Monday, July 27, 2015

The economics of Gay marriage and Polygammy

This is actually about basic income, but it is an economic lesson on choice and freedom.

Civil unions fundamentally equivalent to marriage
The differences are that marriage has a more expensive party.  Any gap in laws that treat civil unions and marriage differently, tend to be oversights, and have no basis not to be normalized.

Permitting gay marriage will cause more gay unions
Of course it will.  While this is often used as an argument by opponents of gay marriage, there is no reason that this is automatically good or bad.  In fact:

For men:

  • More choice on who they can bond with without cultural/legal punishment is more choice and freedom for them.
  • If other men choose to bond with men, then that leaves more women available to bond with you, and enhances your competitive position to complete heterosexual relationships.
  • Forcing other men to marry women reduces the supply of women available for you to marry.
For women:
  • The same freedom and competitive advantages apply to you.
  • But, if there is more cultural stigma for male homosexuality, then oppressing men into being forced to marry women, is coercive market power forcing demand bias towards you.
Permitting gay marriage will lead to permitting polygamy
It should.  Economically again,  assuming there would be more one man to several women unions.

For men:
  • If they can support many wives and children, then it enhances their choices and freedom to do so.
  • Restricting the freedom of polygamy, can force women to bond with only the most desirable unattached male, and so enhance the "market value" of those without the financial power to support many wives and children.
For women:
  • Substantial increase in market value if attached men are available men.  The choice and freedom to join a polygamous union.
  • Restricting polygamy can coerce and limit your existing husband's choices.

The morality of coercion vs freedom
Through prohibition and coercion some people can get what they want (coercive happiness) at the cost of making other people less happy.  But the total number of happy vs unhappy people is likely at least as high, with freedom, without having any evil (coercive) sources of happiness.

The specific failure of coercive marriage policies
Prohibiting certain types of civil unions does not affect the choice to terminate marriages and make other bonding choices.  Outlawing polygamy, does not prevent a husband from leaving you and marrying someone else.  Forcing the choice of them or you, is of no inherent advantage to you.  The additional option of a 3 person marriage is something that can make the 3 of you have increased total happiness.

Similarly coercing men to choose women does not stop your husband from waking up one day and choosing something else.  You would prefer that the man who chooses to marry you does so for reasons that you are capable of fullfilling.  A man marrying  a women would similarly prefer that she does so without hoping that better options come along later.

The relationship to basic income
UBI (unconditional basic income) is providing an equal cash dividend to all adult citizens ($15k/year from federal sources for Canada) where the amount is at least sufficient to ensure the survival of every recipient.

The common fear-based criticism of UBI is that it will cause an increase of people who refuse to work.  The next section is the typical argument that this supposition is mostly false, but the much more important argument is that this fear is a non-issue even if it were true.

People will still choose to work, if UBI is implemented
  • Unlike welfare, you keep all of the earnings that you earn.
  • More money is better than less money
  • You may take a month long vacation, but the drive to self-actualize is stronger if your basic needs are met, and there is no loss in benefits to self-actualize.
  • Any job offer with sufficiently high pay and work conditions will find someone to fill/accept it.  So all needed social and economic functions will be completed.
Work as an analogy to gay marriage
Consider work to be equivalent to the proposition of men (labour force) searching for bonding with women (employers), or choosing homosexuality (remaining unemployed).

It is a tremendous advantage to every person seeking employment if as many people as possible reject employment.  It furthermore enhances the salary/conditions negotiation position of those with jobs the fewer people want to replace them.  That employees are happy enough with their employment so as to not seek a reason to be terminated or are simply waiting for a better offer directly means better productivity and value from that employee.

UBI creates a non coercive labour market where the refusal to participate enhances the fair bargaining power of all sides in the market.  The desperate need for permission to survive is no longer the driving force for accepting employment, and so employment becomes a fair mutually beneficial non-coercive negotiated agreement between parties.  With the removal of minimum wage laws, obtaining employment is as easy as you want it to be based on your ability to bid any wage knowing that your survival is ensured independently.  If you want an internship, a low pay internship can replace forced no pay internships.

Opposition to UBI is morally equivalent to pro-slavery
This statement will get its own article at one point, but this intro to understand the link is a good start.  The systemic fostering of desperation for free servant/slave class to find a kind benevolent master to satisfy their desperate need to survive is a strong systemic bias empowering the master class to coerce minions into accepting their rule.

Our modern democracies all have regulated slave labour markets.  Welfare, minimum wage, and labour regulations exist only because without them, the resulting master-servant relationships would be more nakedly-equivalent/similar to slavery.  But those regulations are always either too biased towards employers or employees.  Either employers are deprived of the ability to divorce from employees and create genuinely mutually beneficial employment agreements, or the regulations are an unenforced sham of pretense-of-non-bias that favours the master class's oppressive bargaining power in having servants systemically compete aggressively among themselves for the "privilege" of serving.

Regulation is always out of balance because it is slow response to squeaky wheels and obstruction-based response to master class political control meant to make apparent reforms as meaningless as possible.  

The response to automation
Under the regulated slave model of labour markets, all responses to automation are terrible.  Outlawing workforce displacement is terrible because it deprives society of always beneficial efficiencies.  We want every automated efficiency for the same reason we want machines/pipes to deliver our water and heating fuel.  It would be exhausting to spend 6 hours per day obtaining these manually.

No regulatory bias adjustment is equally bad to any regulatory adjustment.  The more workforce displacement, the stronger the competition among the servant class and the greater desperation becomes as a motivator to beg masters for minimal survival at ever increasing rates of effort.

UBI as the perfect solution
If UBI leads to increased wages, that also leads to increased desire for automation freeing more people from necessary social work functions.  The profits from the work of the machines goes towards paying taxes and the displaced's UBI, which is then paid to the machine owners that offer wanted goods and services.  UBI solves the problem of companies needing to sell their goods to employees of other companies, under the spiral of massive society wide worker displacement.  Companies just need consumers to have money (not employment) and the power to trade with them in order to prosper.

The more machines can do for us, the more we can all have, and the more we can all have the greater the relative and absolute wealth of workers and machine owners obtain in providing it for us.

Inflation fears as the other non-argument
That there may be inflation as a result of UBI is also a non issue.  Believing that such inflation is a concern is also morally equivalent to pro-slavery.  An economically prospering society will have inflation.  More demand for goods and services means more demand for servants to help collect money from all those people who can buy.

Treating such inflation as a negative economic impact is wanting more oppressive poverty, and more culling of the poor through policing, emprisonment and execution of the poor to enhance their desperation while channeling it only towards servitude.  We can keep inflation low by keeping an underperforming economy that makes life harder for the portions of the servant class unable to obtain servitude contracts.

The tie back to marriage regulation
Opposition to UBI is pro-slavery for the same reason that forcing people to get married (with narrow gender parameters) to someone, would be systemic oppressive coercion decidedly purposed to ensure a power bias with whatever side (known at time of oppressive law) is less numerous.

As a man, lowered stigma for homosexuality, gives every man more choices that advantages every other man.  Ideological coercion for gender relations or for work, detracts from every person's morally selfish interests, and so necessarily, collective interests as well.

Wednesday, July 22, 2015

A taxation solution focused on investment income

This is a followup to my UBI/GLI implementation for Canada.  Its mostly applicable to the US and elsewhere too.  The simple version is to eliminate the double taxation complaint from investment income by making dividends a corporate tax deduction, and then capital gains and dividend income taxable as normal personal income.

Goals

  • Raise more revenue without the legitimate complaint of double taxation
  • Eliminate tax avoidance opportunities
  • If the investor class benefits from a UBI/GLI unconditional safety net, then they should face tax increases that pay for that safety net.
  • Ensure that the tax system does not discourage anyone from living in Canada.
It is the last point that makes this full article necessary to clarify the simple version tax proposal

The simple Canadian tax plan for GLI
GLI (as a specific implementation of UBI) is an annual cash grant of $15k ($1250/month) (from existing federal budget sources) paid equally to every Canadian adult (resident) citizen.  See top link, but it does require some tax system modifications.
  • Replace the various tax brackets for income below $88K to a single 22% (currently equal to tax on income from 44k-88k) tax rate.  Brackets above 88k income are unchanged.
  • Replace EI and CPP contributions (currently 7.5% paid by employees and 7.5% paid by employers) with a 7.5% statutory pay raise (maximum $6600 tied to 88k income level) and a 15% point tax replacement of these payroll deductions.  No effect on employee take home pay.
  • An 8% flat income tax to cover UBI costs.
  • No more basic deductions (including $12k personal amount, or dividend/capital gains credits)
This plan produces an expected budget surplus of $40B to $212B, and so there is significant room to add back cut programs or cut taxes further.

Justification of 15% payroll replacement tax (instead of keeping hidden 7.5% tax)
  • Hidden taxes are corrupt.
  • It taxes investment income more than would a hidden employment tax.
EI and CPP are no longer needed under UBI/GLI.  The UBI safety net is much stronger, and also applies to investors, and so that income class needs to also pay into it.  The safety net is better because it covers voluntary unemployment indefinitely including education and entrepreneurial development, and is not taken away by any discretionary bureaucratic process, or when employment is chosen.

