Saturday, May 14, 2016

Over 90% of Swiss should vote YES on basic income referendum

Switzerland will vote on June 5 2016 in a referendum that forces their Government to consider a universal basic income.

A YES vote would NOT mean
2500 CHF is given to every adult citizen starting the following month.  There is no stipulated amount/details as part of the referendum question. In my view, it is an organizer mistake to have set the expectation of a YES vote so high, as it is too scary and disruptive to people.

A YES vote would mean
refundable tax credits hopefully totalling at least 1250CHF/month would be implemented soon.  The same politicians that recommend against UBI would be in charge of this implementation.  A YES vote simply forces them to make progress on the issue.

A 25%-78% average tax reduction
The 2500CHF/month plan has been costed out to  208Bchf (paid to Swiss)/year, with funding of 153Bchf (paid by Swiss) tax increases.  55Bchf is saved in social programs.  This creates an obvious taxpayer benefit.  26.5% of the 2500CHF UBI benefit or 662.50CHF/month is the average tax payer/citizen net benefit.

While I don't understand the Swiss tax system, I do understand that federal collections are 10% of GDP so about 70Bchf/year, and the 55Bchf in savings would be a 78.5% reduction of federal tax funding of operations  (even though actual funding changes are likely to be spread across multiple levels of government).

With the 1250CHF/month plan, the cost is necessarily 104Bchf (half), and savings would likely be over 35Bchf, as some of the 55Bchf of programs cut are meant only for those whose income is below 15Kchf/year, and all of the remaining programs can have funding cuts offset by the 1250CHF benefit.  This creates a net 400CHF/month average tax payer benefit or 33% of the UBI payments.  It is a 50% government funding reduction to taxpayers.

The net tax benefit and funding savings are entirely a function of program eliminations.  The higher the UBI, the greater possible program eliminations, and so the greater the savings and net tax benefits.  High UBI levels do not cost taxpayers anymore than lower levels because UBI is primarily a taxpayer to taxpayer transfer.

The magic of UBI funding
The government is like a store that is funded with say an average donation of $1000/mo/person who then distributes the goods it decides that cost it an average of $1000/mo/person.  Despite the averages some people pay more and some receive more, and that is not necessarily objectionable.

The objectionable problem of a store deciding what goods it should give you, is that the value of the goods is determined after subtracting the costs of deciding who deserves them, and also enforcing that no one cheats by pretending to be deserving.  The equally objectionable aspect is that providing the goods the store wants to give you does not get you the goods you would want to have.

Direct equal money provided by government still permits socialized funding of the store, but none of the stupidity of it deciding what to sell/give you.  There's no reason for people to remain deserving (poor) for extra benefits, and the entire bureaucratic overhead of deciding what is good for you is eliminated.  You can use the money at any store and get what you want/need.

The fear of other people not working
should really be the hope that other people stop working.  All of your work opportunities exist only because clients can't or wont do the work.   You buy indoor plumbing systems because you are too lazy - it is not worth your effort - to go to the river each day with a pail for your water.

If you were the only person in Switzerland that is willing to work, and there is UBI, then everyone else will give you all of their UBI to buy your work services.  The more people who might stop working as a result of UBI, the easier it is for you to find a job, as there will be fewer people competing with you, and the easier it is for you to get a pay raise if there are fewer people to replace you.

The people who gain from opposing UBI
are mainly those who own exporting businesses that rely on the exploitative power granted by miserable and desperate Swiss.  There are also a few people who are completely indifferent to the health of Swiss society such as some government workers and politicians, and passive trust and foreign asset holders.

Of these, only exporters directly benefit from exploitative power.  Government workers directly employed by social programs can wish to protect their payment for useless and unnecessary gatekeeping of social services, but if they are willing to work, UBI (+ severance packages) should be adequate compensation to move to an easier- less competitive- private sector.

The other groups are basically indifferent to Swiss happiness.  Their only cost to personal relative happiness is other people's gain of basic happiness and stress relief, such that their relative status and privilege.  Still only the very richest of these would face a tax cost as opposed to a tax benefit from UBI, and it is a substantial evil to stand in the way of Swiss progress and happiness for such petty and minor concerns.

The 0.1% that are export driven, the 5% government job holders threatened by program savings, and the 5% indifferent leaves 90% to benefit from UBI.

The 90% of winners
The average 662CHF or 400CHF per month net tax benefit can be structured such that 90% or more receive some tax benefit, and 10% or less face a tax increase.  Everyone who wishes not to work won't have to, and so gains a choice they value.  Everyone that wants to earn more money will find it easier, and even those in the private sector who face a tax increase will increase their after tax earnings as a result of both easier work opportunities, and the substantial economic purchase power of the Swiss as a result of UBI.

The economic stimulus from UBI is a very significant social (and individual opportunity) benefit on top of the individual tax benefits.  UBI will reduce the need for Swiss savings.  The new Swiss purchasing power will attract (employment producing) investment from all over the world.

The psychotic need for control
Switzerland is objectively the least politically corrupt nation in the world.  Permitted popular referendums, and resistance to military enslavement, appears impossible everywhere else in the world.  Yet despite the 90%+ self and collective interest for basic income, the YES vote percentage is likely to be less than this.  Sure, export focused sponsors of media manipulative lies misinform you, but it is psychotic hatred of other people's freedom that causes you to internalize the misinformation.

The 3 reasons to work:
  1. Self-interested compensation for work.  UBI frees all of you from the survival need for compensation.  You retain the freedom to work purely for additional compensation.
  2. The desire to help other's goals, with the focus on helping.  This is social motivation/manipulation that can be enhanced through UBI.  Removal of survival financing obligation opens up more opportunities.
  3. Goal oriented desire to create.  Focus is on the work/output itself.
We all have various levels of the 3 reasons in combination.  Support for compelling work in others through hunger, status, helpful attitudes or outright slavery is in service to those who need assistance for their goals, but there is no rational or moral reason to support the psychopathic distortion of markets in their favour.

Basic income inherently guarantees fair and free labour markets where the pursuit of money, in the context of voluntarily helping others is fully maintained without coercion or psychopathic manipulation.  It further permits the freer pursuit of your own goals, for which you may also enhance the prosperity of labour market participants who, for enough compensation, will agreeably assist in the pursuit of your goals.  UBI and automation permits more goals to be pursued, and it is the realization of goals that permits wealth increase in your society.  Not the protection of existing wealth or goal monopolies.

Your psychotic hatred of the other crabs in the bucket such that you clutch at them to drag them back down in the bucket is valuing hatred of their freedom more than access to your own.  Once out of the bucket, they could help you escape too.  Your relative happiness with not being at the absolute floor of the bucket, pales in comparison to the bucket destroying opportunity that a YES vote on the basic income question grants you.

After the YES vote
The significant citizen and taxpayer benefits from UBI already evident can be significantly enhanced.

Switzerland has one of the lowest interest rates (in fact negative interest rates) in the world done primarily for the financial and export sector.  40 or 100 years ago, this might have stimulated the "real" economy, but today the wealth created through automation is concentrated, and this inhibits the pursuit of new goals alluded to in previous section.

ULI (unconditional loan income) is a form of unconditional financial grants that is structured in such a way that central banks can assist the financing of universal income within their current mandates.  Central bank participation in the enhancement of Swiss citizen welfare would directly stimulate tax payer benefits even more.

After the YES vote, there will be infighting on how to distribute the taxpayer benefits of UBI.  ULI and central bank assistance helps create more taxpayer benefits, and so facilitate compromises. 

Monday, May 2, 2016

Refundable tax credits: an introduction to basic income financing

Unconditional basic income (an equal cash grant given to every citizen) can be modeled quite simply as a refundable tax credit, and doing so, obviates UBI as a policy to implement immediately rather than conduct pilot studies or other research.  I will also use this paper as a financing introduction useful for reading my other proposals.

Refundable tax credits
Most tax credits in Canada are non-refundable:  If they bring your income tax balance below 0, you do not get a refund.  A refundable credit is a tax credit that pays a refund even if your income, and thus tax bill, is too small to be larger than the credit.

The 2016 Canadian Budget: refundable child tax credit
The recent budget includes a fairly generous refundable tax credit. 



It has an associated 2 tier linear clawback tax rate.  The liberal government and other prominent politicians have characterized this as a form of basic inccome.  Normally, targetted clawbacks violate basic income principles, but this program is pretty good in that the clawback/tax only starts at $30k income, and there is a somewhat gradual cutoff at relatively high income rates.

Liberal Pronouncements on deserving, less deserving and undeserving Canadians
  1. There was no call for a pilot study or social research prior to implementing this refundable tax credit, to determine who deserved what amounts the most, or determine economic consequences .
  2. Non parents are undeserving of aid.  Parents with fewer children are less deserving.
  3. The kink in the curve from $30k to $70k income is regressive, and insists that lower middle class income parents are less deserving than higher income Canadians. (they deserve a higher clawback rate)
  4. Highest income parents do not deserve to pay for any part of the program (get 0 benefit, but don't have a negative benefit/tax)
  5. A straight line can be drawn from the 0 benefit point and $6400 benefit point, and it would perfectly overlap the benefits from $70k to $185k income.  Thus, the cost of increasing the benefit to the deserving under $30k income parents is entirely borne by punishing parents earning $30-70k.
  6. A different straight line that is steeper but provides a higher benefit at 0 income could have been drawn, and therefore, low income Canadians are fundamentally less deserving for not having a straight line benefit.
  7. One such straight line would cross the old conservative program (dotted line) at 28k income and $120k income.  It would cost less than the Liberal program, but provide more for everyone under $120k income (compared to dotted line), and more than the proposed for every parent earning under $18k income.
  8. That line could be shifted up with the same slope (clawback tax rate) until its cost is identical to the proposed program, and would result in even higher basic child benefit, and even greater benefit to those earning under $20k and $70k.
The inescapable conclusion  is that the Liberal government loves parents more than Conservatives, but has a special deep love for parents with incomes between $18-30k and $70-140k, and special deep contempt for parents with income below $18k, between $30-70k, and over $140k.

The value of progressive child benefits
From the perspective that raising children is a gift to society and necessary for its future prosperity, it is justifiable to offer progressive  or flat tax benefits to support such choices.  Yet every kink in the above curve that decreases in slope is a regressive kink placing more tax burdens on lower income groups below the kink.  Their claimed goal of eliminating child poverty is insincere if they fail to understand that parents with income below $0-25k need more help than those with income of $30k.  A perfectly straight curve (flat tax) better achieves poverty elimination, and doesn't demand an explanation for why the Canadian government hates people in the extra punished groups.

