Die BRUTTO-NETTO-KURVE - das überzeugendste BGE-Argument!

[Viktor Panic]

Wie kann man "Normalbürger" von unserer Idee Überzeugen?

Wissen Sie inzwischen, was die Brutto-Netto-Kurve ist?
Ich weiß, die meisten Menschen stehen mit der Mathematik auf Kriegsfuß, doch die BNK ist die wichtigste "Funktion", die ein Fachmann oder Politiker kennen sollte! Sie ist so wichtig, dass sie bis vor einigen Jahren gar keinen Namen hatte, auch wenn das paradox klingt.

Die BNK stellt den Zusammenhang zwischen den beiden Dingen dar, die einen erwerbstätigen Menschen interessieren:
Brutto: Was leiste ich? (bei Arbeitnehmern: gemessen in "Arbeitskosten")
Netto: Wieviel verdiene ich? ("verfügbares Einkommen", inclusive Einkommens-abhängiger Sozialleistungen!)

Das Bedingungslose Grundeinkommen verändert die BNK derart, dass sie zu einer schnurgeraden Linie wird!
(Das gilt jedenfalls für mein "lineares" Grundeinkommen, für Götz Werners Modell und einige andere Modelle.
Es gilt nicht für das "Ulmer Transfergrenzen-Modell"; das damit verwandte Althaus-Modell; das progressive Modell der BAG/Linkspartei; das bekannteste Modell der Grünen - wegen des separaten Wohngeldes; das liberale Bürgergeld der FDP - kein echtes BGE, ich weiß; etc.
Deswegen halte ich all diese Konzepte jedoch trotzdem auch für einen Schritt in die richtige Richtung - man muss bloß zwischen Weg und Ziel klar unterscheiden!)
Unser heutiges Problem liegt einzig darin begründet, dass die BNK der "Sozialhilfe-Ära" (die Zeit vor Hartz IV) einen scharfen Knick aufwies, der durch Hartz IV zwar etwas gemildert wurde - das ist ein positiver Aspekt - aber im Prinzip immer noch vorhanden ist.
Nicht der Knick ist das eigentliche Problem, sondern die Tatsache, dass die BNK links (bei niedrigen Einkommen) bedeutend flacher verläuft als rechts (bei mittleren und hohen Einkommen). "Links", das ist der Bereich, der durch das gültige Sozialleistungs-System definiert ist.
Dass dieser Bereich viel flacher ist als der rechte, der nur durch den "Einkommensteuertarif" und (bei "abhängig Beschäftigten") durch die Sozial"versicherungsbeiträge" definiert ist, bedeutet, dass Hartz-IV-Empfänger von zusätzlicher Arbeit viel weniger profitieren als Bürger mit höherem Einkommen! Man kann dies auch so ausdrücken, dass Hartz-IV-Empfänger auf ihr Einkommen einen weit höheren "Abgabensatz" zahlen als Normalbürger. (Zum Vergleich: Mathias Dilthey kritisiert in seinem Modell-Dokument das Althaus-Modell, weil dort für niedrige Einkommen einen "höherer Steuersatz" gelte. Das liegt eben daran, dass auch dort noch ein schwächerer Knick vorgesehen ist.)

Man braucht dies alles nicht auswendig zu lernen, um vom BGE zu überzeugen!
So, wie ich es oben geschildert habe, würde ich es auch einem BGE-"Unbedarften" gar nicht erklären!
Obige Zeilen sind für Euch gedacht, die ihr bereits von der Idee überzeugt seid!
Im folgenden die Argumentations-Strategie, die ich verfolge, wenn ich das BGE einem Normalverdiener nahebringen will:

