Book Review: Political Philosophy and Taxation

I was pleased to be asked to review a book on Political Philosophy and Taxation for the British Tax Review, and I wanted to provide the text here on my blog for the benefit of those who do not have access to the journal. 

Legal disclaimer: This material is (a slightly edited version of) the review first published by Thomson Reuters, trading as Sweet & Maxwell, 5 Canada Square, Canary Wharf, London, E14 5AQ. It was published in the British Tax Review as "Political Philosophy and Taxation (Springer, 2022), by Robert van Brederode (ed.) (2022, 5, pp662-5)" and is reproduced by agreement with the publishers. 

Review of Political Philosophy and Taxation, by Robert van Brederode (ed.) (Springer, 2022)

As someone who teaches an introductory course on political philosophy, I was pleased to be asked to review this work,  which really is—as it claims—the first book providing a comprehensive overview of political philosophy and taxation. The textbook for the course I teach (Wolff, 2015) begins with the suggestion that political philosophy might be about “Who gets what?” and “Says who?”  Put like this, the link between political philosophy and taxation is abundantly clear. 

There are, no doubt, many ways to structure such a book. It could be organised by topic like the abovementioned textbook, which covers the key topics of:

1) The nature and justification of the state.

2) Who should rule? Should we have democracy, and if so what kind?

3) Liberty and rights.

4) The distribution of property.

5) Justice for everyone, everywhere? (On whether Western political philosophy has ignored or excluded any important groups or perspectives.) 

Again, all of these topics are relevant to taxation, particularly property and distributive justice. However, unlike the above textbook, this book is organised around different schools of thought within the Western tradition. The subtitle of the book describes it as a history of political philosophy. The book does indeed provide a detailed intellectual history of several influential schools of (Western) thought on the topic, explaining how key thinkers from those schools approached the topic of taxation, situated within their wider philosophical projects. This is a sensible move. Experts in different schools of thought can then take turns in summarising each, indicating where key thinkers have said anything relating to taxation. 

One question this raises is whether the book is an exercise in intellectual history or directly one of the philosophies and their implications. The first and last chapters by the book’s editor are certainly not intellectual history, but rather direct interventions in debates. The other chapters tended to fit the historical brief more closely, reporting on the relations between various thinkers and their views of taxation.  Two, acknowledged, exceptions were Chapter 8 on legal positivism and the final chapter (11) where the editor provides his own proposal for radical tax reform. There is a good case for organising the book by historical school, though that places additional pressure on the introductory chapter, a point to which I will return. 

Interestingly, most of the authors are not obviously primarily political philosophers, given their departmental affiliations. However, they all clearly know their respective schools of thought very well indeed, often because they use them in their own research on taxation. Certainly, taxation is inevitably a multidisciplinary topic, hence the need for all who write about it to have a good understanding of political philosophy. 

Which “schools of thought” should be included in such a book? The book contains a lot of the ones I would expect, but I found some of the choices surprising. One thing to make readers aware of is that the book leans libertarian, which is clearly the editor’s own approach given the chapters he has authored (the first and last). Perhaps that is a perk of being the editor, but I think it should have been made clearer at the outset, or, perhaps even better to avoid these strong interventions given that they did not fit with the stated brief of the book. 

There are several chapters that are more left-leaning (on socialism, egalitarianism and feminism), so the book still provides a good overview of most of the relevant views of taxation. However, questions can be raised as to whether there was a need for chapters on conservatism, classical liberalism and libertarianism, plus the two non-historical chapters, given the overlap between them. 

I think that the libertarian leanings of the book could give a false impression of the way that contemporary political philosophers would approach taxation. I undertook a poll of 78 philosophers on the topic and one third approached the topic in a liberal egalitarian way (including myself). Thirty per cent took a socialist approach and about 15 per cent consequentialist, most of whom selected “centrist or progressive” rather than classical liberal.  Seventy per cent of responses indicated that liberal egalitarianism represented the dominant approach. A lot of the debates within this school were mentioned in the introduction but not actually presented in the book (except in passing). (For more on the literature see Pedersen) 

There would have been a case for a chapter on luck egalitarianism, and indeed Ronald Dworkin (2006) has an entire chapter on tax justice in a book which was not referenced at all.  

Another omission I thought was discussion of Aristotelian-inspired views (perhaps other than in the chapter on conservativism), which are particularly to be found in theories of desert, participatory democracy and communitarianism. Natural desert is a distributive theory, a rival to Nozickean libertarianism, utilitarianism and the various forms of egalitarianism (see Campbell, Miller). Desert theory is not at all popular with political philosophers—it had no advocates in my poll.  However, there is an argument that desert is the common approach of the public (see Shiffrin).  There was a section on desert in the introduction, but this was a very misleading discussion, presented as an attack on luck egalitarianism, a view which is neither desertist nor—we recall—represented in the book. 

Desert might also be relevant to those who believe that political decisions should be made democratically as a representation of the views of the common good, or as an expression of their views or values. Communitarianism was mentioned as an example of a view opposed to libertarianism in the introduction  but not again in the book. The final chapter did have “Democracy” in the title, but this did not present a history of the arguments for and against democracy, which go back to Plato’s Republic, but was in fact highly opposed to democracy. Agreeing with anti-democratic libertarians that “an electorate that is uninformed, underinformed, or misinformed”  will mean that majority rule “opens the door for the misuse of power to the detriment to the interests of others”.  “Majority democracy violates the principle of equality as it is based on coercion of the many”,  which apparently means that a decision by the majority to impose taxation would violate the “principle of liberty”.  These apparently inviolable principles are neither explained nor referenced.

Philosophy of colonialisation and race is another possible approach that could have been included, though this has methodological affinities with feminism and intersectionality as mentioned in the chapter on feminism. The historical-school approach taken also creates the problem that important contemporary debates are omitted, about global justice for instance. 

