Tuesday, June 28, 2016

Life Accounts (previously refered to as ULI) as a complement to UBI (basic income)

A Life Account is a term used by a Finnish politician in the context of basic income.  I have no idea what she meant by it, but its a great term to describe the concept of ULI (unconditional loan income) I've developed earlier.

ULI is especially useful in the context of pilot programs under discussion in many areas of the world, but has numerous other advantages compared to just basic income.

In the context of Ontario/Canada,

  • Every resident under 65 has the unconditional right to a government/ backed loan of $8000 per year ($750 per month if taken every month).  No restrictions or questions whatsoever related to use of funds.
  • There is a non-usurious interest rate of 2%/year applied to the loan(s).  Each loan (monthly or yearly)'s balance cannot grow to more than 100% of original value ($750 loan has max repayment of $1500, even if still due 80 years later)
  • There is no fixed repayment obligations. Instead, a 15% royalty/tax on income is applied as a loan repayment.  No income means no repayment obligations.
  • The 15% income royalty replaces the existing payroll tax system that is a fundamentally equivalent repayment burden.  There is no $50k salary cap for payroll taxes.  Investors and landlords and business owners, also fully repay ULI based on income.
  • The banking system can be directly involved in service delivery. 
  • If you have unused ULI borrowing capacity for the year, you may borrow from it up to March 1 of the following year for any purpose, or April 31st of the year to settle income tax or repayment royalty obligations. 
  • Spousal ULI balances are repaid at a 10% royalty rate, if your own balance is 0.
  • Incomes of $53400 would repay $8000 in ULI.  The amount equal to what can be withdrawn the same year.
  • Estate taxes would place liens on non-liquid assets (houses typically) of the estate, but the estate would still formally owe any ULI.

Life Account concept adds:
  • A $100k accumulated lifetime balance owed triggers adjustments to new loan eligibility.
  • Eligible new loan amounts can drop to $6000/year ($500/month) at $100k balance outstanding.
  • At $150k total outstanding, the royalty repayment rate can grow to 20%, and include new loan income as part of the royalty base.
  • It takes about 12 years of 0 income lifestyle to reach a $100k balance outstanding.  It takes another 7-8 years to reach $150k balance if 0 repayments are ever made.
  • At $200k, royalty repayment rate would go up to 25%, and new loan eligibility would drop to $4000/year.  It takes another 9-10 years to reach that cap.

Like a student loan without being tied to education

The life account is close to the familiar concept of renegotiation on US predatory student lending programs, where income based repayments are negotiated.  Even though they are not forced to, young adults would eagerly use the life account funds to assist in their pursuit of formal education.

But development isn't limited to accredited education programs.  STEM skills can be developed at a hobby/self directed learning effort.  Tools, machines, design time with access to food and healthcare is development.  Part time work, internships, 0-hour contracts, gigs is development towards hopeful full time middle class income.

But using the funds towards a car or food or home provides income security for any lifestyle or income level.  As a complement to UBI or GAI, the overall support amount is sufficient to eliminate all other income assistance programs.

The major difference with basic income

A life account loan balance repaid through an income royalty differs from normal tax funding of UBI in that "taxes owing" is more directly related to individual benefits received.  A successful doctor or other student that used 8 years of income support is likely to repay that income support.  Other successful people eventually eliminate their repayment obligation (through repayment).

The poor, in exchange, receive the unchallageable right to run up a high benefit balance, and choose or deal with a lifestyle that will not repay it.

The main justification for life accounts vs UBI is one of cost.  If 50% of the population repay their loan with 2% interest over 10 years, and of the remaining 50%, they average a  50% repayment of the loan amounts taken, then compared to the same UBI benefit level, ULI costs only 15% of the funding requirement.  A $8000 ULI/lifeaccount benefit costs the same as an $1200 UBI amount.

Complement to UBI or GAI

The Manitoba Green Party platform proposes a $6300 GAI (guaranteed anual income) that is clawed back at a rate of 16% from poor-middle income workers on their first $40k income.  The program is roughly revenue neutral with poverty elimination benefits completely justifying the very small tax increases affecting some people.