Does the Canadian government hate single Canadians aged 18-65?
Its not the case that this group does not receive tax credits and programs, and so just because they are outcast from some programs is not an expression of hatred from their government.  CPP is a direct benefit to the contributor.  OAS promises to one day free you from the slavery-equivalent-life-pressures you must experience until 65.  EI, disability, welfare, housing assistance, and labour laws (minimum wage, overtime) are fundamental acknowledgements that dystopian slavery pressures must be counterbalanced with conditional dignity patchworks.  Earned income tax credits, and student assistance are other conditional programs meant to encourage constructive social participation.


Replacing programs and non-refundable tax credits one at a time
Any program or tax credit can be replaced with a refundable tax credit at equivalent cost.  As a simple example the basic and spousal Canadian federal tax credits are equivalent to $1750 each clawed back at 15% of income.  As non-refundable tax credits these just work as if taxable levels of income start at $11500 for singles or $23000 for couples.  A refundable tax credit of the same amount would not affect those who earn over those levels, but would benefit those who earn less.  An equivalent social cost amount might be $1650 refundable tax credit to account for the slightly higher tax expense of providing refunds to those currently ineligible.  Canada has a patchwork of antipoverty programs, some with considerable administration cost and waste, and so noone has the (public) view that the poor should not receive aid.   If enough tax credits and programs can be eliminated (replaced with refundable tax credits), then poverty can be directly eliminated as well, all without bureaucratic burden on the poor or tax payers.

The US Food stamp program (SNAP)
Is a department of agriculture program, that by definition serves the agriculture industry, and provides those with income below $14000 and cash balance below $2000 (higher for larger families) that allows recipients to purchase agricultural goods with stamps.  An average benefit of $133.08/mo cost $76.6B (in total direct benefits) implies 48M Americans received the benefit in 2013.

These costs don't include policing individuals and businesses for failing to comply with Agricultural industry' subsidy mandate.  It is for instance, illegal to trade them for cash, or to try to buy toothpaste and tampons with them.  There is bureaucratic overhead as well.  The direct cost to 100M US taxpayers is $766/taxpayer/yr.  With policing/bureaucracy, lets pad this to $1000/taxpayer, for a benefit that averages $1600.

Replacing the program with a $1000 refundable tax credit would have equivalent cost, but would upset current recipients since it involves a $600 benefit cut.   However, that refundable tax credit would be $1000 tax cut to tax payers, and a $2000 refundable tax credit instead accompanied with a $1000 tax increase, would still be an average $1000 net tax cut ($2000 - $1000) to tax payers, and an average $400 benefit increase (2000 - 1600) to SNAP recipients.  All without bureaucratic and restriction hassles.  A $1600 refundable tax credit with $600 average tax increase is a net 0 cost/benefit option other than bureaucratic and policing hassles inflicted on people.  A $2000 or $2300 option better reflects the maximum possible SNAP benefits.  Each individual refundable tax credit policy replacement contributes to a holistic program that permit other programs and laws designed ot protect the vulnerable from a harsh world to be reduced or replaced when permission burdens for survival in the harsh world are reduced.

Profit potential in income equality
Those who work depend on as many people as possible being able to afford their wares.  Billionaires only want one car, phone, meal.  The largest and most profitable companies all depend on many small transactions to earn their income.  Income equality through taxes and redistribution directly enhances the profitability, amount and usefulness of work.  It helps those with the highest incomes the most, because by definition, they have the highest share of the economy flowing through them.


Useful alternatives and supplements to UBI
The SNAP replacing refundable tax credit proposal is a pure basic income.  Any tax hikes to pay for the refundable tax credits are general and universal.

GAI (Guaranteed Annual Income) is a refundable tax credit with a reasonably low targeted clawback rate that brings the benefit to 0 at a certain income level (The Canadian child benefit above is a GAI-structured refundable tax credit).  Compared to UBI, poorer residents pay a larger portion of the program.  And its less expensive.  I recommend a $4000 GAI (as supplement to UBI and other progams) with 10% clawback from incomes of 0 to $40k or $10-50k.

ULI (Unconditional Loan Income) is somewhat similar to student loans with income based (royalty) repayment terms.  There is no application/purpose criteria (other than perhaps citizenship), and additional loan amounts (the ULI limit) can be withdrawn  each year.  This is even less expensive than GAI for the same royalty/clawback rate as more of it is repaid individually over a lifetime.  It can be partially funded by private and financial sector, and is eligible for central bank intervention/funding instead of fiscal funding.  I recommend that ULI (with maximum 2% interest, and 20% royalty rate) be used to supplement minimum income alternatives such that expensive and wasteful programs (whose justifiable income support threshold is too high to achieve through UBI alone) can be eliminated: Student loans, affordable housing, R&D/Entrepreneurial tax credits and programs, farm and other corporate welfare assistance.  Business ULI would be a personal loan whose proceeds are used for direct business investment.  The personal responsibility avoids all scamming potential.

Citizens Income is a refundable tax credit for citizens only.  Refundable tax credits in general apply to residents (who have tax applicabilty independently of citizenship).  Nationalist appeal prefers a citizen only payment, and it is the best use of excess tax revenue collection.  I recommend a variable citizen dividend supplement over and above core minimum poverty and welfare replacing refundable tax credits.  It can also be used to repay personal ULI balances thus making that program even cheaper and private funding friendly, and without a citizenship criteria.

Carbon tax funding is singled out from other tax funding options because providing a refundable tax credit based on driving up the cost of gasoline to $6-$10/gallon and fossil fuel based electricity to 20c/kwh is an antipoverty program that directly incentivizes conservation, renewable electricity, and electric/alternative fuel driving.  There is no need for research promotion, or special renewable credits.  Simply, everyone interested in saving money/pocketing the carbon dividend just makes the individual choices necessary to save the planet and improve their individual economic outcome simultaneously.

Flat tax is singled out because refundable tax credits do not grant net cash to high income earners. Only low income earners.  A flat tax with substantial refundable tax credits creates a more progressive tax system than we currently have: negative net tax rates for low income earners, 0 for middle, and positive tax rates that increase with highest incomes.  It does so even when lowering the highest marginal rates.  A flat tax doesn't prohibit traditional tax credits but they are discouraged.

Elimination of investment income tax credits along with equalization of corporate and flat personal tax rates, business expense deductibility for dividends, and cashflow based tax accounting.  A substantial funding generator that lowers tax rates and increases refundable tax credits.

Surtax on investment profits is another substantial funding generator, that offsets better/fairer deductibility of investment losses.

Elimination of payroll taxes is justified by funding social safety nets from general taxes rather than personal insurance schemes.  UBI is a safety net that applies to people with all income sources, and so should not be funded purely from lowest income employees, and businesses should not be penalized for hiring employees rather than machines or contractors..

Recommended mix of policies
Combined Canadian Federal and Provincial tax collections as a percent of income is only 15%.  With the above tax changes and a 28% federal and "average" provincial tax rate (before consdiering investment surtaxes that lower this rate), $8k UBI/refundable tax credits and $4k additional GAI is funded for 21M Canadians, and without program elimination (or change to senior benefit programs).  ULI instead of GAI, would allow the GAI/ULI amount to increase to at least $8k at same cost.  Excess social revenue resulting from direct economic growth and earnings stimulated from refundable tax credit programs, would be paid as a social dividend that repays any ULI balance.  Savings from the elimination of EI, welfare, disability, cpp, business and student welfare can fund the social dividend and $5k extra education and business restricted ULI that could include coverage for text books, computers, and tools.

While it scares many people, a carbon tax sufficient to fund a $4000 dividend should be used to fund primarily non-citizen restricted refundable tax credits.  Though lower amount may be substituted.  EITC and child benefits have not been touched, though IMO, they should be lowered in exchange for higher general refundable tax credit.

Smaller plan options
While my plan achieves well in excess of $21k annual refundable tax credits and unconditionally-accepted loan access sufficient to eliminate poverty in all family sizes and budget discipline circumstances, refundable tax credits of any size are beneficial with the critical mass improvement point beginning at the level that eliminates the conditional welfare system.  The Manitoba GAI program at just $6300/yr is an excellent example of this.

Modifying federal tax credits at the provincial and municipal level
Refundable tax credits can be implemented at the provincial or municipal level by modifying/removing tax credits applicable at "higher" levels.  There is no obligation to follow federal or provincial tax policy, and leadership on refundable tax credits is required that likely necessitates correcting perversions maintained at other taxation levels.

No pointless delay pilot-study/research tactics
If you lean towards cautious, patient, and deliberate approach to UBI/refundable tax credits, then support introducing fewer of them initially, and then increase them as you become more convinced.

Opposition to refundable tax credits fundamentally is one in support of oppression and slavery
From the left, insisting on bureaucratic empires that determine deserving aid recipients, and on unions, minimum wage and other labour laws to combat employer oppressiveness, is still insisting on an oppressive system that needs to fund you to protect the rest of us if we ask for your permission nicely.

From the right, insisting on a harsh brutal world that forces the most desperate to beg for your permission to employ them, or give them credit, entirely on the terms you command, and terms made less generous the more harsh and brutal the world, is also more direct support for oppression.

Slavery is not evil because it affected black people or provides the owner the right to piss on you.  

Slavery is evil because it allows the slaver unfair market control over the slave's labour.
Not only is promotion of unfair markets evil, but so is accepting slavery but wanting to regulate it to an 8 hour work day with strict limits on the frequency of whippings.

Refundable tax credits sufficient to allow people to survive without the need for others' permission inherently provides a fair labour market with the power to refuse employment offers and compete, and a fair society without undue king's authority.

Beyond evil, opposition to UBI is economically stupid.  Taxes and redistribution do not harm the tax payer, as the funds flow indirectly (but assuredly) back to them.  That it is economically stupid, should not cause us to understand that mere education is needed to convince opponents.  Power, command and control thirst for small self centered empires can be more valuable to the self than participation in greater social financial  success.

The fear of laziness
Both those who want to work and those who do not are better off with refundable tax credits.  Everyone that works has always had all of their income indirectly paid by those who can't or don't want to do the work.  The more people who choose not to work due to UBI being sufficient for their needs, the more work is available to those who wish to work.