"Wissen Sie, was die Brutto-Netto-Kurve ist?
Es ist der fundamentale Zusammenhang zwischen Arbeitsleistung und Einkommen. Dabei muss man Steuern und Sozialversicherungsbeiträge berücksichtigen, aber auch die Sozialleistungen! Die Sozialleistungen werden leider meistens vergessen, dabei haben diese einen starken Einfluss darauf, ob Arbeit sich lohnt!"
Dann sollte man unbedingt Papier und Bleistift parat haben, um die heutige BNK zu skizzieren! Denn ein Bild sagt mehr als tausend Worte!
Ich habe z.B. im Petitions-Forum sogar "Nutzer241", einen sehr kritischen Begleiter, zu dem Eingeständnis bewegen können, dass die gerade BNK, die durch das BGE erzeugt wird, marktwirtschaftlicher ist als die heutige!
Und das ist wichtig! Denn der Normalbürger hält sehr viel von der Marktwirtschaft, selbst wenn er ihr keinen sozialen Ausgleich zutraut!
Also, nach dem Skizzieren der heutigen BNK füge ich eine gerade Linie ein, die das BGE repräsentiert und frage:
"Nun, welches System ist wohl marktwirtschaftlicher?" - "Die gerade Linie." -
"Diese Linie repräsentiert ein bedingungsloses Grundeinkommen!
Genauer gesagt, eines, welches durch einen einheitlichen Steuersatz finanziert ist.
Jedes solche Grundeinkommen, egal wie hoch, stellt eine gerade Linie dar. Allerdings bedeutet das nicht, dass die Höhe des Grundeinkommens egal ist, denn je höher es ist, um so höher ist der zu seiner Finanzierung notwendige SteuerSATZ, das heißt, um so flacher wird die Gerade!
Ein zu hohes BGE würde einerseits viele Menschen dazu verleiten, ihre Arbeit aufzugeben, um sich mit angenehmeren Tätigkeiten zu beschäftigen, und es würde andererseits wegen des höheren Steuersatzes vielen anderen die Lust am Arbeiten verleiden.
Insgesamt würde weniger gearbeitet, das Bruttosozialprodukt würde schrumpfen, dadurch auch die Steuereinnahmen, und man müsste entweder den Steuersatz noch weiter erhöhen oder das BGE senken."
Darum befürworte ich übrigens die Kopplung des BGE an das Bruttoinlandsprodukt (BIP), siehe auch Dilthey-Modell.
"Ein niedriges BGE hätte den gegenteiligen Effekt, je niedriger, desto belebender für die Wirtschaft.
Natürlich muss das BGE hoch genug sein, um das Existenzminimum abzudecken, möglichst das 'soziokulturelle', so wie Hartz IV.
Wie hoch dieses Existenzminimum ist, darüber streiten wir BGE-Befürworter leider heftig, aber darüber streitet die Politik ja auch schon heute, also nichts Neues!
Ein sehr niedriges BGE wäre sogar ohne Steuererhöhung finanzierbar, hat das IFO-Institut ausgerechnet!"
Das Institut für Wirtschaftsforschung in München - es ist nützlich, Wirtschafts-Fachleute anführen zu können.
"Nämlich bei Absenkung des Hartz-IV-Regelsatzes um ein Drittel. Das wäre natürlich absolut asozial! Aber das ist ja auch gar nicht nötig! Denn die positiven Auswirkungen des BGE auf die Wirtschaft - durch die gerechtere BNK - sind ja bei dieser Rechnung noch gar nicht berücksichtigt! Das bedeutet, dass ein volkswirtschaftlich 'neutrales' BGE deutlich höher als dieses IFO-Modell ist!
Übrigens wird es der Demokratie überlassen sein, den BGE-Prozentsatz zu erhöhen oder zu senken! Das ist der Prozentsatz, der die Höhe des BGE im Vergleich zum BIP (pro Kopf) bestimmt. Ein zu hohes BGE wird es dann nicht geben, weil die Bürger genau wissen werden, dass dies der Wirtschaft und ihrem eigenen Portemonnaie schadet, ein zu niedriges aber auch nicht, weil die Mehrheit der Bürger unterdurchschnittlich verdient und daher 'Transferempfänger' sein wird - wenn man mal von den Steuern absieht, die für 'sonstige Staatsausgaben' nötig sind."

Hier nochmal die Grafik der Brutto-Netto-Kurve.
Bitte beachten: Die heutige BNK besteht aus der dunkelroten und der dunkelgrünen Linie!

[Viktor Panic]

FOLGENDER TEXT FINDET SICH in Englisch AUF DER WEBSITE
http://www-gewi.uni-graz.at/staff/parncutt/BIFT2.ht
DIE ICH ÜBER DIE LINK-LISTE DER NETZWERK-WEBSITE GEFUNDEN HABE:
(ICH WERDE DEN TEXT ETAPPENWEISE ÜBERSETZEN)

Effektiv-Progressive Einkommen-Steuer EPIT
(Effectively Progressive Income Tax)
Eine Kombination von Bedingungslosem Grundeinkommen und Flatrate-Einkommensteuer
Eine vernünftige Verbindung von Sozialismus und Kapitalismus, Effizienz und Transparenz, Gerechtigkeit und Freiheit
A realistic way to eliminate poverty
© Richard Parncutt 2006-2008

Alle sprechen über Steuerreformen. Doch was haben frühere Reformen erreicht? Wir haben immer noch Armut, Sozialstaats-Fallen, Schwarzarbeit und zeitaufwändige Einkommensteuererklärungs-Prozeduren, die lediglich Experten vollständig verstehen. Viele halten Steuersystem und Sozialstaat für grundsätzlich ungerecht, und beträchtliche Staatseinnahmen gehen jährlich durch Sozialbetrug und Steuerhinterziehung/-vermeidung verloren. Obwohl viele zu glauben scheinen, dass diese beiden Probleme ungefähr gleiches Ausmaß haben, geht tatsächlich weit mehr Geld dem Staat durch Steuerhinterziehung/-vermeidung verloren.

Die Effektiv-Progressive Einkommensteuer (EPIT) ist eine echte Reform, die all diese Themen Konstruktiv angreift. Unter EPIT würde jeder einzelne ein Grundeinkommen erhalten (das bedeutet, das Grundeinkommen wäre absolut bedingungslos), und jeder einzelne würde den selben Steuersatz auf alle anderen Einkünfte zahlen. Sowohl die Höhe des Grundeinkommens als auch der Einkommensteuer-Satz wären unabhängig vom eigenen Einkommen. In dieser Hinsicht würden alle gleichbehandelt.

Um EPIT zu verstehen, ist es wichtig zwischen Grenz-Steuersatz und Gesamt-Steuerbelastung (Effektiv-Steuersatz) zu unterscheiden. In den meisten Staaten ist heute die Einkommensteuer progressiv: Der Satz steigt schrittweise mit steigendem Brutto-Einkommen und unterscheidet sich zwischen unterschiedlichen Einkommensteuerklassen. Untenstehende Tabelle zeigt dass auch mit EPIT die Gesamt-Steuerbelastung progressiv wäre. Außerdem würde sie mit wachsendem Einkommen beständig weiterwachsen.

