People will always have a hard time understanding universal basic income (UBI) as long as it is presented as an improvement on (or a replacement of) the welfare system. When presented as a fiscal policy—a government spending program—people will, rightly, wonder how it will be funded. But basic income should be understood as part of a comprehensive overhaul of the fiscal and monetary systems, as well as a restructuring of capital and finance. It is not a panacea, I sometimes say, but it is somewhat utopian. It's a big idea.
First, let the state issue money (i.e., create it) as basic income. Yes, that means the "funding" question is answered by simply "printing" (digitally) the money required. If you are handing out, say, one thousand dollars every month to every adult American then that means printing about 250 billion dollars per month! That is a lot of fresh money and will, of course, have an inflationary effect if not checked by some countervailing measure. Indeed, without such measures, the money would be essentially worthless.
So we must require that only US dollars can be used to pay a single tax on the unimproved rental value of land. That would give every landowner (including homeowners) an incentive to collect dollars from their fellow citizens, whose basic needs are funded by the freshly printed money. If you own a farm or a factory, you must use it to produce something people are willing to exchange for their money. If you want to own a home you will need to get a job (on a farm, in a factory, in an office)—that is, you will need to find someone who is willing to compensate you for your time—so that you have the dollars you need to pay your property tax.
This tax would be easy to administer and could be adjusted as needed (always giving ample warning to property owners) to expand or contract the money supply. If the economy is growing, basic income could be increased, or the land tax could be lowered, leaving more money in circulation. If the economy is shrinking (perhaps owing to drought or war*) taxes can be increased. In order to cover them, producers may need to up their game.
Not much will be gained if this system doesn't also do away with income taxes and minimum wages. The economic incentive to work any amount of hours on any given day must be straightforward. Even the least skilled and most capricious worker must be able to earn a little extra so long as someone else is inclined to pay for it. The more skilled and dependable you want your labor to be, the more you'll have to pay, always mindful that no one is taking a job out of brute desperation.
As far as I can tell, the total value of privately held land in the US today is about 15 trillion dollars. The total tax needed to "cover" a $1000/month UBI would be 3 trillion dollars. Roughly speaking, then, we're talking about a "wealth tax"** of about 20%. But I'm here assuming that the value of all assets ultimately devolves upon the value of real property, which isn't true; the total amount of wealth in the US is upwards of 60 trillion. I'm also assuming that the state has no other expenses, which is also not true; so lets give the state a total budget of about 6 trillion dollars.
Since there's no tax on income (and no sales tax), it seems reasonable to tax the accumulated private wealth of the nation at about 10% annually. But since this tax is only levied in proportion to the unimproved rental value of real estate, you could avoid the administrative burden (and a relationship with the state) simply by renting your home and business address from someone else. You would pay no taxes, but have high rent (compared to today).
Update: I ended this post somewhat abruptly. What I was trying to say was that you could collect 6 trillion in taxes by way of 40% property tax on the 15 trillion dollars worth of real estate in the US. This, however, would ultimately constitute only a 10% tax on the accumulated private wealth of the nation. Moreover, fully half of the tax would be immediately redistributed as purchasing power to the consumer***, which, you'll notice, is also good for the the producer and the landlord.
Also, before you reject the property tax as exorbitant, remember that the 40% is an average. The tax will always be apportioned according to the rental value of the property. So it's all together possible that a $60,000 dollar home will be taxed at only $12,000, which, you will notice is exactly the amount of the UBI. On the other side, some properties (with very high rents, owing to desirable location or exploitable resources) might be taxed much higher. (Since every property would be apportioned some tax, and if some cap, like 40% of the total property value of nation, is set on the total tax collected, no one will pay more than 100%.) Indeed, the existence of the tax is likely to stabilize housing prices.
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*Notice this sudden insertion of sanity into the economy. War is an expense; it is a use of resources for immediate destruction. It should not have a positive effect on the economy in the near term. It may of course be considered an investment, as under imperialism. The conquered territory is eventually added to the productive power of the nation. But while the war is going on it should be experienced as a drag on the home economy, not, as too often happens these days, a boon.
**Update: those scare quotes are important. While the tax is indeed on wealth, it does require reporting of actual wealth. The tax is simply levied against registered owner of the property.
I think I've mentioned this before, but putting a 20% or 40% tax on the unimproved rental value of land will massively decrease the value of land thus ruining the funding of, e.g., UBI (or as you prefer, it will "ruin" the counter-inflationary measure insuring the real purchasing power of a 1000 dollars UBI). While land has no (perfect) substitutes, the demand for land is not inelastic. A yearly tax of 40 procent thus massively devalue the 15 trillion value of US land.
ReplyDeleteThis is not to say that a land value tax would not have beneficial effects in itself and I happen to be in favor of both a land value tax and UBI, but I don't think there is any reason to to think of these two policies as structurally coupled - or as a panacea if applied jointly, as you seem to think.
PS: Errata, second paragraph: "Indeed, withOUT such measures, the money would be essentially worthless."
Thanks for catching that. Fixed it.
ReplyDeleteI'm not sure you're right that the land tax will devalue property, at least not in the sense of lowering prices. It may keep them stable, however. Consider a 24-year phase-in period. Every year you shift $500 worth of welfare benefits to the basic income, and $200 billion dollars in tax revenue from income tax to land tax. The average increase in property taxes would be under 2%. I don't think that's enough to drive prices down, but it is probably enough to keep them about where they are.
It may, of course, redistribute property values downwards. Low-rent neighborhoods would become more attractive for buyers since you're going to have a low land tax. Indeed, for some properties the annual increase in property tax may be under $500, which means it is entirely covered by the UBI phase-in. All of this would eventually revitalize the inner cities, as people move into neighborhoods that they can afford to live in comfortably with time on their hands for community service. Panacea reclaimed!