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 Bring Back Truly Progressive Taxation and Eliminate Poverty with BIFT: Basic Income BI and Flat Tax FT
Richard Parncutt 1985-2024
About the author Quick intro 

As the gap between rich and poor widens, a growing number of people are struggling with unemployment, precarity, or insufficient income to pay for essentials. A promising solution is called BIFT: (unconditional) Basic Income and Flat (income) Tax.

BIFT is not being seriously discussed, let alone introduced, because people misunderstand it. They think:
  1. A basic income would be too expensive for the state. We can't finance it.
  2. With a basic income, nobody would want to work.
  3. A flat income tax would favor the rich.
In all three cases, the opposite is the case:
  1. (a) We already finance diverse social benefits. Basic income can be financed with existing taxes, of which income tax is the most reliable. (b) It is the current system that is too expensive. It encourages people to avoid or evade tax in countless ways. The richer you are, or the better your accountant is, the more tax you can avoid or evade.
  2. It is the current system that is demotivating. The welfare trap discourages people from working. When the unemployed accept poorly paid jobs, they lose their benefit and are no better off.
  3. The proposed rate of flat income tax is relatively high (30-50%). It would force high earners to pay more tax and make it harder for them to avoid tax.
The rich are happy that we don't understand these simple things, because they benefit massively from the current opaque, demotivating system. BIFT means transparency, which is something the rich and their political sidekicks on the right side of politics don't want.

From this we can learn that simplification of tax and welfare systems is a left-wing strategy. It helps all voters understand what they are voting for, which generally leads to better results for the left.

How can capitalism become sustainable?

As the world lurches from one crisis to the next, and the number of billionaires steadily increases, undermining democracy, many are talking about reforming capitalism to make it sustainable. But people have very different ideas about how to do that.

On the one hand, we need globally harmonized wealth taxes. That could stop the rich moving their wealth internationally to avoid tax. That should be clear.

But we also need to reform public economics, to improve quality of life for all people, regardless of wealth. That means reforming the way income is taxed, and reforming the way welfare payments are distributed. That is what this article is about.

The diagonal line on the graph

Check out the above graph. The diagonal line is the main point. It is a proposal for the relationship between gross income (defined here as income before tax and welfare, horizontal axis) and net income (income after tax and welfare, vertical axis) for individuals. The line basically says two things:
 The combination of BI and FT is called BIFT. The basic idea is radically different from what we are used to in modern democracies. Referring again to the graph,
 Would 40 to 50% income tax be too much? Hardly, given that everyone would also get €1000/month, tax free, no questions asked. Nothing like that ever happened before. That is surely a good deal. On the one hand, you would never fall below the poverty line, no matter what bad decisions you made or what kind of bad luck you had. On the other hand, you could still become as rich as you wanted. No matter how much you earned -- the more you earned, the more money you would take home. 

Children, disabled, foreigners

This text focuses on the average person, but there are important exceptions, which apply throughout this text:
 A vision for a better world

In "Marx in Soho: A Play on History", Howard Zinn proposed: "Give people what they need: food, medicine, clean air, pure water, trees and grass, pleasant homes to live in, some hours of work, more hours of leisure. Don't ask who deserves it. Every human being deserves it." BIFT is a way of making that happen in a practical and sustainable way.

Imagine achieving all of the following social goals, simultaneously:
A similar list was presented by Guy Standing in his book "Battling Eight Giants: Basic Income Now" (London: Bloomsbury, 2020). He argued that basic income (more than other possible social policies) would address inequality, insecurity, debt, stress, precarity, automation, populism, and extinction. 

The government of any country in the world could achieve all these points by replacing their current complex welfare and explicitly progressive income tax systems by BIFT. That may seem like a wild, exaggerated claim; but I am not aware of any good counterargument. Besides, BIFT has never happened before. The best way to test BIFT is to actually introduce it -- probably in stages (explained below) -- then to monitor progress.

Determining the exact values of BI and FT 

The values of BI and FT used for the graph are only for illustration. The exact values would be determined in a democratic political process. Socialists would prefer a higher rate of BI, and a higher rate of FT to finance it. Capitalists would prefer a lower rate of both BI and FT. The two groups would meet somewhere in the middle. The result would be fairer and more transparent than the current system.  

I am assuming that the government would roughly balance the books, paying out the same amount in BI as it receives in FT. In reality, things are not quite like that, but for the purpose of argument it's a reasonable assumption. Economic stability is an important factor. To ease the transition to BIFT, the line on the graph would initially be close to a line of best fit or regression line through the current relationship between gross and net income.  The exact numbers are not the main thing. Regardless of whether the BI is €800, €1000 or €1200/month, and whether the FT is 30%, 40%, or 50% -- the line on the graph would be straight and it would not pass through the origin.  The main criteria

In the interests of long-term stability, BIFT would fulfill the following four criteria proposed by Georg Quaas in 2017:
 BI + FT = BIFT: Combined and inseparable

It is important to understand that BIFT is about an inseparable combination of BI and FT. Check out the graph. There is only one line on it. The line shows the combined effect of BI and FT. That is all that matters. It can be misleading to consider BI alone, or FT alone. As Frank Sinatra crooned: "Love and marriage go together like a horse and carriage". 
 The art of political compromise

Imagine a peaceful society with a high standard of living and a sustainable economy. It can be achieved by striving for a balance between two principles: the right-wing principle of motivation to work and the left-wing principle of fairness.
We don't have to choose between those two alternatives. We can have both. BIFT shows how it would work.

For individuals, financial success in one's chosen career usually depends on two things: privilege and work/talent. You usually need both to succeed financially, but there are exceptions. Everyone knows stories of rags to riches (e.g., Bob Marley had no privilege, but certainly had talent, and he also worked hard). There are also stories of rich people who live off their inheritance and otherwise do very little (see any celebrity gossip magazine). And there are are the fallen billionaires, and lotto winners who squander everything. These extreme examples are especially interesting, so we remember them more easily that other everyday examples. But they are exceptional. In fact, most people need both privilege and work/talent to succeed. BIFT makes it possible for everyone to succeed financially by giving everyone a certain privilege (BI, corresponding to left-wing ideology), and rewarding everyone to the same extent for their work/talent (FT, a right-wing idea). In that way, BIFT can be truly democratic, catering for the majority.

Capitalism has achieved a lot, but it never managed to eliminate poverty. In a capitalist economy, a rich elite is in charge (democracy is not working), most people are struggling to get by (poverty is intrinsic), and the system is gradually destroying itself (biodiversity loss, climate change, nuclear threat). The communists similarly tried valiantly and idealistically to eliminate poverty, but failed. That is because someone has to be in charge, and power inevitably corrupts. Communism sounds great in theory, but in practice it tends to make everyone poor except for a small elite. It also has a remarkable tendency toward self-destruction. The failure of communism does not make capitalism any better. Humanity has tried repeatedly to make either communism or capitalism work, but neither solution was stable or sustainable.

BIFT offers a middle path. On the political spectrum, BIFT is centre-left. It lies between the traditional left (Labor) and the centre. BIFT is not anti-communist, nor is it anti-capitalist. It is about finding the best compromise. We already have a compromise of sorts, but it is not working very well. The compromise adopted by modern democratic states accepts capitalism as the main driver of wealth and tames it, preventing its more destructive laissez-faire tendencies. That's good, but we can do better.

The above graph is based on two well-known and widely accepted ideas:
  1. Regardless of income, everyone should always have enough money to live on. Freedom from poverty is a human right.
  2. The more you earn, the more you take home. People should be fairly rewarded for their hard work, good ideas, and social contributions.
Regardless of your political ideology, you can hardly disagree with either proposition. If you are poor and suddenly start to earn good money, you surely deserve to keep most of it. If you are rich and suddenly lose everything, you surely deserve a meal and a roof over your head. Nothing could be fairer than to treat everyone equally according to these two principles.

BIFT would treat everyone equally, abolishing the stigma of unemployment and class differences. Under BIFT, everyone would have the same rights and the same obligations, regardless of income. Everyone would have the right to work hard and earn more, the right to be lazy and earn less, the right to take time off for an indefinite period, the right to be creative, the right to explore new horizons, and the right to look after other people without risking poverty.

On the left side of politics, two different ways of eliminating poverty can be distinguished: eliminating unemployment and introducing universal BI. Contrary to popular belief, both are possible. Full employment means the government will offer a reasonable job to anyone who wants one, but will not force anyone to accept any job. Any government can do that simply by creating the money, as explained in Modern Monetary Theory. There is always a lot of work to do (in sustainable energy, promoting biodiversity, infrastructure, health and so on).

Creating money causes inflation, which in turn can be avoided by taxing the rich. The wealth of the rich is enormous and steadily increasing. The total global wealth of all billionaires is about $15tn and there is about $10tn in tax havens. This wealth must be taxed directly to reduce the power of the rich and move back in the direction of democracy.