Der Effektiv-Steuersatz unter EPIT ist definiert als der Unterschied zwischen Brutto- und Netto-Einkommen, ausgedrückt als Prozentsatz des Brutto-Einkommens.
[Erläuterung des Übersetzers: ... definiert als die prozentuelle Veränderung vom Brutto- zum Netto-Einkommen.]
Die Beispiele für Effektivsteuersätze unter EPIT in der Tabelle wurden unter der Annahme berechnet, dass das Grundeinkommen 500 Euro monatlich und der Steuersatz 50% betragen. Diese runden Zahlen wurden ausgewählt um die Rechnung zu verdeutlichen; in der realen Umsetzung von EPIT würden sie angepasst um (1.) die Wünsche des Wählers und der Regierungspolitik (rechts oder links) und (2.) grundlegende wirtschaftliche Bedingungen (Ausgleich des Staatshaushalts, Regulierung der Staatsschulden) zu erfüllen.

In der Tabelle und überall sonst in diesem Artikel bezieht sich der Ausdruck "Brutto-Einkommen stets auf das Einkommen vor Grundeinkommen [Summe der positiven Einkünfte] und vor Besteuerung. Netto-Einkommen ist das Einkommen nach Grundeinkommen und nach Besteuerung.
[Anmerkung des Übersetzers: Hier wird davon ausgegangen, dass das Grundeinkommen selber nicht besteuert wird. Das spielt aber auch keine Rolle, da durch den einheitlichen Steuersatz grundsätzlich immer derselbe Betrag vom Grundeinkommen übrigbliebe, wenn es besteuert würde! Also wenn das Grundeinkommen besteuert würde und man es dafür auf 1000 Euro anheben würde, käme man zum selben Resultat.]
.

Code: Alles auswählen

Brutto-Einkommen (€)     Netto-Einkommen (€)   Effektivsteuersatz

            0                     500         minus unendlich%
        1 000                   1 000                  0%
        2 000                   1 500                  25%
        3 000                   2 000                  33%
        4 000                   2 500                  37.5%
        5 000                   3 000                  40%
       10 000                   5 500                  45%
      100 000                  50 500                  49.5%


Tatsächlich würde unter EPIT Einkommensteuer nur von denjenigen Personen verlangt, deren Einkommen einen bestimmten Betrag übersteigt - wie im heutigen System. Wenn Ihr Brutto-Einkommen zum Beispiel 1000 Euro monatlich beträgt, wird Ihr Netto-Einkommen unter EPIT mit 500 Euro/Monat und Steuersatz 50% ebenso hoch sein: Sie zahlen 50% Steuern auf 1000 Euro und erhalten dieselbe Summe als Grundeinkommen zurück. Dies nennt man den Ausgleichspunkt [Transfergrenze]. Effektiv zahlen Sie weder Steuer noch erhalten Sie Unterstützung. Bei höheren Einkommen steigt der Effektiv-Steuersatz allmählich, und bei sehr hohen Einkommen nähert sich der Effektiv-Steuersatz der Flatrate (hier 50%); übrigens, die höchsten Einkommen werden in manchen Staaten, z.B. Schweden, mit Sätzen über 50% besteuert. Falls Ihr Brutto-Einkommen unter dem Ausgleichspunkt liegt, wird Ihr Netto-Einkommen Ihr Brutto-Einkommen übersteigen - doch was auch passiert, Ihr Einkommen wird niemals unter das Grundeinkommen fallen. Dadurch eliminiert EPIT tatsächlich die Armut.

Wie progressiv ist EPIT? Obwohl es auf einer einstufigen Einkommensteuer (Flat Tax) beruht, zeigt obige Tabelle, dass EPIT nicht nur effektiv progressiv ist, sondern potentiell progressiver als das gegenwärtig in den meisten industriellen Demokratien verwendete. Darüberhinaus kann die Höhe der effektiven Progression unter EPIT durch Veränderung des Grundeinkommens und des Steuersatzes angepasst werden. Wenn das Grundeinkommen erhöht wird, muss der Steuersatz erhöht werden, um es zu finanzieren, und der effektive Steuersatz wird progressiver. Wenn Grundeinkommen und Steuersatz reduziert werden, wird der effektive Steuersatz schwächer progressiv. Auf diese Weise macht EPIT unterschiedliche Steuerstufen überflüssig. Das Steuer- und Sozialsystem wird einfacher und transparenter.

