Debate Magazine

Killer Arguments Against Citizen's Income, Not.

Posted on the 15 September 2022 by Markwadsworth @Mark_Wadsworth

I've had a change of heart on how to 'sell' a CI, to deflect the KCNs that it would be 'unaffordable' and/or discourage people from working.
Whether it's 'affordable' or not depends entirely on:
1. How many people receive it.
2. How much the weekly CI actually is.
3. What the clawback rate is for people with some income.
As to 1, instead of saying:
"Everybody is entitled to claim it. There will be an income-related clawback equal to basic rate tax plus NIC. Those earning more than a certain amount (let's say the current income tax/primary NIC-free allowance of £12,570 a year), will quickly realize that the cash CI is equal and opposite to the extra tax they pay, so won't bother claiming it and will just claim the personal allowance instead i.e. be completely unaffected". All this appears to be too complex for the mathematically challenged.
I shall just say "Everybody earning less than (say) the personal allowance is entitled to claim it. Claimants will not also be entitled to the income tax/primary NIC-free allowance of £12,570 a year, so will pay basic rate tax plus NIC on all their earnings, a clawback rate of 33.25% (at current rates). If claimants are earning close to the £12,570 limit (or more), the CI is thus reduced to +/- nothing".
That reduces the number of claimants down to most existing pensioners plus 'about' 10 million adults out of a working age population of 'about' 45 million.
As to 2. We know the weekly rate is going to be more than £0/week (a massive saving, if we consider state pension to be a type of CI). Sensibly, we would take existing spending on welfare and pensions payments, net of clawbacks and tax paid by likely claimants and, first keep state pension at current levels, then divide the rest equally between 'about'10 million working age claimants. The answer would be 'about' £100/week (for sake of argument, depends what you do with disability-related top-ups and Housing Benefit).
Clearly, under this approach, there would be no change to the apparent 'cost' of welfare and pensions.
As to 3. we can then touch on the KCN that "people wouldn't bother working" and the clawback rate.
For sure, there are a few adults who can manage on 'about' £100/week. Most can't and will still have to work if they want the finer things in life (and rightly so, CI is a "hand-up not a hammock"). At present, as a matter of fact, clawback rates (benefits withdrawn and tax/NIC paid) are between 70% and 100%. This is where Working Tax Credits fail miserably. It might be worth officially working 16 hours a week (how the Hell do you prove that one way or another?) to get that bit extra; there is no point then doing 17 hours because you would only keep £2 or £3 for the extra hour. This is an example of the 'benefits trap'.
We know there is a Laffer Curve for taxpayers - if tax rates are too high, it's not worth running a business or working more, once you earn some bare minimum. So there is an optimum tax rate where the government can maximise tax revenues (we are at or past this point, as it happens). The same goes for clawback rates - if the government wants to claw back the maximum total cash, it sets the rate not too low (not much clawed back, 'unfair' advantage for claimants) and not too high (discourages working - not much clawed back either).
We also know that the clawback rate has to be set at such a rate that people working a small number of hours don't end up with more net income than people working more hours.
Taking all this into account, the optimum clawback rate is somewhere in the region of 30% to 40% (minimm wage earners keep £6 or £7 for every hour worked i.e. two or three times as much as now), which is, happily enough, the same as basic rate tax/NIC (depending on whether you include Employer's secondary NIC or not). So there is no need for a parallel means-testing/clawback system, we just give claimants BR codes for PAYE! And the work incentive has doubled or trebled at the stroke of a pen - and it's not just the extra bit of CI clawed back, their employers will also be making more profit and paying more tax!
* The German 'liberal' FPD party, which is socially AND economically liberal, unlike its UK sister party which is just soft-socialist, had exactly these proposals in its 2021 manifesto, the FDP are part of the ruling Coalition, and it seems not unlikely that this will be actually implemented next year (fingers crossed). I happened to see this in the ZDF evening news yesterday, which I watch occasionally for old time's sake.

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