Wednesday, April 27, 2016

Class C shares at Google and Facebook

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Tuesday, April 12, 2016

US Presidential election and primaries: Sanders endorsement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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


Thursday, April 7, 2016

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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


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

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

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

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

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

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

Tax plan is not that harsh on Republican Champions

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

Monday, March 21, 2016

Manitoba Green Party Basic income proposal: $6300

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

The important features these changes achieve:

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

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

Thursday, March 10, 2016

Affordable housing and basic income

Affordable housing is an issue of concern to poverty advocates, while cheap housing availability is a related issue that is more a concern of the poor than of poverty advocates.  Affordable housing gets political attention, but rarely more than mere lip service or corrupt illusions of addressing the issue.

The conflict
  1. Its much more important to property owners to see property values rise than it is to non-property owners to see them temporarily crash.  Temporary crashes are rarely understood as temporary when they occur.
  2. Our hamster wheel economy relies on housing appreciation to enjoy its mediocrity compared to its collapse.
  3. Creating segregated ghettos can be done under affordable housing mandates.  Creating toxic bad neighbourhoods increases the property values of the good neighbourhoods.
  4. The hotel and apartment industries are harmed by home sharing.
 The difference between affordable and cheap housing
Affordable housing is usually a euphemism for "nice housing that I would like at a subsidized price".  Cheap housing is best achieved by building more housing "that I would like".  Increased supply of any housing type decreases the rents or purchase value of that housing type.

The general policy of building more housing is appropriate mainly because no one has a legitimate right to stop you from doing so.  From a society standpoint, 10% more housing will not lower the price per house by 10%, because it will attract more people, and that creates more work and revenue opportunities.  So, more total income and total property wealth.

Its a moral imperative to increase total wealth and income rather than protect individual property owners by restricting supply.  Also, as a rule, replacing a large housing unit with 2 attached units has both more total value and lower energy costs.

Discouraging subsidized social housing
Social housing subsidizes "commercialized housing spaces" (apartment buildings spaces and other single family occupied dwellings) offers "nice large" units as a lottery prize to various qualifying criteria waiting list participants.  Its necessarily a lottery because there is a waiting list.  The qualifying criteria are not always the poorest people.  Poverty, medium-low, and middle income affordable housing programs exist.

Winning the affordable housing game relies on staying poor/qualifying during the waiting list period (8 years and waiting list increasing every year in Toronto), but though I call it a lottery, there is no open strict impartial process for determining winners.  Its a discretionary decision open to cronyism.  Even without specific favouritism, its a gift to the official housing industry: Guaranteed-paid top dollar rents.

The real problem with subsidized housing is that it significantly increases housing costs for everyone else.  Property taxes are higher than if taxpayer subsidies to housing were not offered, and housing inventory available to the market is reduced, and so increases housing cost of "standard commercialized housing spaces" to everyone else too.  Higher housing costs harms non-housing income opportunities from lower consumer discretionary spending budgets.

The Toronto, Vancouver and San Francisco housing markets
These housing markets have a lot of new supply, but it's mostly at the high end.  That high end housing costs $1M rather than $1.2M does not make it any more attainable for the vast majority of society.  High end housing doesn't necessarily mean its large units.  A trend for small units in the best areas seems to suit developers.

The high end unit construction growth in Toronto is driven by Asian investor demand.  The most relevant part of this is that they are investors speculating in chasing up price momentum.  The relevance of being Asian is that they are absentee investors/owners flipping properties in a far away land.  Even if Asian demand is not a sustainably increasing resource, it does not necessarily lead to a crash.  That there may be no new Asian investors does not create forced selling stress on existing owners.  But only when that investor demand dies down, will there be a small trickle down in housing affordability to the almost high end.  That may take 5 to 10 years.

In the meantime, speculative frenzy increases everyone else's housing costs.  Its an easy pitch for housing salesmen to make that housing a mile away from $1M units is worth close to $1M too, and the fact that approved housing development is priced for Chinese investors, means that few new "real" housing is created.

While very little trickle down (to affordable housing in other price categories) occurs from building significant high end housing, and there is a risk of an economically depressing price crash from the policy, there is significant trickle up in affordability from building low end (small) housing.