Whereas many lefties and unionists prefer the idea of full employment, many greenies and liberals think that full employment would restrict people’s freedom too much, and argue for BI instead. Conversely, whereas many greenies and liberals prefer BI, many lefties and unionists point out that people need to work to feel wanted and useful, so it’s better to offer full employment. But there is no need to choose, because both full employment  and BI are possible at the same time. 

Benefits of BIFT

Imagine what would happen if the tax-welfare system were radically simplified and BIFT were introduced tomorrow:
 Can a single idea be that good? Some suspect not, but that is not a good argument. A good argument is one that engages with the specific issues, such as those just listed. So let's think about those specific issues.

Basic income: benefits and myths

Beyond the listed points, there are the usual, well-known benefits of BI.
There are also a series of myths about BI, which can easily be exposed and exploded.
 In the current system, if you are unemployed, you get unemployment benefit. Usually, it is not enough to live on. If it was too high, you would not be motivated to accept poorly paid jobs, and the rich could not get people to work for them (at least, not for the low wages they would like to pay). Therefore, the rich try to keep unemployment benefits low. Even if the rich were feeling generous, poverty would not necessarily be eliminated by raising the benefit, because that would reduce the motivation to work and hence the amount of work that gets done, with negative economic consequences. If you are on unemployment benefit and get a chance to earn a small amount of money, the money is deducted from your benefit. So there is no point doing that work! That's why the unemployed often refuse job offers. It's called the welfare trap. BIFT solves this problem by turning the system on its head, as shown in the figure above. Under BIFT, no matter how much money you have to spend every month, the amount goes up if you do extra paid work. In this way, BIFT motivates people to work more, regardless of their current income. BIFT would radically reduce the waste that is inherent in the present system. An example of waste is the money paid to employment officers to monitor recipients of unemployment benefits. (Are they really looking for work? Are they attending job interviews?) BIFT shows that this work is unnecessary. Another example is taxes not collected. The rich often pay little or no tax. They achieve that by playing with loopholes and international differences in taxation law. Governments typically lose much more in tax evasion (including international tax havens) than in welfare fraud (more). The solution is to require everyone to pay fair amounts of tax, and BIFT makes that possible.  BIFT could unleash an unprecedented surge of individual creativity -- the opposite of waste. For the first time, people would be free to choose what kind of work they do. As long as that is not happening, an enormous amount of human potential is going to waste.
Besides, there is plenty of money. Humanity has never been so rich, and the rich are hoarding unimaginably enormous amounts. There are 2000 billionaires and 50 million millionaires in today's world, and both groups are growing steadily. Governments just need to tax them in a normal way.

And governments can afford to be generous. When it comes to bailing out banks or airlines, increasing spending for the military, or subsidizing environmentally destructive fossil fuel industries, enormous amounts of money suddenly become available, which increases national debts.

Anyway, BIFT is remarkably similar to the present system. It costs nothing to draw a line of best fit through the current graph of gross income against net income (see the graph above).
Many people work for no money, and their work is absolutely essential. Without them, the system would collapse. Some are voluntarily looking after other people: children, the elderly, the disabled. These "carers" are more often women than men, which explains why women have less money than men on average, and more often live in poverty. Others are educating themselves (e.g., school children). Unemployment is inherent in today's economic systems. Economists agree that it will never go away. There is an obvious reason. the better technology gets, the less work there is to do. You cannot expect people to work for every bit of money they get when there is not enough work to do.

The rich can be as lazy as they like as long as someone is looking after their money. Most of the rich got most of their money without working. They either inherited it or manipulated the system to ensure the big money flowed their way. Usually both. If we had to work for every bit of money we got, inheritance would be illegal! At the very least there would be high inheritance taxes, say 50%. Beyond, that, billionaires never "earn" more than a tiny fraction of their money. To earn a billion dollars at 10 dollars per hour (24 hours a day, 7 days a week) would take 100 million hours, that's over 10,000 years.

Clearly, not everyone has to work. So why do we believe it? Ideas that we take for granted are often socially constructed by powerful people to serve their interests. The idea "everyone has to work" is promoted by the rich to ensure that the poor will keep working for them. The idea is also promoted by the middle classes, whose position in the pecking order depends on their support for the rich.

What is true is first that everyone needs enough money to live on, to ensure quality of life and second that everyone needs to be motivated to work, to ensure that the important work is done.
BIFT is a fair deal that is offered to everyone. The government gives everyone the BI, and in exchange, everyone pays a relatively high FT on all further income, to finance the BI. Everyone is treated equally. For the first time ever, rich and poor are treated equally. The rich won't like that: they can make more money the old way (no BI, less income tax). BIFT will stop the rich playing games with the system by legally requiring everyone to accept the same simple, transparent, fair deal.  Policians like to claim that they are using public money efficiently by making sure those who need it get it, and those who do not do not. From that perspective, BIFT is a bad idea. It is too inflexible! In other words, politicians can no longer manipulate welfare and taxation to attract voters in specific categories and win elections.

In fact, when it comes to ensuring people’s livelihoods, inflexibility is a virtue. The risk of arbitrary exceptions, discrimination, favoritism and so on is avoided. What is flexible is the numerical value of the BI and the FT, both of which can be adjusted in democratic political processes. After that, both values apply to all people equally.

The universal declaration of human rights is similarly inflexible. Everyone has the same rights and obligations, period. The need for left-wing economic theory

A 2019 article in The Guardian entitled "The new left economics", Andy Beckett observed that
For almost half a century, something vital has been missing from leftwing politics in western countries. Since the 70s, the left has changed how many people think about prejudice, personal identity and freedom. It has exposed capitalism’s cruelties. It has sometimes won elections, and sometimes governed effectively afterwards. But it has not been able to change fundamentally how wealth and work function in society – or even provide a compelling vision of how that might be done. The left, in short, has not had an economic policy.

BIFT is a response to that challenge. The world needs new left-wing economic theory and policy that can eliminate poverty and reduce the wealth gap in the 21st century.

BIFT is also a response to the challenge of climate change. If society is going to reduce emissions at all levels, and the economy depends considerably on burning carbon, the structure of the economy needs to be radically changed. In particular, people on low incomes will need extra money for carbon taxes on car driving, meat eating, and so on.

Left-wing economic theory is a diverse thing, and it even includes objections to BI. Many on the left have been suspicious about BI ever since Milton Friedman, a conservative US economist, proposed negative income tax, which is almost the same thing. Milton Friedman also inspired the unmitigated disaster of neoliberalism. It was part of his theory of freedom.

But something is not bad just because a bad person proposed it. Vegatarianism is not bad because Hitler was a vegetarian. The concept of BIFT that I am proposing is a general foundation that both the right and the left can use for their own purposes. The right can reduce BI way beyond the poverty line while at the same time reducing FT, which of course I totally oppose. The left can elevate BI above the poverty line while increasing FT to finance it. The point is to find a middle path that allows everyone to enjoy the benefits of both appropriately tamed capitalism (the source of wealth and abundance) and appropriately democratic socialism (the source of community and solidarity). The aim of this document is to describe how that middle path can be achieved in practice.

The main aim of right-wing politics is to maintain or increase the wealth of the rich, which usually means maintaining or exacerbating poverty. One important strategy is to lie about economics, and it helps to own the media. Therefore, the political left generally generally benefits from simplification of tax-welfare systems: This, then, is the left-wing economic theory that I am proposing: radical simplification of both tax and social security so that poverty can be eliminated and everyone is motivated to work (but free not to), and the right can no longer trick and deceive the left. Democracy based on human rights and honesty.

Financing BI

How would BI be financed? Many oppose BI because they think it would be too expensive. In fact, BIFT requires no additional funding at all, if the line on the above graph is a line of best fit through the existing complex relationship between net and gross income. It's a matter of adjusting the amount of BI and the amount of FT to balance the books. Said another way, BI can be financed by income tax, if both are simultaneously simplified.

BIFT would simplify income tax, making it harder to avoid. Since all income would be taxed at the same rate, the tax could often be collected immediately, without waiting until the end of the year. Simplifying the system might also mean eliminating certain kinds of tax deductions -- perhaps all of them. Like complex tax systems, tax deductions tend to benefit the rich, because the best accountants -- the ones only the rich can afford -- know best how to find loopholes and play with the system. From that point of view, it is the present system that is too expensive -- not BIFT.

Some have discussed financing BI with consumption taxes, which in my opinion is not a good idea, if they hurt the poor more than the rich. But in countries where consumption taxes are already quite high, it may be pragmatic for consumption taxes to contribute to financing BI within BIFT.