Most of my criticisms are of the introduction, as I’ve hinted above, which represents a missed opportunity. The first words of the introduction are “liberal individualism” but what is this and why start with it? Perhaps because methodological individualism was the starting point of Hobbes’ political thought, which later begat liberalism (though Hobbes was no liberal). If the book is written for newcomers to political philosophy it should have explained what that subject is, perhaps mentioning disagreements over method, such as whether liberal individualism is the right approach. Another important thing to cover is to explain the philosophical topics and disputes that bear on taxation, and perhaps to explain some common terminology. These are mentioned, but too obliquely for the complete novice who knows little about the subject. 

The introduction is very long, but far too much of it is spent attacking views that will be presented later in the book. There are seven pages criticising Murphy and Nagel (2002) on “everyday libertarianism,” even though their argument is presented in three pages near the end of Chapter 9 (pp.335–338).  I can understand that their arguments should be presented, since they are very important. However, the introductory chapter should really ease newcomers into the discipline, not simply attack the dominant views. 

The introduction began and ended with a key point that I would expect to find; why have a book on political philosophy and taxation? Some good points were made here, but more could have been added. The book is quite advanced, but it should be useful for graduate students and academics whose work relates to taxation. Tax practitioners may also benefit from considering political philosophy, though they might need to read an introductory text first. However, political philosophers too could be interested in reviewing what different schools of thought have to say about taxation. Those looking to write about tax will also benefit from having the dispersed writings of thinkers compiled together in one volume. 

Overall, as a political philosopher with a focus on taxation, there was little difficulty in selling the importance of a book with the title Political Philosophy and Taxation on me. The chapters were capably written by experts, and I learned a lot from it. Indeed, I found myself wishing that this very useful resource was available when I began my PhD on the topic nearly 15 years ago. 

References:

Campbell, T. (2002). Justice. Palgrave.

Dworkin, R. (2006). Is Democracy Possible Here? Princeton University Press.

Miller, D. (1999). Principles of social justice. Harvard University Press.

Murphy, L., & Nagel, T. (2002). The Myth of Ownership: Taxes and Justice. OUP.

Pedersen, J. (2020). Distributive justice and taxation. Routledge.

Sheffrin, S. M. (2013). Tax fairness and folk justice. Cambridge University Press.

Wolff, J. (2015). An introduction to political philosophy. OUP. 

Philosophers utilising hours

Sometimes I notice political philosophers mentioning things like hourly pay that play a prominent role in my hourly averaging proposal.

I thought it might be useful to list these. Perhaps I should make a similar list regarding economics too.

Rawls and Pogge

Reading Thomas Pogge's Realizing Rawls (1989) prompted this blog. He mentions leisure as a good at several points in the book. I particularly noted the following table, which considers economic systems with different hourly tax rates to illustrate his discussion of Rawls' difference principle.

Pogge here considers how many hours people with different hourly incomes would work if they faced different levels of tax.

Rawls himself discussed leisure-time after being challenged by economists. He then added leisure-time to his index of primary goods. In Justice as Fairness Rawls notes that leisure-time can be added to the index of goods much more readily than native endowments and states of consciousness. He writes (p179) that "leisure-time has a reasonably objective measure and is open to view."

Pogge (1989, p198-9) writes "the index must also include leisure time as a distinct social primary good...Leisure time must play a role in interpersonal comparisons through which the least advantaged within an existing social system are identified. Even though their annual or lifetime income is rather low, those who choose to do only a few hours of well-paid work each week cannot plausibly be considered less advantaged than others who work many more hours per week in a lower-paying job."

Marxist economics

Marx developed a theory of surplus labour value from the pre-existing labour theory of economic value. Time spent working has a key place in this theory, since workers effectively have part of their working time stolen from them each day by their employer.

I'm not convinced by theories of economic value of this kind, and Marx's position isn't really the type of thing I'm interested in here. Nevertheless, I felt it should be mentioned that hours and working time do play some role in this approach as they have historically pushed activists to consider the issue. 

The Distribution of Time 

Other authors have considered how to conceptualise the distribution of time in society. Bob Goodin's Discretionary Time and Julie Rose's Free Time consider whether people have insufficient time available to them; time in which people have autonomy or over which they have freedom.

People's wage rate will influence how much free time they have. Hourly wage rate plays a part in determining someone's dicretionary time (Discretionary Time p43-5) and their free time (Free Time p40). One of Rose's illustrations contrasts people with differing hourly rates, and the difference this creates between them.

The focus of these works is different, but within the realm of work, different hourly wages will make a difference to the time they have available.

Endowment, Talent and Economic Rent

Other authors mention hours worked and hourly income when discussing the ideal form of tax or income.

Socialist philosopher G.A "Gerry" Cohen, for instance, argues that people should be paid the same per hour, unless they have a particularly onerous job. He says as much in Why Not Socialism? (around page 19-20). He writes that "under socialist equality of opportunity income differences obtain when they reflect nothing but different individual preferences, including income/leisure preferences. People differ in their tastes, not only across consumer items, but also between working only a few hours and consuming rather little on the one hand, and working long hours and consuming rather more on the other. Preferences across income and leisure are not in principle different from preferences across apples and oranges." So /leisure/work choices can lead to different levels of consumption even in a socialist utopia.

Stuart White in his book The Civic Minimum (p79-83) considers people's responsibilities to contribute to society in accordance with his "egalitarian earnings subsidy scheme." This determines people's pay with regard to their endowment, but also the number of hours they work. The approach is designed to get around some of the most troubling aspects of endowment taxation, and while it gets around the worst aspects of endowment taxes, it does not get around all of them. While White presents his subsidy as applying for each pound the person earns, my proposal is to apply the subsidy for each hour the person works (if their lifetime average is low).

Kristi Olson's paper "The Endowment Tax Puzzle" advocates a tax on economic rents and uses hourly income to illustrate the various cases she considers. Olsen argues that both endowment taxes and earnings taxes fail to distinguish between income based on economic rents to talent and earnings from other sources.

I believe my hourly averaging scheme gets closest to capturing the rents obtained by high earners, without requiring knowledge of people's endowments and setting of tax-rates accordingly.

