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May 31, 2016

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One of the features of our federal system is supposed to be that new ideas can be tried out in one or two states first. Just to get a handle on the problems and possible solutions.

But the challenge here would seem to be the fact that, if the guarantee is high enough to be significant, a lot of people are going to move to the state that is trying it out. Unless, like Alaska, there are negative features which can outweigh the benefit. (Side question: does Alaska restrict how long you have to live there in order to get in on their benefit?)

In addition to Alaska, does anyone know of any other places, specifically developed economies (that is, not places like Saudi Arabia) which have tried the idea? I'm pretty sure that Norway's fund doesn't go for this kind of subsidy.

Are you talking about the PFD (Alaska)? I was sitting at lunch with a former director of finance for the state of California. He asked me about the permanent fund dividend when I told him I was originally from Alaska . When I asked him how a similar amount of money per resident would affect the state of California his eyes got really big.

You have to be a resident for the entire calendar year in which the dividend is issued I think. The state originally tried to tie the amount to how long you have been a resident when it first came out. But there was a lawsuit brought and it was found to violate equal protection . See zobel v Williams.

I don't really understand why this would be the case at all. If you imagine how a UBI would actually work, gradually introduced, alongside a reduction in minimum wage and/or increases in payroll taxes for those earning middle incomes, all you wind up with is a system in which the poor are getting the same benefits they ever were under means tested system but guaranteed without any expensive and demeaning hoop jumping, and everyone who had a decent job having their entire UBI getting taxed away in order to keep the costs down. No-one, I don't think, is really suggesting that huge amounts of extra money are really being handed out here. In fact, in the UK I think many basic income enthusiasts, myself included, would be pitching the income to be lower than existing benefits, as a survival grade income of, say, £600/mo. I think it would probably be smart to then offer a small negative income tax worth £20/mo or so on top just in order to encourage people to sign up with the tax office instead of just working on the grey/black market, but that's really a detail.


Cool. I've been wondering about this exact question and, like you, never seen a detailed response.

Here's two partial answers:
- Things like the Alaska Personal Flotation Device don't care about this effect. Maybe it inflates rents, maybe it doesn't. All it cares about is ditributing X% of oil income amongst the citizens and it would do that whether they benefitted from the deal or not.

- Whether this is will be a problem depends a lot on how much prices in your overall economy are driven by minimum incomes, welfare, charity etc. If prices are mainly determined by middle class or wealthy buyers this will have less of an effect. Different products and areas will be differently affected.

update: sanbikinoraion covers this last point and has me pretty convinced.

Alaska is such an outlier case for things like "transportation costs", that's it's going to be nearly impossible to generalize from their experience.

And yet, one of the real difficulties in getting an intellectual grip on macroeconomics is that national economies are close to being 'closed systems'; unlike things like businesses or families that are closer to most people's everyday experience.

If you're going to try out a UBI to see if it's a good idea for the USA as a whole, it makes sense to do so in a setting that is (a) small in population, (b) similar in overall economics (service vs. industry vs agriculture; demographics, etc), (c) mostly isolated from the rest of the US.

So my first idea was Rhode Island, but it's NOT isolated...perhaps Vermont. Perhaps Hawai'i, but it has much the same problems as Alaska in transportation costs, unrepresentative economy.

Hey, how about Puerto Rico?

I'm not responding to the post until I find out if Sebastian really wrote it. ...WELL???

I think you have first to define what you mean by UBI. There was discussion on LGM in which you participated and raised much the same point.

There it seemed as if the government was simply going to write every adult a check for some amount, end of story. Then the amount of inflation that would generate depends on the slack in the economy, I think.

Supply will respond if it can, but the amount of time needed varies across industries. If there is no slack then in the "immediate run" prices have to rise, simply because there are more bidders fro the same resources.

This is similar to the Fed injecting money - remember "Helicopter Ben?"

If there is an issue of means-testing, extra taxes, and so on, then the picture is less clear.

As for Alaska, I don't think we can draw many conclusions. First, I suspect many goods are imported, so the effect is highly diluted. Second, it has a small population. And third, as I understand it, the dividend is a one-time payment that varies sharply from year to year, so the effect will be different tan the UBI.

No-one, I don't think, is really suggesting that huge amounts of extra money are really being handed out here.

I think you seriously underestimate some of our politicians and (anti-)intellectuals. Maybe they wouldn't characterize it as "huge amounts of money being handed out," and scream bloody murder at the very thought -- but I sure wouldn't bet the ranch on it.

Okay, I said I wouldn't respond, but I'm going to take byomtov's comment as confirmation that this really is from Sebastian and not some user-login thing.

Hi, Sebastian! Welcome home!

The question I have is whether this UBI is intended to replace other programs, along the lines of sanbikinoraion's comment. Are we simply replacing several more complicated ways of providing a social safety net with one more simple way?

More generally, what are people going to do with this money that they aren't already somehow doing? Further, are they going to be able to do things more efficiently - FREX, rather than staying on and off at motels on a weekly basis, paying more than they would for an apartment simply because they can't come up with a security deposit, will they be able to come up with a security deposit so they can live in an apartment?

If so, won't the substitutability of apartments and weekly motels drive the motel prices down, now that more people have other options, meaning that apartment rents can't go up all that much because they have to compete with cheaper motels?

I'm not saying this example is what's going to make or break the possibility if UBI-induced price increases. I'm really trying to illustrate a more general concept - that poor people are preyed upon and forced to spend more money on things (think furniture rentals, payday loans, etc.) than they would if they had more money (ironically enough!).

