Citizen's Income Financing..

[SHERWICK]

Yep that's the beauty of it, no-one pays more tax and many pay less (assuming that we compensate pensioners properly).

The point is that it's a massive benefits cut for single parents to finance a tax giveaway to the richest families. Typically a single mum with 2 kids would see her benefits drop from £25,000 to £14,000 whilst a man earning £80,000 p/a with a non-working wife and 2 kids would see his net income increase by £14,000.

I don't think that a lot of the people who've been shouting for a CI have thought it through properly. It's the most right wing policy I've ever seen, it makes Maggie Thatcher look like Karl f***ing Marx. That's why I'm coming round to it.

To be honest, I never previously thought of Fluffy as being to the right of Attila the Hun, but given the above, I may have to reconsider that position...

[Goat]

I am not sure about your aggregated numbers as the relationship between state costs, receipts and various thresholds and percentages is not linear.

Fair enough, it's a pencil sketch rather than the final watercolour, there's a lot more detail to be brought in.

I think the point is that we cannot simply dismiss the idea out of hand as unaffordable, I think I've proven that in principal it might be.

I do not understand, how can you have additional net revenue to the state if people earning upto 100k or even more (majority) pay less to the state then now

Presumably there's a lot more single mothers picking up £25,000 in benefits than there are £100k wage earners.

The other big losers are pensioners, since all of their non state pension income is now taxed at 40%

It'll never happen but I don't think affordability is the issue.

[Guest eight]

so I am an idiot, because I am not impressed that about 60% of my earned income is taken from my children?

No, because of your constant reference to your own and only your own personal circumstances, trying to introduce some kind of weird moral aspect into a question about economics, and your view that communism is/was nothing more than a tax regime.

[Damik]

Perhaps you should read my post properly then.

The PDF includes £77bn for people over the age of 65, my example assumes that they continue to draw a state pension at the same rate as today. Note also that the savings in appendix#1 includes £90bn for pension costs whereas my example does not.

OK, fine. I did not see any math how you got from £3.7k pa to £6k pa for adults, but let's ignore it for now ...

So we are back with £6k pa for adults and £4k pa for kids.

And sorry I just do not trust your aggregated numbers.

So for example family earning currently £200k pa pays to the state in total about £84k pa. With the CI they would pay to the state only about 70k pa (70k*0.45 - 2*6k - 2*4k).

So even if the CI costs would be similar to the current costs (pensions and social care) (not likely with 6k and 4k CI) the state would have even less total revenue; meaning even bigger deficit.

Edited October 25, 2013 by Damik

[Damik]

No, because of your constant reference to your own and only your own personal circumstances, trying to introduce some kind of weird moral aspect into a question about economics, and your view that communism is/was nothing more than a tax regime.

just for your information about 30% of families (earning above average) are taxed at least 50%; not sure, how this is moral

and we tried it in the Eastern Europe to make all people equal via flat state income and progressive taxation, but it just did not work

[Damik]

Presumably there's a lot more single mothers picking up £25,000 in benefits than there are £100k wage earners.

The other big losers are pensioners, since all of their non state pension income is now taxed at 40%

It'll never happen but I don't think affordability is the issue.

http://www.archbishopofyorksymposium.org/?p=33

1/ based on these data you need to start taxing people heavily form about £30k pa to be able to support the state spending; with CI (6k + 4k) every family would be paying less tax; perhaps only singles would pay more

2/ I thought that all pensioners would also get just the 6k pa; plus there is no tax on 6kpa

3/ single mother with 2 kids gets 14k pa; with 3 kids 18k pa

currently only in London you would get 25k pa as a single mother, no?

[Damik]

The example that you seem obsessed with is invalid in any case, because you are using CI for 2 people but wages for only 1. This is very atypical; the unemployment rate is not 50%. Will you admit this now or spend 20 posts desperately trying to defend it?

Now, for 'average' people we expect no net change from CI, meaning that their £6k extra income is offset by £6k extra taxes. This would be done both by lowering tax free allowances and increasing rates. For your hypothetical £27k earner, who already pays an effective rate of 33% on 17.5k, we could lower the threshold to £5k and increase the effective rate to ~50%.

fluffy, I have solved the problem; we have a working CI (6k for edults and 4k for kids)

1/ right now person earning £50k pa gives to the state: £14k pa

2/ with CI:

- single earners - income tax 40% (50k * 0.4 - 6k = £14k)

- single earner with not working partner - income tax 52% (50k * 0.52 - 2 * 6k = £14k)

- single earner with not working partner and 1 kid - income tax 60% (50k * 0.60 - 2 * 6k - 4k = £14k)

- single earner with not working partner and 2 kids - income tax 68% (50k * 0.68 - 2 * 6k - 2 * 4k = £14k)

- single earner with not working partner and 3 kids - income tax 76% (50k * 0.76 - 2 * 6k - 3 * 4k = £14k)

[Goat]

And sorry I just do not trust your aggregated numbers.