Trickle up of affordable housing from increased availability of smaller spaces
Allowing people to share their homes, or allowing small homes, or building new small apartment units improves housing affordability for everyone.   Very few people in Toronto have the option of spending as little as 3/7 of after tax income on housing (social housing lottery winner repayment rate).  Building more "market affordable" housing gives people the option to lower their housing costs to income ratio.

The "craigslist housing" innovation 15-20 years ago, opened up convenient sharing of space, and did successfully mitigate rental prices in the "official space" sector.  The key to affordable housing for everyone is a reasonable vacancy rate which is achieved by building more low priced housing.  In terms of policies that don't already exist:

  • remove regulations on tiny homes.
  • remove regulations on urban farming (limits food inflation, and increases income opportunities form homes)
  • Build single-familly occupied housing spaces that can be market priced at $500 to $900 housing costs per month.
This last option is the obvious key policy that anyone with a genuine concern for affordable housing would advocate.  The lack of implementation and advocacy simply proves that those motivated to keep housing expensive have more power than those who'd like more affordability.  Subsidized housing is a policy means to keep housing expensive while tossing crumbs at trouble makers and lottery winners.  Homelessness is an intentional policy feature.

The relationship to basic income and how it facilitates real affordable housing policies
The only reason to oppose basic income is if you profit from authority, oppression and desperation in society.  Everyone who has a genuine desire to expand (value) economic growth, opportunity, and work profits significantly from basic income.  UBI gives everyone the power and agency to help themselves, and thus creates significant opportunity to directly provide the goods and services that will help them (taking their money in the process).

While the "profit from authority oppression and desperation" typically first evokes the exploiter of labour, who underpays workers by taking advantage of their position of being unable to refuse work, the group extends to those with "good guys" images.  Charities rely on the persistence of desperation.  The near entirety of political chatter not devoted to murdering and oppressing people in foreign lands is devoted to being concerned about the oppression and desperation in our lands.

The one actual poor group of people who are not advantaged by a $1250 monthly UBI (that replaces social assistance/services) are those receiving housing benefits worth $1000 to $1500 per month through subsidized income based rents.  They are the only group with a morally arguable position against basic income.

The fear of UBI's effect on housing cost inflation
UBI has the largest economic benefit for low income, including part time and gig, workers.  It is a $15000 pay raise.  Those earning $20k in pretax employment income have the option (but not obligation) to raise their housing costs from $800/month to $1800/month with the same resulting disposable income.   And so they all have market rent opportunities, but also the option to save for reasons that include buying a home.

That opportunity will create significant demand for "traditional housing spaces", and so some price inflation for those spaces.  UBI is also a material benefit to middle income earners, and so pricing pressures on better than standard housing options will occur as well.

But there is a fixed quantity of people to house.  The upward pressure on standard housing means downward pressure on small and shared housing prices.  And people have the choice between all of the housing options they can afford.

The comprehensive UBI and affordable housing policy
A $1250/month UBI payment guarantees that every adult can afford to pay $700/mo in housing costs.  Creating more housing spaces in general, and specifically deliberate housing priced around $700/mo ensures both that everyone has affordable housing options, and counteracts the inflationary gift given to housing providers from UBI, with the deflationary pressure of supply competition.

Another housing price deflationary tool is to increase property taxes.  That can help pay for UBI.  Property taxes decrease home sales values without decreasing rents though.

As a temporary bandaid alternative to eliminating the subsidized housing system,  change the income based repayment terms as a way to free up space for those that really need it.  For instance, rent payments of $700 from UBI +20% of net income, but the amounts can depend on the city.  In general, such policy would allow Toronto Community Housing to provide a net budget contribution to the city budget (rather than a cost), and transition more units into "affordable fixed" rentals, and provide the funding to build new smaller space inventory.  This bandaid would provide an orderly shutdown of subsidized housing program without forcing eviction on anyone.


Another example of UBI fixing a major evil
Managing housing prices up is more sensible than forcing them down.  The idea is perpetuating winners winnings as a path of least resistance.  It is easier to convince losers that they deserve their outcomes, than to convince winners that their fortunes should be (deserve) reversed.  Yet home prices going up advantages sellers over buyers with no personal control or accountability for the reward or higher costs.

A clearer injustice occurs in the divide between those granted subsidized housing vs. those on a perpetual waiting list, or simply those unaware that the system would intend to help them.  What makes it a greater injustice is the conditionality of benefits, and the individual selection of recipients.

