a universal unconditional basic income. They think there must be a trick - but there is none. The unions are still dreaming of 100% employment when what their members really want is enough money to live a decent life and fair remuneration for all work done. The right refuses to believe that the economy would get a boost if we gave welfare to everyone, no questions asked, but that again is a simple fact: people are more likely to find work that they enjoy and become productive if the government treats everyone with the same respect. The right believes that giving away welfare will make people lazy, but the reverse is the case: by eliminating welfare traps, the proposed system would give a constant incentive to everyone to work harder or longer regardless of their current income. The level of basic income would be adjusted to simultaneously maximize incentive and minimize poverty by a mathematical process of optimization.

In academic circles, the failure of the idea to catch on may be related to the failure of humanities and sciences to understand each other (sometimes called the "two cultures" problem). Many scientists have no idea, it seems, of the foundations of the humanities (literature, the arts, history, anthropology) and many humanities scholars can hardly tell you anything about the foundations of science (basic mathematics, physics, chemistry, biology). The core of the BIFT proposal is mathematical: it is about the quantitative relationship between income before and after tax and welfare. The beauty and elegance of the proposal lies in the simplicity of the proposed relationship: a simple relationship is fair, efficient, transparent, and hence democratic. BIFT is an example of philosophical principle of parsimony known as Ockham's razor. Scientists intuitively apply this principle when searching for simple reductionist explanations of complex phenomena or datasets (physicists are still looking for a grand general theory of everything, apparently). 

Humanities scholars explicitly and enthusiastically contradict Ockham's razor when they relish in the complexity of social, historical, cultural or political phenomena. They point out correctly that one cannot possibly understand complex social phenomena without becoming intimately acquainted with their detail. Many people who are concerned with problems surrounding poverty, and political or economic strategies to reduce or eliminate it, were once students in humanities faculties or traditions. They may have no basic training in sciences at all, and consequently little idea of how scientists think. Their humanities-oriented brains may not grasp the mathematical significance of the present proposal. 

That sounds negative and pessimistic, but there is also a positive side. One of the points that distinguishes humanities from sciences is the role of context. Claims made by humanities scholars are generally made relative to a given social, historical, cultural or political context. Claims are considered "true" only relative to such contexts - not in any absolute sense. In other words, humanities scholars like to see the big picture. 

BIFT is also about the big picture. To develop a fair public financial system, it not enough to consider welfare by itself, or to consider income tax by itself. It is necessary to consider both of these things and their interaction. To understand BIFT, is not sufficient to consider the rate of BI by itself, because the overall benefit of BI for individuals also depends on whether they retain or lose that income when they earn additional income. It follows that BI may be less than current welfare rates, and recipients may still experience a net benefit. Similarly, it is not enough to consider the flat tax rate by itself; the effective tax rate is what counts in the end, and that depends on both the FT rate and the BI rate. Humanities scholars who are aware of the importance of seeing the big picture can surely resonate to these ideas.

These issues may become clearer if I explain some personal background. I came up with the idea of combining unconditional basic income with flat income tax in the 1980s, when I was studying and researching on an interdisciplinary PhD project combining music, psychology and physics at the University of New England (Armidale NSW Australia). As part of this project, I was working on some mathematical modeling problems. The challenge was to find the mathematically simplest model that accounted best for a complex data set. By comparison to those problems, the problem of how best to organise income tax and unemployment benefits, and the solution I am proposing here, seemed trivially simple. 

Perhaps the failure to understand and communicate across the humanities-science boundary could be solved in the long term if all university students learned the foundations of both humanities and sciences in their first year - something along the venerable lines of the Humboldtian model of higher education? I experienced something like that when I was working at Keele University in England in the 1990s ("foundation year"). But that would be a long-term project, and it is beyond the present scope.

What about economics? This academic discipline is highly interdisciplinary, combining not only humanities and sciences, but also theory and practice. The first impulse of economists in response to the idea of combining unconditional basic income with flat income tax may be consider a comprehensive assessment in relation to the present system, and then to answer the question: Would it really be better? That is an admirable stance, but it is missing the point. It is surely obvious from the above simple description that the proposed system would be better. The interesting questions are instead (i) how to explain to the general public that this system would be better for everyone as well as for society in general, which is a pedagogical and sociological question; (ii) how to adjust the tax and welfare rates in the new system, which would involve an interesting new interaction between economic expertise and democratic process; and (iii) and how to manage the transition, which is primarily a practical problem that involves the needs and issues of specific interest groups and the relationship between social benefits in nearby countries and the effect of introducing basic income on migration. Questions of this kind are awaiting attention by experts who care about broad issues of poverty, quality of life and democracy, and are prepared to promote and defend a vision of a better society.