Guy Standing has proposed a basic income scheme underwritten by taxation on the rich. I am all in favor of wealth taxes. As the wealth gap between rich and poor widens and the number of billionaires increases, wealth taxes become all the more urgent. But I don't think BI should depend too much on wealth taxes, because they are politically unreliable. For BI to work, it should be founded on a reliable and sustainable source of income. Income tax is traditionally the biggest and most reliable source of state income.

Others have talked about inheritance taxes, transaction taxes, and carbon taxes. We need more of all of those, to reduce the wealth gap, and all can contribute to BI. Modern Monetary Theory may also be relevant so this discussion. But once we realize that BIFT can finance itself, such discussions may become unnecessary distractions.

The objection that "BIFT would be too expensive" is problematic in another way. Humanity has never been richer. There are about 3000 billionaires in the world, with a total wealth of $15 tn. If they paid normal and fair amounts of tax, there would be plenty of money for any beneficial project. The problem is not the expense -- it's the failure of governments to tax the rich fairly (or at all, in many cases). 

But even that's not relevant, if BIFT, seen as a new combination of welfare and income tax, would cost nothing. And that is true if the diagonal line on the above graph is a line of best fit relative to the current net-gross income relationship.

Would BIFT motivate people to work? 

Another familiar objection to basic income (BI) is that people would no longer want to work.

It is true that welfare payments can stifle incentive, but the reason is not because people are getting something for nothing. It's because welfare payments are cut when other income passes a threshold. It's called the welfare trap. If people are not rewarded for working more, they usually choose not to work more. That's the main reason why businesses complain that they cannot find workers even in times of high unemployment (more). To solve this problem, we must ensure that net income rises steadily and significantly as gross income rises. 

Another problem with the current system is that welfare offices are constantly trying to push people into jobs and careers that they don’t want. If the system motivated people to work, that would not be necessary. BIFT would solve both problems by
 BIFT would motivate everyone to work while at the same time giving everyone the freedom not to work. That would benefit everyone. Anyone who has ever been unemployed knows that there is nothing more depressing that not getting rewarded for extra work.

Imagine this scenario. You are unemployed and dependent on a BI of €1000 per month. Of that, €800 is fixed expenses: cheap rent, cheap food, cheap transport. You have only €200 to spend as you choose. Now suppose you are offered a half-time job that pays €1000 gross.
Adjusting the BI

A common objection to BI is this: the amount being proposed is too high. It is often higher than usual measures of the poverty line, and higher than the minimum total benefit currently received by the long-term unemployed.

A relatively high BI might be justified if it was less than gross national product divided by the (adult) population. But a high BI could have enormous political and macroeconomic consequences. The history of economic revolutions and radical reforms teaches us that it is better to change the political and economic landscape gradually, to encourage stability and avoid any future backlash.

Besides, in a democracy, BI can only be introduced if a majority of people agree with it. If the amount being proposed seems to high, BI won't happen. Unfortunately, many fear the BI will make people lazy -- especially if the BI is relatively high. Those people are unlikely to change their minds until they see with their own eyes that BIFT motivates everyone to work regardless of income.

The BI is often supposed to "meet a person's basic needs", but estimates of what that costs vary. The BI that I am proposing would be rather low compared to typical estimates -- less than the poverty line (however defined) or the minimum total benefit usually received by the long-term unemployed. A relatively low BI would be reasonable given that, for the first time, unemployed or unwaged people would be free to supplement their benefit for a few hours or a couple of days per week without losing any of it. The extra income would be taxed, but that tax burden would be much smaller than the burden of losing some or all of unemployment benefit.

Keeping that in mind, there are two ways to calculate the BI -- at least initially, when it is first introduced:
 When trying to introduce BI, we need to clarify that both BI and FT will be periodically adjusted in a democratic process. An agreement of that kind would allow the BI to be increased gradually after being introduced. If a majority of people understood that they would benefit from an increase in BI (approaching the poverty line), they would vote for it, and it would happen. In that way, poverty could finally be minimized or eliminated.

BIFT and party politics 

Some object that BIFT is too left-wing. The current system, as it exists in most democratic capitalist countries, is perceived to be normal and politically neutral. Compared to that, BI would be too left. In fact:
 Sometimes the left is its own worst enemy. Left-wingers of different kinds struggle with each other, allowing the right to swoop in and win the next election. We cannot let that happen in the case of BI. The task of eliminating poverty and creating a caring society is too important. To overcome the right's stubborn resistance, which will always be there, we need to unify the left; and the left needs to understand BIFT, for example by reading the next section.

Implicit progressivity

Commentators on the left may be unhappy that BIFT includes a flat tax. The term has a bad reputation. Some conservative and far-right voters advocate flat income tax, arguing that it's unfair to ask the rich to pay higher rates of income tax, as in progressive tax systems. But a FT of the kind that they want -- one without BI -- would make the rich even richer and the poor even poorer.

Current income tax regimes attempt to solve this problem by writing progressivity into taxation law. In other words, progressivity is explicit. Richer people pay a higher proportion of their income back in tax. That is supposed to stop the wealth gap between rich and poor from getting bigger. Unfortunately, it is not working.

In BIFT, the expression "flat tax" has a different meaning. The combination of BI and FT produces a taxation system that is implicitly progressive. To understand that, look again at the above graph.
The implicit progressivity of BIFT depends on how the two parameters, BI and FT, are set. The bigger the BI (or the bigger the FT), the more implicitly progressive the taxation becomes (and the more left-wing). The smaller the BI (or the smaller the FT), the less progressive (and the more right-wing).

With BIFT, you pay no tax if you earn less than the break-even point, corresponding roughly to the minimum full-time wage.  Let's say that is €2000 per month (different in different countries). If you earned that amount or less, under BIFT (with parameters set as in the graph) you would pay no tax. BIFT would boost incomes that are lower than the minimum wage and reduce higher incomes. Most people  perceive that as a fair solution.

What BIFT is not

Before proceeding, let me explode three further myths:
 If these claims sound too grand to be realistic, or too good to be true, please be prepared to see things from a new perspective. Remarkably few people manage to do that. 

Ending slavery and the working poor

A slave is a person who is forced to work or face serious consequences. The most serious consequence is death. Less serious consequences include punishment and poverty.

Democratic countries decided to end slavery long ago. But a tax-welfare system that forces people to work is a form of slavery: those who reject inappropriate work are threatened with poverty.

BIFT would abolish slavery completely, for the first time. No one would be forced to work against their will. At the same time, everyone would be motivated to work, because welfare traps would be eliminated.
 Denial of human equality has a long and shocking history. The Nazis coined the phrase lebensunwertes Leben (life unworthy of life) for people who were considered biologically inferior, including those that could not work for health reasons. Many of those people were murdered. Today, we want to ensure that nothing of that kind ever happens again. Universal BI can contribute by acknowledging the equal intrinsic worth of every person in a concrete and tangible way. Ending poverty

Humanity has achieved many things, including eliminating slavery and promoting democracy and human rights, including equal rights for women. All of these goals were achieved to a large extent, if not perfectly.

Today, the world is richer than ever before. It's time to eliminate poverty. That can be done if three conditions are fulfilled: The present system does none of these things -- a massive failure. BIFT solves all three problems simultaneously. These principles apply in any country, rich or poor. Instead of giving official development assistance to governmental and non-governmental organisations, where it sometimes mysteriously disappears, the governments of richer countries could give at least a part of that money direct to individuals, avoiding intermediaries. At the same time, the total amount of development assistance could be increased by introducing new wealth taxes (that should be easy given the rising number of billionaires and their rising collective wealth). People in the target country would need unambiguous ID cards that are linked to private registered bank accounts. Everyone, rich and poor, would receive the same rate, provided taxes for the rich were effectively increased by a larger amount (e.g., by new measures to prevent tax evasion and avoidance). The donor countries would help set up control structures to ensure the system works with a minimum of abuse or corruption. Countries with sexist legal systems would not qualify unless it was clear that women and girls had independent ID cards and bank accounts and corresponding equal rights. Weitere Infos

Basic income would, for the first time in history, realize the human right to a reasonable standard of living. It would reform public economics such that human rights were automatically achieved as an integral part of the system. Caring for the environment would also become an integral part; basic income would give people the means to deal rationally with environmental problems. Basic income is an appropriate foundation for public economics because it simultaneously promotes efficiency and equity -- treating all people equally, but also giving people the freedom to be different. weitere infos

Simplicity and transparency

Think about the complexity of tax and welfare systems and how that relates to transparency, fairness, and democracy.

Both tax and welfare are currently so complicated that veritable armies of bureaucrats and accountants are needed to understand and administer them. Like specialist surgeons that understand only one part of the body, experts in tax or welfare are typically responsible for only one part of the system and have trouble seeing the big picture.