For this better safety net, it could be argued that a 23% tax rate increase is worthwhile (replacing the separate 8% flat tax)

Justification for increased tax rates on the poor
The tax increase they will face is the removal of the personal exemption amount, and the removal of the bottom 15% tax bracket, The poor get the most benefit from UBI.  If I raise your taxes from $8000 to $16000, but give you $15000 cash, you should not say no.  You have $7000 more than if I did not make the offer.

Having a large tax burden on the poor has always been an important revenue strategy because that is where most of the people are, and if we don't give all our money to Donald Trump or Rush Limbaugh, they will flee to Costa Rica (or so they threaten).  I'll be addressing this second issue, but the large base does have to create a substantial portion of revenue.

Justification for increased taxes on incomes above $88k
Those over 88k income receive a statututory raise limited to $6600 (7.5% of 88k) but still face 15% "payroll" taxes on that income.  Effectively 7.5% higher tax rate on income above $88k than below.  While there is budgetary room to elimintate this extra tax I recommend lowering other taxes (if that is how the budget surplus is to be used) in other ways.

Incomes up to $120k will still pay less net taxes than they do today.  The extra tax above 88k just makes that gap narrow more quickly.

Higher income Canadians will take at least the same share of economic growth as the rest of Canadians.  That growth will be at least 9.4% (excluding statutory pay raises.  Source is in first article.).  The entirety of human history's income innequality suggests that they will take a greater share than average.  The income of all other Canadians flows up.

The better safety net creates a better society and communities.  The more money you earn, the more important security and safety should be for you to freely enjoy that income.  If Canada is a great place to live that also makes you rich, then the tax rate should not be a problem.

4.6% of personal income is investment income (in 2010)
2010 was a relatively poor investment return year, and the source is less reliable than revenue canada (household survey), but this is a very high number, and over half of that income was earned by earners in the top 10% of income.

A clearer source is revenue Canada's statistics for 2012.  The following lines highlight an income source ('000s) with a % extra tax that can be recovered (only through normalizationi of investment income and applying payroll equivalent taxes):

Taxable capital gains  17,245,600 (@ 40%) = $6898240
Dividends 62,893,371 (@25%) = $15723342.75
Rental income  5,125,518 (@15%) = 768827.7
Commission income  4,209,931
Professional income  18,699,562
Other Investment income  14,945,886
farming/fishing/partnership 2700000
4 item subtotal $40,555,379 (@ 15%) =  6083306.85

This is roughly $30B in extra revenue prior to an 8% UBI-specific tax.  The Federal government collects 12% of personal income through income taxes.  $30B is 1/6th of the total $180B, and means that taxes on everyone else can be lowered 1/6th.

The new simpler tax plan:  The Costa Rica threat
23% Social Safety Net (UBI/GLI) recovery tax
Regular (22% lowest rate) progressive taxes but with EI/CPP contributions removed.
Canadians and Foreigners pay 22% tax on investment income earned in Canada to Canada.
Canadians pay 23% (UBItax) of foreign investement gains and perhaps 0% additional tax.
Canadians pay full 23%+22% tax on Canadian investment income.
Dividends paid by corporations are a tax deduction (same as other expenses) to that corporation.

A gift to investor class: treatment of investment losses
Any investment income losses can be carried forward indefinitely to offset future income 100%, or carried back indefinitely to offset past gains 100%.  The carryback option affects only the regular (22%) taxes paid on past investment income.  Investment losses can fully offset other income in the same year.

This is much more generous than the current investment/business carryback/forward rules:  It applies to dividend and interest income as well.  If your income is reduced below 0 through investment losses, you would have the full $15k UBI, and if you choose to carry back losses, an additional immediate tax refund, or if you carry forward, future lower taxes.

The important philosophical justification of this gift is that any tax, no matter how high, on investments is completely fair and acceptable as long as the tax on rewards (gains) is symetrically offset by mitigation of risks (losses).

Reciprocal tax treaties
The tax treaty between Canada and the US (and AFAIK similar between most countries) allows Citizens/residents of both countries to deduct taxes paid to foreign governments from taxes owed to their own. 

The justification for imposing a 22% tax on foreigners investment income, is that by making dividends paid tax deductible to corporations, the tax on investment income is the replacement of the corporate gains.

The ideal international response to this new tax system would be for them to adopt the same dual component personal income tax system (portion for safety net/transfers and portion for general programs) with dividend deductibility.  The issue is relevant because foreign investors will be able to lower their national tax obligations by deducting taxes paid to Canada.

Dividend tax deductibility to corporations means 0 long term revenue from corporate taxes
All corporations eventually go bankrupt.  The tax rules already give substantial ways of recouping any taxes paid when they were profitable when they become unprofitable.  The tax code is complex partly to prevent investors from fully recouping such losses, but corporations always can, and sell their future tax credits in bankruptcy.

The policy of dividend tax deductibility would significantly accelerate government revenue collection regardless of corporate tax rate by encouraging dividend payments.

Importantly, respect by Corporations for shareholders is automatically granted through dividend preference.  This is an important national duty that is currently corruptly abrogated by securities regulators.

Capturing tax revenue from stock scams
Most stock holdings are based on the misrepresented hope of future dividends or other stockholder returns.  This does not seem oppressive to wolves of wallstreet if they can convince someone else of the lie and sell for more than what they paid.  Stock valuations tend to be hyped based on future profit hopes, and worth more than if modeled on past profits continuing at their old levels.

By taxing investment gains entirely with investors, government tax revenue can capture the entire future profitability hope, rather than just taxes on profits realized so far.

Recommended Corporate tax rate of at least 26% 
A 26% federal corporate rate is a decrease to large corporation, and an increase to small ones.  Its not important to change the rate due to previous point.

A 26% corporate tax rate with dividend tax deductibility allows management to argue to investors that it needs to keep retained earnings for future expansion, but it has no reason to seek any other tax avoidance scheme than to repay the investors who were kind or stupid enough to fund its past growth.

A 26% corporate tax rate leaves no room for tax arbitrage plays inside corporations (paying salaries vs dividends), for individuals making under $140k.

The argument for keeping large public corporate tax rates at 38% is fine, and puts more pressure on paying dividends.

Profitable corporations paying back shareholders lets the investor class allocate funds to new companies that need them, or usually more economically beneficial, spend like drunken sailors.

All payments to foreign related (co-ownership) entities would be subject to 22% Canadian tax which can be offset (for reciever) by other, future, or past, Canadian investment losses, and thtrough their national system for foreign tax credit deductions.

The benefit to foreign investors investing in Canada
A 22% investment tax rate instead of a 28%-38% corporate tax rate is better for their Canadian investment performance and attractive relative to 35% US corporate investments.  The tax payment is deductible from US/national taxes payable through tax treaty.

Foreigners also benefit from carryback/forward rules.  They would typically not have any non-investment income to apply loses to. 

UBI will create substantial economic opportunities in selling to Canadians.  Foreign subsidiaries can operate at an effective 22% tax burden here, and potentially employ Canadians at rates that are subsidized by UBI (though most people expect higher wage pressure).  The risk of Canadian operations that don't work can sometimes be compensated at higher Canadian corporate rate, or national home corporate rates.

The benefit to Canadians who threaten moves to Costa Rica
I mentioned a tax of 23% + 0% for Canadians on their foreign investment income. The reason for the 0% is that is a placeholder subject to change.

The 23% is for the safety net that the Canadian enjoys.  $15k of basic income in cash directly to him.  The safety and happiness level in the country.  The tremendous opportunities he has for earning other income.  

The 23% tax rate is competitive with the taxes on investment income he would pay in a shithole that is not Canada.  Property and private security premiums cost much more than natural harmony.  A lack of other opportunities is an unfavourable cost.

Non working spouse and future adults will get UBI, increasing net income, and substantially reducing education costs, or the need to subsidize their adulthood through the Costa-Rican-wannabe's own funds.

More importantly, this is a reduced rate that applies to all investment income (not just capital gains), and for people of real wealth, interest producing income always carries strong investor rights compared to the poor-rights scams in faraway lands that promise capital gains opportunities.  There would be no reason to participate in tax-preferred investor frauds (that apply even to publicly traded US stocks) instead of rights-holding-investments (bonds and other loans), and stockholder-respectful dividend payers.

Most importantly, the opportunity to apply losses to other income is a huge tax incentive.  Net losses would not only grant full $15k cash in UBI, but other income earned in Canada even in future years would be tax free up to those losses.


The +0%
A 23% tax on foreign income may be too competitive.  ie. too generously low.  As Canada prospers and becomes more desirable the + amount should be raised.

+7% is a reasonable starting number.  30% total tax on foreign investment income for Canadian residents.  This is justified primarily by the generous UBI benefit and loss application rules.

The whole reason why any discount to a 45% tax is offered on foreign investment income is that we are negotiating with terrorists threatening to leave the country if we serfs don't pay all of the taxes instead of them.  The rules and opportunities being provided just have to be enough of a bribe so that they don't leave.  But shame, disrespect, and social coercion against the slaver class should keep them politically irrelevant, and politicians who take up their cause and agenda, should also be disrespected.