Even if inflation results from laziness, this substantially benefits workers, and incentivizes a sufficient number of work indifferent people to take easy to find well paying jobs.  So society gets all of the workers it needs.

Self driving trucks promise 75% cost savings.  Taxis and public transportation could save 90% if self driving.  Technology will fill in any labour supply shortages, and just as you prefer to live life without the need for manual collection of water and firewood, you do not want manual driving imposed on you.  If wages rise as a result of choices not to work, then automation that saves us all from work, gets accelerated.

Opposition to automation presumes the nonsensical desire to return to manual water and energy collection.  Generally, opposition to automation is an insincere euphemism for protecting the empire of work that you are trained to do.  For actual work that you want to do or have done, in comparison, technology and processes that make that work easier or faster are always welcome.

Friday, April 29, 2016

Linkedin Q1 - 2016 results

Linkedin is a company worth fairly $5B today, that could one day hope to be worth $7B-10B, if it performs perfectly.  Its market value is near $16B.

Continuation of my chronicling the eventual collapse of LNKD's stock value.  Previous entry

results 

  • record low growth rate of 26%, excluding $55M in learning revenue that was not part of last year's operations.  $807M revenue.  Learning revenue was also 26% higher than 1 year ago's standalone Lynda.com revenue of $43.5M
  • record low mobile visitor growth.  Down to 25%.
  • record low US and Other Americas growth.  Even with learning revenue which has been explained as predominantly US focused, US talent revenue growth at lowest point since acquisition.  International talent solutions also show record weakness.
  • 2nd largest all time operating loss of $66M.  The record was Q2-2015 which included significant restructuring charges related to Lynda.com.  Its largest ever tax rebate keeps its net income loss to only its 3rd highest point.
  • 5th consecutive quarterly loss. At least, 9th consecutive quarter with income below $3M
  • Most expense growth matches approximately revenue growth.  30% or so.  The exception is depreciation and amortization which had over 95% growth.  Stock compensation up 40%.
  • Operating loss for the quarter increased $50M over last year.   Mostly due to the last 2 items outpacing revenue growth.  Equipment purchases were even higher than depreciation (assuring further increases)
  • record high depreciation ($95M  - 50% growth), amortization ($47M - 400% growth) and stock based compensation.($146M)
  • Free cashflow less stock compensation continues the negative quarterly string.  -$71M.
  • Comparing to Q4-2015 is appropriate because revenue was almost the same, but operating costs were $40M higher.  $10M more marketing spend to get the same sales.
  • Comparing to the entire fiscal year of 2013 is interesting because Q1 revenue is a little over half that of the entirety of 2013.  Depreciation and amortization in Q1 ($142M) was higher than all of 2013 ($135M) (still about 75% of 2013 without amortization).  Every other expense category is still a higher percentage of revenue than it was then.
Guidance
  •  $890M revenue guidancce for Q2 is $865M excluding partial results for last year's lynda.com operations.  Record low 21.3% core growth.  The same poor guidance tone as given last quarter.  Roughly the same revenue performance as this quarter, with $5M more SBC, and $2M less depreciation.  For $29M more revenue, $23M in additional other non-amortization operating expenses:  $3M extra "profitability".
  • Full year revenue guidance is increased by $9M compared to last quarter's announcement.  But full year ebitda (bs earnings) guidance is lowered $2M. (explained in call intentionally as increased "investment areas, and building product" platforms in all 3 categories.)
  • Forecasts compared to last quarer include: an increase of $15M in full year depreciation.  A decrease of $7M in amortization..  So, last quarter's dismal $400M+ forecast operating loss is increased by $10M.  Somewhat surprisingly, LNKD expects $50M less in stock compensation compared to last quarter's forecast, and so an offsetting expense increase is expected.

Still very bad
The high net income loss without a special reason given for the tax gift, and so high operating loss doesn't make up for the slight uptick in its marketing and subscriptions business.  It did some TV advertising that would explain an uptick in those segments with profit deterioration.  The core deterioration of hiring solutions, its main line of business, accelerated rapidly.  Hiring solutions not only showed a record low growth rate, it is 5% lower than last quarter's record low growth rate. (27%).  It can't talk about how great all of its products and platforms are being engaged, and show this deterioration.

Comparison to Q4-2015
Sales were almost identical:  861M vs 862M.  Noteworthy mix differences include $10M Sales cost increases.  $8M increase in SG&A with $4M stock based compensation increase.  $11M total stock based compensation increase.  On the revenue side, talent solutions dropped its QoverQ growth from 10% last year to 5%.  Tracking its main business line to drop to 20% growth for the year.

Plans for future cost containment
While committing to losing more money through investment this year, and through "late 2017", there's a $50M reduction (from plan... still increase) in this year's stock compensation plan, and an expectation for the year of "only" a 15% increase over last.  This is cost containment compared to 24% revenue growth.  I congratulate them for the comment in the cal: "SBC is a real expense/"

Its overall expenses are likely to still keep going up at least through 2017.  There is a vague (relative to my ability to follow) reference that at the end of their through-2017 investment program, 40% operating expense savings will occur in cost of revenue, which would be a 548 basis profit margin improvement.  The problem is that it has a -767 basis point loss margin, (906 basis point operating loss + other expense margin) and so even that plan together with 100 basis points of stock based compensation savings, it is not enough to reach profitability.  Furthermore, continued massive depreciation expense increases are assured through 2019 putting pressure on profits until then.

Its also hard to understand that their equipment/datacenter investment program results in switching on a cost of revenue savings of 40% starting in 2017, rather than the less generous understanding that they have been benefitting all along from the equipment/datacenters they have spent a lot on, and the 40% savings is just the total cummulative benefit going forward.  ie. not 40% savings from current levels, but 40% from what it would have been had they done nothing, and so may be 20% or so from current levels, and offset by higher depreciation expenses.

Shareholder Performance Margin
SPM is a performance metric that gives credit to a company for its R&D spending excluding it from expenses.  LNKD's poor results this quarter can't really be blamed on R&D (expense did rise a bit more than revenue), and so its SPM even worse than if its loss was due to intense R&D spending.

LNKD's SPM this quarter is Net income (-$45M) - Other expenses (12M) + after tax(35%) cost of R&D ($154.7M) = $97.7M or 11.3%.  This is deterioration over Q3-2015 (12%), but an improvement over Q1-2015 of 10%.

One interpretation of SPM is the imaginary profit ($97M) that would have resulted if 0 were spent on R&D, but the more useful interpretation is that the SPM determines the break even revenue benefit required for each $ spent in R&D.  At 10% SPM, each $ of R&D must create $10 in revenue.  11.1% SMP: $9 revenue.  12.5% SPM: $8 revenue.   Companies such as FB, GOOG, and MSFT all have SPMs above 30% which means they only need $3 in extra revenue to break even for every $ spent on R&D.  LNKD is a sales intensive company with no profitability potential, and so a much higher bar for its R&D efforts.

LNKD's SPM isn't even as good as calculated if we consider their mysteriously large income tax benefit.  In fact, the company has warned that it will take a $100M tax charge next quarter.  The default explanation is that previous tax deductions were overstated.  So, its tax policies aren't necessarily sustainable.

An alternate way of calculating SPM is to do it all pretax, and then take the normalized (35%) tax rate off the total to get a shareholder relevant result "exclusive of tax games":  Operating income (-66M), other expenses (-12), R&D (238) total:  $160M.  $104M after tax.  12%.  This looks better than the initial calcualtion but compared to Q4-2015, (0.65*185/862 =) 13.9%, and Q1-2015: (0.65*134/638 =) 13.65%, it is a significant deterioration to both.

Innovation
Companies such as Twitter can have hope that their platform catches on more, but also have imaginable monetization of products such as periscope.  LNKD, however has no major growth drivers or potential.  Similar to YHOO, EBAY, YELP.  It can iterate new versions that drive engagement in the short term, but it has to keep loosing money to get these pops, and even if it makes the service better, its unclear how it drives revenue and profitability . Its low SPM means its innovation efforts have to have big payoffs, but none of them appear to have that potential.  Though Twitter is still losing money, it has shown a pretty consistent trajectory of losing $80M less year over year.  So it is getting useful growth.  LNKD is going in the wrong profitability direction, with no growth headroom.

Valuation
Last quarter, I calculated an optimistic $7B 2027 valuation based on annual sales increases of $600M, and after tax profit increases of $35M per year starting in 2018.  $7B valuation is based on $350M annual profit ($500M pretax) with 6% sales growth.  Without sales growth, double the profitability is needed to have the same valuation.  I was assuming cost general containment similar to what was announced.

Information provided this quarter suggests that there is at best a delay to profitability start.  Its possible that the steps they announced eventually are part of a higher profitability plan, but it will be 2019 to more likely 2021 before depreciation expenses come down enough for break even without other measures. (this conclusion is based on tea leave parsing of comments and not completely reliable).  8 years of $50M profitability increases ($75M pretax) is an $8B valuation.

The case against such a success story is the sales expense growth it has pursued to achieve its current struggles.  It must find 1267 basis points of profitability from here to get to a $7B valuation on $10B sales.  1767 points to get to $14B.  Sales expenses will be a headwind in this as it expends more chasing higher hanging less ripe fruit.  The most generous possible reading of their 40% cost of revenue improvement would still have high continuous equipment replacement capex, and the announced "plans" only create 648 profitability points of improvement.

There's no information given this quarter to materially change previous valuation.  LNKD is stepping up its futile overspending efforts.  Though it claims investment in some future cost savings, it is also overspending in sales and administrative categories.  In my opinion, the company is trapped into chasing growth in order not to be perceived like Yahoo (stagnant money loser), but Yahoo's problems are also based on seeking not to be perceived like Yahoo.  They have to promise something and then spend to achieve it.


Wednesday, April 27, 2016

Class C shares at Google and Facebook

Even though FB and GOOG are extremely valuable companies that are well run, their stock is worthless to outsiders due to centralized ownership of the companies.  The issuance of Class C stock is the most tangible diversion of social (corporate) resources for private (concentrated insider owners) benefit, and corruption of regulatory structure that permits such publicly listed stock scams to exist.