The general formulation of the problem is: won't a universal basic income just be hugely inflationary and therefore not that helpful? The general response is something like: it isn't inflationary because...

I'd also point out that there is a good bit of space between the two bolded extremes. The rest of the post doesn't really continue this way of thinking, but framing the question this way can push people to argue less productively.

How much money per person are we talking about, BTW? And if it is to be means based, wouldn't it be, in effect, a negative income tax?

On the one hand, Alaska would not be a good model for the reasons stated. My own family when I was a kid used it to travel. After I was married, it was used just to make ends meet (filling the fuel tank for heat, for example) in bad years and for non-necessities in good years. When I was in the business world there, I saw the huge surge in spending in October but the state of the economy determined whether the PFD was spent on necessities or something else.

Which makes me think that the Alaska PFD could give some good insights. I'm not an economist, so I really don't know, but does it make a difference whether transportation costs are huge? Seems that you could adjust for that. And then there is the variability depending on the Permanent Fund earnings. But that could be a good thing. However, all that being said, the PFD doesn't approach anywhere close to UBI. It has topped $2k/person twice? But then again, the PFD is in addition to existing government programs.

So I'm concluding it could be a somewhat useful case study if not a model in spite of the uniqueness of the Alaskan economy, but because it doesn't approach what most think UBI would have to be across the board it would be of limited utility.

If we were to try this (not saying we should) Alaska, Wyoming, North Dakota make sense simply due to population size (600k-700k). But doesn't DC have about the same population . . . ?

It would seem to be easiest to just pay whatever amount is chosen to everyone, regardless of income. (That might also make it easier to sell politically.) Then just let the progressive nature of the income tax recover it from those who already were making enough not to be the intended targets.

Yes, it is really me. I don't think anyone has the password for my name, though I might be wrong about that.

I'm talking about truly 'universal' or mostly 'universal' UBIs, so I'm not positing very large means testing. So it could effect the middle class.

It may be that I've approached the question backwards. So lets try it the other way.

There is a classic idea in economics about rentiers, of which monopolies are a subset. I'm not sure I want to use all the historical baggage of 'rentier', but I want to think about a similar idea which I think of as choke points (there is some literature on similar concepts that goes by 'stationary bandit'). Most commodities really do work like economic theory--prices go up, this attracts competition, this leads to more supply, prices come down. Certain non-commodity goods don't work that way for various reasons. One of those reasons is because someone occupies a choke point in the economy. There are lots of one that I can think of as potentially being problematic choke points (finance banks for example) but for this discussion I'm focusing on those which effect a very large number of people directly. They are housing choke points and education choke points (I think that medical access choke points are also a thing, but they aren't as obvious so I'm putting them aside for now). These may not even be the most important choke points, there are just the ones that were most obvious to me when thinking about the UBI.

Something might become a choke point for all sorts of reasons. Dealing with choke points may require different strategies depending on the choke point. But for now I'm trying to broad-brush the problem.

The choke points I think that are most relevant to a UBI, and indeed to poverty in the US in general, are housing and education. It is very difficult to get a good job without good housing access and good education credentials. So if good housing options or good education credentials are not easily substitutable, and are not easily provided by rivals, those who provide them occupy a very important choke point.

When you occupy a good choke point, it is easy to raise prices to consume excess income, because you don't have competitors to keep you cheaper. The econ way of putting it is that you can charge what the market will bear, and the market will bear much more because for whatever reason competitors can't enter the market. This doesn't require a monopoly. It requires that you have some large barrier to competition.

RE housing, part of the barrier is land ownership. There really is a limited amount of land in a certain location. But by far the larger portion is very restrictive zoning. If you can keep land use from becoming denser, you can charge much more than if 1/3 of your neighbors allow 3x the density.

So for housing in many good-job locations, landlords occupy a very significant choke point.

A similar case exists for college credentials. Your chances of getting a good job without a certificate from a college is very low. The barriers for entry for credible college certificate providers is high, even for relatively terrible for-profit colleges. Therefore colleges occupy a very significant choke point.

How does this play into the UBI? Well, if you occupy a significant choke point, subsidies can act to let you raise prices, rather than let the alleged recipient of the subsidy actually gain significantly better access. I believe we have seen this to a large degree with college access already. Housing access is likely to be even worse, because it represents an actual shortage because building up the supply is sharply restricted in many of the areas where it is most desired.

For example , one county in Texas has built about half the units of all of California. We needed at least that many units built in Silicon Valley alone.

So, whether or not all sorts of other goods react normally to the injection of money from the UBI, if the choke points are entrenched enough, they can just raise their prices to suck up a very large percentage of the subsidy. This suggests that we may need to analyze some of the more important choke points carefully or else hopeful remedies like the UBI might end up not doing much good.

Now that is my stylized thought process. It isn't intended an explication of definitely believed fact. There are also possible mitigating factors. Maybe a good UBI will make 'good-job' locations less desirable. Maybe a good UBI would make it easier to move to less desirable locations in the hope of making them more desirable. I don't know. But I'm certain I haven't seen many UBI proponents deal with the idea that a UBI could be quickly eaten up by housing costs rising to whatever level the UBI is set at.

(And note that inflation indexing doesn't fix that problem. Either the index doesn't take housing or other choke points into account enough and it becomes useless, or it just spirals upward each year, becoming not quite useless but not nearly as good as we would have hoped.)

One interesting thought on those college choke points. Back around 1960, California put together a state-wide plan to make college (at least 2-years of college) available to every California resident.