The benefit to investors children's future adulthood may even justify making the additional tax rate variable on the number of children they have.

Dual income tax structure and foreign residents
Non citizens are not eligible for UBI.  It follows, that they should not pay the 23% portion of income taxes devoted to the UBI safety net (or personal transfers if a country does not adopt UBI).  The general/regular (22% progressive) tax portion does cover education and healthcare in Canada.

Effect on Canadian Businesses
There is no reason why profitable foreign corporations (google microsoft) and their owners and highly paid workforces would not choose to relocate to Canada, or entire progressive states to join Canada.  They would face only regular income taxes (23% less than Canadians) if they moved.  No corporate tax if they pay dividends.  We have a lot of room to welcome foreign workers, and the development contributes significantly to Canada's economy.

For Canadian statups, UBI is fantastic.  The founders and key employees can pay themselves in promises without needing to flip burgers or justify their tech project to welfare or other bureaucrats for funding permissions.  They will typically not need to obtain anyone's permission to create great tech if they are willing to rely on UBI for survival during development.

For successful Canadian small businesses there is no reason to move after they are successful.  A strategy to stagger dividends to manipulate UBI exists, as is simply stockpiling cash (and paying corporate taxes) as a safety net to pay dividends later (get corporate tax refund)

For successful large Canadian businesses, staying in Canada is attractive if they pay dividends to avoid corporate taxes.

International Reaction
The best possible international reaction is to adopt UBI and/or similar dual income tax structure.

For both anti-war and defense minded societies, there is a strong argument for making the defense and war budgets part of the UBI fund.  The more war spending, the less of a dividend would be paid equally to citizens.  This would be understood as a necessary sacrifice for just defensive wars, and would result in burned government building and disemboweled politicians when war spending is not seen as justified.  This ties into foreign workers and investors not having a say in such wars, and so not paying that portion of taxes.  Though its not impossible for war funding to have contributions from the general tax base.

I mention international reactions because Canada's alternative corporate tax structure will draw complaints regarding the 0 corporate tax on one hand being a tax haven, and the 22% investment returns tax as being socialist confiscation.  The complaints are utterly baseless because the 2 cancel each other out.  Effectively comparable to what was there before.  The complaints are utter corrupt fascism because it is clinging to corrupt inneffective tax systems that permit more avoidance and control by fascists.  Still, complaints will exist.

The best response to complaints is that if it is unfair for Canada to have this tax system, then your country should adopt it too.  International adoption also helps adjust the tax premium our nations need to bribe wealthy investors to keep a home in our country, and choose our politicians for us.  The more nations that adopt a local investment gains tax the fewer nations the money hostage negotiators can threaten to move to.  It also allows nations to capture the investment returns from the companies it likely assisted in creating.

Hillary Clinton's Dividend reform proposal
The US rules on dividends is that they become tax preferred if the investment is held for one year or more.

This is completely unnecessary in that investment banking and trading markets assets tend to stay in those accounts even when investments are sold.  People who have significant stock holdings do not celebrate the year anniversary of holding a stock by selling it to go spend it on hookers and blow.  Its generally transferred to new investments.  Since a company that takes investment banking money for business development (hiring/expansion) keeps it all even if investors sell their shares 1 second later, there is no broader economic benefit to the rule.

Its a corrupt policy in that it serves the investment industry.  IPOs look successful because most people will be made aware to hold for a year and hope the price level maintains.  This helps promote more sales to people with only the mental capacity to understand price levels.  It also helps promote loans as a way to get cash from an investment while waiting for it to "mature" into tax preferred status.  The loans create income and fees for the investment industry.

Hillary Clinton is proposing to extend the vesting period for tax preferential treatment to 2,3 and 4 years, presumably with different preferential stages at each level.  This is the wrong reform in the wrong direction.  It is a gift to the investment industry because it creates longer "self-imposed" prisons on investors.  This is the type of pretend-reform typical of US Democrats that would be positioned as pretend-leftism that results from needing financial industry friends and listening to their suggestions for policy spins.  The policy also helps general corporate insiders who are able to funnel corporate funds they control to political candidates.

related previous links on dividend policy and taxation
tax policy:
dividends:

Monday, July 20, 2015

Green Party.ca proposal for GLI

I'm not affiliated (as of now) with the Green Party, but their leader, Elizabeth May, has officially endorsed what they call Guaranteed Livable Income.  GLI is a Negative Income Tax (NIT) scheme that can be equivalent to Basic Income (UBI) if implemented sanely.

GLI will replace OAS, GIS CCTB and NCB.  The core proposal is a NIT of - 33% on income up to $60k per year.  This means a cash grant of $20k to those with no income, that is gradually "clawed back" to a 0 net benefit at $60k income.

The general affordability of UBI
In Canada, $72.2B (2014) is paid as transfers to persons, from a revenue base of (130.8B personal income tax, $21.8B EI premiums, and 30B other revenues primarily CPP) $182.6B, and so 40% of all payroll deductions are already used as transfers to persons.  Eliminating those programs is equivalent to a 40% tax cut.  This jumps to 60% of all payroll deductions when "other transfers" (primarily social services including aboriginal programs) is included.

While most low and middle incomes pay high taxes, RRSPs dividend and capital gains rates, and other schemes available to the knowledgeable higher income earners, results in Canada collecting only 10% of GDP in personal contributions to national revenue, and 6% net of personal transfers.

The core affordability principle of UBI is that those who pay taxes also get the same personal transfer as those who don't, and so the tax burden is calculated net of that personal transfer.

The Green Party has also called for important coordination of service (cuts, and so UBI funding contributions) from the provincial and municipal levels, and this is actually a very important source of funding as housing, homeless/social programs, and police prisons are very expensive programs at those levels of government.  Poverty also raises the cost of education.

UBI/GLI of $15k instead of $20k
The $20k per year amount is justified by the green party as the poverty level determined in Ontario.  I propose that $15k is sufficient to get out of poverty.  Options include having roommates, marriage, moving somewhere cheaper/smaller.  $15k as an amount is also the magical figure that is higher than all other entitlements (mostly OAS+GIS) and so no entitlement promise made to anyone is broken.  More importantly, a $15k GLI figure is being used because its funding comes entirely from the existing federal budget that the Green (and/or other supportive) party will control.  $5k can come from other sources.

The other reason for a $15k GLI is that it makes possible a sane NIT scheme.  Instead of -33% NIT on the first $60k, -25% NIT to create a 0 benefit threshold is possible.  A sane NIT scheme is one where the tax rate above the NIT threshold is equal (making it equivalent to UBI with flat tax) or higher (progressive) than the tax rate below the threshold.

These -33% and -25% rates are there just to cover the GLI.  Higher rates are needed to also pay for other government services, and to pay for those with net transfers of income.

A 44% flat tax on income up to $60k with $15k GLI would be enough to give someone earning $60k a net tax cut (25% of the tax goes to paying down their GLI benefit, while the remaining 19% is roughly equivalent to their 22% marginal federal tax rate above $32k and deductions and lower rates below that threshold.

But a 44% federal tax rate on income above $60k would be a substantial tax increase.  This cliff is primarily why NIT schemes are generally a bad idea compared to UBI, but we can still try to fix this without reducing the tax rate on income above $60k.

The benefit of a $15k income safety net to those who don't use it today
Even for those with high employment income, $15k UBI is higher than the EI entitlements they would be allowed to draw if they lost their job, especially considering that the UBI does not expire in 6 months.  So, we can replace the 5% paid (including employer contribution) in EI premiums with a 2.5% mandatory salary increase on those who are subject to such payments and a 5% point tax increase.  Everyone is better off.   Arguably at a 7% tax increase, everyone is still better off due to long term unconditional benefits that do not require permission or loss of employment conditions.  Supplemental private EI can exist if there is demand.

CPP can similarly become optional, and replaced with a 5% salary increase and 10% point tax increase.  No effect on takehome pay for employed individuals.  The UBI safety net allows retirement earlier if people wish, and private savings and home ownership can supplement ultra comfortable lifestyles.

Where the UBI/GLI safety net is extremely valuable is for those who earn investment/business income instead of employment income.  Their income is extremely similar to gambling income, and so highly variable, and highly needed to have a safety net.  They don't have to pay EI and CPP, but get supreme enjoyment from UBI/GLI.  By replacing EI and CPP payments with equivalent tax rates, it raises taxes on investment income, but the safety net expansion to business owners and investors is a huge boost to their safety net, and makes startup and small business more sustainable and survivable.

The elimination of tax credits for investment income (such as dividends and capital gains) is also a fair bargain for the investor/business class given this new safety net that applies to them.  Increasing corporate tax rates to the top personal rate, while simultaneously making dividends paid a tax deduction to the corporation allows corporations to pay 0 tax but overall tax revenues to grow substantially by transferring the tax obligation to individuals, and eliminating the most common corporate tax avoidance strategies.  For an entrepreneur risking his time and money on a new business, UBI/GLI is of far more significant assistance than tax avoidance schemes involving salaries vs. dividends.

The most important aspect of taxing investment income is that tax rates never discourage investment.  If someone with money thinks he will make more money by investing then he chooses to.  Otherwise he buries it under his mattress.  Taxes on investment income are only paid when those investments make money.