Classes A B and C stock
At companies such as FB and GOOG, class A, B, and C differ in each having 1, 10, and 0 votes per share respectively.  Class B shareholders are the real owners of the company.  At FB and GOOG, the founders have over 50% the voting rights, but even when class B shares are distributed more widely (still among insiders) there is an alignment of interests that include paying as much as possible to class B shareholders (stock compensation, and whatever other favour trading that is possible to get loyal voting).  Class A shares are the ones that trade on the stock market.

If there are 100M class B shares, then you/they may issue up to 1B class A shares while still maintaing 50% control by the class B holders.  They can issue all of those class A shares to themselves, and then sell them, and create free money for themselves with no loss of control.

As awesome (for them) as that is, 1B of class A shares is still a finite number of free money printing opportunity.  Class C shares with 0 votes, is the infinite free money printing opportunity.

The only right that a minority stockholder has is IF the majority approves a takeover or dividend declaration, then you have the right to an equal share of the proceeds.  But for dual/triple class share structures, why would the insiders ever accept an offer that pays the muppets as much as them, incstead of keeping control over their golden goose?  And issuing more class C shares is always a more attractive option to them then reducing the piggy bank they control by paying out dividends.

Wanna buy 49% of my house?
I get to decide who lives here (me), and when and for how much to sell it.  When I sell it, you will get 49% of the proceeds.  Its a bad deal for you, but you are welcome to contact me if you want.  With class A and B shares, I get to sell 89% of my house with the same control power.  And with class C shares I get infinite dilution opportunities.

The Google Class C offering
was interrupted by a lawsuit which was settled (details next paragraph).  As I understand it, only class A shareholders were given a class C share as dividend which implies there was no direct profit by class B insiders from the class C split (I am not 100% clear that this is the case.  I am going by the media whitewash of the scam).  Another measure that is a relatively strong shareholder protection is a provision that forces conversion of class B shares (to A) when new class C shares are issued.  These provisions are reasonable limits to to full greed infinite money printing, but still entrench the intangible control benefits of Class C flexibility.

The lawsuit settlement  likely involved undisclosed benefits to the plaintiffs, as the concessions made only prevent the C shares from becomming worthless quickly.  For 1 year after issued, there was a "price cushion" guarantee on their value relative to A shares.  For 3 years, there is a mandatory internal review of new Class C issuances that mostly needs to meet Delawares, more corrupt than Panama, standards for non-egregious dilution.  Class C shares achieve complete intrinsic worthlessness.  The plaintiffs can deny receiving undisclosed benefits on the basis that they ahve a long enough window to liquidate Class C shares.

The Google Class C offering is a modest scheme to extract a couple of $billion or so for its founders without loss of control.  Google C shares currently trade at a 2% discount to A shares.

The Facebook Class C offering
is much more nakedly greedy (page 57).  Giving 2 class C shares for every class A AND B share means that it allows Zuckerberg an opportunity to liquidate about $8.5B without diluting any of his 54% control stake in FB.  (assuming $320B~ current market cap, and that class C shares trade close to A value, and that Zuckerberg has 5.4% of shares).  The proposal explicitly intends to use C shares as printing dilution permitting acquisitions.

Mr. Zuckerberg has ample further opportunities by chanelling his shares through "shell corporations", mainly through borrowing money against their collateral value.

The philanthropic justification
I believe Mr. Zuckerberg has a sincere interest in helping the world, and also believe that the world, in aggregate, would be a better place if we permit him to pull of this stock scam.  The arrangement lets him spend say $150B+ on improving the world instead of a mere $20B to $50B.  Internet basic (free internet limited to wikipedia and facebook in developing world) is a better option that improves the lives of people with no other choice than no facebook/wikipedia, but there are obovious commercial side benefits to such philanthropy.

The pharmaceutical industry is the most blatant justifier of extortion on the philanthropic grounds that the extortion will fund research into life saving (extortion) processes.  It is not a legitimate justification for extortion.  First, their pile of money will be invested based on the profit/extortion potential of research results.  Second, profitably, socially sanctioned, extortion models are fairly easy to finance with other people's money.  The extortion only buys the freedom from having to share the proceeds from future extortion by forming partnerships for those ventures.

So, even if I consider Mr. Zuckerberg a sincere philanthropist, its not a justification for stealing from shareholders.  There is also a distinct possibility of not achieving commendable or worthwhile philanthropy despite portrayed intentions.

The case for class C shares
Just as we trade for green coloured paper on faith that tomorrow it will be worth the same as today, class A and C shares have pyramid scheme value even if they have little or no intrinsic value.  There is a muppet who will still buy the share tomorrow.  The same argument should have made what Bernie Maddoff did just as regulatory approved as these stock scams (which are in fact illegal in most countries).  Those who got in early enough with Maddoff made money, and the total money made = total lost.  So what if the promises traded are intrinsically worthless?

30 to 60 years from now, the shares will convert (succession clauses) into a real share with dividend potential.  In my opinion though, its too long to wait and tech, even more so than other, companies do not have sufficiently good longevity track records.

Bad precedent for society
Google's class C offering was the first bad precedent.  FB's severe escallation should not be excused on philanthropic grounds, because that is a precedent that will allow other companies to duplicate it on any grounds.  The SEC and public stock exchanges should not be allowing dual share structures at all, but congress and regulatory intervention should be used to stop this Facebook plan.

Tuesday, April 12, 2016

US Presidential election and primaries: Sanders endorsement

The president of the US has significant power in regards to foreign policy, but his power domestically is limited to cheerleading for legislation, and blocking "bad" legislation.  The media is far more powerful than the US president on domestic issues because they can ridicule and ignore championing of causes, and pressure for "evil" causes.  The media and political establishment are controlled by agents who need you to accept evil that advantages their masters.

Independence from the political establishment is an important quality in a candidate.  But that only premits blocking evil from the political establishment's masters.  The other important quality in a presidential candidate is their thirst for power and warmongering.  Philosophical glimpses and attitudes and moral compass are the dominant qualification for president.

Obama 2008: Hope and Change
He ran a very progressive campaign, and voters assumed that universal healthcare was the goal/campaign promise.  Sanders' campaign is more progressive than Obama's.  HRC's less so.

Obama's campaign was also highly critical of Bush's warmongering and police powers.  Policies that HRC supported.

Obama Presidency
While the ACA is a progressive improvement over the state of healthcare prior to 2008, it was strongly influenced by compromise with the medical and insurance political establishment.

Obama's administration progressively normalized relations with Iran and Cuba.

The miltary and oil establishment
US middle east policy is primarily concerned with destabilizing the region, both to justify military budget and keep oil prices high (preventing oil production and investment through chaos).  This is aligned with Saudi Arabia's interests for the region, and their friendly US military purchases.

In this light, normalization of relations with Iran can contradict 40+ years of demonization, and non-humanist motives for doing so must be that Sunni control over middle east chaos is out of hand, and Iranian cooperation is seen as essential.  Anti-Syrian ramp up is primarily influenced by pipeline project proposals.

HRC has entirely internalized establishment's world policy views.  The difference between Republican and Democrat establishment view on world domination is overt aggressiveness vs passive-aggressiveness-coalitionism.  Obama's campaign had more independence than HRC, and it still turned into a relatively belligerent establishment administration.  It of course could have been much worse, and it would be somewhat worse with HRC.

Power breeds thirst for power
That police wish to have more power is a natural thirst.  Service to National power and security interests naturally leads to confusing every personal ambition with national ambition.  Indoctrination can drive corruption, but service to the establishment can't have an idiotic zombie defense.

HRC's psychiatric deficiency to be president
"Women have always been the greatest victims of war" is a statement only an extremely self centered psychotic can make.  It internalizes the importance of how other people's real suffering could affect one self and then replaces that moment of empathy as the central harm at issue.

In my global power ambitions, I would feel really bad if you had to die to serve them, but I also want my global power ambitions.   Crying at your funeral is a sacrifice I'd be willing to endure.  If I must instead submit to your presidency, then I am concerned about you defending my sacrifice with how sad it makes you that I must die.

HRC would be a better president than any republican
HRC has mirrored support for most of Sanders' domestic policies after Iowa and New Hampshire primaries.  Concern about her sincerity is valid above and beyond every politician's tendency to say what we want to hear.  She has never expressed anything thoughtful publicly.

Yet every republican presidential candidate would not block every stupid republican congressional idea proposed in the last 8 years, and she would block some of them.  She would still stop the most anti-social destruction of America all republicans aim to inflict.

Democratic establishment view on financial regulation
The Democratic party establishment's view on financial regulation has catered to financial lobbyists choice of their own punishment.  HFT (high frequency trading) is not an establishment practice, and a distraction issue.  Hedge funds while not providing any constructive value to the world are not destructive either.  They have little to do with the financial establishment, and so are the offered scape goats to sacrifice.  Financial transactions taxes are stupid ideas designed to sound tough while failing to pass legislative action due to they being stupid and giving republicans the opportunity to show they are stupid ideas.

HRC supported (prior to New Hampshire primary) extending the "vest time" for long term capital gains deductions.  This is clear coziness with the financial establishment, as these current tax incentives are already stock market supporting scams that trap investors into locking up their money with wealth management services through "tax carrots" and permit insider knowledge predictability of funds flows in their trading practices.

After New Hampshire, HRC proposed the essential progressive normalization of investment and employment income.  I have not heard Sanders agree.  This usefully raises significant revenue, equalizes investment return opportunities for non banks, closes fundamental loopholes in the tax code, returns excess corporate cash to the economy so that new good ideas or consumption can be funded, and is the first step to eliminating tax penalties for employment (corporate and personal tax rates must also be equalized).

Other effective financial industry regulation are maintaining or raising the reserve requirements to ensure low financial crisis risks (no need to explicitly break up banks, but a "too big to fail" premium on reserve requirements may incentivize those affected to restructure).  Instead of a transaction tax, an income surtax on financial profits (that applies to every company and investor) is an excellent revenue generator model, mitigates income inequality, and has absolutely no propensity to cause capital to be put under a mattress instead of invested.

It is irrelevant whether Sanders's financial regulation stump speech lacks workable policy details, or doesn't yet include the only effective proposed reform (made by HRC).  I trust that Sanders, after he is president, will listen to both the financial industry and progressives to find reform proposals that increase revenues and protect the financial system.  HRC is more likely to shift towards financial industry pocket proposals after the primary.  The financial coziness with the establishment is a disqualifying factor (except when considering HRC against republicans).