Olson writes (p270) "Part of this problem could be alleviated simply by altering the current tax system to take into account not only the individual’s total earnings, but also the individual’s hourly earnings, such that individuals with lower hourly earnings would be taxed at a lower rate." 

Essentially, Hourly Averaging offers a way to put these suggestions into practice as well as can be without taking account of endowment (which could lead to a "slavery of the talented").

Conclusion

I have argued that hourly averaging is attractive from a broad egalitarian perspective, as an attractive hypothetical insurance choice, and that it can be appealing to non-egalitarians too.

Perhaps if the above authors had known of my proposal they could have invoked it as a close approximation of their own ideal.

It is also worth mentioning that the thinkers above mostly do not advocate a Universal Basic Income, but rather argue that income should track, however indirectly, the number of hours someone works.

Preface for a book I might never write

Preface for a book I might never write: Arguing for the CLIPH-rate tax

Lately I’ve been teaching or planning courses about distributive justice and I’ve mapped out a book I’d love to write if I had the time. It's probably about third on my list of projects though I sometimes mentally change the order of priority.

In fact, I wouldn't be starting from scratch. As well as having taught some of the theories, I could use a couple of pieces I’ve published, and I have written some blogs on the topic too. However, I thought it might be nice to note down the idea here, just as no doubt countless authors have written a preface but never completed the actual book.

The basic idea is to write a three-part (or even volume!) work presenting the argument(s) for my CLIPH-rate tax system from three different theories of justice; Egalitarianism, Consequentialism and desert theory.

Egalitarianism

The egalitarian argument is the easiest one to reproduce as I’ve already written a couple of pieces about this, in an edited collection and in my article “Arguing for hourly averaging.” Resource egalitarianism is the theory of distributive justice I find most compelling, and so this has been my primary concern up until now.

However, not everyone is convinced by egalitarianism and I think that it is possible to make strong arguments for the CLIPH-rate tax from two other theories.

Consequentialism and prioritarianism

Consequentialists about distributive justice believe that the economy should be designed to bring about the best total consequences. The good consequences could be subjective welfare, preference satisfaction, freedoms or some mixture of goods. Consequentialism is a totalising theory; bring about the most good. It therefore doesn’t matter how the goods and bads of society are distributed. Someone might be very badly off both absolutely and relatively under a consequentialist system and they would have no grounds for complaint (except by rejecting consequentialism). For many people, this is enough to reject consequentialism; everyone is just a means to bring about the best total consequences.

In fact, consequentialism does not have to ignore distributive matters entirely. Prioritarianism is a consequentialist theory which gives priority to those who are worse-off when undertaking the consequentialist calculation. The weighting towards the worse-off could vary; with greater emphasis on maximising the total amount of good or with greater priority given to those who have less. Prioritarianism seems to make consequentialism a lot more acceptable, though it doesn’t fully resolve all concerns about it.

How can you argue for the CLIPH-rate tax along consequentialist or prioritarian lines? I’ve made some points in previous blogs and in my book about the ways that an economy with the CLIPH-rate tax at its heart would combine incentives to work, save and invest with a great deal of redistribution to assist those on low incomes. Consequentialists, and particularly prioritarians, would want to ensure that there isn’t an impoverished class of workers at “the bottom” of society. Raising the standard of those who are badly off should bring about better total (let alone prioritised) consequences if we accept that nearly everyone gets declining marginal utility from resources. A poor person will get more utility (or whatever other good you specify) from a £10 gift than a rich person would. A successful economy should therefore focuses on making the worse off as well as possible, where this can be done without damaging overall economic productivity too much.

I would like to do more to show that the CLIPH-rate tax can both help to enlarge the pie while ensuring that everyone gets a decent slice. Hour credits are a key part of the tax calculation, and the only thing that someone can do (by choice) to get more hour credits is to undertake more work. The incentive to work is therefore built into the system. Meanwhile the tax calculation should generate as much taxation from unearned income as possible, representing the ideal form of taxation.

This is because the CLIPH-rate tax should do a good job of taxing not just unearned income but, relatedly, all forms of economic rent. Economic rents accrue to someone when they get more than they need in order to make the economic transaction in question. So if a landlord is considering renting a room and would accept £100 for it, but can get £200 due to high demand, then fully half of the rental income they get is economic rent. If this landlord has a tax rate of 50% they would still rent out their room, but instead of their getting the economic rent, it would go to the government. This revenue can be used to assist the less fortunate members of society, increasing their happiness.

That is a summary of the theory anyway, and I’d like to have more to back up my claims. It would be great to work with economists to help make the case.

Desert theories

I also think that a very strong case can be made for the CLIPH-rate tax from the perspective of desert theory. In a CLIPH-rate tax economy people get more income if they either get more hour credits (more hours worked) or have a higher income. Income made from working will therefore generate much more of a reward than unearned income, something which chimes well with desert theory.

Desert theories aren’t particularly popular with political philosophers, though they seem to be more popular with the general public, who often talk about particular people getting more or less than they deserve. A dodgy banker, crook or tabloid “benefit/welfare queen” could be said to have much more than they deserve. On the other hand, people might claim that nurses, kindly and charitable soul, or other hard-working person get less than they should.

Philosophers have delineated a few different bases for these desert claims. One is that some are more productive than others and should be rewarded accordingly. This is the productive contribution desert base associated with David Miller, Jonathan Riley and Gregory Mankiw.

A second desert base holds that people who do more burdensome jobs should get more than others. This is the compensation for burdensomeness desert base associated with Julian Lamont.  According to this theory, the person who does dangerous or unpleasant work deserves more than others who have less burdensome jobs. Someone working very hard in the cold on a North-sea oil rig with a high risk of death deserves much more than someone who works in a comfortable office.

The third desert base has features from the two above and attempts to get around the problems they have. This is that people who put in more effort should get more than others. This view is associated with George Sher, Wojciech Sadurski and Heather Milne. There are issues with all three desert bases though they all have some intuitive appeal. One is the extent they link to what people earn on the labour market.

