Tax Reforms Are Needed To Fund the Basic Income

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By Rajesh Makwana:

"Unless alternative means are found to fund a basic income, a truly comprehensive scheme for sharing a nation’s financial resources is likely to remain unaffordable, while a less costly version may not provide a worthwhile alternative to existing benefits. But if funding is the primary issue, why not link the policy to wider reforms for how governments raise public revenue? Campaigners in countries across the world have long advocated for numerous ways in which states could raise huge quantities of additional income for urgent social and environmental purposes, such as implementing higher taxes on extreme wealth and very high incomes, closing tax havens, ending corporate tax avoidance or implementing a financial transaction tax. Alternatively, governments could divert a percentage of their colossal military budgets, or withdraw a proportion of the vast subsidies currently paid to agribusiness and the fossil fuel industry.[16] Similarly, new levies on environmental ‘bads’, such as pollution or waste disposal, could help raise revenues while providing a disincentive to ecologically destructive activities.

While countless civil society campaigns continue to focus on these and other redistributive proposals, a number of even more radical approaches to reforming the way governments raise public revenue are also being more widely discussed by progressives. For example, may proponents of systemic tax reform argue that levies on earnings, employment and profits disproportionately impact those already on low incomes, while encouraging environmentally damaging activities, and penalising the contributions that people and companies make to society. Land value taxation is widely regarded as a logical and fairer alternative to existing methods of raising revenue and, like basic income, it has considerable support among both progressives and conservatives. In accordance with the need to dramatically reform both fiscal and benefit systems, James Robertson has proposed a new social compact in which land value taxation would play a central role in funding a citizen’s income.[17] Robertson’s proposal illustrates the possibility of funding a more comprehensive basic income scheme that would also enable governments to take decisive steps towards creating a more just and sustainable economy. Nonetheless, the political will to pursue these widely supported measures remains conspicuously absent, which points to the need for a more visible public debate about the various means governments can employ to pool and share a nation’s financial resources.

Social dividends from shared resources

In light of the inherent difficulties connected to reforming established tax and benefit systems, it is also worth considering alternative options for establishing a citizen’s income that could have much wider implications for creating a sharing society. Although this approach is rarely part of the popular discourse on implementing a basic income scheme, there are a growing number of proposals for instituting a ‘social dividend’ that is based firmly on the principle of sharing as it recognises that all citizens have a right to income from ‘natural property’, such as land and other resources that are either inherited or co-created by society. The idea can be traced back to the work of the American revolutionary Thomas Paine, who stated that “the earth, in its natural, cultivated state was, and ever would have continued to be, the common property of the human race”.[18] The notion that the earth is our common inheritance was also central to the ideas of the social theorist Henry George in the 19th century, and still maintains strong support among Georgists as well as commons theorists.[19]

As explained by Peter Barnes in his book ‘With Liberty and Dividends for All’, the majority of the wealth that is inherited or created together by society is captured and extracted by the rich rather than distributed fairly among citizens. Meanwhile, the damaging social and environmental costs of this process are largely borne by the public or the biosphere. The simple idea at the heart of most proposals for a social dividend is therefore to charge user fees on shared resources, which can then be distributed to all citizens as a basic right. Although an agency would initially be set up by governments to administer the program, it would operate independently of the private and public sector as a ‘commons trust’ that could conceivably manage a range of shared resources – from land, fossil fuels and atmospheric carbon storage, to the electromagnetic spectrum and intellectual property. According to a calculation by Barnes based only on a specific selection of shared assets, the programme could provide every American citizen with as much as $5,000 a year.[20]

Given the various problems associated with existing basic income schemes, not least of which is funding, issuing social dividends from user fees on shared resources could be a sensible alternative to the tax-funded benefit programs considered above. The social dividend approach would address a number of the concerns that drive proponents of a citizen’s income, such as providing a non-labour supplement to falling wages and incomes, or reducing social and economic exclusion. Moreover, sharing the value of co-owned resources in this way would not necessarily interfere with existing systems of welfare and social protection, which could still be reformed independently to address some of the failings highlighted previously.

Barnes also reminds us that while the idea of reforming tax systems remains problematic and contentious, distributing income from user fees appeals to both liberals and conservatives. The programme could be set up as a self-financing commons trust that operates outside of the public and private sector, and managing the fund would neither inflate nor deflate the size of government. Like taxes, user fees on ecologically damaging activities would also provide a disincentive to both producers and consumers, effectively internalising environmental costs into the price of products. Additionally, a social dividend would be an effective way to integrate the principle of sharing into the way nations govern the use of co-owned assets, as it gives form to the notion that natural resources should be managed in the interests of all people and future generations – which is clearly a prerequisite to creating a more equal and sustainable world in the 21st century.