In the linked paper, obvious funding sources (welfare elimination, basic amounts turned into refundable tax credits, special investment income credits eliminated) for an additional $3000- $4000 in UBI without any low income clawbacks are made.  Enough for at least $9300 in GAI + UBI.  Enough by itself for very spartan poverty elimination.  (through for example, cohabitation)

ULI/life account supplement of $8000/year is both sufficient to eliminate, and a huge improvement over, EI (employment insurance).  While working, you may avoid withdrawing from life account.  If laid off/fired in July, you may take out $1500/month for rest of year.  If laid off at begining of year, you may use unused previous year's balance.  There is 0 impact on income security or income supplement strategies affected by taking a new job the day after you quit your previous one.  Insurance is pre-paid access to support possibility.  ULI is post-paid repayment of support received.  An obviously superior income security program.

Eliminating EI benefits allows either $1500 higher UBI payments, or elimination of 7.5% of payroll taxes.  Repaying ULI would be as burdensome as current payroll (EI+CPP) taxes.  The ULI benefit itself though is sufficient to fund a voluntary CPP (personal pension) program, or an even better retirement enhancement program of paying down mortgage or other debt.

The total unconditional income support of $17300 is enough for anyone to fund formal education or other personal/business/family development and income security/variance requirements.

Social/Citizen Dividend complement
Basic income is often thought as a citzen benefit rather than a resident/landed immigrant benefit.  The thinking is partially nationalist, but also has a cost rationale of reducing eligible recipients.  Still this is not completely fair in that  immigrants (may) pay taxes, and social services to ghetoize and oppress them are expensive, especially if they are needless.

Immigrants generally perform the function of slaves, a partial reason for their welcoming is that slavery is awesome (for the slavers), but a more important benefit to Canada is that all increases in the amount of people provides work/income to "pure" nationals.  It doesn't matter who pays to have them eat or housed, the payments get transferred through the economy.

So far, we've discussed a $17300 unconditional income support plan made up of $6300 GAI, $3000 UBI, and $8000 ULI.  Under this plan, the rich (ignoring full taxation of dividend and capital gains income) get a 15% tax cut on employement income! (due to payroll tax elimination and replacement with 15% royalty on ULI repayments).

The rich don't use ULI, but also don't have to repay it.  The GAI and UBI were all revenue neutral.  UBI/ULI is still a tremendous benefit to the rich in that it takes care of their family (spouse and young adult children), and further assists in their own income variability and its not impossible that they will need to access the safety net either.  More importantly, the rich benefit the most from the 10%+ in higher consumer spending that UBI/ULI generates (its always been trickle up economics).

For these reasons a 5% surtax on those who do not have an outstanding ULI balance is fair to allow higher income Canadians to bear some responsibility for the tremendous winfall that UBI/ULI provides to the successful.

The proceeds from this 5% surtax (from CRA 2012 data)  assuming its from those with incomes over $80k, 5% of $482B income from that group would be $24B.  If that surplus funding is used to pay a social dividend to adult citizens only, it would be enough for $1200 per citizen.  (Note that it is not a surtax only on income above $80k.  Instead, people either pay 15% royalty on all income or 5% surtax depending on whether or not they have a life account balance outstanding)

The citizen's dividend would be used to repay ULI balances for those that have them, and so effectively the only people receiving a cash benefit from the citizen dividend would be those that pay the 5% surtax.  Further enhancing its fairness.  Any other surplus tax revenue resulting from say economic growth, and the buffers built into the proposed tax/UBI code, should also go towards citizen dividend payments.

An immigrant unconditional income program
A $10000 ULI program with 40% royalty rate on incomes while having a balance, and "normal" tax rates if their balance is 0, would provide non-ctizens with $25000 after tax income on earned income of $25000.