I believe there is strong case to be made that the CLIPH-rate tax does a very good job of tracking these desert bases. Under a CLIPH-rate tax system people will get more if they get more hour credits (work longer hours) or if they have a higher income, and particularly if they do both these by working longer hours for higher pay. This seems to track all the desert bases above, since market pay rates reward productivity, burdensomeness and effort, and the hourly element also represents a productive contribution, the burden of giving up one’s time and an effort. Meanwhile, people who receive mostly unearned income from gifts or economic rents will be taxed very highly.

Other theories

I don’t think that there is much traction in arguing for the CLIPH-rate tax from libertarianism, though perhaps it might work from a few of the less common versions of left-libertarianism. Nevertheless, it would be a stretch and I don’t find libertarianism compelling anyway so I can live without trying to make that argument.

Sufficientarianism is another theory that is plausible. While I’m sure it’s possible to make an argument from sufficientarianism I’m not sure whether it is worth attempting it. After all, there are lots of forms of sufficientarianism and many people advocate a pluralist theory anyway (sufficientarianism + some other theory). Plus I don’t see why the CLIPH-rate tax particularly does any better at getting people above thresholds except perhaps for the consequentialist/prioritarian reasons set out above. Let me know if you disagree and think I should write about this.

Prospects and next steps

What are the prospects for ever writing this book? We’ll see. I might be able to do it fairly quickly if I could devote a chunk of time to it, but other things always seem more pressing. Perhaps I can start with a few journal articles and see if anything develops from there. Maybe this is as far as it will get? If so, its nice to have a record at least.

And if anyone has any suggestions or wants to collaborate do drop me an email.

One rule for the rich...

A recent Washington Post piece by Elizabeth Breunig raises a lot of interesting points and is worth reading.

 

She highlights that in the US (as in the UK) there are constant moves to ensure that those receiving ever shrinking welfare payments are in fact working (or actively seeking work). This is sometimes referred to as 'workfare' 

Breunig points out that most of the non-working poor are elderly, children, or care-givers, all of whom seem to have some reason for not earning more in market employment.

What is particularly interesting about this piece is comparison between the treatment of the poor and rich non-workers.

Everyday libertarianism for the idle rich vs. workfare for the undeserving poor

This comparison might strike some as odd - the poor in question are receiving assistance from society via government spending while the idle rich in question aren't. They receive their money from dividends etc.

The author gives examples of policies that benefit investors and capital-holders, which could be considered subsidies for the idle rich. The point is that these subsidies do not come with a work-requirement as do workfare programmes

I think its possible to go further than this. Even if there weren’t such subsidies it would still be morally acceptable to insist that the idle rich work, even if their income comes from a “private” rather than a “public” source.

This is because the idea that there is a difference between the two is based upon a mistake, labelled everyday libertarianism by philosophers Liam Murphy and Thomas Nagel in their excellent book The Myth of Ownership.

This is the idea that people are led to consider their gross income to be ‘theirs’ and that the tax system takes some of it from them. If you are a libertarian, then you might believe this to be the case. However, since libertarianism isn’t a very attractive political philosophy and since most people aren’t in fact libertarians it is an unfortunate but common mistake to make.  

It is more appropriate to consider the property distribution system holistically, and consider each owner (individual, corporation, charity or government) as the temporary holder of their property. There are strong reasons to let the owner have power of the property while they own it, of course, and I don’t draw the conclusion that the government should be able to seize property unless there is an exceptional circumstance (such as a national emergency, where the property is required for infrastructure development or where the property in question is illegal). I don’t go as far as more radical leftists who would then say that the above means that any private property can be seized by the government at any time.

The point is that when property is transferred from one owner to another it is an opportunity for society to consider whether to (in rare situations) block or (more commonly) tax the transaction. It may appear as if the transaction is just between the two parties involved, but in fact the whole of society is involved. Firstly, society supports the system in which the property and the transaction exists. Secondly, the value of the property exists because of the rest of society.

Investors aren’t just sitting on their property, they are sending it out into the world and getting more back. This is captured by my Comprehensive-Acquired-income tax-base. A self-sufficient farmer who tends their own land and gains from it wouldn’t have to pay tax on their gains. But no-one gets rich from being a self-sufficient farmer who does not engage economically with anyone else.

The idle rich person is then a recipient of social wealth in just the same way as the welfare/benefit recipient.

Why do we care whether people work?

There are lots of possible reasons why we might want to ensure that people work rather than receive money while being idle.

·       Social Consequences: If someone who could work doesn’t do so then this is a missed opportunity for society. Society could have got the benefit of this labour but misses out.

·       Paternalistic consequentialist: This is the idea that it is in people’s interest to work (whether they realise or not). This is because people who are idle will get into unhealthy habits, become slothful, lose purpose and so on.

·       Contributions are important: It is important for people (where able) to contribute to society, and people should only receive social wealth to the extent that they do contribute to society. Interestingly, desert-based (or meritocratic) theories of justice would be against all unearned wealth such as gifts and inheritances since these are unearned.

What is interesting is that these three justifications apply to the wealthy just as much as the poor.

An alternative justification is that people should do whatever they are required to do by the correct theory of justice. Some of those theories will require workfare, and they may or may not require wealthy individuals to work too. My preferred theory would require both. This is the correct way to think about it, and I encourage people to engage with such theories.

However, what about those who want to support workfare but not force the idle rich to work before they can receive unearned income?

To be consistent, anyone relying on any of the three arguments listed above also will have to apply this to wealthy individuals who choose not to work.

What is a contribution?

In the article, Breunig makes the point that carers can contribute to society without receiving market income. Furthermore, many clearly socially useful activities aren’t well-rewarded in the market (such as most minimum wage work), while some activities that aren’t as clearly socially useful are well-remunerated. This is because remuneration follows from supply as well as demand.

On the other hand, someone who inherits a fortune and lives off the returns from this obtains a market income without contributing. It would be possible to insist that only those who work should be able to receive unearned income, or that lifetime unearned income should be linked to the amount of work someone has performed.