That's "available" as in both places available and costs resembling something people could afford. For example, a year's tuition at UC Berkeley (even then one of the very top universities in the world) was under $300 -- which, at the time, was maybe 3% of a working-class (e.g. carpenter) income. Nothing like what we see today ($35K+; obviously we abandon the whole idea, in order to keep taxes down . . . once us Baby Boomers were through school).

Put another way, tuition was a fraction of the cost of room and board (vs 10% more than that today). You could actually work half time, even if that work was washing dishes or entry-level clerical, and still earn enough to cover almost all of your expenses. (I know, because I and my siblings did so.)

In short, we largely eliminated that choke point as far as education goes. Did that make a difference to California's economy? Compare the high tech economies in California and New York, for example (trying to provide an otherwise relatively level playing field). Note where Silicon Valley grew up. And it is far from the only example.

Correlation is not necessarily causation, of course. But do we have another explanation?

Maybe if tries it we will learn something.

As the commenters at LGM replied to your initial query, the UBI is seen as both a redistributive measure (soak the rich) and a spur to demand in a slack economy. The examples of "inflation" that you appear to be hanging your hat on (rents, education) are largely social constructs that promote market distortions and resultant high prices...i.e., in classical economics, inflation is a monetary phenomenon under conditions of assumed full employment.

Another thought experiment might be to take this to an extreme: Assume all incomes are taxed and/or subsidized such that on a net basis, everybody pretty much has the same annual income. What would happen? What prices would go up? What prices would go down?

"The examples of "inflation" that you appear to be hanging your hat on (rents, education) are largely social constructs that promote market distortions and resultant high prices"

Yes, but they exist, so ignoring them seems like a bad idea, right?

Again, Sebastian, you seem to be living in a world in which poor people have more money thanks to UBI, but this isn't actually supposed to be (much) the case. How much do you think the income of the bottom decile will change, on average, thanks to a basic income?

For argument's sake, let's say everyone is going to get $100. How much of that are people going to be inclined to spend on housing on average? How much on college? How much on food, clothes, or automobiles?

The extent to which this will place upward pressure on a given price category will be limited by the portion of the dollars spent in that category.

I would imagine, if were talking a truly universal distribution, what the money is going be spend on will depend on where the recipient was on the income scale before receiving the additional income. People with decent incomes already aren't going to buy new houses or move to more expensive places, I wouldn't think. They might buy nicer cars or go out to eat more often.

Poorer people would probably spend more on food. If it was me, more beer.

I guess I'm just not seeing where these choke-point price shocks are going to eat up very much of this additional money people would be getting. It sounds like something that will keep some number of people from being flat-ass broke and a bunch of other people with a little more disposable income.

But, again, how much is it? What, if anything, will it be offsetting?

More on conservatives and UBI...

http://columbiaeconreview.com/2015/11/11/the-appeal-of-universal-basic-income/

http://www.theatlantic.com/politics/archive/2014/08/why-arent-reformicons-pushing-a-guaranteed-basic-income/375600/

The Section 8 housing program already allows participating residential landlords to soak up subsidies. Eliminating it while instituting a UBI could possibly spread effects out more evenly in a given housing market, so the costs of low-income housing would probably increase some across the board, but the people with lower incomes would be more secure in their housing. Bad consequences in prices would mostly, as they are now, dependent on the regulatory environment. A UBI at the level that's generally suggested would not be that much help for low-income people that would like to live in San Francisco, etc, and wouldn't add much to the housing inflation that already exists in such places.

Greetings, Sebastian.

Every once in a while I get you suggested on LinkedIn, and I am tempted to touch base with you and see how you are. But I don't know to what degree that kind of thing would be unwelcome.

Anyway: I hope you are well. And that you peek in from time to time.

I don't use LinkedIn nearly enough, but feel free. You'll have to disclose yourself there as I don't remember your real name [embarrassed look]

my sense is that, if you give a poor person $100, they will spend most or all of it, immediately, and mostly on basic stuff they need but haven't been able to find ready cash for.

clothes, shoes, car repair. maybe food.

and they might treat themselves to one or two luxury-ish things that would ordinarily be out of their budget.

ice cream, or a movie, or a meal out.

basically, I think poor people reason from an assumption of scarcity. windfalls get spent, usually right away, because you don't know if or when another one will arrive.

not an optimal approach in the big picture, but adaptive, given their situation.

whether something would be inflationary or not would depend on lots of factors. in current circumstances, I think a guaranteed income would have to quite generous before it would be significantly inflationary.

"I think a guaranteed income would have to quite generous before it would be significantly inflationary."

Okay, so put in some numbers (gasp! shock horror! we thought there wasn't supposed to be MATH on this blog!)

Suppose a 'generous' UBI for all:
~300M people in the US x $10K/person/year = $3T/year.

US GDP: ~$18T.

By itself, assuming "just print $3T in extra money" that sounds inflationary. In spite of the fact that (post 2008) the Fed has been doing just that, to little effect.

But if that $3T is obtained by taxes, then whatever "inflationary" effect comes from the differential between "what net losers* spend money on" and "what net gainers* spend money on". [* net losers, probably the rich; net gainers, probably the poor. Depends on the details, of course]

So, you would expect to see price increases in "basics" like food, clothing, etc., (poor people with more income to spend on "basics"). With somewhat less money to spend by the 0.1%ers, so less price increase in "luxuries" (so perhaps FINALLY you can afford that yacht, Count. Just hard to find a place to sail it there in MountainJesusLand).