Ok, lets have a look at them in detail and see what we can trust and what we can't.

Firstly I assume that we're happy with the £278bn cost, being a simple calculation based on population statistics. Likewise I don't think that the £100bn in benefit savings is in any doubt (£34bn child benefit/tax credits + £27bn income support + £7bn working tax credit + £3bn student grants/write offs + £29bn housing benefit = £100bn).

Additional tax revenue from abolishing personal allowances of £114bn. The CI Trust suggests a gain of £91 billion based on a 32% tax rate (£68bn tax + £23bn NIC), I have grossed this up to £114bn by multiplying by 40/32. Unfortunatly the CIT don't reference that bit of information but using their tax rate of 32% that implies somewhere ITRO of 28m people fully utilising their personal allowance; out of a total population of 50.9m over the age of 16 that looks a reasonable figure. Lets assume it's correct for now.

The last figure is the roughly £35bn gained by increasing the tax rate to 40%, which is based on the HMRC impact analysis linked in the earlier post. This is probably not a completely reliable figure because I've simply multiplied their 1p effect by 8 (to move from 32 to 40) and rounded it up to the nearest £5bn; counting against it is the fact that an 8p rise might disincentivise some workers leading to lower receipts but on the other side the current 32% tax/nic rate applies only to earned income wheras the 40% rate applies to all income. Since this is the smallest figure in the calculation I think that any error is likely to be trivial in the grand scheme of things.

I can't see any obvious flaws in my workings, can you?

Going back to your earlier point about not seeing how it can work if someone on £100k is better off, the big losers are single parent/low income families due to the reduction in their benefits and pensioners who see their tax rate doubled from 20% to 40% and lose personal allowances without gaining any benefit from CI.

[erat_forte]

...

Going back to your earlier point about not seeing how it can work if someone on £100k is better off, the big losers are single parent/low income families due to the reduction in their benefits and pensioners who see their tax rate doubled from 20% to 40% and lose personal allowances without gaining any benefit from CI.

They are only worse off if they stubbornly insist on staying home and doing nothing. The whole point of CI is that it encourages and actually empowers these people to do any amount of work they want to earn, no matter how small. A stay at home mum could make a few jars of jam to sell to the neighbours, earn £5 a week from that, without falling into the nightmare of 120% effective marginal tax rates as benefits are withdrawn faster than earnings.

[Damik]

Ok, lets have a look at them in detail and see what we can trust and what we can't.

Firstly I assume that we're happy with the £278bn cost, being a simple calculation based on population statistics.

this is from your original quote:

CI of £6,000 for all adults of working age and £4,000 for all children under 18 to replace all working age benefits including housing benefit, this is probably just about enough to live on. Eliminate all personal allowances and raise the basic rate of income tax to 40%.

Cost of the proposal (based on Citizens Income Trust) £200,400 million (adults) and £77,600 million (children), total cost £278 billion.

200 billions / 45 million adults = £4444 pa

77 billions / 15 million kids = £5133 pa

I am confused as based on your other post the adults should include pensioners

[(Blizzard)]

You cannot finance a citizen's income from income tax alone.

It's interesting to work out the numbers, as a thought experiment, so well done and that, but as a real idea it would be terrible.

Rents for the poorest people would rise immediately, and house prices would soon follow.

In a generation, all the citizen's income would have been stolen, and you'd just be left with an insane income tax and/or reduced benefits.

The only way to avoid this is to finance citizen's income from land-tax (and taxes on monopolies and other special privileges - radio spectrum licenses, oil extraction rights, that sort of thing), at least partially.

The reason that LVT/CI seems like a good idea is because it effectively means that we all collect the rent that we have all created from land that we all own.

It comes close to the 'ideal free-market' solution.

The alternatives are absolutely mad, we've just become accustomed to them.

[SHERWICK]

You cannot finance a citizen's income from income tax alone.

It's interesting to work out the numbers, as a thought experiment, so well done and that, but as a real idea it would be terrible.

Rents for the poorest people would rise immediately, and house prices would soon follow.

In a generation, all the citizen's income would have been stolen, and you'd just be left with an insane income tax and/or reduced benefits.

The only way to avoid this is to finance citizen's income from land-tax (and taxes on monopolies and other special privileges - radio spectrum licenses, oil extraction rights, that sort of thing), at least partially.

The reason that LVT/CI seems like a good idea is because it effectively means that we all collect the rent that we have all created from land that we all own.

It comes close to the 'ideal free-market' solution.

The alternatives are absolutely mad, we've just become accustomed to them.

