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Richard Parncutt, Uni Graz BIEN Congress, Ottobrunn/Munich, 14 September 2012

Universal Basic Income and Flat Income Tax (UBI-FIT) Tax justice, work incentive, economic democracy. Richard Parncutt, Uni Graz BIEN Congress, Ottobrunn/Munich, 14 September 2012. The context: Socialism vs capitalism. General features of group conflict

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Richard Parncutt, Uni Graz BIEN Congress, Ottobrunn/Munich, 14 September 2012

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  1. Universal Basic Income and Flat Income Tax (UBI-FIT)Tax justice, work incentive, economic democracy Richard Parncutt, Uni Graz BIEN Congress, Ottobrunn/Munich, 14 September 2012

  2. The context: Socialism vs capitalism General features of groupconflict • strong identitiesbased on difference • ignorance of Other group prejudice, moralarrogance • unfair (onesideisstronger) General principles of conflictresolution • mutual recognition • fairness, transparency • contactandknowledge • UBI-FIT approach Integrate principles from both sides: • socialist: reduce wealth gap • capitalist: increase incentive

  3. Cunning Strategy #1Avoid controversial ideologies Not: What would you do if you didn’t have to work?  anti-socialist knee-jerk …but instead: Let’s simplify tax-welfare system! Make more efficient, transparent, democratic.  Both left and right wing are interested

  4. Cunning Strategy #2Focus on universally agreed ideas Two basic principles: • Unemployed need enough to survive. • The more you work, the more you get. Who candisagreewiththat? UBI-FIT simplyrealisesthesetwoprinciples.

  5. Cunning Strategy #3 Focus on GINIR Gross-Income-Net-Income-Relationship - not the individual UBI rate or FIT rate

  6. My bias • Centre-left liberal-green • Belief in • regulated free enterprise • eliminating poverty • left-right cooperation • transparency  democracy Dreamed up UBI-FIT in Australia in 1987 New to the current scene  Sorry for re-inventing the wheel

  7. Problem #1Poverty • Onebillionpeopleareaffected • High rate even in rich countries • Risingwealthgap • Over 1000 US$-billionaires UBI would (almost) end poverty

  8. Problem #2Welfare trapsDie Zuverdienstgrenze als Sozialhilfefalle As income passes the welfare cut-off… • welfare is suddenly or gradually cut • equivalent to a tax bracket of 100% or more!  Suppress incentive • Reinforce class differences and conflict UBI-FIT would eliminate welfare traps

  9. Problem #3The cost of illegal activities 1. The poor Welfare fraud costs millions 2. Middle class Tax avoidance costs billions 3. The rich Global financial games cost trillions UBI-FIT stops #1 & tackles #2 Global transaction & wealth taxes tackle #3

  10. Problem #4The cost of inefficiency The cost of tax-welfarecomplexity: • Armies of accountantsandbureaucrats • General publicdoes not understand • Democracy does not work The systemis not inherentlycomplex! • Origin of complexity: Politicianswooingvoters UBI-FIT reduceswaste, increasestransparency

  11. Definitions • Gross income does not include UBI • Net income is disposable income • UBI must be both universal and unconditional (as Van Parijs explained)

  12. Progressive income tax in Austria2005-2009 Net income (k€/yr) Gross income (k€ /yr) Broken line: Extrapolated high rate  BI = 8.5 k€/yr = 708 €/mo

  13. Progressive income tax in Australia1 € ≈ 1.7 $ 45% Net income (k$/yr) 40% 30% 23 15% 0% Gross income (k$/yr) Broken line: Extrapolated high rate  BI = 23k$/yr = 13.1 k€/yr = 1090 €/mo

  14. Progressive income tax in Canadafederal not provincial; 1 € ≈ 1.6 $ Net income (k$/yr) 11.4 Gross income (k$/yr) Parameter: marginal tax rates Broken line: Extrapolated high rate  11.4k$/yr = 7.28 k€/yr = 607 €/mo

  15. Unconditional Basic Income UBI • Advantages • Eliminates poverty • Reducesbureacraticinterference • Wages more accurately reflect value • Disadvantages • May encourage long-term unemployment • Long-term unemployed are vulnerable

  16. Flat income tax FIT • Advantages • Payable immediately  harder to evade/avoid • Perceived as fair by the rich  politically stable • Disadvantages (without UBI) • Increases wealth gap • Disadvantages (with UBI) • ?

  17. Universal Basic Income + Flat Income Taxcf. Friedman & Rose (1980); Atkinson (1995); Strengmann-Kuhn (2005) break-even point basic income Arbitrary parameters: BI = 500 €/mo., FT = 50% Could be: BI = 700 €/mo, FT = 40% Main thing is the gross-net relationship, not the individual parameters!

  18. Setting the parameters • Basic income (500…800 €/mo) • high enough to eliminate poverty • poverty line in Austria: 60% median wage ≈ €900 • low enough to maintain incentive • Tax rate (35…50%) • high enough to finance BI and the rest • low enough to maintain incentive • Adjustment procedure • balance budget (zero deficit) • left-right negotiation

  19. Progressive taxationUrgently need to reduce the wealth gap • Flow • Consumption: Luxuries only! • Income: Flat (40%?) with UBI • Capital gains: Treat like income (gifts, inheritance, interest, speculation…) • Transactions: To reduce speculation • Stock • Households: none • Private wealth: flat (1%?), threshold ($1m?) • Companies, trusts: flat (1%?), no threshold • Environment • Rich have bigger environmental footprint

  20. Flat wealth taxesabove a threshold e.g. $1m ...are effectively progressive because only the rich have significant wealth (middle classes have moderate income but low capital) Example: 1% / year

  21. Consumption taxes are regressivee.g. VAT, Mehrwertsteuer Poor pay a higher & of income in tax  VAT contributestogrowingwealthgap • VAT only on (genuine) luxuries! • replace VAT bywealthtax • UBI couldbefinancedbywealthtax (orbycombination of different taxes: wealth, VAT, income, environment, transaction)

  22. UBI-FIT is effectively progressiveExample: BI = 500 (€/mo) and FT = 50%

  23. UBI-FIT:Progressive in only one way • Allows for anylevel of progressivity or income equity • Progressivity can be directly adjusted  transparency Don‘t combine 2 progressive systems! • unnecessary complexity, reduced transparency • opportunities for clever tax advisers

  24. Approaching UBI-FIT Incrementalism • Agree on long-term goal • Graduallyadjust GINIR over a fewyears • Monitor effects of changes; adjust

  25. Universal Basic Income and Flat Income Tax (UBI-FIT)Tax justice, work incentive, economic democracy Richard Parncutt, Uni Graz BIEN Congress, Ottobrunn/Munich, 14 September 2012

  26. Global Wealth Tax National governments are steeped in debt, a billion people live in poverty worldwide, and urgent warnings about climate change are being ignored. In all three cases, the main problem is money. But the money is available - in abundance. Economic globalisation is making the rich megarich. Worldwide, there are now over a thousand US$-billionaires. As concerned citizens across the world, we call on relevant global organisations such as the UN, IMF, World Bank, and G20 to negotiate a global agreement to tax all wealth - including all companies, trusts, and wealthy individuals - at a single rate of about 1% per year, in addition to existing non-wealth taxes. Exceptions should be limited to genuine non-profit organisations and individuals whose assets are less than about US$ 1 million.

  27. Global Wealth Tax Please… • Find thepetitionat change.org • Signit • Forward theaddress!

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