Die meisten sozio-ökonomischen Gruppen würden von EPIT profitieren.
* Die Erwerbslosen würden von Stigmatisierung, bürkoratischer Schikanierung, Sozialstaats-Fallen und Verarmungs-Risiko befreit. Es gäbe keinerlei Begrenzung für zusätzlichen Verdienst über das Grundeinkommen hinaus, so dass Sozialstaats-Fallen abgeschafft würden und ökonomische Mobilität erlmöglicht würde.
* Wenn die Höhe des Grundeinkommens und der Steuersatz angemessen gewählt würden, würde sich das Netto-Einkommen der mittleren Schichten nur wenig ändern; der wichtigste Vorteil für sie wäre, dass sie weniger Zeit für die Steuererklärung und weniger Geld für Steuerberater verschwenden müssten.
Hier möchte ich widersprechen: Auch die Mehrheit der erwerbstätigen Bevölkerung - nämlich diejenigen mit unterdurchschnittlichem Einkommen und/oder überdurchschnittlich vielen Kindern - würde vom Grundeinkommen profitieren, da auch sie derselben Einkommens-Formel unterliegen, die eben genannt wurde: die Erwerbslosen eine verbesserte Zuverdienst-Möglichkeit gibt!
Grundsätzlich gilt: Verbesserte Zuverdienst-Regelung für Bedürftige = verbesserte Einkommens-Situation für "Normalbürger"
- jedenfalls soweit ein System Menschen mit gleichem Erwerbseinkommen auch gleich behandelt, was auf das BGE ja zutrifft.
* Die Reichen würden von EPIT sowohl positiv wie negativ berührt. Auf der positiven Seite würden sie nicht mehr das Gefühl haben, den Sozialstaat zu finanzieren, da auch sie Grundeinkommen erhielten - in Form eines Steuerabzugs oder "Negativsteuer". Der Begriff "Negativsteuer" wird hier falsch verwendet, er trifft tatsächlich nur auf Bürger zu, deren Einkommensteuer niedriger als das Grundeinkommen ist. Auch hätten sie nicht das Gefühl, durch progressive Steuersätze - da der Steuersatz tatsächlich einheitlich wäre. Die Vorstellung würde ihnen wahrscheinlich gefallen, dass alle denselben Einkommensteuersatz zahlen und in dieser Hinsicht gleich stark zur Arbeit motiviert wären - eine gewissermaßen kapitalistische Ideologie. Doch unter EPIT fiele es den Reichen schwerer, die Einkommensteuer zu verkürzen, weil das Systen weniger Schlupflöcher hätte und weil Einkommensteuer zeitnah berechnet und abgeführt würde statt am Ende des (Steuer-)Jahres. Es wäre nicht mehr möglich, dem Spitzensteuersatz auszuweichen, indem man Einkommen von einem Jahr auf ein anderes verlagert, und andere Tricks, wie zum Beispiel, Einkommen auf mehrere Personen zu verteilen, wären schwieriger umzusetzen. Eine nennenswerte Reduzierung von Steuersparmodellen und Steuerhinterziehung würde zu beträchtlichen Steuermehreinnahmen führen, die auf mittlere und untere Einkommensschichten umverteilt werden könnten - selbst wenn der offizielle Steuersatz für hohe Einkommen derselbe bliebe.

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EPIT embraces both socialist and capitalist principles. The goal of eliminating poverty is a classic socialist goal. On the capitalist side, EPIT would motivate all members of society to work (harder or better) to the same extent, which could lead to a steady increase in gross national product and - incidentally - put industrialized countries in a better position to support developing countries. In this way, the gap between rich and poor could be reduced both within and between countries.

The basis of EPIT is a new attitude to socialism and capitalism. These are not contradictory idealogies, but compatible economic principles. They are like love and marriage, which the old-fashioned romantics among us assume to be inseparable:

Love and marriage (...)
Go together like a horse and carriage (...)
You can't have one without the other

This text is intended as a quick introduction to EPIT - just enough to whet your appetite. The text is written in a clear, concise, popular style. You don't need a university degree in public economics to understand it (most other literature about "basic income and flat tax" is addressed to an academic audience). The arguments apply primarily to modern industrial democracies; the question of EPIT in developing countries is beyond my scope.


Short-term disadvantages of BIFT

At first glance, EPIT sounds just too easy - too good to be true. If EPIT is so easy and so good, why didn't we convert to EPIT long ago? I guess there are two main answers to that question. First, EPIT is hard to understand for those entrenched in the current way of thinking. We are talking about a radical change in economic culture. Second, EPIT would prevent a lot of tax evasion or avoidance. Those who benefit from that tend to be both socially and politically influential, not to mention creative and dishonest. People like that can easily invent misleading arguments against EPIT that sound convincing to the general public.

The transition to EPIT would create the following short-term problems, but the long-term benefits would outweigh the short-term costs.

* Since all income including low-level wages for part-time work would be taxed, gross wages at this level would rise and net wages would fall, reducing the difference between low and high wages. Wages would more realistically represent the real value of work on the free market, because the system would treat all wage earners equally. Part-time work would become more expensive for employers, because they would indirectly be paying more tax (the tax that their part-time employees pay); that would need to be compensated for in other areas to maintain business incentives.

* Taxation offices would need new personnel to check that all income is being taxed, from part-time jobs ("cash economy") at the low end to profits of all kinds (e.g. through investment and speculation) at the high end. At the same time, taxation offices would need fewer staff to check annual tax statements, since many people would pay all tax at the time of transaction and not qualify for a return at the end of the financial year. Much of the processing of on-the-spot income tax would be performed automatically by computer. If these two changes involved about the same amount of work, the number of employees in taxation offices would remain about the same, but some retraining would be necessary.


Central issues and misconceptions about EPIT

EPIT is slowly gaining support in international academic and popular circles. But the idea can only catch on if people understand it. That is not easy, because EPIT turns the familiar system of progressive tax scales and diverse, mean-tested social benefits on its head. It's one thing to understand the basic idea and another to revolutionize one's thinking about tax and welfare. That is the challenge of EPIT.

