Could a Universal Basic Income (UBI) work?

[DynamicSpirit]

Very easily. It is a distinction that has been used for a very long time.

Basically it is the difference between income that is a contribution to value added/GDP, and income that is a transfer of income that was earned by someone else.

Employment income, self employment income and company profits are earned.

Rent, interest and dividends are not earned.

Rent, interest, and dividends are all *already* taxed. So saying you'll fund UBI by taxing them makes no sense (I realise you haven't directly said that, but that was the context behind this discussion). And they are income, not wealth, so they definitely don't meet the criteria of 'unearned wealth'. And I'd argue that in many cases, they *are* earned. For example dividends are how many small business owners get paid for their efforts in running the business.

 

[Magdalia]

I realise you haven't directly said that

I have not said that all, I was merely clarifying the definitions.

And they are income, not wealth, so they definitely don't meet the criteria of 'unearned wealth'.

Any unearned income that is reinvested can be regarded as unearned wealth.

For example dividends are how many small business owners get paid for their efforts in running the business.

Usually as a tax dodge instead of paying themselves a salary. In particular there is no National Insurance to pay on dividends.

 

[DynamicSpirit]

Any unearned income that is reinvested can be regarded as unearned wealth.

No. The income from rent/interest/dividends etc. is most definitely income, not wealth, and is taxed as income. If you keep that money and don't spend it, THEN it becomes wealth. And certainly some people want to tax that, forgetting that it was already taxed when you earned it.

That is no different from that if you are paid a salary, that is income (and is taxed as such). If you choose to keep that money and not spend it, then it becomes wealth that you own (but which has already been taxed).

Usually as a tax dodge instead of paying themselves a salary. In particular there is no National Insurance to pay on dividends.

But on the other hand, you (or more correctly your company) has to pay corporation tax on the value of the dividend. That's because the company profits, on which corporation tax is paid, is reported AFTER paying any salaries, but BEFORE paying any dividends. Now you are correct to the extent that the tax amounts don't always match up: You usually will pay less tax overall if you get paid at least partly through dividends - and I think that's regrettable and it would be good if the Government removed that anomaly. But it's not that huge a difference, and it doesn't change that, for small business owners, their dividend income is typically actually earned by working.

 

[Magdalia]

If you keep that money and don't spend it, THEN it becomes wealth.

Now you are correct to the extent that the tax amounts don't always match up: You usually will pay less tax overall if you get paid at least partly through dividends - and I think that's regrettable and it would be good if the Government removed that anomaly.

Indeed.

But "could a much simplified tax system work?" is probably a separate discussion.

 

[Yew]

How do you distinguish between earned and unearned wealth? How do you even define 'unearned'? And which people do you consider to be the 'capitalist class' and therefore subject to having their wealth confiscated?

Sorry, but to me your statement reads like, 'I'll just confiscate the property of the people I don't like'.

Those who use their ownership of the means of production to exploit the labour of their employees by paying them less than it's value. I have no desire to stop people enjoying the fruits of their own labour.

But even setting that aside: The reason you can sustainably tax income is because income is recurring. You tax it one year and then there's just as much income the next year to tax. Wealth isn't recurring: Once you've taken it and spent it, it's gone for good. So: Once you've taxed away all the wealth of these horrible evil capitalists and there's no more left, how are you going to carry on paying for UBI in subsequent years?

Are you really suggesting that the wealthy don't have some sort of income? Perhaps in a few cases, that may be the case, but for the majority it's through enjoying the fruits of their employees labour.

 

[E27007]

I have not said that all, I was merely clarifying the definitions.


Any unearned income that is reinvested can be regarded as unearned wealth.


Usually as a tax dodge instead of paying themselves a salary. In particular there is no National Insurance to pay on dividends.

When I meet contractors on the railway, "boots on the ground contractors" they tell me they have to set up a company and receive wages as dividends to stand a chance of making a decent wage

 

[DynamicSpirit]

Those who use their ownership of the means of production to exploit the labour of their employees by paying them less than it's value. I have no desire to stop people enjoying the fruits of their own labour.