Myth no.1: Only rich countries can afford an unconditional basic income

Once you understand BIFT, it seems obvious. You will ask yourself why we have tolerated the current crazy system for so long, and why so few people know about BIFT - let alone accept or promote it. It seems that every time someone proposes something like it, people respond with misleading counterarguments. 

If you dig deeper, you find the real reason for this behavior. People are defending the right of the rich to get richer, in the hope of sharing some of those riches - an impulse that may be driving a lot of economic theory. Watch out for it!

Take the idea that only rich countries can afford an unconditional basic income. This is clearly not true. The proposal is to reorganise the existing system of welfare and taxation. In the long run, and considering all aspects of the problem, the change may not cost anything at all.

Let me explain. Most countries have progressive tax scales. It is always possible to draw a graph of income before tax/welfare and income after tax/welfare that applies to most people, and is non-linear. Below are three examples. The exact numbers are out of date (from the mid 2000s), but the basic shape of the curves is correct.

australia austria canada

In every case, you can start from the highest tax bracket and draw a straight from there to the vertical axis (the broken line in the figure). The point at which it crosses the line is a first estimate of the unconditional basic income. After that, you can slightly shift or rotate the straight line to balance the budget. For individuals, the relationship between income before and after welfare/tax would change remarkably little. This change could be made immediately in most countries.

An even better solution is to add some wealth tax into the equation. Wealth tax will only work if the rates are similar in different countries, to stop capital flight. Clearly, our national leaders should be trying to solve this problem at global financial meetings. Other promising and neglected sources of revenue are transaction taxes and carbon taxes. But the first point to be made here is that unconditional basic income can be introduced without any wealth taxes at all. 

Flat income tax: A crazy right-wing dream?

Modern income tax scales are generally progressive. People with higher incomes are supposed to pay higher proportions of their incomes in tax. There are several income "brackets" within which a different rate of income tax applies. This idea is based on the general principle that taxes should be primarily paid by those who are in a good position to pay them. The more you can pay, the more you should pay.

Flat tax is the opposite of progressive tax. In a flat-tax system, everyone pays the same rate of tax, regardless of their income. This is fundamentally unfair and tends to increase the gap between rich and poor. In many countries, that gap has been steadily increasing over the past few decades. It has become far, far bigger than it should be, which is one of the causes of the "global financial crisis" that we have been experiencing. If the rich paid more tax, national governments could pay their debts.

I am assuming that a gap of some kind between rich and poor is necessary to motivate people to work. But the rich-poor gap does not have to be very big to achieve that goal. If the rich are ten times richer than the poor, by whatever measure (income or wealth), the goal has surely been achieved. Perhaps a ratio of only 2:1 would suffice. After the gap reaches a certain size, increasing it further does not further increase the incentive to work, because it is already near to its maximum value. In scientific jargon we would say that incentive saturates or approaches an asymptote. But in most countries today the gap is far bigger than 2:1 or even 10:1. The rich are hundreds, thousands or millions of times richer than the poor. However you measure the ratio (by wealth or income, for example), it is far too big. For that reason, a flat income tax of the kind proposed by the far right is completely out of the question.

But still there are people out there who believe in flat tax. Why? There are two main reasons. First, they are selfish: they want to pay less tax although they are rolling in money. Second, they habitually distort the truth: they claim that the poor are poor because they are lazy, so they deserve to be poor. Evidently some people really believe this to be true. In fact, no-one wants to be poor, so of course the poor want to work and earn money - at least as much as the rich. Poverty is created by economic systems, not by individuals. 

Unconditional basic income and flat income tax: A rational centre-left dream?

BIFT is a surprising and radical approach to flat tax. I wish to show that flat tax can be the solution to poverty, but only when both of the following conditions are fulfilled:

I also wish to show that the combination of unconditional basic income and flat income tax is effectively progressive. This is not a political claim; it is a simple mathematical observation.

If that is true, the implications are enormous. The political left now has the historic opportunity to eliminate poverty - not merely reduce it. The combination of unconditional basic income and flat income tax (BIFT) is a path to that goal. 