* The political left think that EPIT is a right-wing concept, because it includes a flat tax (even if tax is effectively progressive). The political right think that it is left-wing, because it includes basic income (even if everyone receives that income, including the rich). In fact, EPIT is neither left nor right, but neutral. EPIT can be adjusted to suit either left-wing or right-wing tastes, depending on the level of basic income and the tax rate. Both of these levels would be determined democratically, and they also depend on each other: the higher the basic income, the more tax is needed to finance it. Right-wing parties would try to reduce existing rates of basic income and taxation, while left-wing parties would try to increase both rates. Of course the most important constraint in both cases would be to balance the budget. Because EPIT is much easier to understand than the present system, voters would have a clearer idea of the issues for which they are voting and of the possible consequences of their voting behavior. In that sense, EPIT would be more democratic that the present system. It is a level playing field for all political persuasions.

* Economists often misunderstand EPIT. They know so much about the current system of means-tested benefits and progressive tax that they find it hard to imagine what it would be like to abandon both. At first glance, the change would appear to make much of their hard-won knowledge and expertise obsolete. In fact, their knowledge and expertise would be more important and valued than ever, since any transition to EPIT would be impossible without their professional and intellectual support.

The following central features EPIT should be understood before getting into detail. Even if you are sceptical about EPIT, please take the time to read and think about them, remembering that the most important aim of EPIT is to eliminate poverty.

* The flat tax in EPIT is not the flat tax that extreme right-wing political parties talk about. They typically want a low rate of flat tax, say 25%, and a low rate of social services. Such a tax is also effectively flat - a recipe for disaster. EPIT is quite different. It involves a relatively high rate of flat tax, say between 35% and 50%, and a relatively high rate of social services. The combination of these two means that the effective rate of taxation is very progressive.

* EPIT is quite unlike those extreme right-wing flat-tax proposals that would cut tax for the rich and reduce benefits for the needy. That approach would theoretically be possible under EPIT - but so would exactly the opposite, namely a very high basic income (say €2000) and a very high flat rate of tax (say 75%). In democratic practice, extremes of this kind would be impossible, because a majority of voters would never support them. Instead, the usual democratic processes would ensure that the flat tax rate stayed in the vicinity of the highest tax rates in current progressive tax scales, and basic income remained in the vicinity of the poverty line. Left-wing governments would try to increase both basic income and tax rate, while right-wing governments would try to reduce both.

* A flat rate of income tax is easier to pay - there is no need to wait until the end of the financial year. So it is impossible to evade a flat tax by transferring income among financial years, income brackets, marital and business partners, and so on.

* By itself, a basic income is (i) difficult to finance, and (ii) can be demotivating if associated with welfare traps, as in the current system. These disadvantages disappear when basic income (i) is accompanied by a relatively high, flat rate of income tax and (ii) is universal and unconditional.

* EPIT is efficient. It would greatly reduce the administrative cost of implementing the current tax-welfare system, both for the state and for individuals - which could lift the entire economy.

* EPIT could effectively eliminate poverty, which would be an enormously positive achievement. In spite of the generally high standards of living achieved by modern post-industrial societies, they have so far failed to eliminate poverty - or at least reduce poverty to a level that is somehow tolerable or defensible. There are still people in our midst who do not have enough money to put a roof over their head or to buy a decent meal. That is not only embarrassing - it is a scandalous. It suggests that the many good intentions built into current system are hiding an underlying moral bankrupcy. EPIT offers a realistic solution to the whole problem of poverty. It does not treat a part of the problem and forget the rest. It does not merely treat the symptoms - it addresses the causes. EPIT assumes (and demonstrates) that it is not the fault of the poor that they are poor - as many conservatives believe - but the fault of the system in which they find themselves. EPIT would not alleviate poverty temporarily or partially, but completely and permanently. It would not do this by applying socialist principles alone, but by harnessing the power of capitalism in the service of socialism. This aspect of EPIT is probably more important than all other advantages and disadvantages of the proposal put together.


The underlying philosophy of EPIT

In modern democracies, the relationship between an individual's gross income and his or her net income is complex. It depends on two interacting factors:

* Progressive income tax. The more you earn, the higher is the percentage of your income that you pay in tax. (For example, the taxation rates applied to different income brackets in Austria, home of the author of this article, are here.) But your taxable income can be reduced in innumerable ways, called tax deductions. The rich often pay surprisingly little tax, because they are most skilled at reducing their taxable income, or have access to the best advice on how that can be done. For example, they may shift income from one year to another or from one person to another, to avoid the high tax rates of high income brackets.

* Means-tested benefits. If you are unemployed or the parent or guardian of a child, you are entitled to social welfare benefits. If you are unemployed and get a job, or if your child earns money or moves out, you may lose that benefit at some point. Just exactly where that point lies depends on the current legal situation, and it is determined by a public servant. Depending on the system, you may lose the benefit gradually or suddenly as your situation changes. If you can afford a good accountant, you may be able to keep the benefit as your income increases, simply by rearranging your finances.