Employers generally pay employees the market rate. If they pay less, then they'd soon find themselves without employees - especially now that we have pretty much full employment amongst those who want to work. But that's probably getting OT for this thread.

Are you really suggesting that the wealthy don't have some sort of income? Perhaps in a few cases, that may be the case, but for the majority it's through enjoying the fruits of their employees labour.

You said you'd raise money for UBI by taxing their wealth - you didn't previously mention their income. The problem with taxing income is that pretty much all income is already taxed. So your only option is to increase taxes to pay for UBI. Depending what level you set UBI at, it would likely have to be a substantial increase for everyone (not just 'capitalists').

 

[najaB]

When I meet contractors on the railway, "boots on the ground contractors" they tell me they have to set up a company and receive wages as dividends to stand a chance of making a decent wage

Explain to me how that is a better way to "make a decent wage".

Depending what level you set UBI at, it would likely have to be a substantial increase for everyone (not just 'capitalists').

Given that a substantial portion of the capitalists pay little to no tax at all, I'd be okay with an increase for everyone - provided that it was truly "each to their ability".

 

[Mat17]

Let's say you've always worked but suddenly find yourself unemployed due to your job sectors role becoming all AI. You cannot find another job and get placed on UBI. Would you have any freedom in how you spend the UBI, or would it be dictated to you how it is to be used?

 

[najaB]

Would you have any freedom in how you spend the UBI, or would it be dictated to you how it is to be used?

It's income. You spend it how you want to spend it.

 

[Magdalia]

When I meet contractors on the railway, "boots on the ground contractors" they tell me they have to set up a company and receive wages as dividends to stand a chance of making a decent wage

Explain to me how that is a better way to "make a decent wage".

Primarily by avoiding National Insurance contributions. The IR35 rules are supposed to close this loophole, and were going to be repealed in the Truss/Kwarteng mini-budget.

Are you really suggesting that the wealthy don't have some sort of income? Perhaps in a few cases, that may be the case, but for the majority it's through enjoying the fruits of their employees labour.

Very wealthy individuals often do not have income for UK tax purposes, their income goes into offshore companies that are out of the reach of HMRC.

They then fund their day to day expenditure by borrowing money against their assets.

 

[takno]

Primarily by avoiding National Insurance contributions. The IR35 rules are supposed to close this loophole, and were going to be repealed in the Truss/Kwarteng mini-budget.

IR35 I'd a hopeless sticking plaster on the situation. Ultimately the problem is that real actual income from work is taxed more highly than unearned income, which is just wrong. IR35 is a way of making people with real income stop taking advantage of tax breaks that weren't put there for the likes of them .

If anybody actually wanted to solve the problem they'd fold NI into income tax and tax dividends at the same rate as other income. That would take away the loophole for the better off, tax unearned income properly, and stop companies like Amazon and the rail maintenance lead contractors from forcing their employees to pretend they're not employees in order to avoid tax on their behalf.

Naturally the Tories won't do it because it will affect them and their pals, and Labour won't do it because if they do the Tories and their pals will get the Daily Mail to start screaming about how it's a tax on rail contractors and Amazon Delivery Drivers

 

[E27007]

Explain to me how that is a better way to "make a decent wage".


Given that a substantial portion of the capitalists pay little to no tax at all, I'd be okay with an increase for everyone - provided that it was truly "each to their ability".

I did not write it is a better way to make a decent wage,, I am reporting that in the post-privatisation railway and the "gig-economy" of the self-employed railway worker,, (often forced into self-employment), they have to set up a company to make a decent wage.
If I could find a link, I would post to the Ken Loach film "The Navigators"

 

[DynamicSpirit]

If anybody actually wanted to solve the problem they'd fold NI into income tax and tax dividends at the same rate as other income.