Since the Richy-Riches already spend little of their income on "basics", and the poor would have more money to spend on "basics" (even at higher prices), it's hard to see how that's a net loss.

When rich people get more income they tend to 'invest' it, that doesn't increase the price of "basics" very much, but it DOES result in asset price bubbles. Which are fine, until they pop. Yes, investments are needed, but asset bubbles are the very definition of 'over investment', and should be avoided. Finding a good balance isn't easy, but when the balance is tilted as far as it is now (toward the 'huge piles of unproductive cash' side) it's simple to see what direction to go.

tl;dr

It's funny. I was thinking $10k. I guess that's just a round number (a power of 10, even - even an even power of ten!) that's high enough without being too high.

Give everyone that, make it eligible as taxable income for federal taxes, make the personal exemption for federal taxes $10k, and adjust marginal rates and brackets accordingly.

This is kind of like the FairTax in a way, isn't it?

https://en.wikipedia.org/wiki/FairTax

The TL;DR version of the proposal is the abolition of the IRS and all other forms of taxation in favour of a single tax (23% is the number bandied about) levied at the point of sale on all goods and services.

The offset to this is a monthly "pre-bate" to everyone in the country to offset the taxing of basic necessities. This pre-bate sounds something like a Universal Basic Income, in that if you're a citizen of the country, the government is paying you to live there.

This was my first thought when it came to UBI, at any rate. If we did institute something like this, it seems this method is the one best suited to work: it eliminates all kinds of loopholes and offshore accounting, because the only time your money is taxed is when you spend it, it turns everyone in the country (including those here on vacation and illegal immigrants) into taxpaying citizens, and it double-penalizes anyone living here without citizenship, since if you're not a citizen, you don't get your UBI but you're still paying taxes on everything like the rest of us and thus subsidizing the services you use and the goods you consume.

All in all, seems like a good deal to me. Could we do UBI like a larger, more expansive roll-out of an idea like the FairTax?

Reading the Wikipedia entry on the Fair Tax, you gotta love this:

The FairTax statutory rate, unlike most U.S. state-level sales taxes, is presented on a tax base that includes the amount of FairTax paid. For example, a final after-tax price of $100 includes $23 of taxes. Although no such requirement is included in the text of the legislation, Congressman John Linder has stated that the FairTax would be implemented as an inclusive tax, which would include the tax in the retail price, not added on at checkout—an item on the shelf for five dollars would be five dollars total.[29][40] The legislation requires the receipt to display the tax as 23% of the total.[41] Linder states the FairTax is presented as a 23% tax rate for easy comparison to income and employment tax rates (the taxes it would be replacing). The plan's opponents call the semantics deceptive. FactCheck called the presentation misleading, saying that it hides the real truth of the tax rate.[42] Bruce Bartlett stated that polls show tax reform support is extremely sensitive to the proposed rate,[38] and called the presentation confusing and deceptive based on the conventional method of calculating sales taxes.[43] Proponents believe it is both inaccurate and misleading to say that an income tax is 23% and the FairTax is 30% as it implies that the sales tax burden is higher.

net losers, probably the rich; net gainers, probably the poor.

Snarki, I love the way you casually swapped the usual gloss on winners and losers!

Suppose a 'generous' UBI for all:
~300M people in the US x $10K/person/year = $3T/year.

US GDP: ~$18T.

By itself, assuming "just print $3T in extra money" that sounds inflationary. In spite of the fact that (post 2008) the Fed has been doing just that, to little effect.

First off, I would expect that this income would be taxable. Which would reduce that cost some.

Second, there is nothing to stop us upping the tax rates to help recover the costs. At minimum, you can up the rates to recover the full amount on incomes above some threshold. That isn't even a "tax increase" on them, since it results in zero reduction in their after-tax income.

Third, you can actually increase taxes on those making over, say $1M per year. Thus reducing the amount of new money further. Sure, one some theories that reduces investment and therefore economic growth. But when we look at what reducing taxes on those folks has done for economic growth in the past few decades, it's hard to argue persuasively that it would be a significant hit. (Not that I'd expect that injection of facts to reducing the wailing.)

We had the asset bubble, followed by this.

By itself, assuming "just print $3T in extra money" that sounds inflationary. In spite of the fact that (post 2008) the Fed has been doing just that, to little effect.

Yes, one school of economists predicted that the TARP would bring on hyper-inflation. It didn't. They predicted that quantitative easing would bring on hyper-inflation. It didn't. The Fed is struggling mightily to produce its target 2% inflation, and generally falling short. The Japanese central bank and government have tried everything in the usual arsenal to stop deflation, with marginal success.

Maybe a UBI would kick off inflation, maybe it wouldn't. Given the accuracy of prior predictions, I'll worry about it when I see it.

The "Fair Tax" is just a brand name, like "Clean Coal" or "Healthy Forests". It is the latest, and possibly the sneakiest, right-wing ploy to abolish Social Security and the estate tax -- two things they hate even more than capital gains and corporate profits taxes.

I suspect the price-adjustment effects of the "Fair Tax" would make any similar effects of a UBI look trivial.

If I were buying a new milling machine for my basement workshop, would I owe "Fair Tax" on the purchase? How about a new computer for my office? It would appear to depend on whether I buy such things as a person or as a business. Who's to tell the difference?

--TP

It would appear to depend on whether I buy such things as a person or as a business. Who's to tell the difference?