A final benefit of a $15k unconditional safety net is that it is a substantial improvement to the lives of those making $60k in employment income (and subject to all previous mentioned payroll deductions).  $15k GLI is more than the EI benefits they expect to collect, and the benefits are unconditional.

Tax rates at $60k/year and $61k/year
We're trying to have a tax rate for income above $60k to be at least as high as income of $60k.  With the above safety net benefits and elimintation of EI and CPP, 22% + 15% = 37% tax rate on income above $60k is revenue neutral to those tax payers.  A surtax of 13%, bringing the total to 50% federal tax would be enough to have everyone who makes under $115k in employment income have a net tax cut compared to what we have now.  Including if the tax rate was raised to 54% on income above $88k (as our current brackets do).

This highlights the better general plan of UBI instead of GLI/NIT.  It doesn't force any discouragingly high tax rates on low incomes.

A 50% tax rate is acutally 35%
The proposed flat tax rate on income up to $88k is 35% + 15% from converted EI and CPP payroll deductions, and a 7.5% mandatory salary increase for those who were paying EI and CPP with near 0 net effect on  payment  of those, but substantial revenue collection benefits as a result of capturing an extra 15% tax on investment income.

From 35% tax to 30% tax rates
the 15% extra tax on investment income is multiplied by fully taxing dividend and capital gains income.  RRSPs and TFSAs can still exist to protect the medium rich's investment income and act as replacements for CPP.  This very high revenue generator combined with the Green Party's carbon tax proposals can be enough to lower the tax rate on income below $88k to 30%.  (45% tax rate after EI/CPP equivalents)

A 45% tax rate to 37.5%
Canada's tax system likes to take a little out of many boxes so as to appear not to be taking too much.  It treats Canadians as idiots, by assuming they cannot math.  The 45% tax rate may still seem relatively high, but with Candian math, its actually just 37.5% on employment income.  The employer will effectively pay 7.5% of your taxes, because your salary automatically goes up by 7.5% as a result of the elimination of EI and CPP.  Compared to your old/existing salary, the tax rate is 37.5%, and compared to previously separate EI and CPP, it is 30%, or just 8% above the old 22% rate.

The $10k income earner
Currently receives few if any benefits.  Currently taxed at 15% for just EI and CPP. ($1500 in payroll deductions.  Would receive $15k UBI, $750 in statutory raise, and pay $4837 in total payroll deductions.  Net after tax income: $20,913.  Net federal benefit increase: $12413.

The senior with $2k in other income
Currently receives $13k in OAS+GIS.  Does not pay payroll or other taxes on his income.  Net after tax income: $16.1k.  Net federal benefit increase: $1.1k. (More than 0 and so reason to support)

The $35k income earner
Currently pays 30% federal deductions on income above 12k.  15% on first 12k.  Currently pays (1.8 + 6.9) 8.7k in payroll deductions. Would receive $15k UBI, $2650 in statutory raise, and pay $16,931 in payroll deductions. Net after tax income: $35,729.  Net federal benefit increase: $9429.

The $60k income earner
Currently pays 30% federal deductions on income from 12-44k.  15% on first 12k. 37% on income above 44k.  Currently pays (1.8 + 9.3 + 5.92) 17.02k in federal deductions. Would receive $15k UBI, and $4500 statutory pay raise. and pay $29025 in payroll deductions. Net after tax income: $50975.  Net federal benefit increase: $7995.

$44k capital gains income earner
Currently pays 7.5% federal taxes on income from 12-44k.  0% on first 12k.   Currently pays 2.7k in federal deductions. Would receive $15k UBI, and pay $19.8k in income taxes. Net after tax income: $39.6k.  Net federal benefit decrease: -$2.1k.  People who earn all income through capital gains can avoid earning income indefinitely as they only need to sell investments when they need cash.  Capital gains and dividend income is income from savings.  If there is a claim of hardship from taxes on $44k of investment income, the tax filer can simply withdraw more savings to overcome that hardship.

The $88k income earner
Currently pays 30% federal deductions on income from 12-44k.  15% on first 12k. 37% on income above 44k.  Currently pays (1.8 + 9.3 + 16.28) 27.38k in federal deductions. Would receive $15k UBI, Statutory pay raise of $6600, and pay $42570 in payroll deductions. Net after tax income: $67070.  Net federal benefit increase: $5450.

The $115k income earner
Currently pays 30% federal deductions on income from 12-44k.  15% on first 12k. 37% on income between 44-88k, and 41% on income above $88k.  Currently pays (1.8 + 9.3 + 16.28 + 11.07) 38.45k in federal deductions. Would receive $15k UBI, statutory pay raise (capped at) $6600, and pay (42570+16415) $58985 in payroll deductions. Net after tax income: $77615.  Net federal benefit increase: $1065.

The $115k single income earner couple
Same income comparisons as single person, and ignoring spousal deductions and income splitting: Would receive $30k UBI, (15000 more to spouse). Net after tax income: $77615.  Net federal benefit increase: $16065.

Overall affordability metrics
52.8% of Canadians are adults under 65.  18.5M Canadians.  GDP per adultlt65 is $100k.  If we take $35k as the average adult income (likely a low estimate), then an average $9400 cash benefit per adult will increase GDP by at least 9.4% (before multiplier effects).  Because 16931 in taxes are collected on incomes of $35k, the avearage income pays for itself in UBI (breakeven average income in fact is $33.33k after any statutory raises), and the rest of government is in fact paid for by those who earn more than this.

The government of Canada only relies on 4% of GDP as collections to pay for its non-social/transfer programs.

At least 15.5% GDP growth
Most of UBI/GLI benefits will be spent.  The poorer you are, the more likely any marginal income you receive is spent.  Furthermore, UBI/GLI reduces the middle and upper classes' need to save because $15k annual UBI is an expected lifetime (for an 18 year old) benefit of $900K that exists as a safety net to everyone.

Most UBI benefits will be spent.  The average of $9400 per adult, means a new GDP/adultlt65 (rounded up) of $110k.  But we used another trick.  We increased all salaries by 7.5% to cover EI/CPP cancellation.  That is a near 7.5% GDP increase as well.  So, $117k GDP/adultlt65.  Personal income is 77% of GDP, and so Personal income/adultlt65 would be $90k.

Fears of work disincentives do not matter
If some adults choose not to work, or machines cause them to not find work, it doesn't matter.  If there is $115k of GDP per adultlt65, then it will be split among those that do find work.  UBI/GLI allows everyone to survive, but it also makes it easier for those who want to work to make more money:  Less competition, and more money that wants to be spent (taken from spenders by workers).

Canada has a great society because it has money that is shared among workers, and with UBI/GLI does so without relying on oppressing the poor.

By these calculations the tax rate may in fact be too high
The breakeven level of average personal income used to afford GLI alone is $33.33k.  Our personal income is expected to be a $90k average.  In order to raise the 4% of GDP needed to pay for the remaining Canadian Federal programs, average income would need to be $42.22k.  This is income after the only remaining deduction of RRSP contributions.  Still well under the expected average, and leverages the substantial benefits of investment income tax normalization.

The employment rate for Canada working age adults (and OECD) is 60%.  With 0 income contribution from the investor class and seniors, that would make the average job salary needed for sustainability (42,22 / 0.6) $70366.  There is contributions from seniors and other investors that lowers this number, and importantly the number is still below expected personal income per adult under age 65.

The proposed tax rates are still a good starting point with lower taxes in the future an option as is higher UBI/GLI.  Another option to reduce work disincentives further is to drop the tax rate on the first $10k or $20k of income to 35%-40% (inclusive of 15% EI/CPP equivalent contributions),

Another option is to take these expected revenue surpluses and use them to fund a variable dividend together with carbon tax income.  Supplemental UBI based on surpluses as they materialize.

Coordination with Provinces and Municipalities
Judicial system savings are the most important provincial/municipal/social benefit of  UBI/GLI.  There is more opportunity to thrive for everyone, and no reason to resort to crime.  Legalizing drugs and prostitution is an important crime elimination measure.  Shooting sprees and terrorism are fundamentally motivated by oppression, and so a sharp reduction in destroyed lives would be expected.

Homelessness is solved by not forcing the homeless to submit to authoritarian rules supposedly for their own good.  Shelter spaces are not accepted primarily because of rules and environment surrounding them.  Money is always useful in improving one's life the best way anyone thinks they can improve it.  It has been found cheaper to give homeless homes than to give them police and emergency health services.

Carbon taxes

Municipal and Provincial government pensions:  Workers have been promised government payments in their retirement.  If that payment is reduced by $15k UBI, the promise is still kept.

Social housing sales.  Forcing ghettoization increases crime rates.  Provinces/municipalities selling their social housing to current residents or investors would raise cash, sell the units to people who can afford them.  Property ownership is strongly corelated to property improvement and community concern.  If a subpopulation is truely inherently problematic, then dispersing it naturally and voluntarily makes it a non problem.  Individually, the freedom and opportunity from UBI allows all to thrive peacefully.

Municipal property tax bases increasing as a result of being awesome places to live in, and A municipal UBI supplement for wealthy cities, that also tend to have higher costs of living, would attract more people to stay in the city.