Market income is not a perfect indicator of contribution. However, again, I don’t take the hard-left conclusion that market income is meaningless.

Nevertheless, there is often some correlation between market income and social contribution, something I mentioned in my blogs on desert-theories of justice. The point is that we can look at a broad conception of contribution as participation in the labour market or undertaking some socially useful activity such as studying or caring.

Workfare for the rich?

So, do we need to insist on workfare for rich investors as well as the poor?

I think so, on the basis that this would make for a fairer society. My CLIPH-rate tax system would link people’s net income to the hours they have worked (or undertaken some equivalent or having been excused from doing so).

However, those who argue for workfare on more limited grounds, such as the three arguments listed above, should also support workfare for the idle rich on the same grounds. This would presumably mean taxing non-working but able people from gaining unearned income through punitive taxation or by blocking such benefits until the individual has undertaken the requisite about of work.

How else could they avoid the inconsistency?

·       They could stop insisting on workfare and instead support a Universal Basic Income, i.e. to give up on workfare.

·       They could advocate a theory of justice which justifies workfare programmes for the poor but not the rich. This rules-out desert or contribution-based theories. Furthermore, it probably also rules-out consequentialist theories which emphasise economically strong outcomes.

As I mentioned, my proposal is to link net income and work for all those who can work. This applies whether they are wealthy or poor, high-earner or low-earner. 

Money for all? The costs and savings of a Universal Basic Income

The idea of giving everyone in society an income is an old one- Thomas Paine suggested it way back when. However, it is being taken increasingly seriously and the Green Party, Labour and now the SNP are supportive or investigating it.

There are several arguments for some form of Universal Basic Income (UBI). Arguments can be made from philosophical principle, such as the argument that a UBI offers a unique and valuable kind of freedom to all members of society (see the work of Phillipe Van Parijs).  However, another argument is that the UBI would be more economically effective, partly because of the bureaucratic savings involved.

A third argument is that a UBI is necessary because artificial intelligence and robots will cause mass unemployment. I would support a basic income if this occurs but it clearly isn’t going to happen any time soon. I will therefore concentrate on the first two arguments above.

Both those arguments are challenged if a UBI is costlier than its supporters assume. The reason is clear with regards to the second argument mentioned above, but also applies to the real freedom argument. This is because the level of sustainable UBI will in fact be lower than expected and therefore the real freedom offered would in fact be less valuable than expected.

We can split the arguments against a UBI into arguments about fiscal cost and arguments about its likely economic effects. Of course, in practice the two are largely interlinked and I will argue that UBI supporters are probably too optimistic about the latter which makes their cost predictions easier. In approaching this issue I’m happy to ignore the set-up costs of a UBI as these would be a one-off cost, but the likely ongoing costs both fiscal and wider do concern me, as I will outline below.

One problem with assessing detailed basic income proposals is the variety. Each advocate can present different changes to other taxes and benefits to pay for a UBI at their preferred level. Essentially you can tack on whatever tax and benefit changes you want to your basic income scheme to make a total package of changes that will broadly cover the cost of the scheme. However, there will be losers from such changes and often the complexity in the benefit system are there because it is hard to get money to the people who really need it without also giving it to people who don’t. John Kay makes this point well in his blog on the subject, making the point that there will be losers and they are likely to be very sympathetic cases and therefore effective campaigners.

Kay’s blog covers quite effectively the costs and savings of the likely benefit changes, where he charitably assumed that a Green Party proposal was correctly costed so I will focus on the administrative savings argument and the wider economic impacts of a UBI.

So how much would a UBI save or cost?

Free money? On administrative savings

There is one way in which a UBI would generate funds that could benefit everyone without costing anything, which is that the low administrative costs compared to a contingent (non-universal) benefits system. Of course, a lot of the spending is on wages for state workers, who would need to do other work instead (or live on the UBI) but I will take it as read that this is a straightforward saving.

However, the administrative savings wouldn’t be very significant. A pro-UBI Green party paper estimates these savings to be £8bn per year in the UK. Split between 65 million people this amounts to £123 each per year. Hardly a huge amount to write home about.

The Green Party proposal, for example, says that they use £8bn figure rather than the £10bn allegedly quoted in a Citizens Income Trust report to account for this difference. I have failed to find the document quoted and the closest I’ve found to the one described claims a £5bn net saving. Five billion (which I believe is a very optimistic estimate of the overall cost given that those with certain special needs would still need to be assessed) shared out would amount to £77 per person per year.

I believe extra payments for those with special needs would need to remain in place and the administrative costs are undoubtedly concentrated on these. I therefore worry that the more optimistic assumptions about cost savings include taking away such payments which could have a catastrophic effect on people with, for example, expensive disabilities.

A UBI supporter could reply that I’m being unfair by assuming that all members of society would obtain the UBI. This is because other progressive tax changes would mean that only those with low incomes would be net beneficiaries—a much smaller number. So, if we assume the UBI is only shared between 9 million people (roughly the amount of people out of work in the UK at present) then it would rise to £556 per person. If shared between those currently receiving jobseekers allowance this would be an increase of £10 per person per week compared to what they receive at present. This assumes, of course, that the number of those receiving the benefit doesn’t rise substantially (see below on wider economic changes).

Other changes in public finances

The costs of the scheme therefore are mostly found by changing other benefits and/or raising taxes rather than making administrative savings. There will be losers and this is what needs to be assessed.

These wider changes can be done independently of a UBI of course. Another trick in Basic Income papers is the claim that tax revenues would rise due to the basic income. But this means that the state is giving money to people and then taking it back straight away. What matters of course is the net change to people’s income.