While there are greater evils in the world than the consequences of managed (selfish equilibrium) housing policy, the consequences are intentional.  The policy designers want a persistent problem that needs their attention and permission granting.

Basic income, as a universal benefit, avoids the discretionary policy decisions that necessarily create arbitrary disappointment.  Together with the simple moral policy of increasing needed housing supply, everyone with a moral claim to benefit, benefits from basic income.

While UBI is known to create a fair labour market, providing everyone with basic housing power allows freer housing markets to provide outcomes suitable to more people, if not everyone.

Tuesday, March 1, 2016

An Ontario basic income pilot design

The latest Ontario Liberal Budget includes the plan/vow/promise to design a basic income pilot.  This paper advises on important design criteria to avoid a politicized feel good pilot destined to fail.

Let me presume the dominant political motive for the Ontario Liberal Party (OLP)'s consideration of basic income is primarily poverty elimination, but with  secondary considerations that conditional welfare systems carry high administration costs and trap recipients into staying dependent on welfare permission.

Basic income is an unconditional cash entitlement given to every resident citizen.  Other philosophical justifications include the citizen's right to an equal share of government revenue for greater voice in how social funds are spent, and generally lower subservience to market, institutional, and state forces.  How to Fund UBI at a national level is worth reading first.

Absolute pilot design principles
  1. Any clawback rate (from earned income) on basic income benefits must be limited to 20%, and should be minimized.  If higher clawback rates are used, the program is setup to fail by duplicating the traps of conditional welfare systems.
  2. A pilot should be funded for at least 5 years, and provide the impression that it will be permanent.  People who use UBI to fund education or entrepreneurship need time to develop earning potential.  Some  people need more time to adjust to income security before contributing to society.
  3. A revenue/funding model should be included in the pilot, likely requiring assistance from Revenue Canada.  Revenue initiatives include clawbacks and surtaxes on income (or sales/property surtaxes), and diversion of funding from eliminated programs.  Ideally, the revenue model should not be limited to funding from low income workers.
  4. Data collection protocol, and commitment to form conclusions is necessary to refute the conjectures of  critics of basic income.

The Dauphin Manitoba 1970s pilot
The 1970s pilot program in Manitoba failed the absolute pilot design principles.  Successful findings from Dauphin include:
  • Mass approval from community members
  • Incredibly high education rates.
  • Better health outcomes, especially surrounding mental health, and emergency room patronage.
  • Claims of insignificant employment rate differences.
If an Ontario pilot replicates the mistakes of the Dauphin experiment, then it is an absolute waste of time designed only to delay full UBI implementation.  Of course people will support free money, and of course it will improve people's lives, and of course young people free of the financial constraints to pursue education choose to pursue education.

The mistakes of the Dauphin experiment were that it included a 50% clawback rate on income, funding the program only through the incomes of those who made under $40000 (in 2011 dollars), and was a short term political stunt without review follow through.  It was through the hard work of Evelyn Forget that the above findings were determined, but there is uncertainty with the raw data she did not look at, and the temporary short duration of the study makes employment conclusions impossible.

Evelyn Forget has made the disturbingly wrong recent policy advice of a 50% clawback to basic income.  In addition to perpetuating welfare traps, and unfairly imposing the entirety of funding on lower income Canadians, it also fails to obtain the informed political buy-in of providing benefits for 80% or 90% of Canadians with personal benefits of UBI, rather than yet another program that just benefits other people than themselves.