Voluntary coordination with provinces and municpalities: getting $20k UBI
The best way to structure UBI/GLI taking into consideration uncertain participation by provinces and municipalities is to use the above analysis as funding $15k of core UBI, and then use other sources for funding other dividends.

Carbon taxes of $4000 per average energy user can be used to increase UBI by $4000.  This is a net tax on high energy users and a net gift to low users.  The amount might be expected to drop as a result of Canadians implementing energy savings.

If $1000 ($18B~ total) in additional funding can be obtained from municipal and provincial sources, or federal budget surpluses, then the Green party's $20k GLI target is affordable without tax increases on anyone earning employment income under $120k, and by providing better value of services to the poor, and better value of taxes to entrepreneurs and investors.

How can such high tax cuts be affordable?
A $5400 tax cut on incomes of $88000 will be surprisingly high to many people concerned about the affordability of UBI.  Surely people making close to the 80th income percentile would have to pay more than before to make UBI sustainable, no?

The key reason UBI is affordable in Canada is that 60% of all personal taxes/EI/CPP payments go towards personal and non education/health transfers.  Of the $27380 in federal contributions that are made on a 88k salary today, $16428 can be placed into the UBI fund.  Money that it used to collect for general operations.  Another $7040 is contributed by the 8% clawback rate.

The special tie in with carbon taxes
I advocate for a $4000 tax and dividend on fossil fuel energy here.  That amount is scary high to many people, but the only reasonable argument against it is to bring up a poor potentially fictional rural dweller who needs to drive long distances in a gas guzzler for anything, and who is incapable of life choices (car pooling, hybrid/electric vehicle, moving to next town) that would cut his energy consumption.  This is generally false as the $4000 dividend is enough for a vehicle upgrade.

But a tie in between UBI and a carbon tax-dividend is exceptionally symbiotic.  The cost of housing is much higher in urban areas, while urban areas have less need to travel long distances and economic justification for practical mass transit.  So the carbon tax-dividend benefit goes toward subsidizing higher urban housing costs, while the UBI dividend goes towards subsidizing rural fuel costs.

The naive/alternative Green party proposal
I mentioned that I am no affiliated with the Green Party.  This tax plan is my own based on the thematic lines the Green Party highlighted.  Its likely that their plan is simpler.  A 33% flat tax on incomes below $60k (+ payroll taxes).  No change to tax rates above $60k.  Basically the rest of the government becomes funded by those making over $60k.  This would not seem possible in a budget balanced manner, unless those making $60001 pay the exact same taxes they do now on the first $60k income, while those who earn exactly $60k or less pay 0 taxes.

Reasons this would be inferior politically and economically:

  • No benefit for those earning $60k or more means no motivation to support it.
  • 3% higher taxes on income below $60k than this plan.
  • Significant feelings of jealousy by those making $1 over the limit, will lead to people refusing work to avoid an extra $17000 in taxes payable.
  • The investor class gets a fantastically valuable safety net without having to pay for this huge gift.
  • No reform for fair investment taxes means that the gradual all-level tax increase to avoid the $17000 tax cliff at $60k, would need to be much higher than 8%
  • EI will no longer be needed.  We shouldn't force Canadians to keep paying for it, but we can honestly roll in its revenue contributions through equivalent taxes.
  • A similar argument for CPP exists.  To make the scheme affordable, the tax rates I used are needed.  CPP contibutions would add to the payroll deduction burden.
  • The proposed tax plan results in a significant surplus from which child or WITB benefits can be funded... or fine tuned with lower taxes.  Up to parliament.
  • The $120k cutoff for a net tax advantage is enough to make the proposal obviously attractive to 90% of Canadians.  If there was no benefit to Canadians earning 60k or higher, then a substantial portion of Canadians would not care enough to show up and vote.
Financially better for everyone
The $120k income cutoff was mentioned as providing a financial advantage to 90% of Canadians.  But that cutoff is for a single individual.  For a single income 2 adult family of $120k income, there is an extra $15k income from GLI, Much more than can be obtained through income splitting.  So nearly 99% of Canadians would see a net income tax advantage from GLI.

Furthermore, GLI will increase average personal income per adult by at least 9.4% (from the average net tax benefit of 35k annual income.  So even those earning above $120k facing an 8% higher tax, the average income will grow 9.4%+, and recent history shows that higher incomes have gained a much larger share than average income increases.  So all workers should expect their income to grow higher than any tax increases.

Investors are the only ones that might pine for a system of slavery and oppression that allows them to not pay significant taxes at the expense of the rest of Canadians.  As a class, they gain the significant benefit of a safety net that covers them too, and their earnings are returns on savings anyway and so impossible to not afford lifestyle commitments.  They may choose to contribute their expertise to work instead of their tax preferred lifestyle.  But another significant benefit to the investment class is the expectation of stocks and bonds of Canadian companies to perform spectacularly along with the Canadian economy.

Huge winners from UBI/GLI will be students and entrepreneurs who need to survive without immediate income, but who are responsible for all good jobs and economic growth we will enjoy in the future.  Canada will be the ideal location for any startup or cooperative.  Its much easier to start a business if the only capital you need is just for hard machinery rather than machinery plus salaries for everyone while the company develops its product without revenue.



Wednesday, July 15, 2015

The Lynda.com acquisition by Linkedin -- too expensive

Linkedin purchased Lynda.com for $1.5B in the first quarter 2015.  They've just released Lynda.com's financial statements .

Generous preadjustments to the company.
In 2014, Lynda.com lost $63.8M on revenue of $153M.  A negative 40% margin.  And that excludes a $10.1M capitalization of software and production costs.

The main component of this extreme loss though is what is presumably management/controlling interests paying themselves out of funding round proceeds (in preferred stock), and we can assume that they won't have that opportunity again.  Using the 33% General& administrative cost to revenue rate of 2013, would bring their 2014 loss down to $12.8M, but adding the $10.1 in BS capitalizations, creates a drain on "shareholder proceedable activities" of $23M.  A negative 15% margin.

The shareholder unfriendly capitalization of production and software costs
An education company asserts the accounting right to capitalize any lotus 1-2-3, wordperfect 5.1, and Office 97 content that it owns under the theory that it can monetize those assets forever.  The theory is a lie, and the assets do become obsolete, but there is no accounting procedure that forces a company to honestly determine market obsolescence.

The practice hurts shareholders, because it is really a R&D expense, but does not benefit from income tax deductions that would be claimed if it were expensed.

Shareholder Performance Margin
Shareholder Performance Margin is a tool that helps measure the performance of companies losing money, by giving them credit for all of their R&D spending as an increase in profit, and then analyzing what return is necessary on that R&D spending in order to break even.

For 2014, using  $51M of administrative expenses credit (hoping that amount never occurs again), The loss is $23M.  R&D costs are $38.4M.  If those were reduced to 0, there would only be a 65% contribution to shareholders due to the loss of tax credits:  So $24.96M contribution to profit from non-spending (of that $38.4M in R&D).  Shareholder Performance Margin for 2014 at Lynda.com was 1%.  At this rate, every dollar it spends in R&D needs to generate $100 in cummulative revenue increases or expense reductions in order to pay for itself.

For the first quarter of 2015, The loss including capitalized software and production was $3.6M on $43.5M in sales.  R&D costs were $9.6M, which would have an alternative contribution to profit of $6.24M.   Shareholder Performance Margin for first quarter 2015 at Lynda.com was 6.5%. (2.84/43.5).  The return on R&D 1$ must be $18.

For the first quarter of 2014, Lynda.com's SPM was a more respectable 18.1% (on 7.43 R&D costs. 6.31M alternate profit)

Facebook, Google and Microsoft all have Shareholder Performance Margins around 33%, and so they only need a cumulative return of $3 for every dollar spend on R&D in order to break even.

Measuring past R&D performance
A simple way to measure past R&D performance is to assume that your R&D spending today (in any quarter) has up to 5 years to create benefits in the future.  For software tech companies, R&D has no specialized equipment, and consists entirely of office space and salaries for people working on ideas.  When a project is successfully completed, those people are generally not told "Congratulations!  You have eliminated your Job.  Bill, here from security, will give you 10 minutes to clear your desk.".  They are generally reassigned to new projects.  The only valid reason to buy software tech companies is that it is difficult to find the talent to replace their operations, though it would be much cheaper to try (though likely take longer to get results).  So the R&D budget at software tech companies is likely to grow each quarter, and always does as long as sales grows.

That 5 year of benefits from R&D assumption, together with a hopeful/aspirational 20% SPM allows for a very simple financial statement observation:  If the year over year increase in revenue is equal to last year's (quarterly) R&D costs then the company is on pace to break even from R&D expenses if it can aspire to a 20%SPM or higher.  At 10% SPM, it would need to double the R&D spend in sales increases.  At 5% SPM, quadruple.  At 30% SPM, the company needs a 66% of R&D spend quarterly increase in sales year over year.

The reason the simple rule of thumb is useful, is that most of the 5 year gain should be in the first 4 quarters, it also encapsulates some of the time premium for earlier benefit returns, and it recongnizes the continuous recurring nature of software tech R&D, in that sales growth needs to be outpacing the R&D spend.