BIFT is about just one kind of tax: income tax. Another way to address poverty is to increase government revenue through wealth, carbon and transaction taxes, which can then be used to balance the budget and improve social security. There is an urgent need to increase the level of all these taxes at a global level. This article is also confined to industrial countries but the basic principles may also applied to any country (e.g. basic income could be financed globally through carbon credits). I consider the problem of poverty in developing countries in more detail elsewhere.

In recent years media and politicians have been presenting the "international financial crisis" as a mysterious economic problem that only economists can understand and only large payments of public money to private banks can fix. But the basic problem is relatively straightforward. National economies have fallen too far into debt. Governments have been living beyond their means. Meanwhile, the rich have been getting richer. They have been doing that in part by speculation on global markets that should have been taxed, but was not. Of course it is always possible to make governments more efficient, but that will not make a big difference. It is also possible to regulate markets, to some extent. But the most efficient and appropriate solution in both cases is simply taxation. The rich should pay more tax on wealth and income, and we urgently need tax on international financial transactions and carbon. I will return to these points below.

The basic idea of BIFT

Below is a graph of income before BIFT against income after BIFT. If we are genuinely interested in eliminating poverty, this is the central relationship that we need to consider. In discussion of this proposal it is important not to get sidetracked by considerations of the separate rates of tax and welfare. In the end, the separate tax and welfare rates are not the primary issue. What matters primarily is the final relationship between income before and after BIFT. As one supermarket chain said in their advertisements, it is "total of the tape"that counts, not the prices of individual products.

Under BIFT, most peopl would get the same basic income, regardless of any other income. That is where the diagonal line intersects the vertical axis. The value of €1000 per month is arbitrary. It is a round figure that has been chosen to simplify the calculation. Of course it would need to be adjusted in a political process; it would depend on changing democratic and financial constraints. If it is too low there is poverty, and if it is too high the motivation to work is reduced.

Even the rich would get basic income, which is unconditional. But for them the amount of basic income would be small by comparison to the amount of income tax. If we want to extract more money from the rich, we must focus attention on the tax rate, not basic income. We must also simplify the taxation system to make it more transparent and increase the chance that taxes will be paid and not evaded or avoided by cunning accountants. BIFT is a step in that direction, but many other simplifications are possible.

The amount of basic income would not be the same for everyone. The main exception is people with disabilities that prevent them from working or reduce their ability to work. Their basic income would be increased accordingly. Basic income may also depend on age (children may get less, pensioners more) . On the whole, BIFT would radically simplify social security payments. Many of the bureacrats who currently investigate the "willingness to work" of unemployed people would find themselves unemployed.

Everyone would pay the same rate of tax on all gross income (FT). That is represented by the gradient of the line in the graph. The lower the tax, the faster your income after BIFT increases as your income before BIFT increases, and the steeper the line. For the purpose of argument and for drawing the graph, the flat rate has been set at 50%. The exact value would be determined by democratic processes and financial constraints. It could be 40%, and with significant increases in wealth, inheritance and transaction taxes it could even be 30%. 

bift graph


The welfare trap

The first thing to notice about this graph is that it is similar to the current relationship between income before tax/welfare and income after tax/welfare in modern democracies. At the left end of the line, most people get social security payments. In general, income after BIFT rises as income before BIFT rises. The change from the current system to BIFT would not make much difference, if we simply drew a line of best fit through the current relationship between income before and after welfare/tax for the average person, as it already exists in different countries.

But there is an important difference. In the current system of means-tested social security and progressive income tax, the gradient of the line on the graph is not constant. The line is not straight. That is partly because of progressive tax scales, but there is a much bigger departure from linearity at the so-called welfare trap. Currently, if you are on welfare and start earning money, your welfare is reduced accordingly. During this transition, your income before tax/welfare increases significantly, but your income after tax/welfare increases little. Depending on the system, your income after tax/welfare may stay the same or even fall as your income before tax/welfare rises. So it is not in your interest to work! There is no incentive.

The welfare trap is an example of a poverty trap, because it perpetuates poverty. A system that motivates people not to work is doomed to fail. The welfare trap is inherent to all modern systems of means-tested social welfare and progressive tax. This inherent fault is a guarantee that these systems will never eliminate poverty. Eliminating this problem would be an important step toward eliminating poverty.