Measuring the success of a UBI pilot
  • Community wealth (housing unit numbers and prices) and income is the primary measure.  Not employment rate.  Number of businesses, their sales, and number of employees is a primary measure of community health because sales (and growth) exist because a community is healthy and in aggregate confident in its individual future.  Businesses with local community (retail and local services) sales should be tracked independently of non local/retail (manufacturing/software/IP) businesses.  The former's success depends on the general communinity health fostered by UBI, while the latter depends on the opportunities that UBI funds.  Inflation is a related concern to community wealth and income.
  • Crime, health, education, children's outcomes, family cohesion, and social productivity contribution rates are all of interest.  The first 2 are the most important.  Formal education rates are a useful social metric, but it doesn't capture informal learning.  Social productivity contributions is a catchall for doing something that is generally socially sanctioned: work, school, volunteering, child care, projects, publishing...
  • While critics of basic income worry about individual unproductivity, its not important.  We already know whether a car is a useful purchase, and there is a relatively fixed number of employment opportunities related to producing and selling cars, and there is a simple and straightforward path to filling all needed employment in the field.  Similarly fixed employment opportunities exist in professional sports.  The only new opportunities are those that don't exist, and customers don't know about yet.  People effectively creating their own employment.  While there will be interest in employment rates, it has no bearing on the community pilot success.  Its not the 2 or 5 out of 10 that continue to "under perform" under UBI as under welfare that matter, its the 1 or 5 out of 10, 100 or 1000 that is a success story because of UBI.
  • The reason for including costs in a UBI pilot program is to measure the political impact of complainers.  Some privileged with dignity will take great offense that dignity be extended to everyone else.  Some will threaten to leave because taxes oppress them from being able to afford a bigger boat.  Some will say anything to preserve redundant public funded jobs.  Including costs further ensures that the pilot itself is affordable and helps gauge community interest since a free money program would have everyone sign up.

Community based or signup based program
A community based pilot program (where a city or region is selected) makes the most sense for study in part because whole community effects can be measured, but also because some public funded programs are delivered at a community level, and more budget savings are possible if a community service is cut.

A signup based program is one where participants would apply/sign up in exchange for a tax election that includes income surtaxes and renouncing other support programs.  One useful aspect of a signup based program is as a simple survey:  A second stage of the pilot used to gauge public support for UBI rollout throughout the province.   But another use has to do with private funding partnership (called ULI) that will be detailed later.

Deciding on a UBI amount
As a single reference point, the amount should be sufficient for someone who has the aptitude to get admission to post secondary institutions, to be able to afford doing so independently.  This amount happens to be likely to also be enough to not create complaints for the elimination of EI, welfare, and disability benefits.

UBI is a better program than student aid because while post secondary education is an excellent program for smart young people who don't know what to do with the rest of their lives, not everyone fits that category, and helping everyone equally is not only better for everyone, but it leaves institutional slots open for those who benefit the most from post-secondary education.

$15000  per year has been the amount I've recommended consistently for allowing a personal development budget, and sufficient to eliminate all other transfer and social programs.  For a pilot, seniors already have a federal basic income program, and so UBI should only apply to those under 65.  $15000 is still the right amount, even if there is a lower amount that satisfies the "main criteria"  A personal development budget that also eases childcare is also one that substantially contributes to community income and core success of the program and everyone participating.

Funding of UBI pilot
A provincial pilot has some limitations in adjusting national and province wide tax policy, but there is still some flexibility:

  1. EI and CPP premiums for the community can be diverted to the UBI fund.  Those who really want CPP for their retirement, can use their UBI to invest in safe assets such as paying down their mortgage or GICs/Bonds.
  2. The blatant great injustice of preferential tax rates on investment income ($22k capital gains income is taxed at 0 with a 11% marginal rate, while the same employment income generates 27.5% tax revenue, with 37% marginal rate) is not merely unfair, it unfairly discourages more the effort of low wage labour compared to the effort of investing, and steers investors towards tax preferential potential lies of future promises instead of more secure investment income.  The full solution of allowing a corporate tax deduction for dividends paid by corporations is not possible in a pilot, but provincial surtaxes on investment income for the UBI pilot community are possible, including taking the entire share that the federal government should be doing.  The surtaxes would be lower than if the proper corporate tax reform were implemented.  A surtax should not only reverse the preferential rate treatment of investment income, it should also capture CPP/EI premiums/revenue that would be placed on such income if it were treated equivalently to employment income.  The continuity rules for capital losses should be preserved.
  3. A small surtax on higher incomes needed to top up funding.  UBI provides high income Ontarians with a safety net too.  Benefits low/middle income investors and landlords directly.  Benefits their non-working spouses and post secondary aged children, and so eases family lifestyles/values.  A portion of this surtax can be allocated to payer's CPP funding.
  4. For the pilot community, elimination of the federal and provincial basic exemption amounts (for income below $11k), trillium/GST/Property tax, and Northern resident credits.  This is over $3000 in funding from low and middle income workers.
A $15k basic income with a 20% NIT rate to $75k 
This differs from my standard recommendation but has some simplicity to it, and will be tweaked in ULI section.  Of the 20% clawback, it is only 5% over and above existing EI/CPP remittances on income up to $50k.  It does mean a higher tax rate on income over $50k.