The 10th nail in the coffin for the Lynda.com acquisition
While the revenue increase of $8.7M from Q1-2015 over Q1-2014 exceeds the $7.43M Q1-2014 R&D costs, and so would appear to form an acceptable performance track for R&D costs, within an aspirational/optimistic future outlook, there is one massive mitigating factor:

The $8.7M sales increase accompanied by a $6.7M sales cost increase.  Outrageously poor.

The 20 ton concrete block placed over the coffin
Lynda.com gets much of its revenue through annual subscription plans.  When it sells a subscription it counts 1/4 (or less) of the proceeds as revenue in the quarter, and the remaining cash is put into deferred revenue that it will add to its future quarter revenue numbers.

Deferred revenue booked in Q1-15 declined by over $2M compared to Q1-14 to $3.2M, and its total deferred revenue balance went down 10% to $5.37M.  $1.7M of the latest quarter's revenue came from past sales efforts, and so nearly all of the revenue increase over last year was paid in increased sales costs.

Lynda.com's 25% growth rate is not at all impressive in tech/internet companies.  It has been declining, and is likely to decline more.  A drop in current deferred revenue is a major headwind to its growth rate.  Paying nearly 11x revenue for a company unlikely to ever make money for shareholders, is overpaying by at least $1.5B.

Tuesday, May 19, 2015

An open letter to Bernie Sanders

Mr. Sanders,

I support your candidacy for President, and believe in your desire to help workers and students and the real American economy, but wish to suggest policies that would better achieve those goals while gaining centrist support for your candidacy.

First a poor policy suggestion
Imposing a transaction tax on securities trades is a bad idea with no economic purpose.  Instead raise taxes on trading profits, such as reducing or eliminating the preferential treatment of capital gains and dividends.  A concession you can consider for the capitalist class is to allow better tax deductibility of investment losses.

The reason for these policy suggestions is that investment is still encouraged, and investors should still prefer investing to putting money under a mattress.  It still meets the political hot button of getting the financial sector to pay their fare share, and also has the potential to raise significantly more revenue than a financial transactions tax.

Basic income as the important policy recommendation
Basic income of $15k per year, $1250 per month, should be given to every adult citizen including billionaires, union members, students, working families, both members of families where 1 or 0 adults are working, seniors, the disabled, and the substance dependent homeless.

Charles Murray calculated that $10k per year could be given to every American by eliminating conditional programs that Americans can beg for.  The extra $5k comes from simply raising taxes. Because both poor and rich taxpayers also get $15k, if taxes were raised just a flat 10%, then working Americans who make under $150k per year would have a net tax (sum of financial transfers with government) decrease.  10% of GDP is $1.75T.

Payroll deductions should be eliminated and turned into an income tax increase.  This does not affect working people at all, but would affect those who earn income through other means than wages.  UBI will be providing landlords and financial traders with a safety net too, though, so they should be paying into it.

$15k UBI is enough to eliminate all other social programs.  Those who receive Social security or disability benefits greater than $15k could still receive the difference above the UBI amount.  This way no one loses any benefits by switching to UBI.

Basic income is right for Unions and other workers
The worst the economy is doing, the poorer bargaining conditions exist for low wage (usually not unionized) workers.  Bargaining innequality can cause them to be taken advantage of by employers.  If basic income causes some workers to refuse unfair work conditions, then that is a strong incentive for employers to offer better proposition than "take this job or starve, minion", and it significantly improves the opportunities for those that do want to work.

That same benefit exists for union members.  Some people inclined to be lazy is great for those who want to work, and better work propositions will also incentivize those more inclined to be lazy to accept the propositions.  Basic income means better jobs with better pay for anyone that wants them.

Traditional political promises of creating many union jobs seems like a bad idea because its creating a tax pool to reward the winners of those jobs, and there is necessarily some less than 100% useful necessity to those jobs since they need to be created.  So its a policy of wastefully creating a handful of winners which the general voting population should understand is just a different 1% or 2% or 5% than them, just as you try to appeal to those outside the top 1% of income earners.  UBI is for the 99% without deceiving them that they will all become unionized winners.

Basic income is right for Students.
With $15k per year, young people will have the opportunity to choose further education much more easily than through a predatory loan system.  Education costs so much because the sales job that any sized loan is worth the cost of education is a successful sales job.  If students can be convinced to pay $40k per year for education, why take less money from them?  Unlimited education loans are a bad idea because of this dynamic of just promoting a more aggressive sales effort to increase the customer's loan burden.

Young adults genuinely enjoy the opportunity of college, and we don't have to pay them more than those who join the labor force.  We simply need to provide them the means to improve their lives as best they see it.  They may choose unconventional educational paths that they see as more conducive to the innovations that society needs, and may well be correct.

Those who can learn will learn.  While your free college proposal idea is worth considering, with UBI, just an affordable college option is much more likely to be the right budget constrained option.

A basic income election platform is a winning general election platform

  • UBI is a tax cut for 95%+ of Americans
  • UBI improves the quality of jobs by removing desperation from the bargaining process.
  • UBI improves the quantity of jobs by redistributing money where it will be spent, and workers need to be hired to collect that spending.
  • UBI improves the dignity of the poor by giving them the freedom to improve their lives without benefits being taken away, and lets them help themselves far more cheaply and effectively than any expensive supervising bureaucracy ever could.  This is especially true of housing, where people can find more suitable and affordable housing options than expensive unpleasant ghettos.
  • UBI improves education and innovation by letting people develop themselves/ideas without the constraint of paying for their next meal.
  • UBI is the only solution that permanently solves the unfairness of a social security fund insolvency to those who were hoping to be paid after the fund will be insolvent.  All other options seem to be to pay current retirees everything that was promised to them, while cutting programs/benefits to the young.
  • UBI creates electoral funding reform by making special interest pork toxic to voters in that it directly affects how much UBI they all receive.  UBI effectively funds every government program by an equal contribution of every citizen.  So, special interest interest groups have less opportunity to lobby politicians.
Leveraging social media to win the general election
I would recommend engaging with grassroots economists for video/audio conversations where policy discussions can be had with people who are fundamentally sympathetic with your goals, even if they want to nudge you towards arguably more constructive paths.

I believe such interviews and discussions would provide a basis for those excited about your candidacy to promote it substantively.  While you should obviously accept mainstream media interview requests, I am skeptical that they will sympathetically engage in the policies that can improve America with you, as opposed to the horse race, and so the best mainstream media strategy is to treat them as the sideshow that they are.  In my opinion, it is a mistake to treat them as relevant and something that you need more than they need you, because giving them that power is just letting them decide what is a wasted vote in the horse race they are predicting.



Saturday, May 16, 2015

All land in Florida is worthless

Land in Florida should be considered worthless today if it will eventually be flooded/unliveable as a result of sea level increases.  Where worthless means that if you own any such land, you should immediately sell it for whatever you can get, because whatever you can get is more likely to decrease than increase tommorow.

To understand this, you'll need to first understand how real estate is valued.  The short version, is that the only monetary reason to buy a house as that you expect it to increase in value.  All other revenues and costs tend to come slightly below break even.

A tax and interest rate normalized home

The importance of assuming a standard interest and property tax rate is discussed in the next section, but a 5% mortgage interest rate is the sign of a "normal economy", and if interest rates will eventually go up to 5% then your home will eventually drop in value as a result of affordability (main component of real estate value assuming constant liveability) impacts on potential buyers.

Annual Cost per $100k of home value
  • 5% interest.  The best mortgage rates.  (If you paid all cash, you can usually get 0.5% less interest than the best mortgage rate from government bonds)
  • 1.5% property tax.
  • 1% to 0,5% in sales commissions/transfer costs.  The average home is resold in 5 years.  5% in sales commissions from the round trip of buying and selling would make a 1% cost.  Keeping the home for 10 years lowers this cost to 0.5%
  • 0.2% insurance.
  • 5% maintenance and upkeep.  Every 25 years the roof must be redone.  Heating, cooling, plumbing, electrical, driveways, sump pumps, applicances are other costs that pop up regularly.  You can also add small things such as mowing the lawn in that you don't have to do any maintenance whatsoever on a government bond.  Also included in upkeep is the cost of modernizing the decor to maintain resale value.
It costs 12.7% of a home's value in operating expenses, while the rental value tends to be about 12%. So the profit to be made from home ownership is entirely the resale appreciation value, and there is a builtin "hopeful future" presumption that price might appreciate 0.7% per year.

liveability and affordability
For a housing market as a whole, liveability refers to the area's "benefits of living there".  Primarily the availability of jobs, but education, culture, climate, and federally subsidized huricane relief programs also count.

Affordability is mainly affected by interest rates and property taxes, but the cost of maintenance upkeep can also vary by area.  Affordability has nothing to do with the home's price.  The "presumably hopeful" model implies small appreciation, and everything is affordable to someone if it is certain to go up in value.  If interest rates go from 5% to 2.5%, then the real estate industry is good at getting people to understand that a home value changes from $100k to $200k, because both have the same mortgage payment.  It is however a major problem for home owners to have interest rates go back to normal, as that means a 50% cut in resale value.  Even though the real estate industry encourages most people to buy when homes peak in affordability, its actually the best time to sell.