I agree in some ways it would be desirable in principle to fold NI into income tax but it's not that easy to do. Remember, Ni has pension contribution implications that income tax doesn't, which you'd need to work through. And dividend tax has the complication that it's typically paid after corporation tax. There's a huge risk that if you blindly tried to equalise rates in the way you're suggesting without thinking it through properly, you could easily end up with small business owners paying a higher overall tax rate than people earning a salary.

That would take away the loophole for the better off, tax unearned income properly, and stop companies like Amazon and the rail maintenance lead contractors from forcing their employees to pretend they're not employees in order to avoid tax on their behalf.

Naturally the Tories won't do it because it will affect them and their pals, and Labour won't do it because if they do the Tories and their pals will get the Daily Mail to start screaming about how it's a tax on rail contractors and Amazon Delivery Drivers

Oh come on! You don't need to descend into these kinds of assumptions of malicious intentions. The Tories, after lowering corporation tax in the Cameron/Osborne years, raised it again. It was also the Tories who introduced the banking surcharge on corporation tax, and they also significantly increased dividend tax rates - so the claim that the Tories are somehow deliberately trying to help rich pals really doesn't wash.

More correctly, the most likely reasons that no-one (either Labour or Tory) has tried to embark on the fundamental reforms of our tax system that would be required to equalise tax rates for employees, company owners, and self-employed people, is that

1. It would be a hugely complicated thing to do: You're basically talking a complete redesign of the tax system, and working out all the implications and trying to do it so it doesn't have bad economic side effects would probably be not too dissimilar in scale from Brexit in the way it would disrupt business and massively tie up Government over the transition period
2. You somehow have to account for that salary income is usually stuck in the UK, but corporation tax and dividend income can very often easily migrate overseas, which adds to the problem of how to implement a change without ending losing loads of revenue.
3. There is actually an argument for taxing self-employed/business income a bit less since (a) people who are self-employed have much less certainty of their income: If your salary is 100K, then it's probably going to be 100K next year, and the year after too. But if your trading profit is £100K this year, that's no guarantee that it won't turn into - say - a £200K loss next year, and (b) there are good economic reasons why you often want more people to take the risk of setting up in business so you could argue that using the tax system to encourage that may be a good thing.

Having said that, I do think some reform of our tax system and some equalisation of tax rates is needed. It's just an awful lot more complicated than 'Hey it''s just the evil Tories and their media pals stopping it'

 

[takno]

I agree in some ways it would be desirable in principle to fold NI into income tax but it's not that easy to do. Remember, Ni has pension contribution implications that income tax doesn't, which you'd need to work through. And dividend tax has the complication that it's typically paid after corporation tax. There's a huge risk that if you blindly tried to equalise rates in the way you're suggesting without thinking it through properly, you could easily end up with small business owners paying a higher overall tax rate than people earning a salary.

The pensions aspect of NI is one of the key problems. You can easily end up not getting a stamp for a year by working a couple of poorly-paid jobs. Meanwhile people who are taking advantage of the ineffectiveness of IR35 can pay themselves just the right amount in salary that they pay no NI at all (either employer or employee) and still get a stamp, and if you're in a well-enough paid job you can get a stamp for working one week of the year. Personally I'd change it to a requirement to have been paying UK income tax (or probably just resident for tax purposes) for a set number of financial years.

As to small business owners paying a higher overall rate of tax, the option is very much open to them to pay themselves a salary, thus ensuring that they pay the same tax as everybody else. Corporation tax should be regarded as the company paying its tax, and if the companies owners are then taking the money out of the company to have for themselves they should certainly pay income on that amount whether that feels to them like double taxation or not

 

[DynamicSpirit]

As to small business owners paying a higher overall rate of tax, the option is very much open to them to pay themselves a salary, thus ensuring that they pay the same tax as everybody else. Corporation tax should be regarded as the company paying its tax, and if the companies owners are then taking the money out of the company to have for themselves they should certainly pay income on that amount whether that feels to them like double taxation or not