Oh well, back to square one.

[Goat]

this is from your original quote:

Looks like I've applied the £4,000 rate to those under 24 and applied the £6,000 rate to 25-64 year olds. I think the confusion arises from resurecting an old post.

I am confused as based on your other post the adults should include pensioners

I don't know what gives you that idea, as I said previously I've not included any cost saving from the removal of state pensions and had intended to carry on paying them as before but without giving them an entitlement to CI.

Note that the current cost of the state pension is about £30bn higher than their entitlement would be under CI so I don't think they're hard done by in not getting CI although the other tax changes affect them disproportionately.

[Goat]

You cannot finance a citizen's income from income tax alone.

I think you can.

It's interesting to work out the numbers, as a thought experiment, so well done and that, but as a real idea it would be terrible.

Any more terrible than the current system of paying £25,000 in benefits for having a couple of kids whilst ensuring that the unemployed can't afford to take a job because the pay is less than the benefits they lose?

Rents for the poorest people would rise immediately, and house prices would soon follow.

How does that follow?

[(Blizzard)]

Oh well, back to square one.

Well, no, because it's still interesting to figure out if a CI can be financed, and at what level and so on.

Also, in practice, you might still need an income tax, at least initially.

I don't think the thread should be derailed by another discussion of LVT, but it has to be pointed out.

Edited October 26, 2013 by (Blizzard)

[erat_forte]

...

How does that follow?

I think the idea is that landlords / property monopolists / rent seekers will increase the cost of occupying land, until it is as high as they can get away with (why would they offer it cheaper than that?). This tends towards sucking all of the spare money out of peoples pockets - if two people have the same income, then the one who can minimise their other outgoings will outbid the other on a given property...

So CI funded from income tax will give some people more money - giving them more buying power to choose a better place to live - pushing up rents till the equilibrium reasserts itself.

I think that's the idea.

There's also the idea that taxing something discourages it - which Damik got right, high income tax encourages people to minimise their income, therefore also their outgoings, therefore shrinking the economy in general.

Transferring land rental from private unearned income to state redistribution via CI avoids this but it has an even higher emotional barrier than CI funded by income tax. [EDIT] and even more vested interests opposed to it.

Edited October 26, 2013 by erat_forte

[Damik]

Looks like I've applied the £4,000 rate to those under 24 and applied the £6,000 rate to 25-64 year olds. I think the confusion arises from resurecting an old post.

I don't know what gives you that idea, as I said previously I've not included any cost saving from the removal of state pensions and had intended to carry on paying them as before but without giving them an entitlement to CI.

Note that the current cost of the state pension is about £30bn higher than their entitlement would be under CI so I don't think they're hard done by in not getting CI although the other tax changes affect them disproportionately.

never mind; let's make even simpler example based on fluffy's orginal post where the pensions are CI as well:

CI for edults including pensioners: £6k pa

CI for 2 kids only: £4k pa

total CI costs: 45mil * 6k + 10mil * 4k = £310 billions

current costs of the pensions and all social care and benefits: 144 bill + 113 bill = £257 billions

CI completely replaces the pensions and the social care / benefits spending

----------------------------------------------------------------------------------------------------

based on that we are short of £53 billions (310-257)

so whatever we do we need to tax the middle and upper class (top 25% of earners) for another £53 billions

are these numbers correct???

[(Blizzard)]

I think you can.

I think you've misunderstood my point. I'm not claiming it's unaffordable.

You can make the numbers work (and well done for that, I thought no-one would be bothered).

It's just that the second round effects will eventually negate the benefit.

Any more terrible than the current system of paying £25,000 in benefits for having a couple of kids whilst ensuring that the unemployed can't afford to take a job because the pay is less than the benefits they lose?

Maybe, because you're going to be raising taxes and spending it on landlords. Landlords can only steal something like the average increase in wealth, they can't raise rents just because a few randomly chosen people are richer, so in that sense an unfair system is harder for them.

How does that follow?

Short answer - landlords, as a group, have monopoly price setting power, and we see this in practice with rising shop rents in booming retail areas.

This has been discussed elsewhere, and I don't want to derail the thread.

Edited October 26, 2013 by (Blizzard)

[(Blizzard)]

...

There's also the idea that taxing something discourages it - which Damik got right, high income tax encourages people to minimise their income, therefore also their outgoings, therefore shrinking the economy in general.

...

Yeah that too.

[Damik]

I think the idea is that landlords / property monopolists / rent seekers will increase the cost of occupying land, until it is as high as they can get away with (why would they offer it cheaper than that?). This tends towards sucking all of the spare money out of peoples pockets - if two people have the same income, then the one who can minimise their other outgoings will outbid the other on a given property...