From national to global dividends

Sharing the value of co-owned resources is not just a theoretical premise; the practice has long existed in Alaska where 25 percent of all mineral lease rentals, royalties, bonuses and other payments received by the state are placed into a permanent fund that is currently worth over $53 billion.[21] The fund was initially set up by the government of Alaska in 1976 and is now managed on behalf of its citizens who receive an annual dividend from the income it generates, which amounted to $1,884 in 2014. Unsurprisingly, the fund is popular with residents and acts as a crucial economic stimulus, while being transparent and cost effective to manage. Moreover, in stark contrast to when the fund was first established, Alaska now has one of the lowest rates of inequality and relatively low levels of poverty compared to other US states. For these reasons, the Alaska Permanent Fund provides a unique example of the benefits of sharing resource dividends directly with citizens, and is regularly referred to by campaigners working on a wide range of progressive causes.

The Alaskan model also has important applications for low income countries, particularly those that struggle to reduce extreme poverty or are afflicted by the ‘resource curse’ – the paradox of countries being rich in mineral wealth but unable to achieve sustained economic development. For example, the economist Paul Segal argues that governments in developing countries should distribute rents due on their natural resources directly to all citizens as an unconditional cash transfer.[22] Such a program would provide incentives for people to register with the fiscal system, strengthen state capacity, help ameliorate the institutional causes of the resource curse, and reduce corruption. Sharing the value of resources in this way would be entirely in accordance with universally adopted human rights covenants which state that “All peoples may, for their own ends, freely dispose of their natural wealth and resources”.[23] Most importantly, Segal highlights the considerable impact that a social dividend derived from resource rents could have on extreme levels of human deprivation. According to his calculations, this measure alone could halve global poverty if implemented internationally by all developing countries, and he concludes that the scheme “would be easier to implement than most existing social policies”.[24]

This same model could also be applied to fund basic income schemes in developed countries that have sizable reserves of oil, gas and other industrial minerals, such as the US. As Segal notes, prior to the systematic privatisations that characterised the 1980s, just such a proposal for ‘A People’s Stake in North Sea Oil’ was floated in the UK by Samuel Brittan and Barry Riley. More recently, economists have proposed similar models for a basic income funded by resource revenues for Nigeria, Iraq and Bolivia. According to a study by World Bank economists, a universal basic income in the form of a ‘direct dividend payment’ derived from just 10 percent of national oil revenues would be sufficient to close the poverty gap in Angola, Equatorial Guinea and Gabon, and could half the poverty gap in larger countries such as Mozambique and Nigeria. The report’s authors explain how it would also be possible for a proportion of these revenues to be used by governments to fund public goods, which could further help reduce poverty and enhance social welfare.[25]

The discourse on how to fairly distribute the value of a nation’s co-owned resources is critical, especially in relation to creating effective sharing societies without poverty or extreme inequality. But the process of deriving social dividends from shared resources need not be confined to the nation state, and could even be used to fulfil the entitlement of every human being to a fair share of the global commons. For example, Alanna Hartzok outlines how a Global Resource Agency could feasibly collect resource rents from the exploitation of shared resources such as ocean fisheries, the sea bed, the electromagnetic spectrum, and even outer space.[26] The resulting fund could be further bolstered through levies on activities that damage the commons, including carbon emissions and other forms of pollution to the oceans and atmosphere. In a globalised economy characterised by a vast array of economic processes that fall outside the jurisdiction of national territories, such a mechanism could clearly be an indispensable source of finance for underfunded global governance bodies such as the United Nations and its affiliated agencies. The finances raised could also support the provision of global public goods or help meet other international priorities such as providing disaster relief, ending hunger or mitigating climate change. Furthermore, this international model of economic sharing could also distribute a proportion of the revenues generated as a global citizen’s income based on an equal share of the value of global resources. Since rich countries are responsible for the vast majority of resource consumption and pollution, an international citizen’s income raised through user fees on the global commons could also amount to a sizable redistribution of wealth in favour of citizens in the Global South.[27]

Another international route to raising the finance needed to eradicate extreme poverty is suggested by Professor Thomas Pogge, who proposes that all human beings should be recognised as having an inalienable stake in the world's natural resources and that they should therefore be entitled to a share of the value of any natural resource (such as crude oil) regardless of where it is extracted.[28] He calls this share a Global Resource Dividend (GRD) and proposes that it is fixed at 1% of gross world product, which currently comes to $780 billion per annum.[29] Pogge suggests that it would make sense to differentiate between natural resources by collecting larger shares for those that are most damaging to the environment (like coal). In this way, he argues that the GRD could help avert ecological harm while enabling the world's poor to share in global economic growth and reduce their financial disadvantage. Pogge’s original proposal does not constitute a universal citizen’s income, as it selectively targets the dividend to provide those living in extreme poverty with up to $250 a year. According to his calculations, however, if the GRD was used to create a truly universal basic income “the poorer half would still get an income boost of over 20% on average … The income of the poorest quarter would go from currently 0.9% of gross world product to 1.15%, a tidy 28% raise.”[30] There can be little doubt that a global citizen’s income financed through resource dividends would have a transformative impact on those who live below the global poverty line, and could even be considered as an adjunct or alternative to conventional development assistance." (