That's not at all realistic about ignoring corporation tax on the basis that it's the company paying tax. If I set up a company and do all the work to run the company, then the profits the company makes are profits from all the work I've done (I know this for fact because I do actually run my business as a one-person company). If the Government did what you're proposing, then small business owners would find they'd have to pay corporation tax on the profits they make. And then on top of that they'd have to pay all the same taxes as someone who is simply earning a salary (and who therefore also has a much steadier income as well as loads of employment protections that small business owners don't have). Which means that, if you set up a small business, you'd be paying a much higher effective total tax rate than if you just worked for a living. Hopefully you can see that would be totally unfair (as well as being economically disastrous in terms of preventing people from setting up businesses).

(And maybe that example illustrates why reforming the tax system is so much more complicated than people imagine. There are so many pitfalls where if you don't do it very carefully, you could end up unintentionally penalizing different groups of people and/or badly damaging the economy).

 

[takno]

That's not at all realistic about ignoring corporation tax on the basis that it's the company paying tax. If I set up a company and do all the work to run the company, then the profits the company makes are profits from all the work I've done (I know this for fact because I do actually run my business as a one-person company). If the Government did what you're proposing, then small business owners would find they'd have to pay corporation tax on the profits they make. And then on top of that they'd have to pay all the same taxes as someone who is simply earning a salary (and who therefore also has a much steadier income as well as loads of employment protections that small business owners don't have). Which means that, if you set up a small business, you'd be paying a much higher effective total tax rate than if you just worked for a living. Hopefully you can see that would be totally unfair (as well as being economically disastrous in terms of preventing people from setting up businesses).

(And maybe that example illustrates why reforming the tax system is so much more complicated than people imagine. There are so many pitfalls where if you don't do it very carefully, you could end up unintentionally penalizing different groups of people and/or badly damaging the economy).

I do currently run a one-person business on a small scale, and have done so in the past for a business which provided the whole of my income. If you want the money out of a one-person business at the same level of tax as somebody else then you would take it out as salary. If you really want to pay more tax then you certainly could take is as dividends, but basically that just wouldn't be a sensible thing to do anymore in a single person company.

As regards the additional risk you take as a company owner, if you want paying more then charge more. It's not the government's job to subsidize your risk-taking behaviour. In any case, as soon as you have actual employees you'll realise that your risks aren't as a matter of course larger than theirs - if the company doesn't make it through then they'll be just as out of work tomorrow. In fact you are at less risk because you'll know the situation sooner and can easily modify your salary to make sure you're tightening your belt rather than losing the whole lot.

 

[Tetchytyke]

There's more or less a guaranteed job now if you're not too fussy about what. We are currently essentially in full employment.

…sort of.

40% of Universal Credit recipients are actually in work. So whilst we may have “full employment”, it isn’t paying people enough money to actually live on. Which rather undermines any argument about these employers “contributing to society”.

Personally I'd change it to a requirement to have been paying UK income tax (or probably just resident for tax purposes) for a set number of financial years.

But then you wouldn’t get income from people elsewhere in the world. I am no longer resident in the UK for tax purposes but pay voluntary NICs so that I can continue to build my pension entitlement in the UK.

 

[takno]

But then you wouldn’t get income from people elsewhere in the world. I am no longer resident in the UK for tax purposes but pay voluntary NICs so that I can continue to build my pension entitlement in the UK.

They wouldn't get the income, but they wouldn't have to pay the pension. I suspect that the amounts of money involved are fairly insignificant, and the government would likely end up ahead on the deal

 

[Tetchytyke]

If the Government did what you're proposing, then small business owners would find they'd have to pay corporation tax on the profits they make. And then on top of that they'd have to pay all the same taxes as someone who is simply earning a salary

The self-employed don’t pay corporation tax.

Now if the self-employed set up a limited company then that limited company has its own legal identity. Do the company pays the corporate tax and the individual pays the corporate tax. So there wouldn’t be any “double taxation”- the company and the owner are separate legal entities with separate tax obligations.