That gives the rich an advantage. They pay accountants to exploit the system's complexity, finding loopholes that will enable them to evade or avoid tax. The implications are enormous. The accountants of the rich are constantly reducing their tax bills and depriving governments of revenue. They do this in both legal and illegal ways. The rich can easily succeed spectacularly in this game. For the middle classes, it's not so easy. Their accountants are more honest or less clever. The poor have no chance at all. They can't afford accountants.

The solution is not to give everyone a free accountant. The solution is to simplify the system. Clearly, that should be a central left-wing agenda. Astonishingly, it is not. Are we so used to the complexity and opacity of both welfare and tax that we forget what a simple system would be like?

Equity

Economic equity does not mean equal income or equal wealth. It means equal economic rights and opportunity. It means equal pay for equal work. Anything else would be arbitrary discrimination.

BIFT shows that it is possible for governments to treat everyone equally while at the same time eliminating poverty. That is not only a matter of handouts (the left-wing approach). It's also a matter of motivating people to work (the right-wing approach) and maintaining individual freedoms (which everyone should be concerned about).

Imagine a combined tax-welfare system that (i) eliminates poverty and (ii) is so simple and transparent that everyone can understand it. A system that treats people of all incomes with equal dignity and fairness, but also with equal strictness. Too good to be true?

In such a system, welfare and tax would change in several ways: Everyone, regardless of wealth or income, would be treated equally according to the same simple rules. That's equity! Imagine that: a world in which people are not only equal on paper, but equal in reality.

Implicit progressivity

The combination of BI and FT is progressive. The total tax paid relative to total income increases as income increases. Moreover, BIFT makes it harder for the rich to evade tax. That makes BIFT effectively more progressive than the current systems.

Tax progressivity means that the more you earn, the more income tax you pay as a percentage of all earned income. The system that we have at present in most countries is explicitly progressive: low income earners pay tax at a lower rate than high income earners (there are different income tax brackets).

BIFT is implicitly progressive. Mathematically, it is a combination of a highly progressive element (BI) and a regressive element (FT). The result is progressive. The more you earn, the greater proportion of your earnings are paid in tax, at the end of the day.

BIFT solves the problem of bracket creep (or fiscal drag). When inflation pushes wages and salaries into higher tax brackets, the effective tax rate increases although real earnings may remain constant. The problem can be solved by linking the boundaries between tax brackets to inflation. A better and more sustainable solution is to implement BIFT.

BIFT has an additional advantage: the rich can no longer evade or avoid tax by employing smart accountants. Because the system is so simple and transparent, there are hardly any tricks left to play. For that reason, BIFT is more progressive than the present system, in practice.

The graph is drawn on the assumption that BI would be €1000/month (more for people with disability, less for dependent children and foreigners) and FT would be 50%. Before readers jump to conclusions about these numbers, allow me to insist on another important point. By themselves, these numbers are misleading. The system I am proposing is very different from a BI of €1000/month considered alone, without fundamentally changing taxation. It is also very different from an FT of 50%, introduced without at the same time fundamentally changing welfare. Besides, these figures are no more than initial round-figure estimates. The main point is that the line in the graph is straight and does not go through the origin. These two principles would be enshrined into law -- preferably the constitution. Bending the line in any way, or allowing it to approach the origin, would be illegal.

bift graph

 The graph shows the relationship between income before BIFT and income after BIFT for two arbitrary parameter values:
  • BI =1000 €/month
  • FT = 50%
The parameter values can be set in different ways. This is only an example.
Let me briefly explain the progressivity of BIFT with reference to the graph. No matter how much money you earn, you are bound to be happy about this graph. The graph shows at a glance how BIFT works. Regardless of parameter values, the line always goes straight uphill and does not go through the origin.

A new perspective

Imagine a world in which everyone pays FT and receives BI according to the same simple rules. A system that does not distinguish between rich and poor. A system in which poverty is eliminated and the gap between high and low incomes/wealth is reduced.

It's possible if we adopt a new perspective. Imagine people actually adopting that perspective.

Imagine a system that motivates people to work without forcing them to work. Imagine a world in which freedom from poverty is guaranteed and the BI that is necessary to achieve freedom from poverty is a legal right that applies to everyone equally -- not a free handout or charitable donation that people have to beg for and be ashamed of.

Under BIFT, everyone, regardless of income, would receive BI, and everyone would pay FT. That would no longer divide society into two groups, because It's a bit like having solar cells on your roof. When the sun shines, you send electricity to the grid and earn money. When it's dark and cloudy, you take electricity from the grid and pay for it. The transition between these two "states" is continuous and (in a fair world) (and I know, this particular world is often not fair) you receive as much for the electricity you give as you are charged for the electricity you take.

The end of tax deductions, statements, and returns

In the current system, income earners pay tax on their income throughout the year. At the end of the year, they submit a claim for a tax return. The final amount of tax paid depends on this yearly statement.

A benefit of flat tax (FT) is it can be collected immediately and not at the end of the year. If in addition there are no tax deductions, making the system simpler and more transparent, most people would no longer need annual financial statements and tax returns. Accountants would have less work to do.

Under BIFT, there would be no tax deductions, no tax statements, and no tax returns for most people. All three would disappear.

This radical simplification is possible because both BI and FT involve flat rates. It would no longer be necessary to wait until the end of the year to calculate your tax. More often than that (probably every month) there would be an electronic financial transaction between each individual and the government. Those on low incomes would receive money and those on high incomes would pay. The amount woudl be calculated according to the above graph. Each transaction would be closed and complete.

Many people find it hard to imagine a world without tax deductions. Let me explain.

People love tax deductions because they reduce their tax bill. The trouble is, tax deductions also reduce the tax bill of the rich, and the rich save much more. The richer you are, the more you can pay accountants to dream up brilliant tax deduction schemes. In the end, tax deductions mean that people with low or medium incomes pay more tax, not less.

The government has to get its income from somewhere. Tax deductions are like a department store offering a 20% discount on items that are 50% overpriced. From this perspective, tax deductions are a gigantic trick, and most people seem to fall for it. It would be easier to reduce the tax rate and eliminate the deductions.

In a world without tax deductions, if you earned money, you would pay income tax. Full stop. If you had additional expenses as a result of your income-earning activities, or if you invested in the development of your business, that would be your problem and not the government's. If you needed extra money to invest in your business, you would borrow from the bank, which is what banks are for.

Too good to be true? Too hard to implement? Not really. Governments often change which expenses count as deductions and which do not (more). The solution is to phase out all tax deductions altogether over a period of a few years. That could be the same transition period during which BIFT is introduced.

The transition to BIFT and the effect on inflation and employment

Public economic systems are complex and their many elements interact in complex and sometimes unpredictable ways. The path toward BIFT should therefore be taken in relatively small steps, each time waiting for a new equilibrium to be established. Changes that are unnecessarily large or fast should be avoided.

The first step might be to draw a line of best fit through the current relationship between gross and net income such that the net income of low income earners slightly increased and that of high income earners  slightly fell. In this first stage, the BI would be relatively small. It would be subtracted from existing benefits so that for most receivers the total benefit would remained unchanged.

The BI would then be increased in a series of steps, each time reducing or eliminating corresponding benefits and adjusting FT to balance the national budget. The goal would be to eliminate poverty by gradually increasing BI to the poverty line, however defined. That way, the incentive to work would be maintained.

At every step toward BIFT, the relationship between the supply and demand of labor would change. Inflation might increase for two reasons:
 From an other perspective, BIFT would reduce the wealth gap: whereas poorer people would have more money to spend, richer people would have less. If that relationship was carefully managed, the effect on inflation would be small or negligible. 

Inflation could be reduced by increasing interest rates to limit the rate of private borrowing. Gradually, new stable relationships between inflation and employment would emerge. Unemployment would no longer be the problem that it is today, because it would no longer be linked to poverty. It would become more difficult to measure unemployment because more people would work part-time and there would be more flexibility in the duration of part-time work.

Why am I interested in this?

Perhaps my point will become clearer if I add a bit of personal history.

I first became interested in the idea of combining BI with FT when I was unemployed myself. In 1987, I finished writing my doctoral thesis at the University of New England in Armidale NSW Australia. I then got the chance to publish it as a book. But for that I needed another three months to revise the thesis, taking into account the examiners' many helpful suggestions. During that time I would have no income.

So I went to the local unemployment office and applied for the "dole". There was a form to fill in. It asked me to declare all income, which would be deducted from the handout. I did indeed have other income: I was playing the piano in a restaurant and being paid in cash. But there was no record of that income. I guess only the restaurant manager and myself knew about it. Should I declare it or not?

Then I looked at the other people standing in line. They were being asked the same question. The government was generously believing their answers, but at the same time encouraging them to be dishonest about their income. The system was also discouraging them to work. If an honest person was offered a few hours work for cash in that situation, s/he would be motivated not to accept the offer. How crazy is that?

