Saturday, March 14, 2020

UBI vs payroll tax cuts (as pandemic response)

UBI focused tax policy serves economic and social prosperity in the best of times, but an urgency is created in times of mass disemployment.

Once $1T in combined tax and cash deficit stimulus has been decided...
... you cannot call one policy alternative dirty pinko commie, while the other alternative is labelled great American capitalism.  Trump has recommended an annual  $1T revenue loss measure of payroll tax elimination.  This paper is about exploring the best way to implement a $1T deficit increase which has already been committed to, by President and any congress member that supports his proposal.

I advocate for payroll tax elimination, but with revenue replacement
In Canada and US, Payroll taxes are between 14% and 15% of employement salaries and wages up to a maximum limit on employment income.  The employer pays half the tax.  Payroll taxes are thus regressive applying only to middle and lower income individuals, and excluding investment income from their taxation.

For a 14% payroll tax, a replacement tax policy that leaves middle and lower income wage earners with a minimal 0.49% tax impact is a 7% pay increase (the employer portion of payroll tax) and a 7% point increase in tax rates.  Because the tax base is significantly broadened, the policy is a significant social revenue enhancer.  Social revenue neutrality can be created by replacing the 7% point income tax rate increase with a tax rate increase between 4% and 5% points.

Another, UBI argument friendly, rationale for payroll tax replacement is that it acts as a robot tax.  There is no longer a tax advantage for employers to automate or contract away employee costs.

Revenue replacement/restructuring from payroll tax elimination is always economic and social strengthening progressive tax policy.

Pandemic responsive economic stimulus
Work (payroll) tax incentives incentivize the opposite of desirable social distancing policy to limit overwhelming pandemic infection spread.  It furthermore amplifies the usual desperation focused economic enslavement to encourage behaviour that is dangerous to workers and society.  Specifically, the desperate willfully ignoring either possible or certain infection in order to achieve the survival goals they are made desperate to pursue.

A payroll tax cut is also a benefit to those who don't need it:  Those lucky enough to have their work hours cut less than 7% as a result of the pandemic.  Eliminating the business side of the payroll tax is not going to prevent the economic decision of laying off an unneeded employee just because their pay costs the company 7% less.

UBI- unconditional cash- helps everyone.  An extremely beneficial feature of UBI shown in the Finland pilot project is the greater social and institutional trust it created in participants.  UBI allows for ethical and socially positive considerations to be relevant in behaviour.  It creates a less divisive, in fact, cohesive society.  It is a policy that escapes the usual favoritism of political process.

UBI vs income conditional assistance
UBI is a much quicker economic stimulus than creating a bureaucracy set up to deny applications that do not meet income or asset based criteria.  As a pandemic response, everyone who filed a tax return last (or this upcoming) year with an in-country address can be sent a payment.

What makes permanent UBI cheaper than conditional programs is that the elimination of programs means that for any budget level, less net (of UBI) tax revenue needs to be collected.  Any "ideological" need for a conditional program is eliminated through an even higher UBI level, which in turn, makes UBI even cheaper.

Even as a pandemic response, any argument for income conditional assistance can be negated by funding the UBI.  Permanent UBI programs in the US and Canada can be funded with a 10% point tax increase.  For a $1000/month UBI, everyone earning under $120k/year receives a net tax cut.  (At $120k income, $12k in extra income taxes balances $12k in UBI).

Even as a pandemic and recovery plan, funding UBI with an income tax increase on individuals and businesses allows budgetary room for additional pandemic response.  Those lucky enough to keep earning money through the pandemic can afford to pay for its containment, and in the recovery, even those faced with higher tax burdens, will have significantly higher income earning potential than without the stimulus.

As a post pandemic recovery plan, very high employment requirements will be pursued to collect sales from the UBI enriched consumer base.  A quick and successful recovery and growth is assured.

Despite any programming provided by Fox news and CNBC that has convinced you that even social collapse is preferable to a tax increase on the rich, let me assure you that collapse will hurt your income and wealth far more than any tax rate increases.  Tax revenue is not burned, and UBI ensures that it is channeled back to the most useful goods and service providers.

The only people/groups that ever get poorer as a result of tax funded UBI are those that require slavery/desperation in order to profit.  Everyone else, rich and poor, is much better off in after tax income, and socially through peace (lower crime) and cohesion.

My latest complete tax plan (with links to previous alternatives):  https://www.naturalfinance.net/2019/06/andrew-yang-and-democrat-tax-proposals.html

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