Property taxes and Detroit
Property tax is very similar to paying rent to society for land that you "own".  It is a fair tax in that your ownership deprives the rest of society from owning the same land, and the tracing of ownership is as trivial as someone sat on it first.  Fairness can also be sought in the value of services and livability received in exchange of taxes.  What can be unfair is the unilateral power to gift or steal by changing the property tax rates.  Even less fair than property taxes is the fascism of asset forfeiture rules that bring swat teams to attack your in home poker game such that your stuff can be seized.  This is fascism that affects white people!  City fee increases are also a form of unilateral tax increases that are designed to fool the housing market's ability to make rational home purchase decisions.

Detroit's $500 houses are the result of increasing tax rates in the face of decreasing livability.  As people flea lowered liveable conditions and higher taxes, higher taxes and fewer services just extends the spiral.  A $500 house has that value because living there is not worth the tax bill.

Those $500 houses did not start out at that value, and represents a significant financial loss to many along the way, and the city bankruptcy will create more losses.

Florida
Land that is under water is worth 0. Multi-trillion dollar projects such as building a dike/levee system around the state would also bring the land value close to 0 if the tax increases mean that Florida becomes as poor of an ownership proposition as Detroit.

 If there is Florida land that is worth $100k at breakeven maintenance and normalized interest costs within the presumably hopeful model, then purchasing value exists only if you can buy it at a discount such that you can profit from the positive rental value created by the discount.  Purchasing florida land at a 50% discount provides for a 2.5% annual rental profit.  If the value decreases by 50% in the next 20 years, then you still break even as a result of the rental profit.  You also break even if you keep the property for 40 years, and it is worth 0 then.  But this is only possible if you are able to obtain a 50% discount from the normally presumably "hopeful future" price that homes have.  It also assumes no significant property tax hikes.

2030 is only 15 years away.  If sustainability hopelessness has sunk in by then, then that is all it takes for precipitous land value decline.  There only needs to be the prospects of trillion dollar dike mitigation plans to send land value and livability plummeting.  Florida doesn't need to be flooded to become worthless.  It just needs to understand that it will be worthless to become worthless.

2100 will one day be the visible future.  So will 2150.  In terms of land value, if 2150 is hopeless then today is hopeless.  Let me define stupid as simply being slow to understand, and susceptible to manipulation by wolves during their slow period.  Only the stupid don't understand the hopelessness yet, but it will eventually sink in as obviously as Greek or Detroit bonds not being viable investment today.

The logic of climate and bankruptcy denial
In one of my better essays I point out that there is a problem with democracy if most of the people and money voting only care about sustaining the economy and their lifestyles for the next 20 years because they expect to check out around that time frame.

For non scientists, climate change acceptance or denial is a faith based decision.  If a priest (or media puppet) will tell you that choosing faith in denial allows you to not make any sacrifices, that has obvious appeal compared to a faith that costs sacrifices.

For politicians, appealing to the more hopeful faith is easiest.  In the case of North Carolina's ban on accepting sea level rise, the main motivator is that entire beach front communities would be condemned (worth 0) if correct sea level rise models were accepted.  The land is still worthless, but it is a vital economic issue for those community landowners to borrow time to find someone retarded and unaware of the worthlessness to sell their land to.  Widespread disruptions occur when land prices pop, and hamsters seem happier if the wheel keeps spinning.

Attempting to maintain a lie as long as possible always makes sense to preserve the benefits of the lie.  It is still of course evil, and perpetuating the lie increases the eventual costs of dealing with the failure.  This never matters to the liar.

A motivator for climate action
Florida land is only worthless if it gets flooded.  It would be a far more useful step in preventing the outcome if Florida politicans were begging the rest of the world to prevent this rather than leading the denial effort.
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These direct economic costs though do drive decision making all over the world.  Pretending your land will not become worthless necessarily ensures that it does because you are the one that should care the most.

Canada and Minnesota
If Florida land is worthless, and Canada and Minnesota will become tropical paradises, then that is where you should buy land.  It also explains Canada's hypocrisy on climate change where it ignores its climate treaty commitments, and promotes oil use and development.  Canada's conservative governement (and perhaps its other parties) are not to be trusted to not only continue oil promotion, but not to be trusted to increase Canada's land value by wishing for the destruction of the rest of the world.

The needed policy solution
Increase fossil fuel derived energy taxes such that gasoline costs $10/gallon (about $7/gal in new taxes. Up to $960B revenue with unchanged use.), and electricity rates are $0.30/kwh (about $0.15/kwh in new taxes.  Up to $409B revenue with unchanged use) (from fossil fuel based sources).  This can be offset with basic income paid by the tax increases.  Basic income is an equal cash amount paid to each adult citizen.

In this case, the amount of this basic income cheque would be based on the average energy expenses of each American.  Likely about $4000-$4800 per person (based on 240M adults).  If we can expect the average person to reduce energy costs by 20%, then we can consider an energy-tax-dividend cheque of 80% of the expected unchanged energy consumption costs.

For the average American, there would be no net cost from these high energy taxes.  The dividend cheque pays for the extra expenses exactly.  For those with small homes and small or no cars, then its a net benefit.  Those with large homes are those most able to afford solar electric and heating systems that would let them avoid the taxes.  Everyone would fix poor insulation and innefficient systems.

It would further prevent any new oil refineries, pipelines, coal and gas plant from ever being built.  There doesn't need to be any subsidies for clean energy because they will become significantly cost preferential due to the taxation of CO2.

Part of a larger UBI program
A $4000 energy tax dividend cheque significantly helps in providing a total UBI of $15k (or $16k to cover the poor's extra energy expenses) while limiting other tax disruptions.

Since I mentioned property taxes and the relationship to livability in this essay, this is a good place to introduce how local funding can contribute to a total UBI available to a resident.  Increasing property taxes by 2% of market value sounds high, but its not if it is redistributed to every resident.  Those with the largest houses pay more again, but they have the same option as everyone else to increase the density of people in their homes.  Increasing density also helps reduce energy use.

Such a property tax would increase the liveability of a city by more than the tax cost, and so increase the market value of homes.  Its more affordable to live in the city for renters and so homeowners can increase their rents, or get good rates for boarders.  If total UBI (including federal province/state) is high enough, then massive city budget items related to homelessness and crime can be slashed and significantly improve livability at lower social operating costs.

Providing an additional $2000 from local revenue ($3000 after police and homelessness cuts) towards UBI would make more expensive urban centers more livable and desirable, and would let cities compete on progressiveness.  Conservative shitholes can stay shitholes if they prefer lower land values with no taxes, and bringing it back to Florida, if they prefer policies that will drown them, its not Canadians or Minnesotans that should have to convince them otherwise.

Wednesday, May 6, 2015

Slashing public education can provide UBI funding and better education

Basic income of $15k per year for adults allows our society to eliminate poverty, eliminate the cost of government programs that are designed to fight poverty including old age and disability payments up to $15k per person, and because tax payers also get $15k cash, even if tax rates are increased substantially to pay for basic income, 98%+ of individual tax payers would have a net tax cut as a result of UBI.

This paper focuses on education reform as a way to increase funding for UBI, and then also, because education touches on all levels of government funding, the topic of avoiding the massive imminent US municipality bankruptcies is also solvable through UBI.  Its related to education reform in that it allows buys in from education related unions.

A war on teachers?
While replacing public education with a cash dividend to parents seems like an attack on teachers and education, I've shown that we can reduce class sizes and have 2 teachers per class for less cost than our current system, and potentially much higher pay for teachers.  So it is actually a plan for large scale education job creation for those outside of the school board bureaucracy.

I mention this near the top because of most people's reactionary desire to protect empires that they do not even profit from.

The cost of US education
All figures come from this US government document
The US spent $10500 per pre-college pupil in 2009.  NY state as over $18k.  Washington DC is calculated at over $29k (though the linked document under reports that).

Replacing education funding with giving a cash grant of $8k per 60M potential pupils (to their parents) would save $125B in government costs.  Parents would then spend whatever they want on the education they want for their child.

There doesn't have to be anything wrong with how education is provided for this proposal to make sense.   We all love education, but that love gets abused into "we must love education at any price", and a political ploy to get more votes is to increase education funding.  We necessarily better receive the education that we want if we are paying directly for it, and we have that power and can afford to pay for it because of UBI.

Parents will continue to buy education with UBI because its obvious:  One of the findings of the Dauphin, Manitoba minincome experiment was negative dropout rates.  Students who had previously dropped out reenrolling, and few if any new dropouts.  Once you remove financial stress from a family, tremendous improvements in child outcomes materialize.

Private education business models
If a teacher paid $24000 in rent for a facility that can act as a classroom for about 8 months (excluding holidays) of weekday day time use, that is $3000/month of revenue for the classroom holder for which they provide cleaning and maintenance services.

If a teacher charged students $5k/year and had 15 students, he would have a net profit of $51k/year while still having summers and Christmas/spring break off.  The teacher can make more by having more students or a higher rate per student.  Teaching is also suitable to part time work if that is what the teacher's preference is.