What it would do is remove the tax efficiency from the situation where a limited company pays its owner a minimal salary (usually in the sweet spot where the recipient gets NI credits without paying NI) and treats the rest as a dividend. It would become more tax efficient for the company to pay its owner a proper salary and pay the appropriate employer and employer NICs.

 

[RT4038]

…sort of.

40% of Universal Credit recipients are actually in work.

But are they in full time work?

 

[najaB]

But are they in full time work?

Many are. And those who aren't are generally working all the hours that they can, given care/childcare commitments.

 

[RT4038]

Many are. And those who aren't are generally working all the hours that they can, given care/childcare commitments.

I understand that, but this rather puts the following statement

So whilst we may have “full employment”, it isn’t paying people enough money to actually live on. Which rather undermines any argument about these employers “contributing to society”.

into a different light. Anybody not working full time is not likely to be doing enough to be paid 'enough money to actually live on'.
Clearly there are some jobs where the pay rate is focused on individuals in certain social/living circumstances. If you are in these circumstances, doing a job that doesn't pay enough to live on then the aspiration has to be to move up to one that does. If there are good reasons why this is not possible then that surely is what Universal Credit is for?

 

[DynamicSpirit]

40% of Universal Credit recipients are actually in work. So whilst we may have “full employment”, it isn’t paying people enough money to actually live on. Which rather undermines any argument about these employers “contributing to society”.

How does it undermine the contributing to society argument? Even if a person is in the unfortunate situation where what they are earning is less than what they need to live on (as measured by the UC levels), that doesn't mean they and their employer are not contributing. Remember, they and their employer are still creating wealth - which is fundamentally the way you contribute and make everyone better off. It's just that they aren't creating as much wealth as that person ideally needs.

Or look at it another way. Imagine that the employer and all the jobs with that employer suddenly vanish. Then, instead of merely topping up the employee's wages with UC, the Government will have to give that person welfare benefits to the entire value of what they need to live on. The difference, plus the profits the company makes/taxes they pay/etc. are (roughly) the contribution that company and its employees are making the the UK's wealth. It may not be as much as you'd like, but it's still more than zero.

 

[GusB]

I understand that, but this rather puts the following statement

into a different light. Anybody not working full time is not likely to be doing enough to be paid 'enough money to actually live on'.
Clearly there are some jobs where the pay rate is focused on individuals in certain social/living circumstances. If you are in these circumstances, doing a job that doesn't pay enough to live on then the aspiration has to be to move up to one that does. If there are good reasons why this is not possible then that surely is what Universal Credit is for?

You're clearly divorced from the reality of the situation.

People do have the aspiration to move on to higher-paid work, but in order to do so they often need to have better qualifications. It's possible to achieve extra qualifications by going to evening classes at a local college but, in this day and age, many employers expect you to be "fully-flex" and be able to accept work across the full spectrum of hours, even though you may just be on a part-time (or zero-hours) contract. Try fitting that in with a college course that runs on fixed days.

Before you even dare to mention open learning, I'll shut your argument down by saying that this requires a quiet place to study and time between shifts (and multiple jobs in some cases). That's if you can afford the course fees in the first place! Indeed, this is one of the arguments for UBI, because it gives people on the lowest incomes a bit more money that they might be able to spend on some training in order to lift themselves out of their current situation. Of course, I'd rather it was the case that these college courses were free in the first place.

Your comment about universal credit is also nonsensical because for those for whom it's not possible to "aspire", the DWP is constantly demanding that they do so (get off benefits in realspeak) and they're under threat of sanctions for not trying hard enough to earn more money, even when they're absolutely stretched to the limit.

Please do some basic research into what UC claimants are required to do before you start spouting nonsense!

 

[najaB]

People do have the aspiration to move on to higher-paid work, but in order to do so they often need to have better qualifications.

Not to mention those who would like to work more hours, but can't afford to since they would cross a threshold at which their benefits will be cut, costing them money overall.