The importance of encouraging honesty should not be underestimated. We live in a world of lies and liars.Trumpism is the tip of an iceberg. Dishonesty is paralyzing our political systems and our democracy. Take for example the climate denial that is regularly published in the Murdoch media (Newscorp). Climate denial is literally threatening the future survival of humanity. The same applies to international tax evasion, and many other political problems. Most of our existential human problems involve lying and dishonesty. We need to improve school education in the general area of morality and ethics and to promote a positive society based on personal trust, in which each individual's personal dignity depends on her or his own honesty and reliability.

Back then in Armidale NSW, I had been studying physics and doing a lot of mathematical modeling and computer programming. With that in mind, the solution was obvious: just take the current rather complex graph of net income against gross income and draw a straight line through it ("line of best fit", "regression line"). In other words: give everyone the "dole" and tax all income at the same flat rate. Treat everyone equally and close the unemployment office. Suddenly everyone would have enough to live on, everyone would be motivated to work, and the government would no longer encourage people to lie about their income. Bingo!

I also realised that BIFT is implicitly progressive, and realised how important it is for people to understand two points: First, under BIFT the more you earn the higher proportion of your income is paid in tax. Second, the tax brackets of the present system encourage dishonesty. Creative accounts use them to avoid tax by shifting income around. Tax evasion is regressive, if people on higher incomes (the ones who can afford good accountants) end up paying a smaller proportion of their income in tax than people on lower incomes. The best way to ensure that all income tax is paid in full is to make the tax rate flat.

Ever since then I have been trying to explain this idea to other people -- mostly in vain. What could be more surprising than an idea that hardly anyone understands -- although it would clearly benefit everyone and the whole society. And the idea is so simple!

I started by publishing a short article in Nucleus, the student newspaper of the University of New England. Later, I found out that the idea of negative income tax had been around for decades, but for some reason no-one had managed to introduce it and there was almost no discussion about it. It's a bit like global warming -- in the 1980s, as now, it was the most important thing I should have learned about in my physics training, but to my knowledge none of my teachers ever mentioned it.

Avoiding misunderstandings

BIFT is a centre-left idea. It would eliminate poverty and poverty traps. The rich would pay the bill, but the rich would also benefit from a more productive, dynamic society.

Many conservatives would like BIFT, even if it forced them to pay a bit more tax. BIFT would be fairer than the current system, taking some of the guilt out of being rich. BIFT would also reduce the size of government. Unemployment and tax offices would be múch smaller, which would save the government a lot of money. Most interestingly, BIFT would motivate the unemployed to work more than the present system does, by eliminating poverty traps. Conservative dreams would come true.

All the same, some left-wingers throw up their arms in horror. There are two main left-wing objections, and both are based on misunderstandings. Meanwhile, some right-wing readers will also object to BIFT; but for entirely different reasons. Can we afford it?

Indeed. Since political conservatives like this question so much, let me get to the point. The question is not whether we can afford BIFT. The question is whether we can afford the current system.

First, BIFT is not about giving people a new handout. It is about fundamentally restructuring the entire tax-welfare system. It is about drawing a line of best fit (a regression line) through an existing graph: the current complex relationship between income before and after tax/welfare, as it exists in different modern democratic-capitalist economies. The handouts exist already and they will not disappear. But the ways in which handouts are calculated and interact with each other and with taxation are urgently in need of repair.

Second, the present system is enormously inefficient. The welfare and tax systems of modern democracies both have massively expensive inherent problems: Problems of this kind can be addressed by fundamentally restructuring and simplifying tax-welfare systems. At the same time, other social, economic, political, and ethical goals can be achieved. The idea behind the graph (a straight line that does not go through the origin) is flexible enough to allow for a wide range of solutions: The question at the start is not which of these options we want. The question is whether we have the courage to fundamentally reform the system, to allow future politicians, economists, and the general public to choose freely between options of this kind in an open democratic process. The optimal solution for everybody (the utilitarian goal of the greatest good for the greatest number) is in any case somewhere near the middle, in between the above four options.

BIFT would be cheaper than the current system in a broad perspective, and it would motivate people to work more than the current system. By improving transparency and reducing the wealth gap, it would facilitate the transition to a sustainable future economy. It is not possible to check these claims empirically in advance, although economic models could make interesting predictions. A more reliable option is to accept the clear arguments in favor of BIFT and introduce it on a large scale during a transition period of a few years, carefully monitoring how things develop.

Democratic adjustment of BIFT

The values of BI and FT would be determined by a democratic political process. Politicians on the left would try to increase both, while politicians on the right would try to reduce both.

Because BIFT is so simple, it would be easy to predict the consequences of such changes, so people would really understand what they were voting for. People without the privilege of a good education would no longer be tricked into voting conservative by privately owned media. They could make informed decisions and act in their self-interest.

Regardless of the outcome of such a process, BIFT would be a victory for the left. It would eliminate poverty if BI was high enough (I mean actually gone -- can you imagine that?) and reduce the gap between rich and poor if FT was high enough.

Speaking of democracy, imagine a situation where BIFT is already in force. Some people look at the straight line in the graph and start thinking about bending it. The following arguments suggest that they would never succeed in doing that. Instead, they would learn the virtues of keeping the line straight. Here is how it might happen: Said another way: life becomes much simpler when the line on the graph is kept straight by law, which prevents such misleading discussions from even starting. The only real question is how to set the two parameters BI and FT.

What BIFT is not

To avoid inevitable misunderstandings, allow me to emphasize what BIFT is not. The current system has been tacked together by generations of politicians trying to win elections. In order to attract a particular group of voters, politicians try to do them a visible financial favor. Often, it is not a favor at all, because it interacts with other influences on income. There is no such thing as a free lunch, as they say. After many such elections, the result is a mess.

BIFT would clean up the mess by making this familiar election trick impossible or illegal. The government would be required by law to treat different groups of people equally (that is, according to the same simple mathematical principles) when calculating welfare and tax (exceptions: people with disabilities,  children, foreigners). In this way, BIFT would explicitly avoid arbitrary discrimination or special treatment.

The paradox of simplicity and fairness

BIFT is often misunderstood, as if people didn't want to solve social problems. That is a very strange phenomenon and I wish I understood it better. For the moment, let me clarify two points: Unfortunately, many people refuse to believe that a system of welfare and taxation could be either simple or fair, let alone both at the same time. It's understandable. We are so used to the current complicated system that we have lost the ability to appreciate the benefits of simplicity and clarity. We have forgotten what it is like to actually understand how the system works. We are so used to politicians and economists trying to trick people or rip them off that we expect every economic reform proposal to be a trick or a ripoff. Because in truth, most of them are.

For a change, BIFT is not a trick. It is too simple for that. Its power lies in its simplicity. So please trust me long enough to read another couple of pages below before making a judgment or surfing elsewhere. Nor is BIFT politically left or right. It is politically neutral. It is a new foundation for productive, fair collaboration between left and right. Whereas the most immediate benefits would be felt on the left as poverty was effectively eliminated, the right would also benefit from improved long-term financial stability.

In case you suspect a conflict of interest, which is always possible in any text of any kind about money, I should clarify that I, the author of this text, have only one thing to gain from this idea being more widely understood, and that is the satisfaction of living in a saner world. Spreading sanity can be a very satisfying activity! At least I think it can be.

I haven't done the calculations, but I guess that BIFT would increase my annual income tax bill a little (after subtracting the new BI). My take-home pay, averaged over the year, would be less. That is surely a small price to pay for the satisfaction of seeing poverty eliminated and living in a fairer, more democratic society.

What is the right level of BI?

Some have proposed a BI of more than €1000/month. I have seen proposals for €1200, €1700 and even €2500. It's not a good idea: Further arguments for BI

There are so many good arguments, it's hard to know where to begin.

Politics needs visions. Without visions we would never have achieved democracy, the end of slavery, women's rights, or the separation of church and state.

Implementing human rights. Imagine a world of individual freedom, human rights, and equal opportunity. A world in which these ideals were not only talked about but actually achieved, for everyone -- regardless of cultural background, gender, age, disability and so on. What would that world be like?

The value of actions. Money is supposed to reflect value, and capitalism is supposed to value actions (good ideas, hard work) that benefit society. The system doesn't work very well: a lawyer may earn ten times what a nurse earns, but only nurses save lives. A CEO may "earn" a thousand times more than a worker in the same company and amass a million times more wealth. In such cases, the "invisible hand" of the free market fails spectacularly. But capitalism can be improved by adapting and regulating it. At the very least we should avoid poverty, the worst economic consequence. In the current system, employers sometimes complain that they can't find people to fill jobs, although there are plenty of unemployed. Those employers need to understand the free market. If you can't find someone to do a particular job, you have to either look harder or or offer a higher wage. When you finally find someone, the wage you are offering is an estimate of the current value of that work.