The major problem with a clawback system that effectively reduces basic income by 20% to 0 when earned income gets to $75k, and then removes the clawback tax on income above $75k.  Such corruptions of the tax code already exist specifically with EI/CPP contribution ceiling, but the specific damage such a tax cliff causes society is that it promotes hoarding of high income work.  Progressive rates promote job sharing.  2 $75k jobs promotes 2 families, 2 homes, 2 cars.  1 $150k job only creates one of each of these.  Any tax code that has a lower step tax bracket, encourages too many high paying jobs at the expense of a larger number of decent jobs.  More importantly, any drop in tax brackets means that there is an option to lower low income tax brackets for the same social revenue without the gift to higher income brackets.

Despite these problems, we will keep this general model.  In part because a $75k cutoff is very different than a $20k cutoff, and harder to game.

ULI:  Unconditional Loan Income
ULI is structured as a loan rather than a grant.  It is a loan without fixed repayment obligation.  Instead a royalty on income is paid until past loans are paid off.  The loans do not need to carry interest, but if they do, they must be universally accepted as non-usurious (max interest rate of 2%, with 100% cap on total interest).  ULI, like UBI, is completely permissionless.

While a $15k/year, 20% income payback royaty, ULI benefit is functionally equivalent to a 20% negative income tax up to $75k income, there are a few differences:

  1. Income over $75k can still be taxed to repay previous years' ULI balances.  NIT does not capture this.  So someone relying on ULI to fund a lengthy postgraduate degree who then consistently earns 6 figures will end up repaying his past benefits.
  2. A personal balance of receipts and payments is especially useful for pilot programs.  Statistics tracking individual outcomes are enabled.  If repayments managed through Revenue Canada, no private tax information other than repayment amount is shared with pilot administrator.
  3. A personal balance allows retaining a repayment expectation if recipients move out of the community on their future income.
  4. For those with good and stable employment, its possible to use ULI similarly to EI.  As an emergency fund, where the bulk of ULI receipts are delayed until the last half of the year.  This is a benefit for higher income Canadians who can afford to ignore UBI/ULI unless they directly experience income instability.  Delaying ULI receipts in the year can mean not repaying it during time of unemployment, or can be used for emergency home or car repair.
  5. ULI allows for private partnerships in funding.  Public funds can guarantee principal far future repayments.  Guaranteed principal notes become eligible to Central bank repurchase mandates.
  6. A ULI program funded privately can cost 3%-5% for the guarantor province compared to a UBI program.  Though private funding partnerships are only realistic under a signup pilot model, where private funders have some power to nominate recipients for a partial amount of the funding they provide. (another potential for private funding help is community fundraising effort)
  7. ULI is somewhat similar to insurance schemes (such as EI) Canadians understand, except recipients pay for benefits after receiving them rather than prefunding a benefit pool.
  8. A community centered but individual ULI program allows the community to lock in ULI eligibility at the beginning of the ULI pilot, and thus provide budgetary certainty for the pilot.  Immigration to that community (despite being ineligible for ULI) would be another measure of UBI success.
  9. Specific to pilot program funding, ULI persists repayment obligations after the pilot is terminated (though royalty payback rate may be adjusted down).  An NIT would not.  Together with points 1, 3 and 8, these are the main reasons to recommend ULI over UBI.  Its fundable with lower tax rates, and society's UBI investment in people and their future is better protected with some individual accountability for the investment.
  10. ULI royalty paybacks are more compatible with the corrupt individualist programming that denies social gratitude for individual success, and wishes to inflict slavery on the less fortunate.  It more directly creates individual accountability compared to a tax, and lessens the oppression-dementia related to paying for other people.

The decision whether to include a signup model for UBI pilot
 I recommend a community/geographical based pilot (ULI based) as the main program.  Its possible to still consider a signup model as a supplementary expansion of the UBI pilot beyond the chosen geographies.

The main feature of a targeted (signup) ULI program is that funders of the main ULI outlays get to nominate who receives ULI for a 5 year period (details in this paper).  There can be many restrictions on what portion of ULI can be targetted to a nominated beneficiary, and even though there is nomination, the ULI funders hold a basket of all ULI issued during a period, instead of a loan to a nominated individual.