 

[GusB]

Not to mention those who would like to work more hours, but can't afford to since they would cross a threshold at which their benefits will be cut, costing them money overall.

In fairness, Universal Credit was supposed to do away with that by introducing a taper rather than an arbitrary cut-off point. It used to be the case that if you did more than 16 hours of work per week, you were automatically determined to be working "full-time".

However, in practice (as usual), it never turns out to be as simple. When working tax credits were first introduced, you only had to meet certain criteria in order to claim (30 hours minimum - funny how the definition of "full-time" changes to suit), but now that it's all rolled into UC it's a minefield. Of course, it wouldn't have to be this way if employers actually paid a living wage. (If your business model doesn't support paying a living wage, you don't have a viable business model, in my opinion)

 

[Tetchytyke]

Of course, it wouldn't have to be this way if employers actually paid a living wage. (If your business model doesn't support paying a living wage, you don't have a viable business model, in my opinion)

Exactly this.

If an employer could afford to pay a decent living wage, but chooses not to, then that employer is simply freeloading off of wider society.

If an employer cannot afford to pay a decent living wage then that employer does not truthfully have a viable business anyway.

 

[DynamicSpirit]

If an employer could afford to pay a decent living wage, but chooses not to, then that employer is simply freeloading off of wider society.

If they can afford to pay what you consider to be a decent living wage, then presumably other employers in the same industry will likewise be able to afford to do so. If there is sufficient competition for jobs then someone will then be able to hoover up the available employees by paying them more. If that doesn't happen, and it's not a case of a monopoly preventing new firms coming into the industry, then you can deduce that employers are in fact paying the market rate. And much as I know from your posts that you seem to like scapegoating businesses and throwing all kinds of wild accusations against the people who actually create most of the jobs that our society and economy depends on, that is NOT 'freeloading off society'. As I pointed out in my previous post, those businesses are still creating wealth, which is better than doing nothing. (Assuming there isn't something illegal/completely dodgy going on)

If an employer cannot afford to pay a decent living wage then that employer does not truthfully have a viable business anyway.

Presumably by that logic, if we introduce UBI and someone sets up a business, relying on the UBI to support them while they are setting up their business (because the business doesn't generate enough profits to be doable without the support from UBI), you would also regard that as not 'a viable business anyway', yes?

 

[Tetchytyke]

But are they in full time work?

About 22% of UC claimants (about 1.3m people in total) are in work and have no conditionality to look for more work. These people will be earning the equivalent of 35 hours a week at minimum wage.

So over half of people in work and receiving UC *are* working full time.

Shameful, isn’t it, that we have 1.3m people who are working full time yet still need benefits to be able to live.

== Doublepost prevention - post automatically merged: 25 Jun 2023 ==

Presumably by that logic, if we introduce UBI and someone sets up a business, relying on the UBI to support them while they are setting up their business, you would also regard that as not 'a viable business anyway', yes?

Under UC you get a grace period when you are starting up a business and, after that grace period, you are treated as earning the equivalent of 35 hours at minimum wage regardless of your actual income.

Which is pragmatic and sensible.

If in month one you need support that’s normal. If in month 36 you need support then no, you don’t have a viable business.

like scapegoating businesses and throwing all kinds of wild accusations against the people who actually create most of the jobs that our society and economy depends on, that is NOT 'freeloading off society'.

I have no problems at all with businesses who contribute to society.

I do have issues with employers like Amazon, Sports Direct, and Teleperformance, employers who effectively have the taxpayer subsidising their businesses. The taxpayer picks up the slack when their employees don’t earn enough to live on. The businesses make the profit and the taxpayer foots the bill.

These companies can easily afford to pay more but they don’t because they deliberately base themselves in areas where unemployment is high. Ever wondered why all the call centres are in places like Sunderland or Llandudno Junction?

those businesses are still creating wealth

We know they’re “creating wealth”. For themselves. At our expense.