Is a Basic or Citizens Income affordable?.

Examples, using UK data, of revenue-neutral Citizens Incomes, 2004 to 2018.

Two tax systems, 2004.

In the graph shown in two tax systems are compared. They have the same top tax rate and the same net revenue, but there is less inequality in the flat tax system than in the progressive one.

In the flat tax system all income is taxed at the same rate and a Citizens Income is paid as a tax rebate or benefit to all adults regardless of other income. The cost of the Citizens Income is met by the extra tax paid at the lower end of the income scale. Note that this is not just a tax increase for people with low incomes. A high income includes the full range of income on which tax is increased, a low income includes only part of it.

For the UK system the tax rates and tax-free allowance of 2003-4 were used to calculate incomes after tax.

For both systems incomes before tax were estimated for each decile (income group) by dividing the average household “original income” by the average number of adults per household. Original income includes occupational pensions and annuities but excludes cash benefits and tax. These data for 2003-4 were obtained from, Table 14, (Appendix 1).

The only benefit included in these calculations was the adults’ Citizens Income in the incomes after tax in the flat tax system. The Citizens Income would replace some other benefits, partially or completely, and the funding for these could be diverted to pay for a Citizens Income for children.

The Citizens Income in this example, based on data for 2003-4, is £3500 per year. At that time the jobseekers allowance was £2842 per year (for people age 25 or older) and the basic pension was £4280 per year.

How to Fund the Green Party’s Citizen’s Income Policy.
1 February 2015

Joseph Finlay wrote:

“the Green policy of a Citizen’s Income (CI) – a payment of £72 per week to every citizen . . . ‘costs’ very little – it is in fact a rearrangement of existing benefits and tax allowances. The main difference is that it gives each citizen those benefits and allowances automatically, without making them jump through hoops and subjecting them to complex means testing that frequently misses those who need help most.”

” . . . by excluding under-18s, who already receive a small CI in the form of Child Benefit . . . and . . . pensioners, as pensions also constitute a non means-tested CI . . . the actual number of people that would receive a Citizen’s Income would be near . . . 37million, making the cost approximately £138.5billion per annum.”

“. . . the biggest chunk of the £138.5billion would come from the abolition of the income tax personal allowance. . . those who earn substantially below £10,000 would see a real benefit – instead of an allowance which doesn’t help them, they would get a guaranteed weekly cash payment, without means testing.”

” . . . many . . . means tested benefits could be phased out gradually . . . and the Citizen’s Income counted as income in the means testing of those benefits.”

My summary of his funding calculations is:

Abolish the personal income tax allowance, the jobseekers allowance, and either income support or the upper cap on National Insurance, and reduce pension relief and either tax credits or the inheritance tax threshold.

An alternative, more generous Citizens Income.
Alison Marshall, 6 February 2016.

A more generous alternative, £130 per week, could also be achievable within the term of one parliament.

First, change income tax rates to 20% on income up to £33965 per year, and 40% on any further income.

Second, replace the personal tax allowance, jobseekers allowance, basic state pension, and half of the working tax credits with a social dividend. The maximum amount of social dividend would be £130 per week. It would be reduced by 20% of income up to £33965. For people with incomes above £33965, there would be no social dividend.

The dividend withdrawal is effectively a further 20% tax on income, so the system could be run by HMRC as a flat rate 40% tax on all income, with a citizens income of £130 per week for all adult citizens.

My calculation of the revenue-neutral value of the citizens income is:

(1107 x 0.4 – (163 – 5 – 67 – 15) ) x 1000 / 54 = 6793 = 52 x 130

£1107 billion is the total original income,
0.4 is the 40 percent flat tax rate,
£163 billion is current (2014-5) income tax revenue,
£5, 67, and 15 billion are the costs of the jsa, basic state pension, and half of the tax credits.
1000 represents billions divided by millions,
and 54 million is the adult population.

Conditional benefits.
Alison Marshall, August 2017.

Housing and disability benefits are left out of the costings of Citizens Incomes shown here. I think these conditional benefits should continue as part of a renamed, unavoidably complicated, Universal Credit. But the job-seekers allowance, personal tax allowance, basic pension, and some tax credits should be combined into an unconditional, uncomplicated Citizens Income. This reform would be simpler than the current Universal Credit reform, and the only revolutionary thing about it would be the unconditionality.

Transition to Citizens Incomes.
Alison Marshall, July 2018.

The current tax and benefit system was compared with two alternatives with the same top tax rate and net revenue. There was more redistribution from middle to low incomes with Guaranteed Minimum Incomes, and more redistribution from high to low incomes with Citizens Incomes funded by a flat rate income tax.

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