Oil and environmental establishment policy
Coziness with the oil industry is another disqualifying factor for HRC.  Obama is very much closer to Democratic establishment views on oil and climate change, than on progress:  Say progressive things, and do nothing, other than propose research grants to donors.  A carbon tax and dividend scheme is the only progressive solution to climate change.  Allows a higher tax, that necessarily better shapes behaviour, but returns the tax proceeds to citizens so that they can invest their own money in energy savings.  It permanently obviates the personal advantages of conservation, non-pollution, and mutual preservation instead of pointless hypocritical peer pressure while personally profiting from destruction.

Sanders is most likely to prevent inaction on climate change, and the most likely to be persuaded to adopt carbon tax and dividend policy, or end up with that compromise (compare to carbon tax and empire proposals).


Trump's establishment independence: Hitler or centrist?
 Trump's "Make Trump great again" campaign expresses childish views on "America as a sport team" that must run up the score on all others.  Its unclear whether it is more important to Trump that the US continues to dominate and control NATO and the UN, or that the US's minions pay more for the privilege of being dominated.  Someone would explain to him that belligerence is counter productive, we could think.

The US and its allies have the same monetary policy as Zimbabwe, and the explanation for their financial sustainability so far is cohesiveness and support from the private banking sector.  Too polarizing and belligerent a US president would risk lowering cohesiveness or reducing subservience.

Trump's establishment independence will either cause US economic and military influence to declline through alienation, or will make tough sounding international deals that make Trump look good and strong while giving away money and power in the fine print.  Its a very unpredictable outcome.  There is strong risk that bribery and kickbacks would be the purpose of his power ambitions.  It is fundamentally disqualifying to threaten opponents and their families with worse than waterboarding.

National socialist populism platform ensures domestic oppression if Trump gains the presidency.  International relations implications are too unpredictable, but its unfair to give him credit for belligerence being a mere opening negotiations statement.

Sanders for President
I am told that the explanation for HRC's polling strength with African Americans is their support for continuation of Obama policies and religious loyalty and values.

Religious loyalty in politics has made the state of race relations everything it is today.  It is a right wing manipulation tool.  The Pope has invited Sanders, not HRC, to speak at the Vatican.

President Sanders would try improve on Obama's progressiveness, and better address wealth inequality that I understand affects African Americans disproportionately.

While I disagree with the politics of jealousy that drive wealth inequality as a political issue, it is essential for economic growth that the successful are taxed more, and  that those tax proceeds are used for redistribution.  (The result though is not less wealth inequality, it is more spending, production and less poverty).  Sander's openness to UBI creates the opportunity for compromise with those opposed to using taxation to fund leftist empire.

Republican Job Destruction
 Politicians pandering to job creation is a goto stump point.  Tax cuts have the opposite effects though:  It lowers corporate spending incentives, and less redistribution lowers consumer spending which further lowers corporate spending/investment.  The biggest problem with republicans is the complete disconnect with productivity advances that continuously reduce the future need for menial labour.  Sure, driving down wages to match China, then Vietnam, then Gabon by increasing the pressures that make submission/slavery a rational voluntary choice, essentially forcing labour through limiting alternatives to coercion, can increase labour participation slightly.  But aggregate wealth is increased by productivity advances and redistribution.

Tarrifs aren't job creators either as the domestic manufacturing starts that do occur are heavily automated, and a 40% cost increase on imported goods might make Apple US made iphone and computers $200 to $500 more expensive, or $50 to $100 more if just assembly of US models is done here.  But assembly work would most likely be done through Chinese imported robots.

(Useless) Job creation and job protection is the wrong policy.  Tax those fortunate enough to have work income to redistribute to (UBI) those who do not so that they both support production through consumption and can find meaningful opportunities of their own.


Thursday, April 7, 2016

The Panama papers, republicans, tax inversions, and international tax policy

Tax policy can be normalized internationally (without homogenizing tax rates) preventing all complainable effects of tax inversions (corporate HQ relocations), and off shore ownership structures (tax haven wealth management).  It can be done so with a very simple tax code as well.  But first,

Everyone that claims lower corporate tax rates would create employment and investment is intentionally lying, and attempting to increase wealth innequality and destroy the economic health of your society.

With certainty, higher tax rates increases employment and investment, because the tax code everywhere provides business income tax deductions for such spending. and so lowers the risk of  investment/spending

The reason that intentionally destroying civilization and your society through corporate tax cuts can seem very attractive is that tax cuts increase the value of previous investments.  Your investments and spending from 1 to 30 years ago can pay off more with lower taxes.  If your goal is to harvest profits and disinvest in society you can gain a greater share of the scraps by destroying society, than by (re)investing in it, if you view investment elsewhere as fundamentally more attractive.   Globalization creates alternative investment location opportunities, and destructive harvesting opportunities (made more attractive by artificially propped up valuations) at home can amplify foreign opportunities.

Destructive harvesting is an evil human nature opportunity that is not limited to US Republicans and other conservative liars.   The prospects of a Detroit or Chicago bankruptcy can be met by ignoring it, harvesting incumbent city employee and pension income for existing beneficiaries, and making bankruptcy future promissories's problem.  The Goodfellas model is to control a restaurant, steal everything you can, and when there's nothing left to steal, light a match.

US Republican talking points
Obama yesterday announced treasury policy that blocks the high profile tax inversion merger involving Pfizer, and did so with a theme, embracing the outrage surrounding panama papers related tax avoidance strategies.

The Republican talking points (consistent since 1980) response, is what prompted this essay.  All Republican presidential candidates and the controlled media pundits owned by their puppet masters use this news to continue their passionate and emphatic (revolting feigned sincerity) advocacy for lower corporate taxes with the absolute lie justificiation that it would be economically stimulative rather than the intentional scavenging and stealing form society, until civilization is weak enough to drown in a bathtub (light the match).

Lying filth trying to destroy your society (with corporate tax cuts) are more dangerous than thieves and terrorists, because the latter risk liberty and life for their actions.  America can survive an ISIS friendly caliphate.  It cannot survive Republican influence.
Republicans have every right to vote for tax policies that destroy society to their advantage.  I/we must insist that they present an honest case for why we should accept that they deserve those gains and we deserve those costs. 

Corporate tax rate cutter advocates must be denounced as intentional liars rather than idiots for this falsehood.  There is no one in the world who can honestly (or at least with informed rationality) self assess a higher propensity to risk their own capital if their tax rate is lowered.  So, there is blame all around for tolerating the social destroyers.

Ayn Rand's glamourized industrialist
The core simplification of Ayn Rand's philosophy is that industrialists are better more valuable and important people than the rest of us minion hopefuls.  The claim is based entirely on using capital as investment that permits jobs and goods for the worthless minions.  Industrial investment is that investment purposed to production growth (includes research).  The term is used to distinguish between unqualified investment that can include shuffling title to paper, and investing in sure things (cost cutting processes).

The deindustrialist or non-industrialist is someone, who through past events, happens to own assets and is primarily interested in diverting/harvesting the asset income streams for personal enjoyment.  This must be Ayn Rand's lower-than-worthless-minion anti-hero.  The behaviour is the opposite of everything she glamourizes and extols.

Lower taxes reward and motivated deindustrialism.  Higher taxes motivate industrialism.

A powerful mind control technique is that the hero deserves benefits/rewards and gifts from the audience.  Another easy mind control trick is to substitute the industrialist hero for all rich republicans, implying that they necessarily all meet all industrialist ideals based on shared wealth trait.  Few people look for systemic policies that would intrinsically promote/motivate industrialism without gifting additional rewards to heros.  Successful industrialists do not need additional gifts to be happy.  If our Randian adoration is insufficient, the heaving piles of cash can console them.

Legitimate complaints about tax policy
Tax policy is ineffective and unfair where it fails to mitigate investment risks and doesn't treat losses as mirrored tax benefits to the tax cost of gains.

Taxes, when used to support war, cronyism, and needless bureaucratic authoritarian permission hierarchies.  The legitimate complaint about taxes is how the taxes are used.  Basic Income (UBI) is the means to perfectly address this complaint.  (Higher) taxes are redistributed as an equal social dividend, and any social programs are paid for equally through an equal sacrifice of dividends.

The simple (natural) tax policy (suitable for international harmonization)
Originally described here, and refined here,I will describe again succinctly

  1.  Basic income (flat refundable tax credit) with a flat tax on personal income with no preferential treatment for investment income.  This creates more progressive tax system that our current graduated rates.
  2. Corporate taxes based on cash flow (instead of revenue less expenses) including tax deductibility for dividends paid.  Capital inflows (stock and bond sales) are taxed the same as revenue.
  3. Corporate income tax rate equal to personal flat tax rate.
  4. Sales cash Inflows are taxed in the country of the buyer.  Expenses are taxed deducted in the country where the expenses are bought.
  5. Investment inflows and outflows (dividends/interest paid) are taxed consistently in the company's country (or consistently in investor country).  Inflow and outflow must be taxed and deductible in same jurisdition
  6. Countries may have their own tax rates, and all of the special incentives and deductions they wish for expenses.
  7. An optional special supplementary rule, (discouraged later), is a provision for pure exporters to match expense (credits) to some sales (lowering foreign tax obligations from sales instead of creating a domestic tax refund.) .
Simple progressiveness
With a $15k UBI and 33.3% flat tax rate, an income of $45k pays 0 net taxes (15k UBI and $15k income tax).  At $90k income, the net taxes are $15k, and 16.66% net tax rate.  These rates are lower than current major national rates.

Eliminated of arbitrage possibilities
An equality of employement, investment and corporate tax rates eliminates all main income manipulation strategies.  Equality of taxability of revenue and investment inflows further eliminates tax arbitrage.

Special rule: 10% surtax on investment gains
I advocate for a 10% surtax (above and beyond corporate and personal income tax) on investment income gains that is not refunded on investment losses.  This does not violate the unequal risk to reward opportunities of investment due to other features of the tax policy.  For example:

If you were to invest $1M in a company today (with natural tax policy), that is in a country with 50% tax rate, you would receive $500k tax rebate from that government today.  (The company pays/owes $500k in taxes on the investment proceeds).  Net investment cost is $500k.  If 10 years later, you sell that investment for $2M, you pay 10% on the gains ($100k) in taxes in that company's country + the 50% normal tax on the remaining $1.9M ($950k) for total net proceeds of $950k.  (A $450k proft or 90% return). If the investment was worthless 10 years later, there would be no tax payable, and the refund for losses was already paid at the time of investment.