Pretty easy, actually. If you can afford the legal costs of incorporating yourself, you can make pretty much all of your personal expenses into business expenses. And afford the accountants and tax attorneys to finesse that by the taxx laws -- or at least by the IRS.

Isn't the "Fair Tax" ploy meant to "abolish" the IRS?

--TP

Ah, you missed the part where there would be no more IRS, wj. That's what makes the whole thing work! ;^)

Doh! (Refresh after reading.)

It appears that the Swiss are looking to vote, June 5, on making a constitutional change to implement it. Guess we may have some actual evidence on what implementation at a national level might look like.

OK, I must be dumber than a post, because I'm seeing a lot of blowback on the FairTax idea, and nothing specific.

Help me understand just what about the idea of it is so toxic and how it's some right-wing attempt to abolish Social Security? I mean, seriously, show your work. The FairTax has nothing to do with Social Security, other than pulling money into the SS coffers from the sale of goods and services (thus taxing everybody) instead of pulling it from payroll taxes (thus targeting only working people).

I'm not being deliberately obtuse here, I legitimately want to know where these ideas come from, because nothing I've read about it has anything to do with things like getting rid of Social Security. Where does this come from?

Areala, it all depends on what other changes get made at the same time. Either to provide funding for it (tax increases or cut in other programs), or because it is supposed to eliminate the need (EITC, food stamps, etc.).

Depending on that, you could get cries of outrage from left, right, or elsewhere.

Google is your friend. This goes back to 2007.

Check out this list.

Areala,

By tying SS benefits to your employment history, a typical beneficiary feels strongly that they "own" the benefit, as they "earned" it. This is just one, but a very important one, of the program's attributes that has made it more or less impervious to political attack.

Funding the program out of what would essentially be general tax revenue undermines this.

.....it all depends on what other changes get made at the same time.

Indeed. Absent any other changes, this is just a warmed over "flat tax" proposal that would essentially push the tax burden down the income scale.

European countries typically have VAT or "sales" taxes that strike us as outrageously high. But, in turn, they get a much more generous social safety net.

When I see proponents of this, and similar tax "reforms" tie them to a significant expansion of the social safety net, I will take them more seriously.

http://www.pbs.org/newshour/bb/swiss-consider-welfare-overhaul-guaranteed-minimum-income/

http://www.pbs.org/newshour/making-sense/will-guaranteed-income-ever-come-america/

http://www.theatlantic.com/politics/archive/2014/08/why-arent-reformicons-pushing-a-guaranteed-basic-income/375600/

Watch out for the ultra-conservatives who want a guaranteed basic income so they can kill Social Security, Medicare, and Medicaid.

We had the asset bubble, followed by this.

Where do all those excess reserves go? Here's one analysis.

[typo for link fixed -- wj]

On the other hand, in Europe, the price you pay at the till is the price stickered on the item, not that price, plus some arbitrary pissant amount that makes calculating how much your basket is going to cost you at the till really annoying and complicated.

Again, we're bandying about the idea that people are going to get given *extra* money -- perhaps that is true in the US where social security is appallingly absent. In the UK it would replace existing benefits. There's no inflationary effect because you're not actually handing out any extra money.

HSH - I read the FactCheck page before, and while I'll be the first to admit I'm no mathematician, the take-away I got from it was that FactCheck.org is playing semantic games with percentages. This is a very, very simple mistake to make, because percentages (unlike many other areas of math) are not reciprocal. In other words, if I have $100 and I lose 50% of it, I have $50. If I gain 50% back the next month though, I don't suddenly have $100 again, I have $75 (50% of $50 being $25, and 25 + 50 = 75). If I want to get back to my initial $100, I need a 100% gain. 50% won't cut it.

To grow in percentages always requires more than the "loss" you take at the start, so yes, while you need the equivalent of $23 on a $77 item, you need a 30% tax rate. But to tax 23% on a $100 item, you only need a 23% rate. Where you calculate the tax doesn't matter: the end result is the same: $23 in taxes on that $100 item.

To simplify this, it's like saying, "I took 10, multiplied it by 10, and I got 100," and somebody else saying, "Nuh-uh, you took 10, multiplied it by 5, then doubled it." Either way the answer's the same. The equation produces an answer of '100' both ways, and neither side is lying or mistaken.

Later on the document goes on to discuss cheating on taxes which happens at roughly a 15% rate. But it seems to me it's much easier to cheat on taxes if you're self-reporting on income or business expenditures and not quite so easy to cheat on taxes if they're added in to whatever you're buying by the store's register module. How easy is it to currently cheat on sales tax without the business itself being complicit in the matter? Registers ring tax automatically...I can't do a nudge-nudge with the cashier at the hardware store or car dealership and have all my stuff magically become tax-exempt. :)

I love FactCheck, and I'd love for someone else to explain it differently to me if I'm legitimately not getting it (do we have any math wizards here?), but their own explanation on this one appears to commit a mathematical fallacy.

The easiest way to cheat on sales taxes? Buy over the Internet.

In theory you are supposed to report those purchases to your state/municipality, and pay the sales tax. In practice, nobody does. Before we can say that a sales tax is harder to cheat, that loophole will have to be plugged.

Fair enough, I was thinking rather narrowly in the terms of retail sales. :)

Areala,

Which way the "Fair Tax" rate gets defined makes no difference financially. If an item costs you $100, it costs you $100. Politically, it's a different story.

Politicians know the value of "messaging". It's easier to get Joe the Plumber to oppose the estate tax if you call it the "death tax", because Joe the Plumber knows he will die someday himself.

