Universal Basic Income and Flat Income Tax
abschaffen mit bedingungslosem Grundeinkommen und pauschaler
Another text about the same idea: html
Presentation at BIEN
Munich 2012 - pdf
In France, the gilets
jaunes are asking big
welfare and taxation. How can the system be reformed so working-class
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
rich and poor, a basic income of €1000 per
month, no questions asked? In other
what if a universal basic income (BI) of €1000 per month was
combined with a
flat income tax (FT) of 50%?
in this example (€1000 and 50%) are
arbitrary. They have been chosen for illustration. They would be
adjusted in a democratic political
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
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
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
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
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:
good to be true?
of poverty: basic income would correspond roughly to the poverty line
smaller wealth gap: less difference between rich and poor
smaller gender wealth gap: less difference between disposable male and
work incentive: no welfare
traps (you don't lose your
benefit as your income increases)
freedom: work as much or as little as you want; no
stigmatisation of unemployment
meaningless bureacracy and invasion of privacy by tax and welfare
democracy, because a simpler system is easier for voters to understand
power for the far right: fewer deeply dissatisfied citizens for
populist politicians to prey on
power for democratically elected governments and less for corporations
(e.g. to address climate change)
and the far right
rise of the far right has brought us Trump,
Bolsonaro, and Brexit, not
to mention Lega Nord, FPÖ, AfD, Golden Dawn, Le Pen,
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
imitating 1930s Germany continues, the results will be
If we ask why the far right is so popular, different people
give different answers. The far-righters themselves tell us that
are (i) taking their jobs, (ii) diluting their culture, and (iii) even
(terrorism). These misleading ideas come from private media such as
the Murdoch press, which are controlling public opinion to
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
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
without passing them onto workers (there is seldom a "trickle down
effect"). The rich
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
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
In general, the amount of tax that an individual pays should depend on
their ability to pay, which depends on both wealth and
like things the way they are, and they are pulling the strings in the
background. That may seem like a hopeless situation, but the
of us still have our freedom of speech. If enough of us start telling
the truth, the system will change.
progressive income tax
A well-known instrument to reduce or control the wealth gap is
progressive income tax. If your income is low, you pay no tax.
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:
the UK, VAT (20% on most goods and services) is exacerbating poverty.
The same applies to many countries (but not the USA, which has no VAT
and sales taxes are lower). In the UK and other countries with
high VAT, people with low incomes pay a higher
proportion of their income in VAT than people with
high incomes. In other words, VAT is regressive,
of VAT can completely cancel out the progressivity of income
In the end, people are effectively paying about the same rate of tax on
every dollar they earn. The obvious solution is to get rid of VAT, but
no-one is talking about that, because the rich like it. The more money
the government gets from VAT, the less they need from the rich.
These are central problems in modern international economics
and politics, and although the task seems enormous, it is possible to
favors the rich. Details vary from country to country (more),
but the general principle is the same.
If I buy a piano to give music lessons, I can deduct the cost
the piano from my income and pay less income tax. That seems fair, but
it is not. First, the
rich are more likely to be working independently or starting new
businesses, generating costs that can be deducted. Second, the rich can
afford better accountants who know how to manipulate the tax-deduction
system. In this way, tax deductions primarily benefit the
rich (more). If I
need a piano to give piano lessons and I have no money, I
should not get a tax deduction. Instead, I should borrow the money and
pay it back from my earnings. That's what banks are for. The same
applies to any expenses incurred to produce additional income. A
simpler, fairer system with lower tax rates and no tax deductions at
all is possible, but no-one is talking about it. The rich want to pay
as little tax as possible, while at the same time keeping the public in
the dark about what is really happening.
The following figure, copied from the Austrian newspaper Der Standard
January 2019, illustrates the problem. The vertical axis is
the percentage of income that each Austrian effectively pays in tax.
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.
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
of VAT and petroleum tax. The result is close to a flat income tax
system. No wonder the wealth gap is growing.