The value of people. Imagine a world in which, in addition to the value of actions, every person is valued, regardless of his or her actions. A world in which the equal, inherent, and inalienable value of every person is recognized in national constitutions as the ultimate foundation of national and international politics.

Sharing privilege more equally. Many of those who oppose BI have been receiving a kind of BI all their lives: the privilege of being born into the middle or rich class in a rich country and going to a good school. That is surely the main reason why some people enjoy wealth and success and others get stuck in a cycle of poverty and failure. BI would be a big step toward equality of opportunity, which many consider to be the foundation of capitalism.

Sharing natural resources. Natural resources are often taken without replacement and traded on markets. Wealth of this kind should be distributed equally as BI. A good example is fossil fuels. CEOs of big oil, coal and gas companies get ridiculously rich from natural resources that did not originally belong to them. Depending on your political or legal philosophy, fossil fuels "belong" to either everyone equally, no-one at all, or indigenous landowners. Fossil fuels also cause environmental damage that will cost future generations trillions in storms, crop failures, water shortages, and coastal flooding.

Human value = BI. Imagine a world in which the inherent value of each person is not just an empty phrase but something that is actually implemented. A world in which everyone, regardless of their independent income from different sources, receives an unconditional BI corresponding approximately to the poverty line in their country of residence -- automatically, no questions asked. (The exact value of BI would not be determined by the poverty line, for which different definitions exist, but by a political process, explained below.) 

What about the "working poor"? There would no longer be any "working poor". The BI would avoid poverty even for the completely unemployed. Beyond that everyone would be free to work as little or as much as they could or wanted and keep about half of their earnings.

Say goodbye to welfare traps! In the current system, unemployment benefits are cut when people find jobs. So it's often not worthwhile to take a poorly-paid part-time job. But a poorly-paid part-time job is often all the capitalist economy can offer the unemployed. The result is well-known, because we are surrounded by it: chronic long-term unemployment, psychological depression, inter-class conflict, and the political far right. The welfare trap is one of our most serious problems. In fact, it is strangling our society. Countless people are stuck inside this trap. No wonder they are frustrated. Eliminating the welfare trap is one of the great challenges, and BIFT would achieve it.

Why give BI to the rich?

For many, this is a stumbling block. But there is an easy answer. WIth BIFT the rich will have less net income than the have now. It makes no sense to consider BI by itself without simultaeously considering FT:

Means-tested benefits create a two-class society. Someone has to decide who gets the benefits and who doesn't. That involves applying arbitrary criteria and snooping into people's private lives. Unemployment offices all over the world employ countless people to carry out this unnecessary and degrading work. It's time to stop treating the unemployed as second-class citizens.

The solution is to give everyone BI and ensure the rich pay their taxes, by simplifying the system and making it more transparent. In the end, the rich will have less money and low-income earners will have more security.

At last: A fair income tax system

By "fair" I essentially mean treating everyone equally.

An end to tax evasion and tax avoidance. Everyone has to pay a fair amount of tax. Imagine a world in which that included the rich. As soon as anyone earned money, a percentage (flat rate) would go to the government. As soon as your wealth increased, or the wealth of the company that you own, a percentage of the increase (flat rate) would go to the government. Straight away, or as soon as conveniently possible.

Law and order. People worry about welfare fraud. Of course it exists. But tax evasion is a much bigger problem, especially when you think of global tax havens. If welfare fraud costs millions, tax evasion costs billions. BIFT would reduce welfare fraud by putting everyone on welfare, and it would save much more by reducing tax avoidance.

Additional taxes. BIFT would reduce the wealth gap, but not enough. We also need additional taxes on wealth, environmental damage, and international transactions. Like BI and FT, these would be applied by simple rules that are the same for everyone. But the present proposal would work even without those extra taxes.

Realising human rights

Freedom from poverty is included in the Universal Declaration of Human Rights. The trouble is, no country in the world is actually implementing this agreement, because no country in the world has an unconditional BI. That is a pretty bad track record for humanity in the early 21st Century. We had better get a move on.

According to Article 25 of the Universal Declaration of Human Rights,
(1) 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.

(2) Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

These things can be guaranteed with a universal BI. Whether they can be guaranteed any other way is a good question. Many countries are trying to solve these problems by conventional welfare payments, but data on poverty rates suggest that not many are succeeding. When bureacrats try to evaluate countless individual cases, their work is expensive, their success is limited, and they constantly infringe the right to privacy of their clients. Article 12 of the Universal Declaration of Human Rights provides that
Article 12. No one shall be subjected to arbitrary interference with his privacy, family, home or correspondence, nor to attacks upon his honour and reputation. Everyone has the right to the protection of the law against such interference or attacks.

Unemployment offices are infringing this right all the time! They believe that they have no choice but to pry into people's private lives, in order to guarantee that the welfare system is fairly administered. This is not true. It is fairer, more efficient, and more respectful -- all three of these things -- to give everyone a BI (flat rate) and tax all other income (flat rate).

In short: BIFT would allow economic rights that are guaranteed in the Universal Declaration of Human Rights to be actually achieved for the first time.

Redistributing wealth

Imagine a radically simplified tax-welfare system that makes it harder for the rich to avoid or evade tax. For an individual rich person, the difference between tax paid before and after introducing the new system would be bigger than the BI that everyone receives. At the end of the day, the rich would have a little less money (relative to what they have now) and the poor (or those that used to be poor) would have a lot more money (relative to what they have now).

There is a lot of money in the world. There were 1,810 dollar billionaires on the 2016 Forbes list, 89% of whom were men. They altogether owned $6.5 trillion – as much as the bottom 70% of humanity (more). If this money was distributed equally among the entire world's population, each woman, man and child would get $1000. That's enough to live on for more than a year above a poverty line of $2 per day.

This example shows that there is now enough money in the world to eliminate poverty everywhere, by redistributing part of the wealth of the rich. It would not be necessary to redistribute all of their wealth. The rich would stay rich and there would still be a big gap between the rich and the not so rich.

How could governments get hold of this money? It's not as hard as many people think. The government just has to change the law. By introducing or increasing wealth taxes. By harmonizing wealth taxes internationally to prevent capital flight. By simplifying the law both within and between countries to reduce opportunities to evade or avoid tax. By improving international agreements to suppress tax havens. All of these things are possible if politicians have a clear approach that voters can understand.

That makes eliminating poverty a realistic, win-win proposition. It is no longer a dangerous revolutionary battle-cry. So why don't we go ahead and do it?

Of course, the rich (with some refreshing exceptions) would try to block such a development. But that's not the only problem. There is another big obstacle, it seems. The rest of us find it hard to imagine a world without poverty, because it never happened before.

Imagine a different world

Can you imagine the grim predictions of climate science actually coming true? Most people can't, because they are unprecedented. That is why so little is being done to prevent a future global climate catastrophe.

Going back in time, it was hard to imagine the French revolution before it happened, or the vote for women, or the universal declaration of human rights. But today, after these important historical developments, we take them for granted and consider them essential. We have no intention of going back to a world without freedom, equality, and solidarity, or without equal rights for women, or without human rights.

Now, imagine a world in which we take it for grantedthat poverty has been eliminated and will never come back. The real possibility of introducing a universal BI means that a world of that kind is now possible. So there is no longer any particular reason why we should not decide to achieve it.
It could merely be a matter of attitude! Imagine that.

Addressing the global environmental crisis

Economies have always needed natural resources, and natural resources have always been limited. "Economic growth" is traditionally presented as something positive, but today it may be the biggest force driving environmental destruction.

In rich countries, we have passed the limit of ecological sustainability. To get back on track, we need a sustainable economy with zero or negative economic growth. Poorer countries still need economic growth, but the growth must be environmentally sustainable.

BIFT would move the economy in the direction of a new ecological balance, in two ways. First, it would eliminate the existential necessity of work. Under BIFT, work and its benefits would become voluntary. Second, it would distribute the incentive to work more equally across socio-economic classes.

Both of these features mean that BIFT would be fairer than the current system. Everyone would be treated equally. Low income earners could survive without working, but working would always improve their quality of life and enable them to transition to different socio-economic levels. High income earners would pay more tax, but they would still be financially rewarded for their work or success.

Eliminating poverty in poorer and richer countries

Many people think that only rich countries can afford BI. Not true. Every country has its own tax/welfare system and its own graph of income after tax/welfare against income before .

Even without wealth taxes, BI can be financed by converting that graph to a straight line -- a "line of best fit" or a "regression line" that balances the budget. The point where the line crosses the vertical axis would be the BI. This process could happen in any country, because the existing relationship between income before and after tax/welfare in most countries is already surprisingly close to that straight line. To finance a BI, most countries could also get additional revenue from wealth, transaction, or environment taxes, especially if there were international agreements to introduce, harmonize, and gradually increase those taxes.

