3. Is a Citizen’s Income Financially Feasible? Part One: Fiscal Feasibility

Donald Hirsch (2015) Could a ‘Citizen’s Income’ work? (York: Joseph Rowntree Foundation), p. 33. www.​jrf.​org.​uk/​publications/​could-citizens-income-work

It might be thought that this description of the essential income maintenance structure leaves no room for a Citizen’s Income. However, once the principle of a personal tax allowance is admitted, there is no reason not to turn it into a cash payment of the same value (i.e., the amount of the allowance multiplied by the tax rate) and then applying income tax rates to all earned income. Similarly, once the provision of benefits is recognized as an essential element of an income maintenance structure, there is no reason not to reduce to zero the taper rate by which existing means-tested benefits are withdrawn as earnings rise.

www.​tax.​ny.​gov/​bus/​stock/​stktridx.​htm

www.​gov.​uk/​tax-buy-shares

www.​lseg.​com/​markets-products-and-services/​post-trade-services/​unavista/​regulation/​french-financial-transaction-tax-ftt-overview

James Tobin (1978) ‘A Proposal for International Monetary Reform’, Eastern Economic Journal, 4 (3–4), 153–59, p. 155. The Mirrlees Review of the UK’s tax system recommended instead a ‘financial activity tax’ that would be less likely to penalize currency exchange required for trade in goods and services: Stuart Adam et al. (2011) Tax by Design: The Mirrlees Review (Oxford: Oxford University Press), pp. 151–3, 195–215.

Richard Wilkinson and Kate Pickett (2010) The Spirit Level: Why Equality is Better for Everyone, 2nd edition (London: Penguin Books); Danny Dorling (2012) Equality (Oxford: New Internationalist), pp. 13–40. At a seminar at the London School of Economics on the 18 March 2015, Lane Kenworthy and Timothy Smeeding presented evidence that shows that in affluent nations, there is a strong negative correlation between top-end inequality and median income growth (paper forthcoming).

www.​bankofengland.​co.​uk/​monetarypolicy/​pages/​qe/​default.​aspx

Larry Elliott (2014) ‘Quantitative easing: giving cash to the public would have been more effective’, The Guardian, 29 October 2014, www.​theguardian.​com/​business/​economics-blog/​2014/​oct/​29/​quantitative-easing-policy-stimulus-janet-yellen-ecb; Dwight Murphey (2009) ‘A “Classical Liberal” Rethinks the Market System: Invitation to an Intellectual Odyssey’, The Journal of Social, Political, and Economic Studies, 34 (3), 347–55; Dwight Murphey (2011) ‘Capitalism’s Deepening Crisis: The Imperative of Monetary Reconstruction’, The Journal of Social, Political, and Economic Studies, 36 (3), 277–300, p. 296.

Andrew Jackson and Ben Dyson (2012) Modernising Money: Why our monetary system is broken, and how it can be fixed (London: Positive Money), p. 283. Parts of this section repeat a review of Modernising Money in the Citizen’s Income Newsletter, issue 2 for 2015, 13–14.

www.​theguardian.​com/​business/​economics-blog/​2015/​may/​21/​now-the-bank-of-england-needs-to-deliver-qe-for-the-people; Josh Ryan-Collins, Tony Greenham, Richard Werner and Andrew Jackson (2011) Where does Money come from? A guide to the UK monetary and banking system (London: New Economics Foundation); Michael McLeay, Amar Radia and Ryland Thomas (2014) ‘Money Creation in the Modern Economy’, Quarterly Bulletin, 1st quarter, 2014 (London: Bank of England), www.​bankofengland.​co.​uk/​publications/​Documents/​quarterlybulleti​n/​2014/​qb14q1prerelease​moneycreation.​pdf

Scott Goldsmith (2012) ‘The Economic and Social Impacts of the Permanent Fund Dividend on Alaska’, pp. 49–63 in Karl Widerquist and Michael W. Howard (eds) Alaska’s Permanent Fund Dividend (New York: Palgrave Macmillan); Karl Widerquist (2010) ‘Lessons of the Alaska Dividend’, Citizen’s Income Newsletter, issue 3 for 2010, pp. 13–15.

Hamid Tabatabai (2011) ‘Iran’s economic reforms usher in a de facto Citizen’s Income’, Citizen’s Income Newsletter, issue 1 for 2011, pp. 1–2; Hamid Tabatabai (2011) ‘The Basic Income Road to Reforming Iran’s Price Subsidies’, Basic Income Studies, 6 (1), 1–24; Hamid Tabatabai (2012) ‘Iran: A Bumpy Road toward Basic Income’, pp. 285–300 in Richard Caputo (ed.) Basic Income Guarantee and Politics: International Experiences and perspectives on the viability of Income Guarantee (New York: Palgrave Macmillan), p. 295; Turquoise Partners (2014) Iran Investment Monthly (Iran: Turquoise Partners), April 2014.

Part of this section appeared first as a review of Sarath Davala, Renana Jhabvala, Soumya Kapoor Mehta and Guy Standing (2015) Basic Income: A transformative policy for India (London: Bloomsbury), in the Citizen’s Income Newsletter, issue 2 for 2015.

See the first part of the case study below. Before the UK’s 2015 General Election the Labour Party suggested that tax relief on pension contributions should be reduced to the basic rate and the proceeds used to increase the education budget.