The biggest disadvantage of such a scheme is the pure direct explicit cronyism built into it.  Yet there is still a case for it:

The primary "funding client" that would benefit from targeted/voluntary signup ULI is the province of Ontario itself:  All homeless people are the most obvious candidates for overall program savings, but any social assistance/disability/housing client at risk of long term service, can be served more efficiently and effectively through UBI.  Released prisoners, and first nations communities could also fall in the category.

But rather than take my word for it, or that of a critic, a UBI pilot allows the province to accept half (or any portion) of applicants to a ULI program, while the other half acts as control.  Signup based pilot portion further allows the province to experiment with UBI/ULI levels with individual contracts.  As a pilot/study/research project, measuring outcomes for vulnerable groups of interest is the main purpose of validating UBI as a program.

Incentives for private funding support of ULI are mostly centered around people wishing to nominate their family, and businesses nominating their customers.  These specifics are all detailed in the ULI paper, but another motive not discussed in that paper is philanthropic community-centered support, or a group of business and individuals banding together to fund ULI for a community, which brings us to next section

Selecting community(ies) for a UBI/ULI pilot study
First, every community that offers an application proposal that would make UBI budget neutral to the province and federal levels should be automatically accepted.  The ministry of finance will be able to project how much of a budgetary shortfall, diversion of CPP/EI funds creates with the additional 5% clawback rate, and normalization of investment income, and so how much of a surtax on incomes above $75k would be needed.

While a surtax on incomes above $75k or $100k or $150k is deserved (if only because ULI funds their security too, and can directly fund their families), that is not the only funding option, or necessary to fund all of the shortfall.  Applicant communities themselves can find budget savings from their programs, raise property taxes, and/or appeal to businesses to help solidify funding for their pilot program application.

The case for businesses to help fund a community application, is in addition to PR value, increased sales that will necessarily accompany a UBI program.  There is also a strong case that with UBI, significant labour regulations (minimum wage, maximum hours) can be eliminated, as UBI implies an equal bargaining position for labour contracts given potential employee's right to refuse work that they declare to be oppressive, without compromising their survival.  Businesses may also wish to sponsor their employees for UBI, effectively acting as a better short term EI/pension system, and wage supplement.

The case for individuals to assist funding a community application is first, the similar motives of supporting any charity but without the negative of administration costs and uncertainty of program delivery, but also the attractiveness of capital guarantees in a significantly uncertain current investment climate, and even though the expected rate of return on ULI loans is very low, it is a very high yielding/cash flow investment in that large chunks of principal are repaid each year.

Each community's application to the UBI pilot program is going to depend on the community's assessment of provincial and federal spending that they claim will be saved under a UBI program.  Its possible for federal and provincial cooperativeness to disappoint communities applying for the UBI pilot.  After all, politicians saying they are concerned about poverty or climate change has a long history of overshadowing their actual commitments to improving society.

At any rate, if no community applications fully meet the province's criteria for being budget neutral, the province will select among the best applications subject to a spending allocation they are willing to commit to.

Negotiation framework between federal, provincial and municipal levels for pilot
The creation of a UBI pilot program that is revenue neutral to federal and provincial levels is an opportunity for any community that wants UBI to get UBI.

The Province especially (but perhaps federal too) can have significant variance in the social, health and judicial costs that it attributes to each community, and so a different funding bar that each community would need to meet in order to satisfy the provinces view on a budget neutral UBI program for that community.  So there will be a negotiation process between the province and every community that applies.

But to show good will and ease the negotiation burden, the province should declare a budget amount it is willing to "lose"/spend on the UBI pilot, and also set a surtax rate (on incomes over $75k of pilot communities) that would be sufficient to cover all costs for communities the lowest budgetary "burden" to the province, or put another way, communities with high tax revenue and high program expenses.  Again, assuming good will from the province, this surtax should be a little higher than the minimum in order for wealthier communities easily able to meet the funding shortfall to subsidize slightly more needy ones.

If there is obvious agreement on program expenses per community, then the province could provide relatively simple formulas based on existing program enrolees and existing high income earners to allow communities a transparent process for making an application and expecting the process to be a serious merit-based one.

A finalized program and tax proposal
Including the hidden 7.5% payroll taxes paid by employers, the lower income brackets under ULI will pay 42% of income, but only 22% if they don't use ULI.  This is a problem, as its a major revenue loss of 15% (payroll) + 5% on high income Ontarians.