And it's easier to sell the "Fair Tax" if people hear "23%" and think "I will have to pay $123 for a $100 pair of shoes", instead of "I see: you mean I'll have to pay $130 for that $100 pair of shoes because that 23% is what $30/$130 comes to."

The very fact that proponents of the "Fair Tax" make 23% the headline number is already a hint that they are slightly sleazy marketers at best. That they want to "replace" the "death tax" with their 30% sales tax is a second hint.

There may be good reasons to implement a VAT-type tax in lieu of some taxes on income and wealth, but if the reasons really are "good", there's no need for deceptive marketing.

--TP

One of the question around UBI is this: what will the bulk of the population do with their time?

I can certainly see some of those at the low end of the economic spectrum continuing just as they are now: working hard to try and make a better life for themselves and their kids. But is that the whole story?

Most of us here have hobbies. Whether we are still working for pay or not, we have other things we do. We have other interests (in addition to writing snarky comments here). And it can be hard to image that there are those who do not. But I have seen that it is so.

Back in 1998, my mother broke her hip (she was 82). After getting the necessary surgery, she spend some weeks in a nursing home for re-hab. Her two biggest complaints?

1) no Internet access. For those of you too young to remember, at that time it was still uncommon to find someone over 40 who used the Internet, except at work. But here was an 80+ year old woman who was addicted to being able to look stuff up when she wanted. And, because she was interested in lots of things, that was a lot of stuff.

2) (And more relevant here.) All of the "old people" there -- most of whom were 10-15 years younger than she was. Mom was interested in lots of stuff. She read constantly. She had friends drop by (the nursing home staff was utterly flummoxed by the parade). She was engaged with the world.

But these folks were not. They had few or no visitors. They seemed to have no interests. Having retired, they were, quite simply, sitting around waiting to die. If they had retired earlier (whether thanks to the UBI or something else) they would just have started sooner.

And that, I submit, is a problem. How big a problem? I don't know. If it's quite small, we may decide that we can just ignore it. Accept a small increase in the death rate and move on.

Then again, it may not be that small. In which case, we are going to need to figure out how we help people who need structure and activity and engagement in their lives. Things which their jobs used to provide; jobs which have gone.

It may turn out not to be a huge problem. But it is still one that needs to be addressed before we charge down the path to UBI . . . and then discover the unintended consequences.

My take on UBI is that it will become essential long before we have quit arguing about it. Some form of it is in many ways the only next step I see in the evolution of human culture.

So, what is good or bad, who wants it or doesn't, what it replaces or doesn't, are all pretty irrelevant questions to me. It will happen because we will risk a complete societal collapse, haves will be spectacularly wealthy and everyone else will mostly work for their pleasure outlets. There wont be enough of those jobs and everyone else will live in a post apocalyptical slum of some sort. Or there just wont be any of us.

What will we do with our lives, as wj points out, is a more critical thing to discuss.

How much more do you get if you have one of those jobs we really need, is another.

I believe there are many more, but we move that way seemingly inexorably with every productivity enhancement. And social media lure to join the hive.

I don't have an ideological problem with some version of a consumption tax. But I wouldn't spend a ton of time analyzing the version put forth by the list of GOP reps to verify that it's going to work for anyone except the very poor and the at least fairly rich.

What Tony P. says about it being a Trojan horse meant to undermine SS or whatever other safety net isn't something you can look up in the Book of Facts. Politics doesn't always work that way. They also aren't going to come out and say that they're trying to undermine a popular, longstanding program.

Sometimes you have to read between the lines. If you don't want to or don't have the context to do so, that's your business. If you think the Fair Tax as presented is a good-faith and well-thought proposal, there may be people who disagree with you but who can't prove beyond a shadow of a doubt that you're wrong. Then we're in agree-to-disagree territory. C'est la vie.

"They also aren't going to come out and say that they're trying to undermine a popular, longstanding program."

Sure they do.

From the link above:

"More recently, in a 2006 book, conservative intellectual Charles Murray proposed eliminating all welfare transfer programs, including Social Security and Medicare, and substituting an annual $10,000 cash grant to everyone 21 years and older."

They've told the baby all along that it'd better learn to hold its breath under the bathwater, until they stab it.

The one "great" thing about Trump is that Lee Atwater's operatives can now use the "N" word without causing any queasiness among 49% of the electorate.

The trojan is off the Trojan Horse for the bareback rogering they so enjoy.

there's something about the universal guaranteed income thing that rubs me the wrong way, and I'm trying to put my finger on exactly what it is.

I don't think that all that many people are that interested in getting paid to do nothing. By far, most people want to be engaged in some kind of meaningful work. By "meaningful", I mean work that is of use to themselves or other people - work that creates value of some kind.

By "value" I don't necessarily mean money.

Part of the issue, I think, is that we've lost the ability to measure the value of work. Regardless of what their job description is, what a huge number of folks nowadays do - perhaps most folks - is turn somebody else's money into more money.

Regardless of the inherent value or usefulness of whatever it is you do, if you aren't turning somebody else's money into more money, your job is at risk.

And god forbid that you work in the public sector. Not only is what you do widely seen as worthless, you are quite often seen as a leech, a parasite sucking the vitality from society as a whole.

There is something fundamentally broken about that, it seems to me.

Likewise the specter wj raises, of retired people sitting around doing nothing whatsoever once their day job ends. All of the incredibly valuable things that those folks could be doing, and the best characterization that we can come up with describe them is "hobbies".