An OECD report models an affordable UBI that would be too low to assist in reducing poverty in OECD countries. UBI supporter Karl Widerquist (in his “Back of the Envelope Calculations”) challenges their methodology by insisting that it is wrong to require budget-neutrality when assessing UBI systems. A pro-Negative Income Tax paper by Wiederspan, Rhodes and Shaefer makes a similar argument. These papers rightly point out that net distributive outcomes are what really matter, and anti-UBI writers should take this approach just as UBI supporters should. However, the “back of the envelope” assumptions from these authors would have significant wider economic ramifications as I will outline in more detail below.

Furthermore, as a UBI is less targeted than the programmes it would replace, those with specific requirements (such as disabilities or lots of children) are very likely to lose out, unless the UBI is set so high that it would have very substantial costs. Basically, you can set the UBI low and it won’t cost too much or have economic disincentives or you can set it high and achieve all social goals but with really very concerning fiscal and economic costs.

Wider economic changes

Things get interesting not in the immediate change to public finances but in the wider economic changes a UBI would produce. Put simply, there would be major upheaval as some businesses and industries find they are no longer viable, others become much more successful and further industries boom.

Using current household income data and benefit payment levels, as Widerquist does, to calculate the costs of a UBI is therefore questionable, particularly where the UBI is assumed to be very high and therefore to have a significant impact on people’s employment choices.

Will people leave work?

The most obvious change is that some people who are working may decide to stop and others who are looking for work may cease to do so. Most assessments of the fiscal cost of UBI assume people will still earn the same amounts of income after the system is introduced, which probably wouldn’t be the case.

Supporters of Basic Income trial schemes seize on studies that show that people do not stop working or engage in socially useful activities such as caring instead. However, I would add some caveats to these findings. Firstly, small-scale trials may not replicate an entire society switching to the system, in particular because of the extra attention researchers give to those involved. This attention may improve their personal outcomes in a way that receiving money and no attention may not. Furthermore, if everyone in society is eligible for the income then this may erode the general work-ethic in a way that would not apply in a UBI trial.

Of course, it is all speculation how people would behave differently with a UBI. However, it is part of the point of the system that some people would leave full-time work to do other things. UBI supporters often suggest that people would be able to do useful things such as learning, caring and building up businesses. All of which would certainly be valuable and I would be happy to support assistance to enable them to do so.

However, some people are what I have elsewhere termed leisure-lovers because they wish to maximise their time spent on low-cost activities and therefore seek to work the lowest amount of time to cover their needs. These people are the ones that will make a UBI more expensive overall as they would spend less time (if any) in paid employment under a UBI.

I can think of many examples of people who would count as leisure lovers:

·        Door-to-door proselytisers for their religion

·        Avid readers

·        Amateur historians

·        Rock musicians

·        Artists

·        Fitness freaks

·        Poets

·        Sport enthusiasts

·        Novelists

·        People who like to travel

·        Computer game-obsessives

·        Some may wish to set up a church of their preferred kind (someone seems to have done this in their garden shed near where I live!)

I’m quite sure a non-trivial number of people would follow interests such as these if a UBI made this possible. The rest of society may consider the benefits of these activities to be minimal. If someone sets up a new church or spends their time writing bad poetry will this really help society?

A further and related point is that some people may well choose to retire earlier if they are not forced to wait until a certain age to receive their ‘pension.’  The state pension age is often the trigger for retirement as it then becomes affordable to stop working, but this may cease to apply.

On a personal note, I think I count as a leisure-lover and would therefore benefit from the UBI scheme I am arguing against. I prefer to spend my time reading, researching, teaching and writing than working a 9-5 job. I hope that my doing these things is socially useful, but I imagine many people would consider that it would be more useful if I was engaged in full-time paid work instead.

The existence of such leisure-lovers is a problem for UBI supporters because they threaten to increase the costs of the scheme without providing the alleged benefits. The direct costs would be that this would mean that more money would be getting paid out to recipients and less money would be collected in taxes. This could quickly blow a hole in the calculations. However, this would also have wider economic effects, as I will also discuss below.

Tax Credits

Most proposals for a UBI involve it replacing tax credits (also known as employment subsidies and called the Earned Income Tax Credit in the USA). Some on the left are very opposed to tax credits because they see it as subsidising employer profit rather than employee wages. However, there is every reason to believe that these are good for employment rates and workers.

The extent to which the employee and employer benefit from the credit will vary from case to case. In some cases, the employee will get all the benefit, while in others the employer will capture the lion share. However, note that the latter cases could include some whole industries that would not be competitive in wealthier countries without tax credits.

Some on the right would say it would be better for such industries to die off while others on the left would claim that such industries should be protected or subsidised to keep them going even though it is cheaper to produce such items abroad. However, in the first case the upheaval would be much more damaging and possibly costly than the continuation of earnings subsidies. In the latter case, if the state is saving an industry by paying it money or forcing consumers to pay more for its goods then how is this any better than providing tax credits?

This section has moved away from the UBI, but the point is that the UBI will tend to help industries that find it easier to recruit, whereas tax credits help industries that struggle to compete internationally and help keep consumer prices down. I imagine there would be more computer-game start-ups but fewer manufacturing plants. Maybe this is a good thing – computer-games are a profitable and growing industry. However, it seems like a more diversified economy is a much safer bet than a more ethereal one.

Price rises

One advantage of a UBI is that it will improve the worker bargaining position, which is a good thing. I would support doing that through the provision of a job guarantee scheme (see below) which would also have a similar effect.

However, a consequence of improving worker bargaining is that it will likely lead to price rises for consumers. In addition, as highlighted regarding tax credits, it may also undermine some exporting industries as well.

A UBI would also (in some cases intentionally) lead some people to choose to leave the labour market. If more people do so this would reduce the pool of workers available and again put pressure on wage rises.

The correspondingly higher wages can also result in a reduction in employment in some sectors and/or price rises. Unemployment might not be considered a problem given that people will have a guaranteed income, but this will then increase the direct and indirect costs of the scheme. Of course, it could be that all those laid off will become entrepreneurs, but what if they don’t? What if they give up on paid work entirely and there is a smaller pool of workers available as a result?