Is BIFT fair?

At first glance BIFT seems unfair. We are used to a system of income tax and social security in which different people are treated differently. The system is periodically twigged before elections in order to attract votes from particular groups. BIFT makes it impossible to win elections this way. Everyone has to be treated equally. If the rate of basic income is reduced, everyone is affected. If the rate of tax is increased, everyone is affected. Is that fair?

Is it fair to tax low income earners at the same level as high income earners? Well, the current system is even worse. Welfare traps mean that for incomes between typical levels of social welfare and typical levels of low-earning jobs, the effective rate of taxation is as high as 100%. Every increase in income is taken away by reducing welfare payments. From this point of view, BIFT is a big step forward for low-income earners.

Is it fair to give basic income to the rich? In BIFT that is unavoidable because BIFT avoids welfare traps. Not giving basic income to the rich would mean finding a cutoff point below which basic income is paid. But that would cause a welfare trap. Giving basic income to the rich is no problem because the only thing that matters in the end is the relationship between income before and after BIFT as shown on the graph. Moreover, for the rich basic income is small compared to income tax.

How can BIFT be adjusted to reduce the gap between rich and poor? The solution is to increase basic income and at the same time increase the tax rate to finance it. But this can only be done to a limited extent, because both these actions reduce the incentive to work, which ultimately reduces the total productivity and wealth of the country. To increase productivity, it is necessary to reduce basic income and the tax rate, but this again can only be done to a limited extent, otherwise the incidence of poverty will increase. Between these extremes there is a happy medium in which poverty is eliminated but a moderate rich-poor gradient remains. If the electorate understands how BIFT works (and it is certainly much simpler than the present system) that happy medium can be found by regular democratic processes.

Its simplicity and transparency mean that BIFT is much fairer than the present system. Everyone is treated equally and with dignity, and everyone is encouraged to work. The rules are clear, and it is harder to break them.

Right-wing distortions

It is common for right-wing voters to claim or believe that the poor are poor because they are lazy. In fact, the poor want to work just as hard as the rich - probably more so because they need the money more. It is the system that is causing poverty, not any assumed differences in personality between the rich and the poor. Until the rich and the right wing understand or admit this simple fact, there will be no progress.

The idea that poverty is the fault of the poor is an old one. Before the French revolution in the 18th Century, it was common to believe in inherent differences between rich and  poor people, or between nobility and ordinary people. The aristocracy somehow had aristocracy in their blood. The French philosopher Rousseau was one of those who exposed this idea as nonsense (e.g. in his "Discourse on inequality"), and it was objections of this sort that provoked the French revolution, which of course changed the world. But crazy ideas do not disappear overnight. The modern version of the nobility fallacy is the idea that the poor are poor because they are lazy. Many still seem to believe that if the poor only took advantage of the opportunities that a free society offers them, they could drag themselves out of poverty. We forget that everyone is born with different opportunities and for this reason it is much easier for some people to make money than others. Statistically, there will always be large numbers of people who fail to break through the poverty line. Unless we radically change the system, that is.

The stigma of unemployment

The welfare trap is not only a financial problem, it is also a psychological and social one. Current systems of means-tested social welfare and progressive income tax create two classes of people: employed and unemployed. The employed have many freedoms that the unemployed do not have. The unemployed are stigmatised. They get "handouts", which are embarrassing. They are made to feel like failures. They are given the impression that they must be lazy or stupid or both. If they don't feel like working, or lack confidence in their ability - no wonder. 

These fundamental problems would be eliminated by BIFT. Everyone would be treated equally. Everyone would have the same rights and obligations. Everyone would be equally motivated to work. Everyone would also be free not to work, and take responsibility for the consequences. The poor would be free to do what the rich always expected them to do, namely to drag themselves out of poverty. Just imagine: a system that treats everyone equally, but at the same time eliminates poverty. This is not a strange dream, but a realistic solution to a big problem. 

Of course, the rich would get a  bit of a shock if these things actually happened. The effect on their wealth would be minimal. The psychological effect would be much greater. They wouldn't feel so special anymore, just like the residents of West Berlin did not feel special any more after the wall fell - no matter how much they had wanted to wall to fall.

Effectively progressive income tax

Progressive income tax means that the rate of income tax increases as income increases. The more you earn, the higher the proportion of income that is taken away in tax. 