I say that with all due respect to wj, I understand the point he was making, I just think phenomenon he describes points to a deeper problem.

We no longer understand how to value productive effort. The only way we understand to measure the value of what people do is whether, and to what magnitude, it turns somebody else's money into more money.

If you don't believe me, compare the relative incomes of, for instance, hedge fund people to that of nurses. For example.

This isn't a problem that can be addressed by a government program. It's much deeper, I think, a profound social and cultural issue. Governments are creatures of the societies and cultures that create them, they are not likely to have ways of thinking about things that don't exist in the underlying society.

People feel useless because their work isn't valued. People are poor because their work isn't valued. People's livelihoods and basic physical security are at risk, because their work is not valued.

Because we have no way to measure the value of what people do, other than how much what they do increases the size of somebody else's pile of money.

I'm not against a UBI necessarily, it just strikes me as a band-aid, and kind of beside the point. It's better than letting people starve, but it seems like more profound changes are needed.

Russell, while I largely agree, I think that the line between "work" and "hobbies" is far vaguer than you seem to suggest.

Consider. We have, in my area, an old steam train set-up, complete with tracks. The Niles Canyon Railroad runs occasional trips, just to show people what steam trains were like. That's got some value.

On the other hand, the guys who work on restoring and maintaining those trains essentially have a hobby. They don't get paid; in fact, they may pay dues. So, it's marginal.

Or, to take another example, consider the Count's baseball league. Does he (and the other players) get paid? Ha! (Correct me if I'm wrong on that, of course.) So it's a hobby. But I suspect that they have spectators, who come out for the same reasons that people go to Major League baseball games. So, value being added.

All that said, I agree that we need a cultural change in how we regard things that people do which are not primarily about earning a living.** Specifically, we need to reach the point where what we now mostly consider "hobbies" are considered valuable, regardless of how much (if any) income they generate.

** It suddenly occurs to me. Doesn't that describe most big business CEOs? They certainly don't need the money as money -- they are generally rich already, even if they aren't Warren Buffet (a clear example) rich. But they are working long hours, for much the same reasons that people do other hobbies.

wj, were those old people not receiving pensions...? Because, again, a UBI would replace, at least in part, a state awarded pension.

I feel like I am constantly banging this drum here, but the point of a UBI isn't, really, to give people extra money, but to secure the benefits they ought to already be getting. I understand the U.S.is sort of a special case amongst developed nations in that it's benefits and healthcare system is, apparently, appalling, but still.

I have no idea if those old people were receiving pensions. Certainly someone was paying for their care (and room and board) in the nursing home, but I have no clue who.

However my point was that they were just not engaged with the world. The problem there was likely to be lack of money. It doesn't take money to talk to those around you. It doesn't take money to use the public library. Etc. What it does take is having an interest, and the ability to structure your own life, absent the structure provided by a formal, paying, job.

Tony P: Thank you! THAT was the plank in my eye that I couldn't see past, and I appreciate you removing it for me.

This is why I love you guys here. :)

*huggles*

We no longer understand how to value productive effort. The only way we understand to measure the value of what people do is whether, and to what magnitude, it turns somebody else's money into more money.

If you don't believe me, compare the relative incomes of, for instance, hedge fund people to that of nurses. For example.

When did we ever value productive effort appropriately? I would suggest that we never have done so. Our problem is that we seek to place a monetary value on things that people do, from creative and artistic efforts, to manual labor, to caregiving, to manufacturing, to gambling, to investing in corporate enterprises.

People's worth is not subject to a monetary valuation. There are people who are utterly dependent (because of ill health or other circumstances). Are they worthless because of that? I would argue not.

A UBI that would allow people to have a minimum amount of dignity (shelter and food, at least) seems like an acknowledgment that people are worthy of that.

Some of the most valuable things that people do are nonremunerative. It would not be possible to pay a person who works as a care provider for a dependent person the same amount as a hedge fund manager makes. I can't even imagine how or why our economy would be set up that way. What we need to get away from is the idea that our income reflects the worth of what we do. It doesn't, and it never has. The economy is apples to the oranges of the value of human beings. I can't fathom a way to make it all match up. That's why the UBI and other wealth distribution programs are necessary.

wj, we pay to play, both baseball and softball, unless we are sponsored, but then we have to show up every couple of weeks at the dive bar that sponsors one of my softball teams and make a show of getting loaded in the middle of the day, which we are still pretty good at.

Spectators? Hah! The wives and girlfriends gave that up decades ago, particularly when they found out the wife AND the girlfriend of our shortstop both were there at the same game, by some unfortunate miscalculation.

But, I kid.

When I played on a fully sponsored highly competitive, traveling softball team years ago, we had an entourage on our trips out of town. It was great fun.

The highlight was playing in the "World Series" of men's softball in Puerto Vallarta, Mexico about a million years ago, where we played in an actual baseball stadium with several hundred people in the stands.

We got our butts kicked by basically what turned out to be a semi-pro Mexican team without a weak guy anywhere in the lineup, offensively or defensively. That, and the tequila, the humidity, and the parasailing over the bay "trump"ed us, I'm happy to report.

I did get to watch Ozzie Canseco, brother of Jose, hit a softball about 420 feet over the center field fence, and his girlfriend -- ponytailed, lipsticked, long red fingernails -- do a pretty good facsimile of Brooks Robinson and make about a half dozen diving plays at third base and gun the runners down at first without breaking a sweat for their exhibition softball team's absolute slaughter of whomever they played.