Because of the timing difference between tax rebates for investment purchases and taxes owing for investment sales, there's a fair compensating benefit for the slightly asymetric tax consequences of gains vs losses (the 10% extra tax on gains that doesn't get rebated for losses).

The jurisdiction of this tax (company vs. investor) must be consistent.  Administratively simplest is to tax dividends and interest payments in company's jurisdiction (10% withheld and tax paid directly by company), while taxing gains on title transfers in investor jurisdiction.  For the most complex example, A US IPO selling $1M in shares to  Canadians would have a US tax on the $1M, and the Canadians would get refunded US tax for their investment, then repay the refund (0 net tax) as they move title to Canada, and receive a Canadian tax refund.  When they resell their shares, Canadian tax would be owed on the gains and proceeds.  The location of the investment account rather than the nationality of the investor can also simplify tax jurisdictions.

A hypothetical Ford example
Imagine the flat tax rates for these 3 countries are:  Canada 50%, USA 30%, and Mexico 10%.  If the manufacturing expenses in all countries were the same, then Ford would prefer to do all manufacturing in Canada, because that country offers the highest tax rebates for expenses.

If Costs to manufacture were $500M in Canada, $400M in USA, and $300M in Mexico, then Canada is still the least expensive after tax as it costs $250M vs $280M in USA and $270M in Mexico.

If Car sales were $100M in Canada, $1B in USA, and $50M in Mexico, then Canada could choose to apply rule 7 in order to prevent paying Ford $200M in tax credits ($250M from expense credits less $50M from revenue taxes).  If Canada did apply rule 7, then Ford might choose to manufacture everything in the US.  From Ford's perspective, it could only offset $100M of Canadian expenses with $100M of Canadian sales, and would apply the remaining $400M in expenses to US sales.

with rule 7, Ford and national net revenues for manufacturing in each country:
Canadian Manufacturing:  Canada 0, USA $180M, Mexico $5M, Ford $465M
US Manufacturing:  Canada $50M, USA $180M, Mexico $5M, Ford $515M
Mex Manufacturing:  Canada $0M, USA $255M, Mexico $0, Ford $595M

Both Ford and the US maximize net revenue by producing in Mexico, and Canada loses out by applying rule 7 to avoid paying $200M in tax credits to Ford, that it would make up anyway by the 50% taxes collected on the parties Ford is paying $500M, and the multiplier taxes from their respending that is normally concentrated in the local economy.

without rule 7, Ford and national net revenues for manufacturing in each country: (with itemized personal direct income taxes collected from manufacturing decision)
Canadian Manufacturing:  Canada $-200, USA $300M, Mexico $5M, Ford $595M, Personal C $250
US Manufacturing:  Canada $50M, USA $180M, Mexico $5M, Ford $515M, Personal U $120M
Mex Manufacturing:  Canada $50M, USA $300M, Mexico $-25M, Ford $525M  Personal M $30M

It is advantageous for Canada (high tax rate country) to "sponsor" exporters with high tax rates even when it means significant subsidies to those companies.  The net tax revenue to Canada (and other 2 countries) is the same whether Ford manufactures anywhere, but the calculation excludes the indirect multiplier tax revenue that results from local spending.  So, there is no need for rule 7.  Even if Canadian workers all bought imports instead of local products, the exporters are taxed in Canada, and so all of the Canadian (non travel) worker spending is taxed in Canada.  Whether a company only exports or simply wastes all of its capital, it does not matter to the society's revenues, because all of its expenses and waste will go towards offsetting (personal and corporate) tax revenue items.

From Ford's perspective, there is a significant advantage to manufacturing in the highest tax country.  But other country's tax policies do not affect any other country's direct tax revenue.  It can still make sense for Ford to have local operations in each country for example to manage transportation costs, spur local demand and have local retail/dealership operations.


Factors determining optimal national tax policy
Under natural tax policy, higher tax rates causes inflationary pressure on wages, and attracts production which also pressures up wages.  These issues have meaningless consequence to the host country, but it affects the operational costs of a company that may will to produce there.

For example, if Canada had a 50% tax rate, but universal healthcare and $15k UBI, and the US had a 30% tax rate, no UBI, and employer funded healthcare, and a good entry level job has $35k after tax pay:
  • in UBI Canda:  $70k salary ($35k cost) gives $50k after tax income with health coverage.  $40k salary gives $35k after tax pay.  Perhaps UBI makes people less desperate for work, and so a salary between $40k and $70k is needed to qualify as a good/attractive job.
  • in non-UBI USA:  A $50k salary gives $35k after tax pay, and an additonal $10k health insurance benefit must be paid for.  Total of $60k expense. $42k in after tax expense.
Even If Canadians only want to work for $70k, its less cost for Ford to hire them, and they make more after tax than their US counterparts.  If too many companies are producing in Canada, then workers will be scarce and they may need to produce elsewhere.

Countries that want to attract imports, unemployment/wage desperation, tourism and create an isolated economy could prefer low tax rates.  Generally, countries that are tightly controlled by groups that can channel national wealth to themselves.

Sales vs income taxes
This systems resembles slightly a pure sales tax system, in that GST/VAT systems generally have input credits.  Some people advocate moving away from income tax to a purely sales tax model.  Those suggestions are poorly considered.  Differences between sales and income taxes:
  1. Employee salaries are not subject to sales tax, and so are not deductible by employer.  Unreasonable incentive for automation or outsourcing.
  2. Primary housing rent, non-sugary food are generally exempt.  Both Landlords and food industry shouldn't pay taxes?
  3. Promotes a thriving non-taxed secondary market that attracts other non-taxed sales.  And promotes shopping tourism outside the jurisdiction.
  4. Taxes savings rather than income.  The transition from income to sales taxes is a gift to earners, and punishment to those with savings who previously paid income taxes to accumulate those savings.
The only case for sales taxes is that it captures some revenue from those who earn untaxed income.

International retail transactions
Natural tax policy can work simply with international trade.  A simple list of each country's tax rates is all that is needed.  While a sales tax system is not generally recommended, price+tax itemization works effectively for international trade.

In the previous hypothetical Ford example, if production were 100k cars, then the unit cost would be $5k/car in Canada (2.5k after tax), $4k/car in US (2.8k after tax), and $3k/car in Mexico ($2.7k after tax).  A car produced in Canada can be sold for $2777 in Mexico ($2500 / (1 -10%) tax) to break even with costs.  Or $5000 in Canada.  A car built in Mexicdo can be sold for $5400 in Canada to break even, or for $3000 in Mexico.

To avoid calling it a sales tax, a revenue tax rate can be applied to each customer country.  The formula is 1/(1 - taxrate).  In our example, Canada 100%, USA 42.86%, Mexico 11.11%.  A retailer in Canada who wishes to resell a product that he paid $5000 for, with $500 after tax profit margin, offers it for sale for $3000.  The appropriate revenue tax percentage for the customer's location is added to the sales price, and is owed (by seller) to the customer's jurisdiction.  $6000 sales price in Canada, $4285 in US, $3333 in Mexico.

There is no effect on multiple hop resales.  A buyer in Mexico that wishes to resell the item at break even also lists it for $3000 + revenue tax

An investment example
Imagine Tesla Motors doesn't exist and you will create it.  You must decide where to incorporate its HQ, and where to do initial design work, and eventual production.  The same 3 countries as the Ford example are considered with respective 50%, 30%, and 10% flat tax rates.

If you need $1B in capital, whether its your own or other people's money, in Canada, the investors would pay in only $500M, in US $700M and in Mexico $900M (investor consortium can be multinational, only the HQ location matters).  For HQ location, Canada's higher tax rate offers significant advantage in lowering the needed investor recruitment effort.

In deciding where to produce, the same advantages the Ford example had advantage Canada.  Lower after tax-credit expenses.  Deciding where to focus sales does create advantages in targeting lower taxed countries.  Though, this is always secondary to whether a country has buyers able and willing to purchase your product.   Somalia may have 0% tax rates, but that doesn't make it by that fact alone, an attractive dealership location.

If/When dividends are paid, the taxes are owed in the jurisdiction of the company's HQ.  $100M in dividends (10% payback) costs the company (dividends are as tax deductible as other cash outflows) $50M with Canada HQ, $70M if in US, and $90M if in Mexico.  Investors (after 10% surtax + local HQ taxes) receive $45M if the HQ is in Canada, $63M with US, and $81M.  In all cases, the after tax ROI dividend rate is 9%, and equal to 90% (due to 10% surtax) of the paid 10% dividend ROI.

A few years pass, and you agree to sell the company for $3B.  Good call, electric cars are a fad.  There is a 10% surtax on the $2B profit ($200M).  The remaining $2.8B proceeds are fully taxed according to HQ location.  $1.4B after tax in Canada, $1.96B in US, $2.52B in Mexico.  In all cases this is a 180% after tax ROI, equal to 90% of pretax 200% ROI.

If the buyers wish to move the HQ from Canada to the US, they repay the tax refunds they received in Canada ($1.5B on $3B purchase) to Canada, and then receive the US refund rate ($900B) from the US government.  HQ relocated, and US tax rates apply on further dividends and capital gains from the investment.

The tax haven problem becomes perfectly solved
There is more of a reason to invest in higher taxed jurisdictions.  And if you prefer not to pay high priced foreign lawyers to forward your mail, its more convenient to locate your company where you and your sales are.

Even if Panama or Bermuda doesn't sign up to the international tax harmonization treaty, and have 0% tax rates, there would be no reason to set up shell companies there other than hiding your bribery and embezzlement funds.

The reason this works is that taxation is moved from Corporations to investor hands, and eliminates all possible international tax arbitrage by expecting tax collections to come from sales, and does not track distortions instead of cash flow.

If there is a payment from a Panama company to a Russian entity, for whatever reason, it is taxable to the recipient and so incentive to ensure it is tax deductible to the payer.

Tax harmonization with complete sovereign freedom over each tax code
A flat tax does not need to be regressive.  A universal refundable tax credit (UBI) automatically creates net tax rates that progressively increase with income even though a single marginal tax rate applies.  The higher the refundable tax credit, the more progressive the tax system.

There is no obligation for a country to eliminate any non-refundable tax credits, but every country knows precisely how much each non-refundable tax credit costs its revenue, and knows exactly what an equivalent refundable tax credit amount that would replace each.  Non refundable tax credits are inherently regressive because there is usually an income or spending requirement to qualify for them.