BIFT is not progressive, because the tax rate is flat. But the following table shows that it is effectively progressive. 

The calculations are very simple, based on a basic income of €1000 per month and a tax rate of 50%. These are round figures that have been chosen for convenience and they figures would of course be changed if BIFT were introduced. 

The table shows that when you look at the relationship between income before and after BIFT, the tax rate effectively increases with increasing income. That is what I mean by "effectively progressive". The higher your gross income, the higher the effective proportion of your gross income is paid in tax. In this regard, BIFT is no different from the present system.

Monthly income before BIFT (€/mo)
 Monthly income after BIFT (€/mo)
Effective tax rate
0
1000
-infinity
1 000
1 500
-50%
2 000
2 000
0%
3 000
2 500
17%
4 000
3 000
25%
5 000
3 500
30%
10 000
6 000
40%
100 000
51 000
49%


A short history of income tax and social security

Social security and progressive income tax belong to the greatest achievements of the workers' movements of the early 20th century. The appalling poverty produced by the industrial revolution was finally brought under control, without resorting to communism. Poverty still existed, but it was more tolerable.

Today, poverty is no longer tolerable. New technologies of all kinds are gradually increasing the wealth of the entire human race. If this wealth were shared, it would be easy to eliminate poverty while at the same time maintaining free enterprise. Moreover, the rich would still be rich. They have little to fear from BIFT.

Given this historical context it is now possible to see that current systems of means-tested social security and progressive income tax are maintaining poverty. They are based on the assumption that there will always be poverty. They incorporate welfare traps that guarantee that a certain proportion of the population will not enjoy the same incentive to work that most people enjoy, so a certain proportion of them will automatically stay or become poor. BIFT offers a realistic solution.


The social benefits of flat tax, when combined with basic income

We are used to right-wingers talking about the advantages of flat income tax (FT) - presumably for selfish reasons. But FT can also have important advantages from a left-wing viewpoint, when combined with BI. (Dear left-wing reader: Before rejecting this idea out of hand, please read to the end of this section!)

For low income earners, BIFT is far better than the current system, in which you lose your unemployment benefit as you earn more - either gradually or suddenly. It is even possible to lose income as a result of earning more! BIFT would put an end to that. Income would always increase in proportion with earnings. This change would be enormously valuable to people with low or precarious income. It would give them a kind of security that they never had before. They would be motivated to work more, knowing that their efforts will always be rewarded.

Another benefit of FT is that it can be paid immediately - as soon as the money is earned, or as soon as it changes hands. So it is possible to require that it must be paid immediately, just as consumption tax (value-added tax) is paid immediately. Once it is paid, the transaction is complete. There is no chance of a refund at the end of the financial year. That not only saves a lot of time preparing tax returns (for both taxpayers and accountants), it also reduces the rate of tax evasion and avoidance. The rich are constantly evading or avoiding tax by playing tricks with their annual statements, e.g. shifting income from one person to another, or putting it into different categories - not to mention the use of private equity funds and hedge funds by corporations. In a complex taxation system, there is always the possibility of finding loopholes that others have missed and using them in creative ways. The more complex the system, the more loopholes.

In general, only people with enough money to pay (good, creative, discrete) accountants and lawyers have the opportunity to play these games. The more money you give to creative expert advisers, the more good ways you can find to avoid or evade tax. Of course there are no official figures about this, because it is generally secret or covered up. But the little information we have suggests that these practices cost governments enormous amounts of money, because the contributions that they lose tend to be large contributions from the rich.

Flat taxes that reduce levels of tax evasion and avoidance could greatly increase funds available to governments for social services of all kinds. According to this principle, it is not only income tax that should be flat. Other forms of tax such as wealth, inheritance and transaction taxes should also be flat. In every case, the tax would be payable immediately and no later refund would be possible.

Consider the case of wealth tax. It is possible to calculate the total private wealth of an entire country and then to demand a small percentage of that wealth in annual tax. If that is done using a flat rate, it is possible to calculate in advance the total amount of tax that should be received, and easily track down missing payments.

A flat wealth tax would primarily affect the rich. The effect on lower and middle earners would be negligible, because their net wealth is usually close to zero (at least by comparison to high earners). Given the enormous and growing gap between rich and poor within modern democracies, and the fiscal problems being experienced by democratic governments, wealth taxes are urgently needed.