This is actually extremely close to the 16% GAI clawback on $6300 + 22% "normal" tax rate.  Its 2% higher on incomes up to $25k, but 16% lower on income from $25k to $40k.  Ignoring the cumulative nature of ULI repayments.  The $3000 UBI funding comes from program/tax credit savings that include non-citizens.  The $700 difference with the citizen ULI/UBI program is negligible.

It would be prefectly reasonable to offer the same $9300 UBI/GAI program to all residents, and then for non-citizens, offer $2000 maximum annual ULI program.  One justification to offer lower ULI limit to non-citizens is the fear of collecting on loan balances if they leave the country.

The only reason to formulate it as a $10000 ULI only program is to soothe nationalist psychopathy about non-citizens paying their own way.  ULI has the general quality of  a social program framed to suit hate motivated reasons/falsehoods against human liberation.  It's loan-based self support where any losses from the loan program costs less than the welfare support it replaces, and the relatively modest support in the case of immigrants encourages their voluntary compliance into the slavery our overlords need.

While a 2 tier system tailored to 2nd class slavery promotion of immigrants may seem distasteful, $10k is enough to refuse slavery arrangements, and choose life independent of permission, and the choice to come to Canada is likely to be more attractive than any other option.  UBI creates massive job opportunities available to be filled, and so this 2 tiered pro-immigration plan would suit the slaver/business sector.

Carbon tax/dividends:  Another $2000-$4000 unconditional income support
The only effective way to combat climate change is through carbon taxes that direct their funding towards social dividends.  By definition the average cheque is enough to pay for the extra taxes if polluting behaviour is unchanged.  But every individual is motivated to change their behaviour and so solar panels and electric cars, and home insulation is an obvious money/tax saving choice available to anyone who'd prefer not to pay the taxes.

Carbon dividends should be available to non-citizens as they also use energy.

Summary of benefit program
  1. Citizens:  $6300 GAI (16% clawback), $3000 UBI, $8000 ULI (15% clawback), $1200 Citizen Dividend (repays ULI if owed), $2700 Carbon dividend.  $20000
  2. Non-citizens:  $10000 ULI (40% clawback).  $2700 Carbon dividend: $12700
Financial engineering of ULI for private participation
Detailed in original ULI whitepaper, the funding of ULI is independent from the guarantee of ULI principal.  The latter is guaranteed by government through funding the purchase of its own 30 year bonds.  The citizen's dividend repayment system would bring the expected guarantee cost close to 0. The arrangement permits the central bank to buy the guaranteed ULI funding loans under the same jurisdictional logic it can justify QE.  The ULI funding loans themselves can originate from a mix of private and public sources.

The appeal to investors for ULI loans even with a maximum 2% annual return is the 0% minimum return, and a very high cashflow yield.  Median income levels would repay 70% of a loan's balance in 1 year.  A $1200 citizen dividend would repay an addional minimum 14% of investment as cashflow.

ULI loans are made as shares in monthly pools spread among all borrowers for the month.  The richest and poorest borrowers are all in the same pool.  Of all existing loan products, ULI loans would have the fastest principal repayment rate (and thus cash yield) by far.

The 0% guarantee is paid at the time of estate lien resolution which may be years after the recipient's death.   But if an average 80% is repaid on a 20 year time frame (140% return on that 80% - 112% of original principal) then even if remaining 20% repaid 0, its a 12% return, and the guarantor would pay nothing.  Even if it takes a long time to resolve the remaining 20%, the ULI loan pool is a resellable asset, and so may be cashed out (at a likely discount) at any time.

ULI is a slight accounting trick on the same fundamental principle as UBI.  Both are investments by society in its people, paid by taxes/funding of the successful.  A national student loan program costs only the unrepaid/defaulted portion.  It has always generated net profits to private sector participants.  ULI would be tailored more as a break even proposition, but UBI is approximately the same principle of investing in youth and entrepreneurs under the hope that their future taxes repays the received assistance.

Potential for global ULI/Life Accounts
ULI can be a transnational loan, with repayment obligations administered by national revenue agencies.  This can mitigate the potential for individuals to use generous development assistance of one country but then move to an oppressive country to apply those skills.