Now, there would be a compensatory price reduction in some areas. It might become cheaper to acquire items that people enjoy producing; artisanal products might become cheaper and people would quite possibly enjoy their work more. These are good things for those people, but the rest of society will end up paying more for most of their goods and services with a UBI.

If the price of labour, goods and services do rise, as I have suggested they would, then this will also mean that more government expenditure will be spent on goods and services, putting pressure on

Summary of my claims

I have claimed above that a more dynamic assessment of the complex consequences of a UBI would likely show that there would be a lot of additional costs. These would counterbalance the gains—if prices rise then the basic income loses effectiveness and so would either need to be raised or would be less effective at reducing poverty than advertised.

Of course, perhaps a basic income would lead to significant productivity advances and corresponding rises in income. However, if the point is that people are free to earn less than they would otherwise then it seems that overall lower productivity would result.

What matters in the final analysis is the distribution of the benefits and costs of the system. This is hard to work out even ignoring the dynamic economic consequences I have raised above.

It is wrong to assume that a UBI would be a fantastic panacea. The devil would be in the detail and its (difficult to predict) overall economic effect. It would benefit some people, of course, such as those who want to pursue uneconomic or risky dreams and ventures. Mainly, it would benefit those with strong a preference for uneconomic activities—a group we can refer to as leisure lovers (of which I am almost certainly one so I’m arguing against a system from which I would benefit). It would almost certainly help the low-paid, though I would contend that other proposals such as mine would be more effective in this regard.

Alternatives to a basic income

The alternative to a basic income is obviously not to have a basic income (as is the case everywhere at present). But that isn’t to say there aren’t other policy proposals out there which could make a difference to people’s lives.

I would obviously point towards my own novel tax and benefit system, the CLIPH-rate tax. However, other alternatives include the following:

·        A Participation income – proposed by Anthony Atkinson, this is similar to the basic income but dependent upon engaging in approved activities. (My CLIPH-rate tax proposal similarly allows hour credits for participation in a range of activities such as caring and study and not just paid employment.)

·        Tax credits to encourage people into work and to encourage employers to create more jobs (discussed above).

·        A job guarantee scheme which ensures that anyone willing to work can do so and get paid. This is included in my CLIPH-rate tax proposal as people capable of working need to have access to hour credits to receive income without corresponding tax-rises.

All these proposals also have costs and therefore require higher taxes or other public finance savings to pay for them. However, because they seek to encourage people to engage in socially useful activity they would not have as big an impact on the wider economy as a UBI would.

Overall, the UBI isn’t the perfect panacea some of its fervent advocates assume it to be. Some people would lose out from it and society would face an expensive bill if many people take the option to follow their personal interests or retire earlier as a result of the system. 

Conclusion: Institutionalising the constructed desert base (8/8)

In my previous blog I presented a new form of desert base that I believe is more attractive than the traditional approaches to economic desert. I will conclude my series by considering the institutional implications of this.

1.       Implant and monitoring

If we could insert chips into everyone’s heads to measure reliably how much time, energy and dissatisfaction they are expending at a given point in time. They would also be monitored somehow so it can be known if they are engaging in economically productive activity. This technology could then monitor how much people are expending when they engage in productive activity we would be able to share out incomes accordingly. However, we cannot currently do this, and perhaps would worry about doing so—it might be quite invasive to follow people’s activities and mental states that closely.

2.       An endowment tax.

For the time being it would be easier (though still not that easy) to take account of people’s incomes, the time they expend and their abilities. Essentially, an endowment tax would be the most obvious stand-in for the constructed desert base.

This would tax people differently depending on their abilities so, where this is measured by test results, someone with top IQ and high school test results could be assigned to a higher tax band throughout the remainder of their life than those with lower scores. Even then the practicalities are difficult—how much weight should be given to the different measures such as mathematical vs. emotional intelligence, creativity vs rule-following etc.

Stuart White proposes a system which puts people into three categories to make this easier (see also chapters 4 & 5 of his book The Civic Minimum). However, while this makes the endowment tax much easier to administer and much less controversial it also reduces its effectiveness at taxing people according to the ability and therefore

There are several serious complaints against endowment taxation, such as that it would be invasive to test for this and that it would unfairly limit the talented. Some people have talked of the ‘slavery of the talented’ as talented people would not be able to take lower paid work that would be open to less talented individuals—the low paid work would not be enough to pay their higher endowment tax.

So if endowment is considered too difficult to accurately measure or if endowment taxes are considered unfair, what is the next-best option for the constructed desert base?

3.       Hourly averaging

I would suggest that my hourly averaging proposal is the next closest option to the constructed desert base. This system taxes those who receive large incomes after expending a small amount of time working and provides subsidies to those who work long hours for small rewards.

I have suggested that time spent working should be one of the factors in the desert base as it is something that people can control. One complaint might be that some people who work long hours do so in low-productivity activities which are do not make them deserving. However, in some cases this might be because the person cannot obtain more difficult higher paid work.

It is quite different from endowment taxation in that people with a lot of potential to contribute but who do not do so will not be penalised. However, it may not be that someone who has more potential finds a particular job easier than others and therefore render them less deserving. It might be that someone with the potential to be a lawyer finds being a waitress just as stressful as the person who would struggle to master legal procedure.

I would also add that my CLIPH-rate tax system which combines hourly averaging with a comprehensive tax on personal gains would track the desert base very well. This is because each person’s income would be tied to the number of hours they have worked in their lifetime, and those who have not worked would have their unearned income taxed at 100%.

The downside of the CLIPH-rate tax is that it would not be able to distinguish readily between two people who receive large hourly incomes due to the sacrifice involved vs. earning rents on their skills and talents. However, one factor is the way that prices will react to the tax—those who earn large incomes from rents will not require more pay when the tax would be introduced. On the other hand, jobs which people would be unwilling to do when taxes rise substantially are likely to be those which are both productive and involving a lot of sacrifice.