Enormous amounts of time and energy are devoted to the management of these two factors:

* Progressive income tax. The average employee presumably spends roughly one working day per year preparing tax returns and/or employing accountants to do this task for them. This applies even if they employ consultants to help them. Governments then employ thousands to check these calculations and initiate legal proceedings against tax dodgers. A lot of this time and effort could be saved if tax was paid as soon as the money was earned and yearly declarations were avoided.

* Means-tested benefits. Countless bureaucrats spend enormous amounts of time and public money deciding who should receive unemployment, child and welfare benefits, and who should not. In so doing they infringe the privacy of the recipients and damage their self respect, which reinforces class differences. Not only that - their decisions often seem arbitrary and unfair. And the system encourages people to lie about their income.

Much of this effort is pseudowork. It does not directly generate wealth or quality of life. Much of it could be prevented if the system were radically simplified. But would a simpler system be as fair? I argue that a radically simplified system would be even fairer than the present system, if it did the following two main things:

* The socialist goal. The reform should significantly reduce or eliminate poverty. The gap between rich and poor appears to have been steadily growing in recent decades. To the extent that it is possible to eliminate poverty (see below), the means to do that are clearly available. It would cost the rich relatively little, and the benefit for the poor would be enormous. What is lacking is the political will - and a suitable and effective procedure.

* The capitalist goal. The reform should provide incentives for all members of society to improve their productivity, which in turn improves general quality of life. Capitalism should not generate poverty, as it often seems to do. Instead, it should generate the means to eliminate it.

These two aims should not be regarded as contradictory. The key to a radical simplification of the tax/welfare system is the recognition that socialism and capitalism are not mutually exclusive, but complementary. History has shown time and again the one cannot exist without the other. Thus, an effective tax/welfare system should not pit these principles against one another, but instead integrate them seamlessly.

What are the main features of ideal socialist and capitalist societies? Opinions differ, but here is a possible interpretation:

* In a purely socialist society, everyone is regarded as valuable, regardless of much or how effectively they work. So the state gives everyone the same income, which covers their basic needs.

* In a purely capitalist society, a person's value depends only on her or his productivity as determined by a free (unregulated) market place. Individual incomes reflect this underlying assumption. Everyone, regardless of income, is strongly motivated to work harder and increase their income. Their very survival may depend on their productivity.

History has shown that neither of these "pure" systems is stable. The purely socialist society is unable to sustain itself, because it does not motivate its citizens to work. The purely capitalist society destroys itself as extreme social injustice leads to violence.

Modern tax/welfare systems incorporate both the socialist and the capitalist principle, but they combine them in a complex way. There are innumerable ifs and buts. The loopholes accumulate as politicians try to win elections by wooing specific groups of voters with financial rewards and moral proclamations. The tax dodgers and welfare abusers then find and take advantage of the loopholes. Imagine what would happen if such populist political tactics were no longer possible, and all those ifs and buts were removed. Too good to be true?


The main financial details of EPIT

Transparency and democracy. History has also shown that democracy only works when the voters understand the issues upon which they are voting. A truly democratic tax and welfare system must therefore be as simple and transparent as possible. Since the relationship between gross and net income is inevitably a mathematical relationship, the practical question boils down to the following: What is the simplest, most transparent mathematical formulation of the complementarity of socialism and capitalism? Consider the following graphical solution:

[Viktor Panic]

FORTSETZUNG

The term "gross income" on the horizontal axis of the graph may be misleading. By "gross income" I mean all monthly income before EPIT, i.e. not including the basic income. By "net income" I mean monthly income after EPIT, that is after basic income has been added and tax taken away. Under EPIT, basic income and tax are always considered together.

The graph presents a fictitious relationship between gross and net income that is surprisingly close to the relationship as it already exists in modern democracies. Those with no gross income at all generally qualify for some kind of welfare benefit. Those on higher incomes pay tax at an rate that effectively increases as their income increases (progressive tax scales) and approaches some 40-50% in the highest income brackets.

The relationship between gross and net income in modern western democracies is complex, because benefits are means-tested: you lose your benefit - either suddenly or gradually - when you earn too much money. Here, I have replaced this complex relationship by a straight line of best fit. This line eliminates the welfare trap associated with means-tested benefits.

* The line crosses the vertical axis at a point called basic income or guaranteed minimum income. For the purpose of argument, basic income is set here at a relatively low rate of €500 per month, just below typical estimates of the poverty line. The exact value would depend on how much society can afford, that is, how much tax the middle and upper classes are able or willing to pay; perhaps €600 or €700 per month are possible. Basic income is defined to be universal and unconditional: all people receive it, regardless of their other income (or lack thereof). The only condition is the honest declaration of all income and payment of income tax.

* The tax is flat in the sense that the line is straight, but progressive in the sense that it does not go through the origin (where the axes cross). For the purpose of argument, the flat rate is set in the graph to a relatively high rate of 50%; I could equally well have chosen 45% or 40%. Note that the effective rate of tax for individuals is always lower than the flat rate (see below for details). What the flat rate means is that when your gross income increases by €1, your net income always increases by the same amount (in the graph, by 50 cents) - regardless of how much you are already earning. It applies not to your overall income, but to changes in your overall income, and hence to the incentive to work. The gradient of the line in the graph is inversely related to the tax rate: if the gradient is steep, the tax rate is low, and if it is shallow, the tax rate is high.