If an administrator can provide a sales function testifying how great the teachers he represents are, and then closing the parents to hand over payment then he provides great assistance and relief of non-teaching functions to teachers.  They could take $1k/student/year in fees for this service (the parent is charged $6k so far)

If a teacher's assistant who specializes in simply being good with kids, being aware of social goals for age/grade appropriate learning levels, then that assistant can essentially be assigned as a constant to students, and the assistant works with instructors on what curriculum to focus on, then with 25 students per class, part time instuctors whose skills just need to be specialist field knowledge and good communication, then the "teaching assistant" and instructor can split $101k per year after rent is paid.

2 mentors per class at 25 students reduces the teacher student ratio compared to 15 class size.  It prevents potential accusations of abuse or abuse by providing an adult witness.  It allows classes to proceed if one of the teachers has a personal emergency/absense.  It provides different styles that might better relate to individual students.  It provides co-supervision where parents or authorities can ask one adult about the other.

If a dual teacher's assistant model is adopted, parents might be willing to pay an extra $500 for the benefit.  Each extra $500/pupil allows for $12500 to be split among the teachers.  These earnings are in addition to the $15k UBI every adult citizen receives.

As a parent in this model and $6500 education costs.  You save $4000, and have $1500 left over to spend as you wish.  Your kids will volunteer ideas if you lack any.  As a non-parent, you save $2500 per year.  Where savings are defined as costs the government doesn't pay and so doesn't need to take from you.

State and Municipality business models
With public spending reduced by $125B, states and municipalities get their share of those savings.  But part of the above private business model included having a landlord paid $3000 per classroom per month, and the owners of current schools (governments) should see opportunity in being that landlord.  They provide a place to run around and play, gymnasiums, student supplies storage, intraclass socialization, and so provide good value at $3000 per month, even if private home classrooms could be offered at a lower price.

With 60M students at a current average 30 students per class, this would be an additional $48B/year in revenue for school owners (before evening and weekend rental revenue), and so total $175B savings for public coffers, or over $1000 of UBI funding per citizen.

The simultaneously most distopian and most utopian possible statistic

Spending $29,400 per student in a society would be a sign of incredible wealth.  Under the above private model I can imagine 6-8 pupil class sizes with 2 instructors.  Several computers of varying portability per student, Celebrity inspirational guest speakers.  Field trips to distant nature and museums, and I haven't run out of money to spend, but lack ideas to spend them on.  Fantastic educational experiences and outcomes are imaginable from such high spending.

The above does not describe Washington D.C.'s public education system which does spend $29.4k per student.  They produce a 30%-50% literacy rate among exiting students, and 50%-66% graduation rate., with poor (under 3%) college readiness.

The truly distopian unmasking of these statistics is that if you accept that the US has an oppressive racist school to prison and murder pipeline, and whether or not this is intentionally oppressive systemically imposed poverty, it doesn't improve educational outcomes no matter how much is spent on education, and so makes the cradle to prison pipeline just more expensive.

The costs of poverty are both substantial in direct programs that, with considerable futility, aim to bandaid poverty, and directly and indirectly dealing with the consequences and prosecution of crime.  America's love for systemic oppression that includes employer funded healthcare and massive student loans creates a moral flexibility in a desperate workforce that leads to greed, death, theft and fraud.

While sensible people can understand that is worth a high price to not live in such a distopia, it seems to me, as though all politician led proposals to throw money at the problem are idiotic hopeless and potentially intentionally so, as they all increase the environment of oppression and/or dependence on the salvation from oppression of conditional benefits.  UBI solves these issues directly and immediately by providing the means to people to improve their own lives.

Can black people be trusted to spend the right amount on education?
Many people fear that many other people cannot be trusted with money.  If you are one of those people you will retain your right to criticize other people's choices and apparent lack of concern for their children.  In truth, poverty and desperation is what makes for disapprovable choices.  White people will eat other white people if stuck on a Chilean mountain.  UBI in general cures poverty by providing socialized financial support that is not dependent upon staying poor for eligibility.

Deinstitutionalizing education is meant to create improvements for all, including the disadvantaged.  Everyone, though, benefits by customizing education programs to their needs.  In the case of municipalities with a high concentration of disadvantaged families, paying $8k per student instead of $30k per student can create budgetary room to improve the lives of those families.

There is an optional extra educational service layer that could consume the extra $1500 that parents might be able to pocket after paying for the previously described education programs.  The layer would act as a consumer union negotiating prices and services, would provide needs assessment for children so as to direct them to specialist teachers and programs, possibly acting as a mutualization agent for special program costs (You hope your child doesn't need an extra $3000-$6000 in remedial education programs, but if he does, it is paid for by the mutualization surplus created by those parents who don't need the supplemental services).  This agency (can be private competing with public alternative) would offer to make all the decisions regarding your children that school boards currently do.  The agencies might develop curriculum, ensure that programs supporting patriotism and religion are core indoctrination programming, and provide everyone who wants the freedom from any decision making the opportunity to live life as they always have.  There is also a possibility (not one I encourage) of forcing those parents deemed unfit to join such an agency to make education decisions for their children using their cash dividend paid on behalf of their child.

The Pension System
A promised pension is the maximum possible amount that you can receive from that promise.  The actual amount you will receive depends on bankruptcy and how much money is in the pension fund, and how much is taken out of the pension fund to pay for other areas of bankruptcy.

There is a large impending set of bankruptcies set to affect major US cities much as Detroit's slow process is unfolding.  If you are a young worker for a city that is insolvent and soon to be bankrupt, then every day in the last 15 years that your city did not resolve (become) bankruptcy is a day that you were stolen from.  It is a day that you made pension contributions, a day that existing pensioners were paid, and a day that the pension balance and city finances went further down.  Those that stole from you are specifically the pensioners that were paid for days that you won't be.

The reason that it is theft is that when your city's bankruptcy is finally resolved, the amount that your pension will be adjusted down is much higher the later this date happens, and the more drastic the underfunding.  If you pay in for 40 years, receive nothing, and your future pensionable earnings are adjusted to 10% of what you were promised, then you have lost far more than if you paid for 5 years, and your future pension is adjusted to 90% of what you were promised.

In the Detroit bankruptcy, a plea that seemed to resonate was "Don't cut benefits to current retirees... just future ones".  The logic behind this is that the old are more deserving of the same promise being kept for them if they are more dependent and desperate upon the promise.being true.  This is unfair for the same reason that stealing from those who can afford to eat after you have stolen from them would be wrong too.

Basic income as a solution to municipal pension shortfalls
Basic income/social dividends are a new government administered entitlement.  Anyone with a promised government entitlement does not lose anything if that entitlement (or a portion thereof if it is higher than UBI) is replaced (rather than supplemented) with UBI.  Someone else might gain more than you if they were not previously entitled to anything, but you thinking that is unfair is simple jealousy.

Basic income can be paid by all 3 levels of government, and 15k can be a national (total) average.  The financial mechanism that would be used to transfer municipal pensions to UBI payment system is that the pension fund would be transferred to the UBI provider along with the pay-in obligations of existing government workers.

The benefit to existing and retired workers is that they will be paid what they were promised under the conditions they were promised them.  The not so politically pleasing catch for those workers is that they will be paying more into UBI than non government workers, but they of course have the freedom to go work elsewhere, which may please other tax payers.

Education and other unionized government worker buy ins
The one inefficiency that I will mention exists with our institutionalized education system is that the business of education has more to do, or at least too much to do, with making sure that teachers are performing either in averages or thresholds than in individual children learning.  This seems important and necessary considering that parents are forced to submit to whatever services are provided, and so measurement provides accountability because we can't let these parents down.

There is a significant portion of the education budget that is spent ensuring teachers are meeting board standards which would not be voluntarily paid for if parents had a choice in education services, and can change their choices when their own standards are not met.

Reducing total education spending does mean that some people would lose income.  Teachers would not be in this category.  Education salespeople wouldn't either (they have potential to earn much more given enough sweet talk of paying parents)

As a "package deal" for education and other government workers, UBI pays them 15k too, trutifies the pension lies they were promised, all without the obligation of any future work, and thus the freedom to do anything else.

Further incentives to reduce government jobs may be necessary for UBI acceptance.  These would take the form of severance packages, but even then provide significant social improvement and cost savings while still creating the income distribution society needs to function effectively.

Higher education and certificate objectives
UBI has been commonly understood to facilitate higher education.  $15k for young adults would be enough to afford studying full time and paying living expenses in most countries.  It would significantly decrease the need for student loans, and thus should lower tuition.  The private model for pre-college education described above would also work for college.  If instructors are paid more, but are teaching 300 class size auditoriums, then the cost to students could be very low.

The value of education certificates, though steeped in wizardry, is important to all stakeholders.  Its actually the only transactional benefit involved for students.  Education would be much cheaper still if independent certificate authorities collected fees for test taking, and had no other part in the education process.  It would enhance the independence of the certificate provider from self assessing the value of the education it provided.

This model is suited to self-directed, self paced and internet enabled learning.  Certificates are much more useful for skill assessment than learning, but certificate testing/providers are the least costly possible education model, and one that maximizes the legitimacy of that certificate by removing conflicts of interest.

There would remain value in general learning skills/experience not capturable by certificates and that is what colleges would market themselves on, but cost would be more relevant to the student customers.