Countries can keep their social program budgets and other budget components, or replace as many as they can with a sufficiently large refundable tax credit that obviates away the need for the social programs they replace.  UBI directly eliminates poverty, and so the savings from social program cuts can contribute funding for it, even though the main funding comes from a reasonably high flat tax.  Every philosophy ranging from contempt of the poor or rich to rewarding disinvestors vs investors, can be accomplished by adjusting the flat tax rate and universal refundable tax credit.

On the corporate tax side, the payment of tax refunds for accumulated losses can get delayed or paid in installments.  Similarly for investment credits.  Rule 7, though it was discouraged, is a permissible option.  The case for these payment impediments has to do with fears of tax (revenue) evasion  

One way to set these is to start with the appropriate tax rate your society feels the top earners should pay.  If France, thinks that should be 75%, then that is an entirely workable (probably) option.   That rate becomes the flat tax rate on everyone's income.  With that rate set, any country is able to calculate the refundable tax credit it can afford with its operational budget.  In the hypothetical French 75% flat rate scenario, it could support a UBI level well over $30k.

A better way to set these rates is to first start with the UBI level that comfortably eliminates the most costly social programs, and then set the flat tax rate accordingly.  These rates can be refined continuously as part of the annual budget process.  This is the approach I've used in setting up Canadian tax plans for UBI.  Though instead of attempting to mirror the existing tax code, a flat tax is preferrable because it doesn't change much for individuals, but completely prevents arbitrage with corporate cash flow.


Perfectly solves nationalist trade tensions and job thirst
Natural tax policy taxes where the revenues occur.  Sellers pay the tax in the buyer's country for the full value of the revenue.  Producers get expense tax credits in the production country's jurisdiction.  There is no complainable reason to object to imports.

In terms of job promotion, currently in Ontario, hiring someone at $40k salary (lowest marginal personal tax rate), costs $43k pretax with employer payroll contributions.  Ontario small business income taxes are 15%, and so after tax cost is $36550.  Hiring a machine or subcontractor instead costs the company only $34k instead.  For that $36550 after tax cost to the company (less than 9% tax rebate), the employee only receives (excluding health premiums and tax credits) (20.5% income taxes and 7.5% payroll taxes) $28800, whereas a subcontrator or machine seller would receive the full $34k cost as net benefit.

Where job creation is the loudest political talking point, the most obvious point to challenge is why the tax code punishes business for hiring employees (creating jobs).  Equalizing corporate and personal tax rates is the most obvious job promotion strategy, and raising tax rates is the most obvious investment (includes employee hiring) promotion strategy.

If politicians want their citizens and economy to produce more they should raise taxes.  The effect on purchasing can be minor.  Raising taxes can superficially encourage companies to raise prices in order to meet the existing profitability rates.  But they can superficially just as well keep prices the same to increase market share.  Higher income taxes can never turn a pretax profit into an after tax loss.  But with NTP, companies can now easily avoid all taxes by paying dividends.  So, a company that makes something that costs $40, and sells it for $50, then regardless of the tax rates, the company can pay no taxes by paying the $10 profit to shareholders, and so has no reason whatsoever to raise prices to meet "after-tax profit goals".

Political fights over tax evasion and tax rates are mendacious
If the right wants industrialism and job creation, they need to support raising taxes.  If the left wants job creation and poverty elimination, they need to support the destruction of needless bureaucracies that oversee conditional poverty assistance and unnecessary labour regulations, and replace them with a refundable tax credit sufficient to eliminate poverty and equalize the bargaining power between providers and purchasors of labour by letting both sides freely say no.

There is a simple and obvious solution to whatever evils you can imagine from tax havens, and tax whinning.  No excuse not to adopt them.  Explicit support of systemic corruption explains how our tax systems are the way they are.

Tax plan is not that harsh on Republican Champions

  1. All corporations have a simple path to paying 0 net tax.  Dividends.  Dividends can create refunds in future years for taxes paid in past years.
  2. Rather than complain about Corporate tax avoidance behaviour, it chanels it into simplistic productive motivation, that also places hiring on an even investment competitiveness.
  3. The investor class though they pay much higher rates, are paid with untaxed corporate funds (much higher than post taxed), and more importantly, motivates corporations to repay shareholders on their investment rather than to avoid doing so.
  4. Fairly low tax rates can achieve social funding.  If all existing tax credits are eliminated, net social revenue can be modelled as tax rate * (Personal income-per-adult less universal refundable tax credit amount) + (10% * investment profits (including banks)).  The redistributive nature of a refundable tax credit will further directly increase consumer spending.
  5. A simpler existing tax treaty compatible treatment of corporate profit and investor income is to instead of taxing everything in company's jurisdiction, tax it all in investor's jurisdiction.  The consistency is more important than the jurisdiction.

Monday, March 21, 2016

Manitoba Green Party Basic income proposal: $6300

The Manitoba Green party's platform includes a very specific basic income plan that is very prominently displayed as their platform $6300 per single adult resident (more based on children, senior, disability status all implemented through regular tax forms).  Cost of only $1.4B.  Roughly $1400 per adult.  But revenue neutral in that this $1400 cost is eliminated tax credits:  $4900 net tax benefit to anyone that was enjoying those tax credits.  A 16% clawback (reasonably modest) rate pays for the benefit, with the tax disapearing after UBI benefit is repaid.

This is the best complete and specific basic income plan ever presented by a political party.  The link above has complete specifics.

A great start
A $6300 UBI is not sufficient to eliminate every social program, and not sufficient to allow someone to pursue personal or business development independently of other income support or earning obligations, but it is an amount that helps everyone pursue whatever they want, more than not having any BI amount.

Universally, every funding-required idea a politician has to help some group, has the better alternative of using that funding to help everyone equally through a higher basic income amount.  A benefit that also goes to the taxpayer base that would be funding the targeted help lessens the tax burden of the helpers to the point that more help can be funded.

For instance, a program that would cost $1000 per adult to give 1000 chosen companies a $1M tax break ($1B benefit to companies) in the hopes that they create jobs, could instead, for the same cost, give every adult $2000, which would likely generate $2B in extra spending spread as a benefit to all companies, requiring them to employ people to collect it, helping people and companies even more, and all the while, still helping those unlucky to be chosen to participate (employment) in the economic stimulus basic income creates.

The argument that $6300 is an inferior alternative to a larger amount is an argument that you make after you implement the $6300 starting amount.  Note that this $6300 GAI is a clawed back benefit that achieves nearly 0 cost from those above the threshold rates (other than loss of home renovation and kids sports programs tax credits).  Its not exactly UBI (which is funded by more universal tax increases rather than surtaxes on low income)

The core idea $6300 UBI almost achieves
The Manitoba Green Party says that this GAI program will reduce welfare caseloads by 18% partially funding the program by $130M.  The most obvious improvement to the amount is to set the UBI level to a sufficient amount to reduce welfare caseloads by 100%.  The complete elimination of the welfare bureaucracy would create much more savings than 4x of a 20% caseload reduction as it repurposes buildings and management hierarchies as well.  The MGP proposal incorporates a reduced welfare payment (33% of existing) that supplements their BI plan.  Which makes the savings compared to welfare very modest.

I do not know Manitoba's welfare system, but a key target UBI amount would be the welfare benefit level + existing low income tax credits.  I imagine that $9000 is slightly higher than that amount, and I understand that it is the appropriate level for Ontario.  (An amount slightly higher than the exact equivalence gains support and "buy-in" from those affected).  The extra $2700 per adult could also accompany $1.2B (made up: 8x $150M) in extra welfare savings ($900/adult), and so a net cost of $1800 per adult.  Prior to accounting for this cost is a $2700 tax benefit to every adult not receiving welfare services, and tax initiatives to recover that $1800 should be palatable.

I am getting ahead of myself and of the Green Party here.  The $6300 plan, no matter how obvious improvements appear, allows for an orderly slowdown of the welfare department.  It gives time for the apoplectic political reactionaries to shriek a little less loudly and with less resonating substance regarding the end of their hegemony.  It allows a more gradual change with fewer ruffled feathers ruffled more slowly.

A defect of the plan IMO, is the choice of entirely paying for it from the lowest income individuals, but at least the repayment rate of 16% is reasonable.

Great benefit to welfare clients
Even if the UBI amount is not greater than the maximum benefits that can be obtained through welfare services, there is a substantial benefit to welfare clients when the UBI amount is equal to that maximum.

Welfare clients are relieved of the anxiety, and time wasting, of relying on authoritarian bureaucratic permission granting access to their assistance and survival.  Including anxiety over complying with arbitrary rules that may burden them for a lifetime with criminal consequences, or deny them assistance for what might appear to be unfair reasons.

High clawbacks on earned income are a substantial deterrent to accepting part time and low income work, which is the socially understood first step on a path to eventual full time and higher income work.  Eliminating these clawbacks eliminates the deterrent.

This last point makes an equal UBI to welfare benefit amount a substantial increase in the potential income of welfare recipients including raising the likelihood of graduating to permanent contributing taxpayer status.  Combined with the taxpayer savings of the program makes the policy even more obvious.

Much better than a pilot program
A UBI pilot program can be a delay and avoidance tactic that is designed to fail.  It gives the appearance and PR value of anti poverty concerns, while at best delaying the full rollout of UBI.  The history in Canada and elsewhere of politicians ignoring, suppressing, and mischaracterizing scientific research even, and especially, when that science is government controlled, is surpassed by the danger of designing the pilot to fail from the outset.  All 4 of the absolute precondtions to a pilot UBI program outlined in this paper must be observed.

In the rest of that paper, the requirement that there is a focus on the key economic and social benefits of UBI is also stressed.  A dishonest pilot may fixate on employment participation ignoring the greater economic benefits, and all of the social benefits.  Sabotaging a UBI pilot would be a media venture opportunity.  Many people will find any UBI amount insufficient to purchase everything they would like to.  The usual right wing smear campaigns against poverty would show how easy it is for a reporter to panhandle for 15 minutes (spoiler: he goes back to reporting job afterwards), and would show black people buying name brand ketchup, and seen inside a whole foods, browsing.

The $6300 UBI starting plan is a commitment to UBI starting with the most unanimously supportable benefits in a manner that commits the province to the UBI path and to making it work rather than a token gesture of delay subject to manipulation.  The results of the $6300 UBI start can help guide refinements and expansion.  When high and middle income tax cuts get implemented, no one apoplectically complains about the inflationary pressure on Yachts or whether families might take the opportunity to spend more time with each other.  Yet, such fearmongering dominates conversation when the topic is ending slavery.