The closest I came to "pay-for-play" was playing in an exhibition game against a famous (The word "Iron" was in their team name) professional softball team from back East about 25 years ago. Got a couple of hits offensively, but defensively in center field, my job was to crane my neck and watch the balls crushed by all ten guys in their lineup sail 80 feet over the outfield fence.

Yawn.

I could have brought a lawn chair and a book out there with me and still have been errorless.

I'm following my bliss playing baseball and softball all these decades.

I have avocations rather than vocations, the sport of baseball being one of them.

My dream demise would be to have a grave pre-dug right in front of third base in baseball, stretch a double in the gap into a bases-loaded triple, do a full-out head first slide into third, touch the base with my fingertips as a I land in the hole, hear the umpire scream "Safe!" and then have my teammates bury me right there.

I've been invited to play baseball tournaments in Las Vegas the last couple of years, and I might finally give in one day.

By the way, a UGI would not in any way cause me to slack off in the hustle department in a baseball game.

Count,

In all the years I played softball my favorite play was to catch the right fielder being a little cavalier and score from first on what appeared to be a routine single.

That is no longer in my repertoire. But I did do a credible job in a three on three tournament a few weeks back. My knees tortured me for a week or so but it is still worth it occasionally.

I am impressed by, and happy for you, your longevity on the field.

Good on ya, Marty. We have three knees between us on one of my teams, my two and the shortstop's good one. I exaggerate, but not by much.

Running was my one free gift in life and I think that's what gives me the most joy, besides catching the ball once I get there.

My idea of making baseball or, probably even better, softball into a paying proposition, besides maybe umpiring when I'm a geezer one day, was more than a few years ago to get my ten best player buds, buy a bus, and barnstorm through the Midwest -- Denver and points East -- all summer, pull up in front of the town watering hole, challenge the patrons to go find their best players in town, any age will do, and bet them, I don't know, $500 they couldn't beat us.

Some of us talked about it, but not seriously. Besides, the above-mentioned wives and girlfriends and their attorneys would have been a high hurdle to negotiate.

They'd suggest the team name "The Bums", or woise. So you see how the lack of a UGI all these years has severely limited people's options.

It would have been even better if a bunch of the team was musically inclined and we could have played a set in each town we visited too.

Speaking of running, a buddy and I drove from Washington D.C. to Los Angeles back in the early 1970s when hitchhiking was still a thing. We picked a guy about our age up in Kansas and it became apparent he had a drinking enthusiasm from the lilt of the conversation, so at one point he says to us from the backseat, "Tell you what, boys, pull over somewhere and I'll footrace one of you for a six pack of beer at the next small town we pass through."

I was driving and looked over at my buddy, and he looked back at me with a thought bubble over his head depicting candy being taken from a baby, and I immediately braked and swerved (this was not the interstate) on to the ample grassy median strip and told the guy to measure out the distance.

It was like the knife versus gun fight in "The Magnificent Seven".

I faked reluctance. Beat him by ten yards, though he could run, and nice guy that I am, I gave him the money anyway to buy himself a six pack and we parted ways, in case the next bet involved him shooting an apple off my head.

My reality show needs more reality, I've been advised.

Count,

I love that story. On one of my softball teams there was a little quick guy, covered a lot of ground in the outfield and there was lot of good natured jawing about who was faster. Finally we were playing flag football one day and someone dared us to race.

There is that point in the race, a few steps in, where you can feel the transition to your feet just barely touching the ground, and the feeling that nothing can catch you. He didn't, and was shocked. I didn't know he really thought he was faster.

But he looked stunned, nothing was said, a handshake, back to football and it never came up again.

"It would not be possible to pay a person who works as a care provider for a dependent person the same amount as a hedge fund manager makes"

not possible is too strong. not possible given the way we think about the value of what people do, I do not disagree with.

plus, we're talking differences in compensation measured in, literally, multiple orders of magnitude. not twice as much, or ten times as much, or even a hundred times as much. a thousand times as much is more like it, or multiple thousands.

what does that tell us?

I'm neither in favor of, nor against, the UBI. Its good to not let people suffer from poverty when the nation is so wealthy. if the UBI is the way to do that, fine.

it just seems odd, to me, to talk about it as a necessity because there just isn't anything valuable for people to do, because robots.

there are a number of reasons that people find themselves without useful work to do, work that creates value and which returns sufficient value to the to provide a basic level of security.

robots are not at the head of the list.

regarding the fundamental worth of all human beings, you will get no argument from me.

Oscar Wilde, regarding the UGI, which has always existed for the special ones, "Work is the curse of the drinking classes."

In breaking news, it appears that the Swiss voters strongly rejected a proposal for UBI.

There is a project to study it:

https://blog.ycombinator.com/moving-forward-on-basic-income

Kind of impressive that even 22% voted did it. My partner is Swiss and I saw the voting booklet that came with her postal vote. The government commentary was basically "this is a terrible idea and will bankrupt the country". The "pro" argument wasn't written very well.

(It should be noted that it seems like a lot of people vote straight down the government-sponsored line. My partner went with the government on the other five plebiscites in the book.)

http://finance.yahoo.com/news/raising-the-floor-andy-stern-universal-basic-income-ubi-milton-friedman-social-security-003220195.html#

Manitoba tried it:

http://www.newyorker.com/magazine/2016/06/20/why-dont-we-have-universal-basic-income

http://motherboard.vice.com/read/the-mincome-experiment-dauphin

Lots of other links to be had regarding the experiment.

But like everything, conservatives killed it.

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