Left-wing governments like to appeal to their voters with the idea of progressive wealth tax - a tax that will only be paid by people whose wealth exceeds a certain amount, e.g. half a million euro. "Grannies" who own houses should not be taxed. This emotionally charged argument is fatally flawed, in ways that I have already argued. Moreover, a flat  tax on all wealth (no exceptions!) would be much less than 0.1% per year, perhaps more like 0.01%. A "granny" with €1m in combined assets would pay much less than €1000 per year in wealth tax (perhaps only €100) and she could easily afford that given that she would normally have independent income and would not have to pay the rent like other "grannies". At the same time very large amounts of tax revenue would be collected from the rich, by applying the same flat rate.

The popular idea of progressive wealth tax is an example of the rich fooling the poor. People who are constantly playing games with large amounts of money know that a flat wealth tax that must be paid (no exceptions, no rebates, no special conditions...) would hit them harder than a progressive wealth tax. But they also know that the general public is easily fooled by the alleged advantages of a progressive tax, so they keep quiet about it. Lefties, wake up!

A discussion of wealth tax would not be complete without mentioning the international dimension. Wealth taxes will only work if applied universally in different countries, otherwise the rich will simply move their wealth to another country to avoid tax. There is an urgent need for the closure of tax havens and for international agreements on wealth tax. It is clear that such international agreements are possible, the only thing that is lacking is the political will. If left-wing movements in many countries consistently attract attention to this problem, progress will be made. Further information here.

Incidentally consumption taxes (value-added tax), which are usually flat, tend to increase the gap between rich and poor and unless confined to luxury goods (not everyday Toyotos, but Ferraris and Lamborghinis). From a socialist viewpoint, any form of non-luxury-VAT is a bad thing. If the government needs revenue it should tax the rich, not the poor.

The bottom line

The political left wants to reduce poverty. On the whole, modern democracies have made significant progress in this direction. Today the left has, or should have, a new goal. The new goal should be to eliminate poverty completely. Steady improvements in technology and associated steady increases in total wealth mean that this new goal is easier to achieve today than it has ever been in the past.

The ideas I have presented here suggest that poverty can be eliminated if we take a new look at the idea of "flat tax". Flat tax is not necessarily about laissez-faire capitalism. If and only if it is combined with unconditional basic income, it is a powerful force to generate the income that governments need to eliminate poverty.

I wrote above about truth distortion by the political right. But to be honest, sometimes the left is no better. I have spoken to many well-meaning left-wing friends and colleagues about BIFT, and many times I never got past their automatic negative reaction to the term "flat tax". I could not utter these words without them freaking out. Dear friends, you will have to start thinking more rationally and objectively if we are to make progress toward eliminating poverty. Politics is not about clichés, it is about contructive proposals.

For further information on BIFT, click here

Other BIFT proposals

Here is an interesting proposal for a European Basic Income, combined with flat income tax. There are also good proposals for BIFT in Canada.

And now a word of warning: In Britain, BIFT is being proposed by the British Freedom and Responsibility party. While I am all for freedom and all for responsibility, and I essentially agree with their version of BIFT, I disagree with their other policies and would never vote for this party. There is a serious flaw in their philosophy: they blame their country's problems on inefficient government and quietly forget the main reason behind those increasing government deficits. That main reason is simply that the rich are not paying enough tax. This is especially true in Britain, a rich country with a high rate of poverty and surprisingly poor infrastructure. The crass difference between rich and poor is obvious to anyone with eyes to see. Publicity of this kind is bad for BIFT, because it associates BIFT with angry, arrogant right-wing politics. I have argued instead that BIFT is the best way to eliminate poverty in modern industrial democracies. It should therefore be considered a centre-left or centrist proposal.

References

Atkinson, A. B. (1996). Public economics in action: The basic income/flat tax proposal. Oxford University Press.

Carter, M. R., & Barrett, C. B. (2006). The economics of poverty traps and persistent poverty: An asset-based approach. Journal of Development Studies, 42(2), 178-199.

Sachs, J. (2008). The end of poverty: Economic possibilities for our time. European Journal of Dental Education, 12(s1), 17-21.

Scutella, R. (2004). Moves to a basic income-flat tax system in Australia: implications for the distribution of income and supply of labour. Melbourne Institute Working Paper No. 5/04. minerva-access.unimelb.edu.au, accessed 4 March 2018.


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