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
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
people just one large basic income payment and canceling all other
welfare payments (exception: compensation for disabilities
prevent people from working), while at the same time taxing carbon to
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
income tax scales should be abandoned, for two reasons:
are not political demands. They are
is inherently progressive. In the above graph, if you earn
before BIFT, you get the same amount after BIFT, so you effectively pay
no tax. If you earn €10000 before BIFT, you get €6000
BIFT and pay effectively 40% of your
income in tax. The more you earn,
higher the effective tax rate, on a sliding scale.
simpler and more transparent to adjust progressivity by adjusting the
between BI and FT and nothing else. Voters are more likely to
understand a simpler process, which is therefore more democratic.
The main aims should be
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.
system more progressive and not just a part of it, and
simplify the system to make it harder for the rich to avoid or
new approach to
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
in which the
still rich, which makes the
realistic. Here it is:
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
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.
universal, unconditional basic income is sometimes called negative
Everybody gets it, rich or poor, so there would no longer be means
tests for benefits. Imagine that: no stigmatization and no infringement
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.
your gross income is €3000, your net income is €2500,
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%.
your income is much more, the tax rate approaches 50%. In other words,
gradually increases as your income increases. This is a
progressive taxation scheme, but because there are no tax
brackets, the scheme is continuously
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
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
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
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,
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
cases the budget can be balanced.
current relationship between income before welfare and/or tax and
income after welfare and/or tax is already remarkably
close to the above
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:
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
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.
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.
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
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
worthwhile to work part-time. BIFT solves the problem..
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
their parents. The rate for children is lower than for for adults, but
still more than the child support payments that parents
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.
would happen if our system of income tax and welfare payments followed
would receive a basic income. Most would receive the standard amount.
The disabled would get more, children would get less, and
might be special rates for pensioners. For illustration,
I have set the basic income in the graph to €1000 per month,
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.
(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
welfare recipients lose their benefit at some point as their income
"welfare trap"). No wonder the unemployed sometimes give the impression
of not wanting to work! The fault is in the system, not 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
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
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
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
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
money to survive and every human being has the right to keep a
reasonable fraction of each dollar earned.
may be curious about my economic qualifications. I never
studied economics, nor
have I published in an academic economics journal. Instead, I have many
publications in related
disciplines (psychology, sociology)
Master's degree in physics.
My everyday teaching and research in the interdisciplinary area known
musicology" also involves neuroscience, philosophy, computer science,
of science, all of which are
relevant to economics. I have a
strong interest in history, politics, ethics, and law.
ways of thinking
To understand BIFT, we need to radically change how we think about
income tax and welfare.
are not only worth what they can
earn on the free market. People also have an intrinsic
value, which is the same for everyone. This is a universal socialist
traps are not intrinsic or unavoidable. They
can be completely avoided, and everyone can be motivated to work to the
same extent. This is a universal capitalist principle.
welfare systems need not treat low and high income earners
differently. It is possible to treat everyone equally. This is
a universal democratic principle.
flat income tax does not necessarily favor the rich at the
expense of the poor. The combination of flat income tax
and universal basic
income is progressive.
Depending on how the two parameters are
set, redistribution can occur in either direction: either from rich to
poor or from poor to rich. If the basic income corresponds to the
poverty line, poverty is eliminated.
is not natural or inevitable, nor is it the fault of the poor. It is
created by economic systems, and can be eliminated by changing economic
& Barrett, 2006; Sachs, 2008).
a strong supporter of progressive taxation - a tried and
tested way to reduce the gap
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.
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
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
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
basic income, and the right would strive for the opposite.
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
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
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
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
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.
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
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!