Access to citizen's dividends may be contingent on residency, as a further incentive for citizens to stay in their country.

Banking system involvement
A life account can be just another banking product.  ULI funding loans (for lenders) can be products that are both sold as retail banking products similar to GICs and through bond markets, with institutional, private, and government funders.

Both the banks and government can offer backstop financing of ULI funding requirements.  In the banks' case, either as short term bridge financing, or simply a partial backstop of a few $Billion.  It makes more sense to use retail banking products as the primary funding, and bond markets as a means to resell the loan packages.

Due to guaranteed nature of ULI loans, and fast repayment yield, these products should be eligible for tier 1 capital reserve requirements.

Banks roles could also be used to resolve possible "residency fraud" requiring in branch visits from accounts with suspicious IPs.

ULI as a tool for pilot studies
The ULI concept was originally designed as a solution to pilot study issues.  Though I currently advocate for it as a general program.  The main difficulty with pilot programs are limited funding and also piloting the concept of/reaction to associated tax increases.  While original pilot program guidelines still apply, here is a simplified proposal.

Ontario Pilot program proposition(s):
  1. $12000 ULI at 20% income royalty pay back rate.  Accepting proposal rejects access rights to welfare/disability EI benefits for duration of the program.  This program is available to those 18 to 25 without post-secondary aptitude, and those 25-64.  ($60k income would result in $12k ULI repayments).  Any EI premiums paid will count as repayment.  ULI benefits will count as income for purposes of income based housing.
  2. $18000 ULI at 25% income royalty pay back rate.  Accepting proposal rejects access to welfare/disability/EI/Student assistance.  The program is available to those with University admission letters/enrollment.  A bonus $1500 towards tuition will be given to recipients who enroll in an Ontario University, but the $18000 is not conditional upon it.  ($64k income (likely in future years) will result in $18k repayments.
  3. Optionally, program 2 could be offered to applicants of provincial venture assistance programs, which tend to be far too competitive/rejectionist to be useful.

The 2 different tracks are meant to study groups that already separated as  investable vs. non-investable.

For program 1, it should definitely be offered to a large group of social assistance recipients.  Some may say no, and a questionnaire should discover their reasons.  For this social assistance recipient group, though ULI is a loan with permanent repayment obligation, if the program is discontinued, a portion of the ULI received may, at her majesty's discretion, be reclassified as non-repayable social benefits.

Program 1 should also be offered as a general lottery, and to a random selection of tax filers.  The difference between the 2 selection methods is the first group are people sufficiently motivated to receive UBI/ULI as to bother applying.  The lottery application level will also show general interest in the ULI program.  Both of these groups should select sufficient samples accross age groups.

Program 1 should also be tested in concentrated communities as well as in individuals across the province.   Concentration allows measurement of regional economic gains.  Isolated recipients provide better expectations for border towns and general happiness.

Program 2's lack of forced institutional attendance allows comparing success rates of alternate choices.

An alternative pilot design is to include the Manitoba Green Party $6300 GAI plan, and have a ULI program (same amounts less $6300) supplement that.   The GAI is a gift.  The ULI a royalty-loan.

The left hates ULI as much as they hate student loans
Even if there is political favour for UBI over ULI/life accounts, ULI as a pilot tool is the right way to measure tax and permanent consequences of the program.  Accepting the ULI has tradeoffs of long term tax implications even if the program could be temporary.

Any UBI pilot without permanent implications is going to have results, no matter how good, dismissed as "of course free money made people happier", or "they only behaved this way because it was temporary", and then used as an opportunity to shelve the program for another 40 years.

I'll close by repeating my position that pilot testing UBI is equivalent to pilot testing slavery abolition or pilot testing granting the vote to women and minorities.  Its an opportunity to avoid action, and fundamentally wrong. They pilot studied basic income in the 70s.  Shelved without analysis in Canada.  In the US, there was a small decrease in hours worked.  The US political response was the same as if they had pilot studied slavery abolition and found a 5% cotton production decrease.

To address fear and disruption, I recommend instead gradualism.