An extremely simple solution that also solves the regressive tax bracket above $75k is to replace payroll taxes with a 12.5% (7.5% employee payroll contribution + 5%) on income up to $50k, and 20% on income from $50k to $75k.  Employer payroll contributions are unaffected.  For those with a ULI balance to repay, that tax (income royalty+employer contribution) is used to repay their ULI balance, and for those without a ULI balance, the tax funds general revenues.

To address the fact, that corporate tax reform is not possible until at least full provincial (if not national) UBI program is in place, and so double taxation of capital gains and dividend income will be in effect for pilot, regular income tax rates on dividend and captital gains will be reduced by 30% (relative to normal employment income, so 16% instead of 22% on first $45k), but 20% of full amount of all non-employment income will be "ULI taxed" for first $75k of income.  Nationally, the full normalization of investment income at just 15% tax raises more revenue than the entire EI program.  $30B.

This may mean that no surtax on income over $75k is necessary.  If so, the ministry may consider lowering the 20% repayment rate, in favour of creating a surtax.

Note that even for someone with employment income of exactly $75k, a tax reduction is obtained, as they are no longer paying $3750 out of pocket in payroll taxes.  A 5% surtax on income over $75k would recapture that $3750 tax cut at $150000 income (ignoring-unfairly- the loss of the basic exemption), and the program overall therefore offers net tax cuts for everyone with employment income of $150000 or less.  Including the $2420 loss of personal exemptions, the 5% surtax allows everyone earning under $101600 a net tax reduction.

The final detail is what to do if or when the pilot is discontinued.  Interest should be frozen.  Royalty repayment rates should be dropped to 7.5% with EI contributions for income up to $50k being applied in their entirety as repayment.  Income exempt from EI contributions would have 7.5% royalty tax applied until ULI balance is repaid.

General affordability overview
I've made better posts on general affordability, but will make a simple analysis here.  Needed because the pilot plan makes compromises with a national program.

With a 42% tax (34.5% without employer payroll contributions, and 27% compared to today's 22% fed and provincial income tax rates) on income under $45000, with an average adult under 65 income of $35714, enough revenue is collected to give every adult under 65, $15k per year.  This "breakeven" average income is overstated due to some people having incomes above $45000, and having higher tax rates.

Since GDP per adult is significantly above that, then all other taxes fund the rest of the government.

Communities applying for UBI pilot
Selling the idea to their residents,
  • ULI, assuming 5% surtax on incomes over $75k, is a net tax cut to everyone earning under $101k, with the provision that income over $75k is also subject to repaying prior year's ULI benefits. 
  • Can raise property taxes $1000 (amount made up), add user fess to libraries, community and rec centers.
  • Can cut services aimed at those earning under $15k/year including police funding.
  • Every adult gets up to $1250/month, reduced by $50 for every $250 in monthly income.
  • The final option to qualify is to request a lower UBI amount than $1250/month.  I don't believe this is necessary given the recommended tax changes, and a lower amount jeopardizes the viability or wisdom of program elimination.  But your community may prefer that to cuts or property tax hikes.
The only people facing some potential of sacrifice are those making over $101k.  But if they have a non working spouse, then the breakeven net tax jumps to $176k.  If they are spending $10k per year on supporting young adult children, then that breakeven income jumps up $50k per adult children.  If high income community members care about low crime and social cohesion, and their income depends on the strength of the local economy (or Canada's after full UBI rollout), then their income gains will surpass their tax increases.  So arguably, no one makes any sacrifices for UBI, assuming public funded workers offered severance can find contentment with their newly available time.
Potential for Toronto to apply?
The out of control police budget ($1B) either needs more crime and persecution to justify it, or more social harmony to cut it.  That is a roughly $1000 per household budget item.

With a large amount of high income earners, and high general program costs and high poverty issues, if other Ontario communities can qualify under revenue neutral provincial rules, it should also be possible for Toronto to qualify.

One controversial area of budget savings is in affordable housing programs.  Toronto has a lengthy waiting list, and on paper up to 60% of citizens qualify, but very few obtain subsidized rent benefits.  There is a way to leverage UBI as a more universal housing benefit at budgetary and tax savings to the community


Questions for the minister of finance
With a $15k/year basic income for those under 65, what provincial budget items could be eliminated, and what savings do they represent on a per tax filer basis?