BI would differ a lot from country to country, but introducing BI in different countries could help reduce the differences. According to the World Bank, the poverty line in poorer countries is $1.90 per day or $60 per month. But in the USA, the poverty line is about $1000 per month, according to the Census Bureau. In Europe, when the poverty line is defined as 60% of median income, it is about €1000 per month.

BI can make capitalism sustainable

In a market-based economy characteristed by long-term unemployment, a BI that corresponds roughly to the poverty line is the only reliable way to eliminate poverty. In a free market, there are always winners and losers, so there is always unemployment. Governments need to ensure that everyone can participate in the market and human rights are respected. BI is the only reliable solution to this problem.

That's why, in the board game of Monopoly, every player, rich or poor, gets a BI of $200, paid every time the player passes "go". Without that BI, you can't play Monopoly. Of course, capitalism is only sustainable if monopolies are prevented by democratic and legal mechanisms, but that is a different issue (more).

Equality of opportunity can only be guaranteed if governments give everyone (regardless of other wealth or income) an amount corresponding to the poverty line, on the condition that in return everyone (regardless of wealth or income) gives back a certain proportion of all wealth and a certain proportion of all income. That's a fair deal for everyone, regardless of differences in wealth in income.

BI is consistent with human rights. It not only treats everyone equally and with dignity, regardless of wealth or income -- it also controls and reduces the gap between rich and poor. The rising wealth gap is one of the world's most pressing problems, and BI could be part of the solution; we also need new wealth, transaction and environment taxes.

BI could help humanity address the challenge of climate change. Climate today's biggest issue, because everything depends on it. Many people regard climate change as a consequence of capitalism. Capitalism created climate change and is preventing solutions; therefore, we need to throw it out. Or so the logic goes. But capitalism could only be ended violently, and the result is unlikely to be democratic. We need a more moderate solution that maintains a reasonable level of democracy (better than what we have now). Capitalism needs to be tamed and brought under democratic control. BI is a promising way to achieve that.

Tackling poverty and climate change at the same time

The carbon fee and dividend (CF&D) approach to reducing carbon emissions is to tax carbon (or charge a "fee", for those who are allergic to the word "tax") and give the entire proceeds back to the general population, divided equally ("dividend"). That way, everyone could afford the tax (there would be no French yellow vest effect). In fact, people on low incomes would generally be better off.

The carbon fee would also apply to imported goods that have not already been carbon-taxed, which would put other countries under pressure to adopt a similar system. Both fee and dividend would be introduced gradually. The idea is nicely explained by Californian entrepreneur Dan Miller (Roda group) in a Ted talk.

CF&D is the same as BIFT (introduced below) with one exception: it taxes carbon rather than income. The rate of tax is flat in both cases. If the two ideas co-existed, income tax could be reduced by increasing carbon tax and vice-versa. In that way, could CF&D be a stepping stone toward a simpler, fairer, more motivating tax-welfare system that eliminates poverty.

In both cases, the rich will resist, because in both cases they would pay more than they receive and it would be harder for them to play their usual tricks with legal loopholes. But if more people vote on the left-green side of politics such reforms are possible.

FT: good or bad?

Imagine what would happen if BI was financed with FT. Everyone would receive a BI and everyone would pay the same rate of tax on all additional income. Poverty would be eliminated and the gap between rich and poor would be reduced.

FT has an important advantage: simplicity. Everyone has to pay it, including the rich. It's hard to evade or avoid a FT by tricking the taxation office, as the accountants of rich people are wont to do.

Unfortunately, FT has a bad reputation. Many rich selfish right-wingers don't like paying high rates of tax. They think the solution is for everyone to pay the same relatively low rate of tax on all income. Many of those same people also want to reduce or eliminate welfare payments. Both proposals are a recipe for disaster. But those right-wingers are not talking about combining FT with BI, which is an entirely different thing.

Eliminating welfare traps

Imagine what would happen if everyone got the same BI and paid the same rate of income tax. The same proportion of all the money that anyone earned would go back to the government to finance the BI and other government expenditure.

A glass that is half empty is also half full. No matter how little or how much people earned, everyone would keep the same proportion of their earnings. That is not the case today. Today, if you are on welfare and get a part-time job, you may end up with the roughly same amount of money, as if all the work was for nothing! You may therefore decide not to take the job! This frustrating situation is called a "welfare trap".

When people complain that welfare recipients are lazy, they are misunderstanding their situation. Welfare recipients may be unlucky, but they are not lazy. It's the system that is making them look lazy by motivating them to stay on welfare and not to work. If the system motivated people to work, unemployment offices would become redundant.

Effectively progressive income tax

We are told that our taxation system is progressive. The more money you earn, the higher the proportion you pay in tax. The trouble is, the system is not working. It is not eliminating poverty and it is not reducing the wealth gap between rich and poor. VAT has an important advantage for governments: it is hard to evade or avoid. Every time you buy something, you have to pay it. FT has a similar advantage: every time you earn money, however you do that, you have to pay the tax.

The solution is to combine these two forms of FT (flat income tax and value-added tax) with a universal, unconditional BI. If BI is high enough (e.g., if it approaches the poverty line), the combination of BI and FT is progressive, and the combination of BI and VAT is progressive. In both cases, if your income is low you receive money from the government, and if your income is high you give to the government. Unlike the present system, the transition between these two states is entirely smooth and continuous. In general, the more money you earn, the higher the proportion you pay in tax.

BIFT is based on two numbers. Possible values for a European country are BI = €1000/month and FT = 50%. Both parameters are arbitrary and would be adjusted in a democratic political process. It might be possible to eliminate poverty if both were lower (e.g. €800 and 40%), because this approach would benefit unemployed people who supplement their income with casual work. But let's go with €1000/month and 50% for the purpose of argument.

Here is what would happen: The transition between "welfare recipient" and "taxpayer" would be completely smooth with no hiccups. Regardless of your income, if you earned more, you would take home more. There would be no demotivating, demoralizing "welfare traps". Benefits would not be means tested and would therefore never be cut. In fact, everyone would be treated equally. The system would not distinguish between the employed and the unemployed. The stigmatisation of unemployment would disappear.

Can FT be progressive?

A tax system is progressive if the proportion of your income that you pay in tax increases as your income increases. It is regressive if the proportion decreases as your income increases. Currently in many countries (e.g., the USA), the system is nominally progressive but effectively regressive. Nominally, the income tax rate increases with increasing income. In reality, the rich can evade or avoid a lot of tax, so the tax rate effectively falls as income increases.

In such arguments, we also need to consider welfare payments. Tax and welfare should be combined together, and we should consider the progressivity of the whole system. A tax-welfare system is only progressive for a given individual if the sum of all welfare for that individual minus the sum of all tax for that individual is progressive relative to income. As one supermarket chain once advertised: it's the total of the tape that counts.

Flat income tax (FT) is nominally neutral with regard to progressivity. It is a simple system with no thresholds and no income tax brackets. No matter how much you earn, you pay the same proportion of your income in tax. The trouble is, in untamed capitalism, of which FT is a part, the gap between rich and poor naturally increases.

The traditional solution is to make income tax explicitly progressive. In most countries today, if your income is low, you pay no tax. When you income passes a certain threshold you start paying tax, at a low rate. When your income passes a second threshold, you start paying a higher rate, but only for income beyond the last threshold. The intervals between the thresholds are called income tax brackets. "Progressive" means that when you earn more money, you pay a greater proportion of your income in tax.

But there is a much easier and more effective way to make income tax progressive, and hardly anyone is talking about it. That is to combine FT with BI. The combination is inherently progressive. Those on low incomes receive money from the government. Those on high incomes pay tax to the government. Unlike the current system, the transition between these two states is absolutely continuous, which makes it absolutely fair.

Here is how progressivity would work under BIFT. If your income was low and you were effectively receiving welfare, your tax would be effectively negative. As your income grew, your negative tax would gradually decrease until it hit zero. This is the break-even point where BI and FT are equal. In the graph, it happens when your income before tax and welfare is €2000/month. As your income continued to increase, the effective tax rate would gradually increase until it approached 50% for very high incomes.

In this way, a combination of BI and FT is progressive: the more you earn, the more income tax you pay relative to your income, effectively. That is not a political claim, nor is it a trick. It is a mathematical truth. Moreover, BIFT is not sometimes progressive and sometimes not. BIFT is always inherently and continuously progressive, provided BI corresponds roughly to the poverty line, below which people are regarded as "poor". BIFT is strongly progressive even for the lowest plausible estimates of the poverty line in any country, rich or poor.