So a variation of the hour-credit system proposes itself. Those jobs which begin to go unfilled with the introduction of hourly averaging could be ones for which workers could receive ‘bonus hour credits’ as a way to recognise their sacrifice. Dangerous work such as deep sea diving might be one example of this—people might be happy to take these risks if they thereby earn a large net income and have a lot of leisure time to enjoy it.

Conclusion

I began this series of blogs explaining that some people find deservingness the appropriate way to determine how much each person should receive from their society. I explained the existing theories of economic desert which begin either from desert bases or from market earnings and why these are all problematic despite their various attractions. After highlighting the various links between economic desert and markets I proposed a new form of desert base constructed from the intuitively attractive elements of the existing desert bases. In this final blog I have considered the options to institutionalise the constructed desert base. I still remain sceptical of building economic justice from desert but I would challenge those who do to propose a more feasible and less controversial way to give people what they deserve than the CLIPH-rate tax.

Desert bases and market income

So far in this series of blogs I have argued that there are serious problems when starting a theory of economic desert from either market incomes or the traditional desert bases. In this post I want to suggest that there is a link between the common desert bases and market income, even though it is not feasible to claim any simple and direct link between the two.

If we consider the three desert bases outlined previously we can see that they will, in most circumstances, have a strong influence on someone’s income.

Effort: If someone puts in more or less effort across their working life then we would expect their lifetime income to rise accordingly. This will be particularly true of people who are self-employed or paid for piecework, but we would even expect it for people in salaried jobs as their harder work may be noticed by superiors who will be keen to retain or even promote them.

Contribution: This desert base is often considered to be directly related to market income and so it is not controversial to claim that greater contribution will bring about greater market incomes.

Compensation: The labour market should also lead people to be rewarded more if they sacrifice more. People who work in more stressful, dangerous or unpleasant jobs get paid more than those with similar skills and talents doing less difficult work. In the UK an investment banker will get paid more than someone in the human resources department of a bank, a deep sea diver will be paid more than a teacher and a bin-collector will get paid more than a labourer.

The point is not universal. There may be people who put in lot of effort but in an undirected manner and would be more successful if they relaxed and slept more or slowed down and reflected more. Similarly, people’s sacrifices may sometimes go unrewarded, for example if they are the hardest working person in a large team where the rewards are shared out equally or where a lot of people only have less enjoyable work available to them such that wages are low.

Contributions to the economy (and certainly society in a wider sense) do not always result in market rewards. Some people may contribute a lot in a way that is not recognised by the market—such as charitable work or caring. Additionally, there may be people who obtain a very high income without contributing very much at all—such as those who find a legal loophole which they can exploit to make money.

However, while it is not a universal rule that income goes up for those who act according to each desert base, for the most part the person will be rewarded in the market for their activities.

What I wish to highlight in this blog is that there is a link between market rewards and all of the economic desert bases. The link is sometimes quite weak, since market incomes depend upon supply and demand rather than acts in accordance with desert bases. Nevertheless I think it is important to note this and how this fact should lead us to reassess our views of the desert approach to economic justice.

1.       Has the link caused some to find the pro-market aspect of the desert approach more plausible than it is?

2.       Has the link caused some people who are pro-market to seek to find a desert base that supports their preferred view?

3.       Does the link mean that anti-capitalists who take a desert-based approach to justice should be more pro-market than they are?
and:

4.       Does the link imply that the most plausible desert base will take account of (or make use of) market pricing, though not be identical with it?

Along with these, there may also be other interesting questions that follow from the relationship I’ve highlighted between desert bases and the market. However, I will focus on the fourth of the above in my next blog, where I will construct a more complex alternative desert base which I believe is much more plausible than the approaches I’ve presented so far.

Interpreting and applying Dworkin’s hypothetical insurance

I have realised that I have not blogged about an article of mine published in the journal Moral Philosophy and Politics entitled The Holistic and Policy-Focused Interpretation of Hypothetical Insurance.

In the paper I consider the best way to understand and make use of Ronald Dworkin’s hypothetical insurance scheme. This is a procedure to determine fair policies to help the less well-off by asking people what they would agree to pay and receive if they did not know whether they were fortunate or not. So to work out how much people who suffer from an illness should get you ask what insurance people would buy themselves if they didn’t know whether they have it or not. If sufferers get less they are not being treated fairly. Conversely, if non-sufferers provide more to sufferers than they would have agreed to receive in the hypothetically equal position then they are not being fairly treated.

This lends itself to an interpretation of the approach that each of these decisions involves a separate decision about a transfer of resources from the fortunate in that regard to the less fortunate in that regard. Add up all of these transfers and you work out how each person should be paying or receiving all told.

The way Dworkin presented the approach lends itself to this interpretation, but he does make clear at times that he isn’t just talking about resource transfers—providing blind people with guide dogs and paraplegics with wheelchairs and carers might be a more sensible insurance choice than giving money.

I believe the best interpretation of Dworkin is a holistic one that allows the parties to hypothetical insurance not in terms of simple payments from fortunate to unfortunate but as a selection between the policies that are available to tax the fortunate and assist the less fortunate from a position of hypothetical equality.

This interpretation contrasts with the idea that each insurance choice is hypothecated from the others so money from inheritance taxation would have to spent to alleviate social inequality rather than go into a big pot to assist the less fortunate. It also contrasts with the insurance-focused understanding of Dworkin that implies that transfers are necessarily the main tool for sorting out inequalities (basically all sensible policy options are open to people to choose in their hypothetical insurance deliberations).

I believe my holistic interpretation better fits with the ideal of resource egalitarianism that people should have as much choice as possible from an equal starting point. It does so by allowing people a choice over the policies that will be used to achieve their insurance preferences.

My suggestion is that Dworkin’s insurance model can be readily applied to tax and benefit policies; though admittedly in some cases it will generate much more determinate and definitive answers than others. On some issues you might need to find out a lot about people’s attitude to risk, their values and the likely effects of various policies in order to work out the fair distribution. However, in my PhD thesis I argued that if you apply this reasoning to the taxation and benefit options then my CLIPH-rate tax proposal would be the popular choice for people choosing from an equal position.