So CI funded from income tax will give some people more money - giving them more buying power to choose a better place to live - pushing up rents till the equilibrium reasserts itself.

I think that's the idea.

There's also the idea that taxing something discourages it - which Damik got right, high income tax encourages people to minimise their income, therefore also their outgoings, therefore shrinking the economy in general.

Transferring land rental from private unearned income to state redistribution via CI avoids this but it has an even higher emotional barrier than CI funded by income tax. [EDIT] and even more vested interests opposed to it.

The problem with the LVT tax to finance the CI is that if you tax an average house (£160k) 2% pa average house owner / renter will have to fork out extra £266 pm on the top of his current taxation. In the South East even more.

If we tax the farm land the food prices would increase 30%.

And if the house prices half the LVT would collect only 50% of the original receipts, but the costs of the CI are still exactly the same. Perhaps increasing with the inflation.

[(Blizzard)]

1.The problem with the LVT tax to finance the CI is that if you tax an average house (£160k) 2% pa average house owner / renter will have to fork out extra £266 pm on the top of his current taxation. In the South East even more.

2.If we tax the farm land the food prices would increase 30%.

3.And if the house prices half the LVT would collect only 50% of the original receipts, but the costs of the CI are still exactly the same. Perhaps increasing with the inflation.

1 is irrelevant, and 2 is just plain wrong (and you know it, because I explained it before - economics is tricky, but remembering really isn't).

3. Is relevant though - I'm not sure a realistic citizens income, given the economy we have now, could be financed by LVT alone. I'd be interested to see those numbers, but I'm far to lazy to work that out myself.

I think the wider point is that all of this analysis misses second round effects, and second round effects are really the main purpose of both LVT and CI. If, for example, CI created a bunch of micro-entrepreneurs, then that could boost the economy to such an extent that it might negate a raised income tax, for example.

Those things are really difficult to analyse though.

Edited October 26, 2013 by (Blizzard)

[Damik]

Any more terrible than the current system of paying £25,000 in benefits for having a couple of kids whilst ensuring that the unemployed can't afford to take a job because the pay is less than the benefits they lose?

it is £25k, because of the high house prices / rents.

prices and rents are falling outside London

perhaps Labour will wake up one day and tell people that they can build small houses for £70k and small flats for £30k. surely a definite election winner; Tories are already descaling the planning process a bit

also now with the workfare the life on benefits does not seem to be so rosy

[Bora Horza]

The £6k adult/£4k child plus a separate pension scheme is unaffordable and it defeats one of the purposes behind a CI income – any work is worth doing because a CI is barely enough to provide the basics.

2 Adults and a child would generate a CI income of £18k, outside London at least that's actually a fairly good income and so far too high.

A CI stops you from starving, but rewards all work at any hours/almost any pay rate.

The current system often effectively punishes people for trying to improve their situation, a CI would end this.

...Rents for the poorest people would rise immediately, and house prices would soon follow....

Why would this happen? Under the current system many people have become very lazy and apathetic, they've lost drive.

Under the current system, if the rent goes up... it's the Governments problem because housing benefit pays for it.

Under a CI, if the rent goes up... it's the individuals problem. That means people will seek out alternatives, complain to MPs about the rent situation/planning situation etc.

I find much about a CI attractive, but I am concerned about affordability and I wonder if people supporting a CI are making the same mistakes that the Universal credits supporters are – oversimplifying a complicated situation.

For a start, how do you introduce it?

Suddenly in a 'big bang' event? That would mean hundreds of thousands of people facing eviction/destitution until the rents/job situation has stabilised.

[Goat]

never mind; let's make even simpler example based on fluffy's orginal post where the pensions are CI as well:

CI for edults including pensioners: £6k pa

CI for 2 kids only: £4k pa

total CI costs: 45mil * 6k + 10mil * 4k = £310 billions

current costs of the pensions and all social care and benefits: 144 bill + 113 bill = £257 billions

CI completely replaces the pensions and the social care / benefits spending

----------------------------------------------------------------------------------------------------

based on that we are short of £53 billions (310-257)

so whatever we do we need to tax the middle and upper class (top 25% of earners) for another £53 billions

are these numbers correct???

Erm, removing personal allowances would generate an additional £91bn, introduce a flat rate tax of 40% and your total tax increase would be ITRO £150bn.

What shall we do with the extra £100bn?

[Damik]

1 is irrelevant, and 2 is just plain wrong (and you know it, because I explained it before - economics is tricky, but remembering really isn't).

3. Is relevant though - I'm not sure a realistic citizens income, given the economy we have now, could be financed by LVT alone. I'd be interested to see those numbers, but I'm far to lazy to work that out myself.

how 1/ can be irrelevant if house owners (70% of population) will not vote for it ???

2/ nope; you did not