$6300 provincial amount is a spectacular subsidy towards a full Canadian UBI
 I've costed a UBI plan for Canada that gives every adult Canadian $12000 from a nearly identical Federal tax system (+ $4000 from a new carbon tax and dividend) for a total of $16000. 
If Provinces can afford $6300 through budget changes, then the Canadian national plan would need to simply afford an additional $8700 with no carbon dividend ($15k total UBI), or $7700 with a $2000 carbon tax and dividend. ($16000 total credits, but $1000 net carbon benefit to most low income recipients).

With a $4000 carbon tax and dividend, only $5700 in diverted federal funding needs to be raised to afford a universal $16000 payment.  A high ($4000) carbon tax and dividend is still the recommendation as part of an overall universal dividend plan, because rural cost of living (driving considered more essential) issues get balanced with urban (housing more dominant) cost of living aspects.  A carbon tax is the only possible policy to combat climate change.  Using the carbon tax revenue to directly fund a dividend to citizens ensures that the tax is net painless, and allows it to be much higher than if the funding were to be diverted to crony pet projects.  Nevertheless, lets cost out an $8700 diversion of federal revenue to obtain a $15k UBI without carbon dividend.

The linked Canadian plan ($12k total UBI+GMI) includes a $4000 Guaranteed income clawed back at 10% of earnings up to $40k.  The static cost of that component is only $19.8B.  Replacing the $12000 (GMI+UBI) with an equivalent UBI only plan would cost the same with a $9000 UBI.  While this is more than the $8700 funding requirement we needed, that national $9000 UBI plan does include about $2000 in provincial savings/diversions.

Modification of the Canadian national UBI plan
The linked UBI plan is modified as follows:
  1. total $15.1k annual citizen-resident's dividend. ($1250/mo).  Excluding any carbon dividends.
  2. $6300 Provincial funded "UBI". (NIT with 16% clawback) paid to residents.
  3. $6000 Federal funded UBI paid to citizens.
  4. $2800 from Negative Income Tax (NIT) clawback (surtax) of 7% on income from $10k to $50k.  Paid to citizens.
  5. The tax code changes advised in the paper apply, and no tax rate changes are needed.
This unfortunately fails the limit of 20% maximum clawbacks criteria.  But one fix is to turn the $2800 NIT of 7% to a $2800 NIT of 4%.  This makes the phaseout income levels $10k to $80k ($70k of income is subject to 4% surtax).  A better system not described in detail is funding through taxes on higher incomes instead.

The Manitoba plan acknowledges that non-Candian citizens are humans too, and experience poverty with similar negativity.  While I prefer the citizen's right to dividend as equal share of tax revenue justification for UBI, having a portion of basic income comparable to existing social assistance levels be resident based alleviates poverty more universally, with social benefits for health and judicial costs.

Recommended tax policies for Manitoba $6300 plan
The Green Party's Manitoba GAI plan includes a net tax cut to those below threshold income amounts (as low as $40k for single Canadians, but can be much higher for larger families).  Tax changes could either increase the average net tax cut, and/or increase the UBI amount.

Senior benefits
Canada's Liberal Government recently made the very positive announcement of returning the age of OAS (old age security) eligibility back to 65 from 67 for Canadians under 58.  Equal to what it is for everyone else, and equal to what it was prior to the previous government's deplorable and unjustifiable generational warfare attack on younger Canadians.  While the previous Conservative government's theft of 2 years of survival entitlements from younger Canadians is an act of clear political evil, the justifications addressed a legitimate problem, namely: The long term sustainability of the retirement system funding given low birth rates.

The Manitoba plan achieves an impressive 0% poverty rate for seniors.  Both OAS and the  $4900 UBI benefit given to seniors above that poverty level could be subject to clawbacks at income levels below the current $72k that applies to OAS benefits, and still provide a substantial benefit to most seniors and still achieve the 0% poverty rate.

The MGP plan intentionally sets senior benefits that appear to differ slightly than for non seniors, and so the potential changes they may not have considered to their policy is OAS benefits to high income Canadians.

Reclaiming federal benefits and credits to fund additional provincial UBI
The basic federal deduction of 15% of first $11500 of income is $1725.  Replacing it with a Manitoba tax creates an almost revenue neutral means to increase UBI by $1725.  Revenue neutral would likely be around $1650 UBI increase (not subject to any clawbacks).  In the case of dividend tax credits and Capital gains preferential rates, nationally, over $2000 of UBI funding can come from normalizing investment income, $1500 of which comes from just dividend and capital gains normalization (without needing clawbacks).  A $9300 UBI plan, would mean a net tax benefit to those earning up to about $60k in capital gains (though reduced with Manitoba 16% clawback formula which I am ignoring).  Results expected from a $2M investment portfolio.

Cancelling federal tax credits that are unfair under a basic income plan that benefits both rich and poor Canadians can be used to increase the provincial UBI.  For instance, this would permit the full UBI level needed to eliminate the welfare service.  At substantial additional savings to the province compared to the $6300 plan.

Target UBI levels
 At $9300 UBI, not only can welfare be completely eliminated, but the GIS (guaranteed income supplement) for seniors could also be eliminated and improved with this version of UBI.  An effective way to control costs for the senior portion of the program is to make UBI part of the clawback formula of GIS.  Thus a $9300 UBI would reduce GIS by $4000-$5000, still achieving the 0% senior poverty level, but allowing federal savings to be transferred to the province.

The next levels are those that would replace disability and higher education assistance.  That is the strongest argument for going up to $15k per year (which also is sufficient for eliminating the EI system, obtaining $1100 in UBI funding.).  The Manitoba program does appear to roll in disability insurance as a $1000 surplus to the BI amount.   The disability surplus may not be warranted/needed at the $9300 level.



Manitoba's market based housing assistance program
A unique program that exists in Manitoba is universal housing assistance.  It is also a tax form rebate process.  What makes it universal is that everyone who qualifies (income based) receives it, and they can live wherever they wish, as its paid to reinburse theoretical rents (though rent must be paid).  To be fair, it is almost universal as it is not purely income based and my praise ignores the qualification fine print.  Ontario, by comparison struggles with affordable housing with over 8 year waiting lists to settle in government managed income based rent ghettos.

While Ontario cannot afford Manitoba's universal 25% of net income rent subsidy, it might be able to afford 50% of net income (welcome to Toronto) with the same comparison to benchmark 75% of median rent levels.  Toronto community housing has been condemning units as beyond repair, and there are reports that people stay in substandard housing for fear that complaining would result in condemning their homes (with no room to be housed elsewhere).

In addition to moving towards market based tax form housing assistance, Ontario should (as link recommends) build more inexpensive (small) housing in order to provide actually affordable housing and lower the median rent.  The policy encourages people to spread out in Ontario more rather than insist on being in Toronto.

A tax form based housing assistance formula also integrates well with UBI.  The housing assistance subsidy can be directly lowered as a result of UBI.  It also makes adjustments for multiple UBI homes and larger families.

My biggest recommendation for altering MGP's GAI plan
Over the few sections, I've repeated a $9300 UBI figure.  $3000 over the MGP's $6300 number.  This $3000 is understated it comes from:
  1. $1650 recapture of federal basic amount credit.  Paid to MB government. (Benefit only to those who make under $11000)
  2. $1500 from normalized federal and provincial treatment of investment income.  Paid to MB government.  Benefit to everyone who does not have significant capital gains and dividend income.
  3. Some recapture of OAS from high income seniors. (perhaps seniors with $50k earned income would have net 0 gain from GAI and UBI, and OAS phased out around $72k instead of $120k).  Potential to divert recapture of federal GIS payments int MB revenue. .  Benefit to non high earning seniors
  4. Some recapture of rent assistance programs (Use GAI + UBI as part of income based repayment formula).  GAI+UBI benefit is still greater than lost rent support.  Benefit to everyone.
That is $3150 in firm totals.  Perhaps $3400 (conservatively) including the last 2 items.  $9700 total BI.  The most important feature of the $3400 is that it is not inherently clawed back.  For those earning over $11k who are not seniors with high income, and do not have significant capital gains and dividend income, it is a $1750 tax cut/refundable credit without any applied clawback formula.  There is some benefit for anyone not in all 3 groups.

A final item might be $1000 per person UBI from savings by closing welfare services completely.  I believe the GAI logic was that 33% of existing welfare amounts were necessary to help achieve its poverty reduction targets, but $4400 in extra non-clawed back benefits would be of much more assistance both in the percentage meeting the poverty reduction targets, and direct help to those just above the imaginary line.  The only people who do not benefit by this are those who enjoy their welfare service bureaucracy jobs.  Their disappointment can be mitigated by generous one time severance package, EI benefits, and the long term support of being able to stretch their severance with $10700 GAI+UBI annual amount if their reemployment process is a long term endeavour.

The important features these changes achieve:

  1. Even better poverty reduction statistics than $6300 GAI alone.  Even without extra $1000 from welfare services elimination.
  2. Net tax benefit to nearly everyone.  Because there's a UBI component.  Even those with $10M in employment/farm/busines income get a net tax cut.  A better received plan that ending poverty is ending poverty with a tax cut to the individual voter's benefit.
  3. The $1B in health and justice savings the MGP projects from GAI is made even stronger.  As those savings materialize, that amounts to $1000 additional UBI.  Even stronger poverty and financial stress reduction.  $1B in health and justice savings should also be understood as $1B+ in avoided misery that results from not needing to consume health and justice services.  The most stressful and depressing events in anyone's life.
Even those who get no direct tax benefit from this plan due to high investment income or OAS clawbacks, will have significant benefits.  Investments in MB will do better due to economic stimulus of UBI.  They are likely to have spouses, children or grandchildren, and their UBI+GAI reduces the direct financial support that might be requested or offered by/to them.  Relying on investment income is an inherently variable income stream.  For every high income year there may be low or negative income years, and the $9700 or $10700 UBI+GAI benefit could be enjoyed in full in those years.  Even if you don't use a safety net such as EI, healthcare, fire insurance or UBI/GAI each year, there is substantial value in the safety nets.

There would be no legitimate reason for high income individuals to leave MB as result of UBI+GAI, and there may be many reasons for even high income individuals to come.