* The point at which gross and net income are the same is called the break-even point. In the above graph, it is set at €1000 per month. In general, it may be calculated simply by dividing basic income by the tax rate: for example, €500 divided by 50% (one half) equals €1000. The break-even point rises with increasing basic income and with decreasing tax rate (or a steeper line).

The diagonal line on the graph is the "bottom line". The important thing about the above graph is not the specific values of the two parameters "basic income" and "flat tax", which can be misleading when taken out of context, but the specific relationship between gross and net income (the line on the graph), which in the end is all that matters. For example, if your gross income (not including basic income) is €2000, according to the graph above you would take home a net income of €1500. At the end of the day, it doesn't matter whether you (i) pay €500 in tax in the current system or (ii) pay €1000 in tax and receive €500 in basic income under EPIT.

What exactly is basic income? "A basic income is an income paid by a political community to all its members on an individual basis, without means test or work requirement" (Van Parijs, 2000, p. 3).

Under EPIT, everyone would receive a basic income, regardless of their current income - even the rich. For high income earners, basic income would be deducted from their total tax bill, and would therefore be a kind of negative income tax. For low income earners, basic income would correspond roughly to the existing concepts "poverty line", "long-term unemployment benefit", and "welfare benefit" and would make some of these concepts obsolete (or change their meaning). If everyone had access to an income corresponding to the poverty line, poverty would be effectively eliminated.

Can poverty be eliminated? It depends what you mean by poverty, which in turn depends on the definition of the poverty line or (poverty threshold). The monetary value of the poverty line (in currency units per unit time) depends on the general standard of living in a given country: in poor countries, the poverty line is lower than in rich countries. The poverty line is determined not only by the cost of essential goods and services in a given country, but also by perceptions of what is "essential" for an adequate standard of living in a given country. In the end, the poverty line is determined by consensus among experts, some of whom perceive it as higher and some as lower. The value usually quoted may thus be regarded as an equilibrium between competing perceptions. Poverty is relative in other ways as well. A person who has enough money to live on but lacks basic financial management skills or rejects interesting opportunities to supplement her/his income may appear to be poor. Everyone has (or should have) the freedom to self-define as "poor" or to deliberately avoid meeting their basic needs and therefore to appear to be "poor". If the poor (or under EPIT, everyone) received a basic income, perceptions of basic needs would change, increasing the monetary value of the poverty line and perhaps making it impossible to completely eliminate poverty. Given these uncertainties, it might be more accurate to claim that EPIT would come as close to eliminating genuine poverty as is reasonably possible.

Parents would receive basic income both for themselves and their children. Thus, basic income would also replace current child benefits. At a certain age (probably 18), children would be required to open their own bank accounts and receive the basic income directly.

The exact amount of basic income for the average person would be determined by the usual democratic processes. Left-wing political parties would try to increase basic income (and increase the tax rate to cover it), right-wing parties to decrease basic income (and reduce the tax rate accordingly). It might also be a good idea to legally define the outside limits of these parameters: e.g. basic income should never fall below 80% of the poverty line (given a well-defined procedure for determining the poverty line) and the flat rate of tax should never exceed 50%.

Basic income would depend on the ability to work: pensioners and the disabled would receive more. Exactly how this would work is beyond the present scope (but see the paragraph on pensions below). Basic income would not depend on willingness to work. "Willingness to work" is an unsuitable criterion for a social benefit for the following reasons:

* "Willingness to work" is difficult to determine. On the one hand, nobody wants to do boring or unrewarding work. For this reason, everyone can be expected to lie about their willingness to work, the rich included. A system in which people are expected to declare their willingness to work is a system that cultivates a culture of lying. On the other hand, everyone wants to have more money and in that sense everyone is willing to work. Rather than trying to measure the unmeasurable at the level of individuals, the state should be trying to increase everyone's willingness to work.

* "Willingness to work" is expensive to monitor. It costs a lot of money to keep track of the job-seeking activities of thousands of unemployed people. Which applicants attended which job interviews? Did they really attend them or merely claim to have done so? Should their unemployment benefits be discontinued? If so, what benefit will replace them? What are the consequences of the poverty created by the discontinuation of unemployment benefits and what measures are needed to deal with it? These are difficult questions, and it costs money to answer them.

* "Willingness to work" is none of the state's business. Why should the state pry into the private lives of individuals? This practice contradicts the basic principles of individual freedom, privacy and mutual respect upon which modern democracies are built. Moreover, since some people are subject to this prying and others are not, it may be regarded as a form of discrimination. Nor is a person's living situation - with whom one is living, how many people live in the same house or flat, whether parents are married, whether a relationship is heterosexual or homosexual, and so on - any business of the state. Besides, one might argue that those who choose to live together, which is financially more efficient, should be rewarded for their initiative and not punished.