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
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
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
The main points again
This idea is so great it is worth repeating the main points in a
different way. Here goes:
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
straight line, as shown in the graph.
income is the point where the rising line
crosses the vertical axis. For the sake of argument I have set this at €1000/ month; the
exact amount would
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.
how BIFT would work:
you had no gross income, you would get the basic income. BI
replace all existing benefits for people who are unemployed, studying,
disabled, retired, or without local citizenship, probably with
different rates for different categories. Children would receive a
lower rate, disabled higher.
to be true?
you got a job, however large or small, or started earning money
independently, you would keep the basic income and all further income
(including capital gains) would be taxed at the same flat rate
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
feasible to eliminate
traps, because people would
not lose their welfare as
income increased. Incentive would be independent of income.
fraud, because everyone
would receive "welfare" in the form of BI (also called
tax), and it would be linked to their ID card or passport.
tax evasion, because income
tax would generally be paid
in full, with no later refund. Regular wage earners would not need to
wait until the end of the year. (Capital gains would still be
income declarations for wage earners,
for the same reason.
Taxpayers, their advisers and
tax officers spend an enormous amount of time on this annual ritual.
This time would be saved.
not only would people have the BI to fall back on if
went wrong, but also any additional casual or part-time work would be
protected by a contract. All wages and fees would be paid
electronically, just as the basic income is paid electronically.
cash economy. Both
employers and employees would be required by law to ensure that all
wages are payed electronically and taxed immediately.
- Unfair wage structures. Wages
at the lower end, some of which are currently protected by minimum wage
legislation, would increase to reflect the true
value of the work (and the
people doing it).
if BI was close to the poverty line (however calculated).
This would be the most important achievement. Poverty kills - in
developing countries, by hunger, disease, and violence, and in
industrial countries, by reducing life expectancy. It is hopefully a
truism that matters of life and death are more important than financial
would also reduce the wealth
gap (between rich and poor)
and the gender
(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.
of tax evasion/avoidance, at the same time as introducing BIFT it may
be appropriate and opportune to phase out tax
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 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.
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:
left would celebrate the end of government interference in the lives of
the unemployed, and a system that is so complex that no-one understands
the whole thing, which ultimately benefits the rich because they can
afford the best tax advisors.
right would celebrate the downsizing of government and the reduction of
both public and private administrative costs (paying tax advisors).
They would celebrate the end of welfare fraud, being recipients of
left and right would celebrate the end of demotivating welfare traps
and a return
the system would become publicly comprehensible, making
it possible to subject it to a democratic process whose
outcome benefits the majority of voters.
poverty would be the greatest achievement. Communism was
to do that, but failed; instead it made almost everyone poor.
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
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
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.
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
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
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
(perhaps specifying limits on the size or rate of changes). The exact
level of basic income and the
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.
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.
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
the EU differ considerably in cost of living and average income.
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
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
most puzzling aspect of this simple proposal is the failure (refusal?)
of many people to understand it. Most people, it seems, do not believe
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
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.
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.
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).
explicitly and enthusiastically contradict Ockham's razor when they
relish in the complexity of social,
historical, cultural or political phenomena. They point
that one cannot possibly understand complex social phenomena without
becoming intimately acquainted with their detail. Many people who are
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
scientists think. Their humanities-oriented brains may not
grasp the mathematical significance of the present proposal.
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
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
for individuals also depends on whether they retain or lose that income
when they earn additional income. It follows that BI may be
current welfare rates, and recipients may still experience a net
benefit. Similarly, it is not enough to consider the flat tax
by itself; the effective tax rate is what counts in the end,
depends on both the FT rate and the BI rate. Humanities
are aware of the importance of seeing the big picture can surely
resonate to these ideas.
issues may become clearer if I explain some personal
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,
the failure to understand and communicate across the
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.
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
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
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
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.
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!
the idea that only rich countries can afford an unconditional basic
income. This is clearly not true. The proposal is to
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.
explain. Most countries have progressive tax scales. It is always
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
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.
even better solution is to add some wealth tax into the equation.
Wealth tax will only work if the rates are similar
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
Flat income tax: A crazy
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
taxes should be primarily paid by those who are in a good position to
pay them. The more you
tax is the opposite
of progressive tax.