Many BI fans imagine combining it with progressive taxation, with different rates in different brackets. The trouble with that idea is its complexity. A complex system discriminates against low-income earners because you need a tax consultant to understand it. A complex system invites tax consultants to find ways to avoid tax. To eliminate this form of discrimination, we need a simple, transparent system.

Imagine a world in which BIFT is already implemented. The left wants to make the system more progressive. There are two ways to do that: increase BI, which automatically makes the system more progressive, or bring back traditional income tax brackets. The best choice is to increase BI, because it keeps the system as simple and transparent as possible. It does not create opportunities for the rich to evade or avoid tax by accounting tricks, or to pull the wool over voters' eyes by discussing a complex system in a misleading way.

The political left needs to learn an important lesson. Poverty will only be sustainably alleviated, and the wealth gap sustainably reduced, when the left starts to promote the idea of systemic simplicity and financial transparency as a means of alleviating poverty and creating a just society.

This is particularly true today, in the midst of the 4th industrial revolution -- the increasingly computer-controlled "smart" automation of industry and manufacture. The solution is not economic growth -- we have already passed the planet's resource limits -- but a new tax-welfare structure.

The regressivity of VAT

Value-added tax (VAT) is tax on everyday purchases such as clothes and food. It is inherently regressive: the more you earn, the less you pay in VAT relative to your income. That's because people with less money spend a larger proportion of their income on items that are subject to VAT: food, clothes and so on. People with more money spend a smaller proportion of their income on those things. VAT hits the poor harder than it hits the rich.

But that is not all. In most countries, the regressivity of VAT approximately cancels out the progressivity of income tax, so in the end people are effectively paying FT. Regardless of your income, roughly 40% of it ends up going to the government by different routes. The details vary from one country to the next, but the general trend is the same.

Just to drive that point home: FT is not a far-right dream. It is already here, in many countries. It has been created by combining progressive income tax with regressive VAT. No wonder the wealth gap is increasing!

The problem can be solved doing either or (better) both of the following: Debunking myths about BI

People have been talking about BI for a long time, but it still isn't happening. A possible reason is fake news. The rich and their sidekicks are spreading rumours. We need a reality check!

1. Can we afford BI? Misleading question. It is the current system that is too expensive, first because it is too complicated (necessitating a giant bureacracy to administer both welfare and tax), and second because it makes it too easy for the rich to avoid or evade tax (after which the government cannot afford social services). In fact, any country, rich or poor, can afford BI. It's just a matter of drawing a line of best fit through the current relationship between income before and after tax/welfare on the above graph. The two parameters, BI and FT, need to be adjusted in a political process, making sure government expenditures are covered by government income. The question is rather: How do we want to set those two values? People on the right wing will prefer relatively low BI and low FT; on the left, high BI and high FT. In both cases, the budget can be balanced. Of course other taxes will be necessary (environmental, transaction, wealth), but they can be considered separately.

2. Won't BI make people lazy? Another misleading question. It is the current system that is making people lazy! Currently, if you have no income, you get welfare. If you then get a part-time job, your welfare is cut. So it's not worth working! This called the welfare trap. BIFT removes the welfare trap forever by giving BI to everyone and taxing all income at the same rate. So no matter how much income you have -- if you work more, you take home more. In other words, if your income before BIFT increases, your income after BIFT increases, as shown by the ascending line on the graph.

People have been conducting experiments to find out if BI makes people lazy (e.g. in Finland). The people behind those experiments should learn something about formulating experimental hypotheses and creating experimental designs. Regarding hypotheses, it is the present system that is making people lazy. Really! There's nothing more demotivating than welfare traps. The hypothesis is therefore that BI will make people less lazy. That's what we want to find out! But laziness is not necessarily the main point. Of course there is work to be done and of course BIFT motivates people to work. But what we really want from a modern economic reform is globally sustainable social well-being. There is one thing that all BI-experiments show: people are happier if their existential fears are removed and their freedom restored. Regarding experimental design, you can't perform a controlled experiment that compares the current system with BI if the participants are simultaneously living in both systems. The confounds are large and impossible to avoid. The only way to test BI is to introduce it.

It's obvious that the world needs BIFT. Once you understand how it works (and nothing could be simpler), it is difficult to imagine what other system could possibly be better. That may sound arrogant, but I have been struggling with this question for many years. At some point, one has to draw conclusions and consider the implications.

The disadvantages of BIFT

None are currently known. Please write to the author if you know of any disadvantage.

Some economists have claimed that BIFT would be too expensive. What they mean is the rich would have to pay a bit more tax. That is certainly not a disadvantage, for them.

Literature

There is surprisingly little economic literature on BIFT. Many experts in public economics must have considered it -- the benefits, after all, are obvious. But the few who write about it avoid listing the multiple benefits and instead tend to present misleading reasons why it should not be introduced. Either that or they exaggerate the problems relative to the benefits. At the end, they stop short of recommending it.

The reason is presumably that the rich don't like BIFT. It's too fair. It treats everyone equally! The rich prefer the current corrupt system, which is giving them a free ride. BIFT exposes this gigantic trick. No wonder it's unpopular.

The present system claims to give special treatment to the poor: welfare payments and progressive tax scales. But the present system also gives special treatment to the rich, and at the end of the day the rich gain much more than the poor. The rich are hiding their money in tax havens and taking advantage of tax deductions, hedge funds, black-box charities, donor-advised funds with huge tax benefits ("philanthropic fracking"), and other accounting tricks and neoliberal fraud. That is why we still have chronic poverty and a wide and widening wealth gap. The rich would like to keep things that way, which is one way of defining "conservative".

The solution is to radically simplify the system, making it more transparent so that tricks of this kind are no longer possible. As an example of such simplification, BIFT should be an important part of left-wing politics.

Why are economists so reluctant to talk about BIFT? I am not an economist, so I can only guess the reason. If you are an economist in mid-career, you are looking for a permanent position. You know you will only get one if you publish material that is acceptable to the rich. That is an unwritten rule in general, but especially in the academic discipline of economics. If you have ever noticed a certain political conservatism among professors and leading journals of economics, that could be the reason.

Seen from this perspective, the discipline of economics may be even more distorted and corrupted than other academic disciplines. It's not the fault of individual economists, many of whom are brilliant mathematicians and sociologists. It's because economics is about money, which everyone wants. Beyond that, there are everyday existential reasons. Like everyone else, economists need an income to feed their families and pay their mortgages, so they have to be careful what they say. There are limits to what you can reasonably talk about, and successful economists know intuitively where those limits lie.

From that point of view it may be interesting to compare the discipline of economics with the global community of climate deniers. For decades, professional deniers have been creating and propagating misleading theories about climate change, with the aim of preventing urgently necessary climate action. Behind the global climate denial movement are massive financial interests. There are similarly massive financial interests behind the discipline of economics, and they stand in the way of any attempt to make tax more fair and transparent, or to expose what is really going on when governments demand tax from the rich.

So it is no surprise that some economic studies of BIFT have concluded there is something wrong with it, or it needs further investigation before it can be taken seriously or implemented. Many claim that BIFT would be "too expensive" without considering the extraordinary inefficiency of the current system. The current system is not only enormously expensive, it is also contributing to human self-destruction by climate change, because significant emissions reductions will only be possible if people can pay high carbon taxes. For that to work, we need to eliminate poverty first.

Here are a few articles that I found about BIFT and some brief comments. Articles in which BI is (somewhat misleadingly) called "negative income tax" are not listed. The author of this book evidently believes in BIFT, otherwise he would not have written a book about it. But he claims to be neither for or against BIFT, and merely suggests that it should be seriously investigated, knowing full well that it won't. The authors find that "to ensure that no current social security beneficiaries become worse off under such a system would either be very expensive to introduce or require a tax rate that is likely to be unacceptably high". By "very expensive" I guess they mean that the rich would have to pay fair levels of tax according to a transparent system, following the same rules as everyone else. This author genuinely believes in BIFT and may have taken some risks by proposing it directly. In his paper he focuses on some of the real benefits. He points out that "in New Zealand at least, a de facto BIFT tax-benefit regime already exists, and that therefore there need be no significant transitional redistributions arising from a formal adoption of a Basic Income Flat Tax structure". The same could be said for many other countries. The author compares the implications of left-wing (high BI and high FT) and right-wing (low BI and low FT) versions of BIFT and finds neither be an acceptable alternative to the current system. By "acceptable" I guess she means "acceptible to the rich". Everyone else would love it.
 This is a genuine attempt to propose an urgently needed reform. Figure 4 (Abbildung 4, Abb. 4) of this paper is essentially the same as the graph the present paper. It shows how FT goes up as BI goes up and vice versa.
The opinions expressed on this page are the author's personal opinions. Readers who know and care about this topic are kindly asked to contact the author with suggestions for improving or extending the content: parncutt at gmx dot at.