Essentially this scheme would make every citizen an equal shareholder of “Great Britain plc”. Everyone would receive a Citizens’ Dividend in addition to other income such as wages and pensions. The money would come from a levy on profits paid out to shareholders, environmental levies on things like non-renewable energy, carbon and mineral extraction.
It would eventually replace benefits and state pensions. Children would receive it instead of Child benefit, maybe a proportion of the adult rate, with some of it dedicated to their education.
This scheme is a variant of a Basic Income for which the benefits are:
- elimination of the poverty trap.
- elimination of nearly all means testing, which represents a massive interference by the state in the lives of the individuals.
- elimination of benefit fraud.
- reduces the administrative barriers to informal work.
Any basic income scheme is likely to need to be a bit progressive and could provide a mechanism for controlling inequality. This is desirable because excessive inequality is:
- a source of social unrest.
- a driver for crime and corruption.
- an inhibition of good economic performance.
- self perpetuating.
Some degree of inequality is probably necessary, desirable and unavoidable, but there must be some level at which society works best but which is less than what we have now.
The difference between a Citizens Dividend and other Basic Income schemes is that it would operate independently of the Treasury. Instead of all the different types of taxes effectively going into a single Treasury “bucket”, there would be a separate Citizens Dividend “bucket”. Income taxes still go into the treasury bucket but levies on profits and resources go into the Citizens Dividend bucket.
The public perception of a Citizens’ Dividend would be different to any income tax based system, whether it is the a Basic Income or the current benefits system. Receiving a benefit is seen as charity and a token of failure, while receiving dividends is OK. Paying personal taxes is unpopular; seeing your money being paid out to someone else compounds the pain.
A Citizens Dividend would be less vulnerable to political whim and unsustainable promises and would not allow the myth of a bottomless source of money which parsimonious governments withhold from individuals. The source and the size of Citizens’ Dividend would be clear to all and would be no more consistent with a “dependency culture” than owning shares.
Means-testing is not just universally unpopular invasion of the individual by the state, it encourages the state of affairs it aims to relieve; unemployment benefit is an incentive to being unemployed. The more benefits are targeted, the more specific they are in this encouragement. I suspect that most people would prefer a non-judgemental and reliable basic income than benefits as available now, even if it were a bit lower.
It would be wise to introduce any Basic Income scheme gradually and, as a first step, at a level at which the net income and outgoings of all parties is nearly unchanged. Parker and Sutherland explore the reduction of the poverty trap by a combination of a £20 per week BI and a minimum wage. We could take their figures unchanged for the amounts everyone will pay and receive but just change the route by which these payments are made.
Just as with a Basic Income, a Citizens Dividend would be introduced at a low level and gradually increased until all normal benefits and state pension are replaced. In both cases there could be various shifts in money flow:
- Unemployed persons would have their benefit or pension reduced by the BI or CD
- Children would be allocated a CD but most of this would be directed to the cost of their education.
- Employed persons would have their wage reduced by the BI or CD except for the lowest paid, where the reduction has to be less to eliminate the poverty trap.
- Share dividends could be taxed at source and the tax identified as part of the profit rather than a personal tax on the shareholders.
- Employers would be paying out less in wages. The difference would go to the Citizens’ Dividend.
- For a CD but not an orthodox BI, the Treasury’s role would contract.
The cost of employing extra workers is reduced while the cost of materials and resources will be unaffected or increased. A manufacturer choosing the most cost-effective production will tend towards a more labour-intensive and more resource-efficient regime. This will be better both for employment and the environment. There are many jobs such as caring, cleaning, tidying litter etc. which are uneconomic now and would only get done for a wage that is less than unemployment benefit. The proposed system would mean that these economically marginal but socially valuable jobs can be done.
People naturally seek security, particularly for their old age. They make investments in pension funds and put themselves at the mercy of a complex and unpredictable economic system. It could be argued that the Citizens’ Dividend, having the ultimate spread of risk, provides the most secure income possible. Fixed benefits, such as a state pension, may in practice be less secure because they are vulnerable to inflation and the whims of government. In times of recession the total wealth of the nation is reduced and people suffer. This can be very arbitrary and unfair. The Citizens’ Dividend would decrease for everyone in a recession so that the resulting suffering would be spread more fairly. Citizens would also be given a clear idea of the state of the economy and would be involved to a greater degree and more positively than at present. The cultural repercussions of this could be profound; for example major industrial disputes would have an immediate tangible effect on the participants, who might therefore have more incentive to solve them without the sort of disruption that would reduce their own and their neighbours’ income.
Profit-making enterprises will naturally seek ways to avoid paying their share of the Citizens’ Dividend; for example a privately owned business could pay enormous wages to its owners. One way to include such enterprises would be to put an upper limit on wages, for example a fixed factor times the Citizens’ Dividend. All payments above this level are treated as part of the total profit, a component of which is diverted to Citizens’ Dividends.
A possible elaboration would be for certain activities to be exempt from contributing to the Citizens’ Dividend. Public transport, health and education are candidates. To qualify, they would have to provide a benefit available to, and needed by, all citizens, in effect providing a dividend in kind. In the case of public transport this would give a fixed financial advantage over private transport without interfering with competition.
This scheme in particular implies a shift from personal taxation to corporate and resource taxation. There are strong arguments in favour of this trend on the grounds that technological advances and general increases in both living standards and population means that resources will become scarcer, while the need for labour, particularly easily automated unskilled jobs, will decline. Income tax is effectively a tax on employment and to tax is to discourage.
Very similar ideas can be found at: The Progress Report
* Parker H. & Sutherland H. “How to get rid of the Poverty trap: Basic Income plus national minimum wage” Citizen’s Income Bulletin, No 25 Feb 1998