In a flat-tax system, everyone pays the same rate of tax,
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
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.
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
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
today the gap is far bigger than 2:1 or even 10:1. The rich are
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
still there are people out there who believe in flat tax. Why? There
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
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
income and flat
income tax: A rational centre-left dream?
a surprising and radical approach to flat tax. I wish to show that
flat tax can be the solution
poverty, but only
of the following
conditions are fulfilled:
flat rate must be relatively high (e.g. 35 to 50% - instead of the 10
commonly advocated by flat tax fans).
also wish to show that the
unconditional basic income and flat income tax is effectively
progressive. This is not a
political claim; it is a simple
flat income tax must be combined with an unconditional
basic income that corresponds approximately to the poverty line.
is true, the
enormous. The political left now has the historic opportunity to eliminate
not merely reduce
unconditional basic income and flat income tax (BIFT) is a path to
about just one kind of tax: income tax. Another way to address poverty
increase government revenue
through wealth, carbon and transaction taxes, which can then be
used to balance the budget and improve social
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.
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
The basic idea of BIFT
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.
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
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.
rich would get
basic income, which is unconditional. But for
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
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.
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
On the whole, BIFT
would radically simplify social security payments. Many of the
currently investigate the "willingness to work" of unemployed people
would find themselves unemployed.
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 line. For the purpose of argument and for drawing the graph, the
flat rate has been set at 50%. The exact value would be
by democratic processes and financial constraints. It could be 40%, and
significant increases in wealth, inheritance and transaction taxes it
could even be 30%.
first thing to notice
about this graph
is that it is similar to the current relationship
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
make much difference, if we simply drew a line of best fit through the
current relationship between income before and after welfare/tax for
person, as it already exists in different countries.
there is an important
difference. In the
current system of
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
significantly, but your income after tax/welfare
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
There is no incentive.
welfare trap is an example of a poverty trap, because
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
systems will never eliminate poverty. Eliminating this problem
would be an important step toward
Is BIFT fair?
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?
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
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
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
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
adjusted to reduce the gap between rich and poor? The solution
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.
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 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
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
aristocracy somehow had aristocracy in their blood. The French
philosopher Rousseau was one of those who exposed this idea as nonsense
in his "Discourse on inequality"), and it was objections of this sort
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.
stigma of unemployment
welfare trap is not
only a financial
problem, it is also a psychological and social one. Current systems
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
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.
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.
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.
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.
progressive, because the tax rate is flat. But the following
table shows that it is effectively
calculations are very
simple, based on a basic income of €1000 per month
of 50%. These are round figures that have been chosen for convenience
and they figures would of course be changed if BIFT were
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.
income before BIFT (€/mo)
income after BIFT (€/mo)
A short history of income
tax and social security
security and progressive income tax belong to the greatest achievements
of the workers' movements of the early 20th century. The
produced by the industrial revolution was finally brought under
control, without resorting to communism. Poverty still existed, but it
was more tolerable.
poverty is no longer tolerable. New technologies of all kinds are
gradually increasing the wealth of the entire human race. If this
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.
this historical context it is now possible to see that current systems
of means-tested social security and progressive income tax are
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.
social benefits of flat tax, when combined with basic income
right-wingers talking about the advantages of flat income tax (FT) -
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
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
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
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
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
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
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
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
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,
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.
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
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
is an interesting proposal for a European Basic
Income, combined with flat income tax. There are also good proposals
for BIFT in Canada.
a word of warning: In Britain, BIFT is being
proposed by the British Freedom
party. While I am all for freedom and all
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
Atkinson, A. B. (1996). Public
economics in action: The basic income/flat tax proposal.
Oxford University Press.
M. R., & Barrett, C. B. (2006). The economics of poverty
traps and persistent poverty: An asset-based approach. Journal of Development
Sachs, J. (2008). The end of poverty: Economic possibilities for our
of Dental Education, 12(s1),
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.