Carbon Tax.


1. Tax and dividend. July 2019.

Tax everyone with a 40 percent flat rate income tax and give everyone £145 per week as a Universal Basic Income (UBI).
It works out about the same as the current system. ( Transition to Citizens Incomes, 2018, https://ammpol.wordpress.com/citran ).

Even better, replace some of the income tax with a flat rate carbon tax.

For people on low incomes the income tax could be described as benefit withdrawal. Everyone could choose whether to receive the UBI as a reliable non-judgmental benefit, or as a personal tax allowance (40 percent of £18920 is £7568 which is £145 per week), or, if they insist, a complicated mixture of benefit withdrawal and tax credit, like the current system.

2. Another example. November 2020.

In the graph below:

Series 1-3 have Universal Basic Incomes and series 4-6 have means-tested basic incomes.

Series 1 and 4 have 20 percent flat rate income tax and 20 percent carbon tax,
series 2 and 5 have 40 percent flat rate income tax,
and series 3 and 6 have progressive income tax and 20 percent carbon tax.

The results are influenced more by means-testing than by any of the tax variations.
The means testing is too progressive. It leaves little incentive for work or saving for people with incomes below average.

The data are from 2013-4, and all six examples collect the same net revenue.
For details about the calculations see part 3 below.

I think series 1 is the best strategy. It combines the environmentally necessary carbon tax with the simplicity of flat rate income tax, and it avoids the disincentive effect of means testing.

The administrative effort needed to run progressive income tax would be better used phasing in land tax to replace Council Tax. In the long term I think land tax is the best way of taxing wealth, and is essential to reduce house prices and economic instability.

3. Details. November 2020.

The average incomes before tax are a sample from HMRC data. The total of these averages is not the same as the “original total income” reported by HMRC for that year.

The calculation is N = Y * (100 – X) /100 + B – C * T * E/10000

where N is the group’s average income after taxes and benefits,
Y is the group’s average income before tax,
X is the percent income tax,
B is the basic income (means tested or UBI).
C is the percent carbon tax,
T is the total of the average incomes before taxes and benefits,
and E is the group’s percent carbon emissions.

The carbon and /or income taxes collect 40% of the incomes, and 33% of the total of these incomes before tax is paid back as Basic Incomes (BIs) and /or carbon dividends.

The flat rate annual UBI and /or carbon dividend is £5651, and the means tested BI and /or dividends are £10017, 8257, 6294, 3688, or 0.

I did an internet search for clues about how high the carbon tax should be, but didn’t find much.
The most relevant were:

“ . . . the proposed price levels would raise public revenue of around £20 billion a year until the early 2030s . . . If fully redistributed it would equate to a carbon dividend of about £300 per person and year.”
( https://www.lse.ac.uk/GranthamInstitute/publication/how-to-price-carbon-to-reach-net-zero-emissions-in-the-uk )

and “Household carbon emissions in Great Britain are strongly related to income: the richest 10 percent of households emit three times that of the poorest 10 percent from energy use in the home and personal travel.”
( https://www.jrf.org.uk/report/distribution-carbon-emissions-uk-implications-domestic-energy-policy ).

Here, for the five income groups I used carbon emissions 12, 15, 18, 22, and 33 percent of the total emissions.


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