Benefits Simplification, HC 463, vol I (London: The Stationary Office), July 2007, paragraphs 51, 55, 148, 176, 262, 381. www.​publications.​parliament.​uk/​pa/​cm200607/​cmselect/​cmworpen/​463/​46302.​htm. The Citizen’s Income Trust’s evidence to the Department of Work and Pensions can be found in the second volume on page Ev 84 at www.​publications.​parliament.​uk/​pa/​cm200607/​cmselect/​cmworpen/​463/​463ii.​pdf. The Trust subsequently published the scheme in 2007 in its booklet Citizen’s Income: A brief introduction (London: Citizen’s Income Trust). In 2013, the figures were updated to 2012–13 values and the booklet was republished in 2013. The author and the Citizen’s Income Trust are grateful to Philip Vince (now deceased) and to Mark Wadsworth for their work on the figures published in Citizen’s Income: A brief introduction (London: Citizen’s Income Trust) in 2007; and to Mark Wadsworth for updating the figures in preparation for the 2013 edition of the booklet.

This case study uses EUROMOD version G2.0++. The contribution of all past and current members of the EUROMOD consortium is gratefully acknowledged. The process of extending and updating EUROMOD is financially supported by the Directorate General for Employment, Social Affairs and Inclusion of the European Commission [Progress grant no. VS/2011/0445]. The UK Family Resources Survey data was made available by the Department of Work and Pensions via the UK Data Archive.

Parts of this case study were first published in a EUROMOD working paper, Malcolm Torry (2015) Two feasible ways to implement a revenue neutral Citizen’s Income scheme, Institute for Social and Economic Research Working Paper EM6/15 (Colchester: Institute for Social and Economic Research, University of Essex), www.​iser.​essex.​ac.​uk/​research/​publications/​working-papers/​euromod/​em6–15, and subsequently as an article in the Citizen’s Income Newsletter, issue 3 for 2015. The Institute for Social and Economic Research’s permission to reprint material from the working paper is gratefully acknowledged.

The most recent tax and benefits regulations available in EUROMOD version G2.0++ are those for 2013–14, and the most recent Family Resource Survey data is for 2009, uprated to 2013 values. It is therefore not currently possible to simulate Citizen’s Income schemes for more recent periods. ‘The factors that are used to update monetary variables (parameter sheet Uprate_uk) from the mid-point of the data year (October 2009) to the mid-point of the policy years applying on June 30th (that is, October 2010 to October 2013) are shown in Annex 1 of the EUROMOD UK country report. No other updating adjustments are employed. Thus the distribution of characteristics (such as employment status and demographic variables), as well as the distribution of each income source that is not simulated, remain as they were in 2009/10’ (Paola De Agostini and Holly Sutherland (2014) Euromod Country Report: United Kingdom 2009–2013 (Colchester: Institute for Social and Economic Research, Essex University)).

Minimum Income Standards for 2013 can be found at www.​jrf.​org.​uk/​site/​files/​jrf/​images/​MIS-2013-figure2.​jpg. Deciding the levels of Citizen’s Incomes that would match the MIS is not a simple matter as MIS levels are calculated for households, whereas Citizen’s Incomes are paid to individuals. The weekly MIS levels for 2013 are as follows (excluding rent and childcare): single working-age person, £200.64; pensioner couple, £241.25; couple and two children, £471.16; lone parent and one child, £284.57. Citizen’s Incomes based on the smaller assessment units would be higher than Citizen’s Incomes based on the larger units. I have chosen to be guided by the larger units. I have set the young person’s Citizen’s Income rate halfway between the adult and child rates.

In 2013–14, Council Tax Benefit was centrally regulated. Under the government’s localization agenda, its replacement, Council Tax Support, is locally regulated as well as locally administered. This means that every borough in the country can now invent its own regulations, and, in particular, its own taper rate. It will be far from easy to include Council Tax Support in future tax and benefits simulations.

The method is as follows: A new set of benefits is created in the UK country system in EUROMOD—a Citizen’s Pension (CP) for over sixty-five-year-olds, a Citizen’s Income (CI) for adults aged between twenty-five and sixty-four, a young person’s Citizen’s Income (CIY) for adults aged between sixteen and twenty-four, and a Child Citizen’s Income (CIC) for children aged between zero and fifteen. In the definitions of constants, levels are set for these Citizen’s Incomes, and all Personal Tax Allowances are set at zero. So that the additional taxable income is taxed at the basic rate, and not at the higher rate, the first tax threshold is changed from 32,010 to 42,010. The National Insurance Contribution (NIC) Lower Earnings Limit is set to zero, and the NIC rate above the Upper Earnings Limit is set to 12 % (to match the rate below the limit). For the first scheme, Working Tax Credit, Child Tax Credit, Income Support, Income-Related ESA, Pension Credit, and Income-based Jobseeker’s Allowance are no longer added to the total for means-tested benefits. Incapacity Benefit, Contributory ESA, and Child Benefit are removed from non-means-tested benefits (except that in scheme B, Child Benefit is left in payment). For all schemes, the Citizen’s Income total is added to non-means-tested benefits, and for the second scheme, Citizen’s Incomes are added to the means applied to means-tested benefits. The state pension is no longer added to the pensions total in schemes A and C (as the Citizen’s Pension has already been added to the non-means-tested benefits total). Where benefits are no longer in payment, they are removed from the tax base. Simulations of the 2013 system and the system being tested generate two lists of household disposable incomes for the entire Family Resource Survey sample. These then generate a list of gains (negative gains are losses), and the total of the gains gives the net cost of the scheme for the sample. To convert EUROMOD’s monthly figures to annual figures, and the sample size to the total population, a multiplier of (12 × 64.1m/57,381) = 13.4 gives the cost in £ms for the UK population. A process of trial and error adjusts the Income Tax rates until the net cost minus the assumed administrative saving is below £2 billion per annum.

Microsimulation results show that an additional €7 billion would be required on top of the additional tax revenue. The authors estimate that €3.5 billion of this would come from money saved by the reductions in other benefits resulting from payment of the Citizen’s Incomes, but because the Catalonian microsimulation method employs only tax data and not benefits data, it is not possible to provide an accurate figure.