* "Willingness to work" ignores people who voluntarily do unpaid work such as childcare, domestic duties, and study. The current system treats these people as if they were "unwilling to work": they are not eligible for unemployment benefit. But if not for these people, society would crumble. In fact, there would be no society. They deserve at least a basic income. Consider the following examples:
o If the birthrate is too low, it is because potential parents and particularly potential mothers are unhappy with what society is giving them in return for the effort and expense that goes into raising children - not to mention the effect that it can have on the parent's career. It is therefore in the interests of the whole society that both parents and their children receive an unconditional basic income. Not only that - all governments should follow Sweden's lead and guarantee good, inexpensive child care for every child. One could even argue that free child care should be available to all, at least for five half days per week, which would cost some €300 per month per child and be financed by a combination of income, capital gains and wealth taxes. That would end the discussion about the difficulty of combining family and career and the effect on the birthrate. Children and their parents are surely important enough for their basic needs to be met. We are not talking about luxury!
o The efficiency and creativity of the workforce depends on the number of people with tertiary qualifications. To get a tertiary qualification, you need to study at university, and to do that, you need enough money to cover your basic living costs while you are studying. It is therefore in the common interest that students receive an unconditional basic income. Following this argument, they should not have to pay tuition fees, either. The running costs of universities can be met by combination of government and private sources. Students are surely important enough for their basic needs to be met. We are not talking about luxury!

Basic income may also depend on age. Some argue that children generally spend less money (or cause less money to be spent), so basic income should be lower. Perhaps the real reason behind this assumption is that children have less political power. But one can equally argue that basic income should be higher for children than for adults:

* I have argued that basic income may depend on ability to work, but not on willingness to work. Since children are unable to work (child labor is illegal), they should receive more basic income than adults.

* Single parents and in particular single mothers belong to those most at risk of poverty. They need their children's basic income to survive.

* Although children usually eat less than adults and their clothes may be cheaper, adolescents may eat more than adults, and growing children need new clothes more often.

* In many industrial countries, the population is decreasing. A high basic income for children could help to increase the birth rate.

* If parents were to earn only 1 Euro per hour (!) for looking after their children - for about 16 hours per day and 30 days per month - we are already looking at about 500 Euros per month, without considering food, clothes, rent, school, toys and so on.

Balancing and comparing the various arguments, it may be both fair and realistic to make basic income independent of age, at least for children (The question of basic income for pensioners is considered below). A system with fewer variables is more transparent and easier (cheaper) to manage. Remember that each variable would be periodically adjusted in a time-consuming political process. If the basic income for children is the same as for adults, the system contains one less variable.

Finally, basic income may depend on gender. The average women still earns considerably less than the average man for the same work, in spite of decades of attempts to solve this problem. So perhaps women should receive more basic income (or pay less tax - see below) in an attempt to redress this imbalance.

These details would have to be decided in a democratic process. I am concerned here only with the general principle of EPIT, which involves a radical change in current thinking. There is little point discussing the details until the basic concept is understood, which is a big step.

Balancing the budget. When basic income is set at €500 and flat tax at 50%, the numbers are round and calculations are easy. But this estimate is a conservative one. Most industrial countries could balance their books if the basic income were considerably higher than €500, or the tax rate were considerably lower than 50%, or both. For Germany, Strengmann-Kuhn (2006) calculated that a basic income of €500 per month could be financed by a flat tax of 35% (a typical right-wing setting of the two parameters), and a tax rate of 50% could support a basic income of €800 (a typical left-wing setting). The optimal solution presumably lies between these two estimates. (For this calculation he assumed that children receive half the basic income of adults.)

Pseudowork. Following the introduction of EPIT, those many bureacrats who currently decide whether people get welfare benefits, and who check tax returns for accuracy and fraud, would need to be retrained to do something more interesting and productive, such as monitoring the introduction of the new system and its many social and economic effects. Tax advisors would similarly find themselves moving into new domains.

Resistance and misunderstanding. It's not easy to understand EPIT when you are used to the current system. Both capitalists and socialists tend to object, sometimes vehemently.

* Capitalists may object to a basic income. Would it be wise to give everyone a handout, themselves included? Surely that will reduce the incentive to work - across the board?
o But the incentive to work depends primarily on the gradient of the line in the graph and not on the point at which it crosses the vertical axis. The big advantage of EPIT from a capitalist viewpoint is the constant incentive, regardless of income. Everyone is equally motivated to work.
o Besides, hand-outs give people buying power, which can benefit the economy.

* Socialists may object to a flat tax because it is associated with laissez-faire capitalism in which the rich get richer and the poor get poorer.
o But the above graph shows that when you make the relationship between gross and net income linear (i.e. a straight line whose gradient depends on the tax rate) and shift it away from the origin (the bottom left of the graph, where both axes are zero) by an amount corresponding to the basic income, the result is mathematically equivalent to a progressive tax scale.
o Besides, progressive tax systems have not been very successful in reducing the gap between rich and poor. That is presumably because the rich can more easily afford good accountants, who work out sophisticated ways of evading tax. This problem can be addressed by making the system simpler and more transparent, which gives the majority more power to reduce the gap between rich and poor by ordinary democratic processes.
o Finally, EPIT treats everyone equally even though some are rich and some and poor. EPIT spans the entire spectrum from the ideal communist concept of constant income throughout society to the ideal capitalist concept of zero social benefits and low flat tax. In every case, it treats everyone equally. But it also gives people the power to determine the right position between these extremes by democratic means. If this procedure is truly democratic - that is, if all people can have an equal influence on the decision, regardless of income - the result is bound to lie in the interest of lower income earners, since they represent the majority.

Once the concept of EPIT is understood and the above misunderstandings overcome, resistance to it is expected to come mainly from the rich. In spite of the inclusion of the capitalist concept of flat tax, the EPIT concept is primarily a socialist one:

* EPIT has the potential to eliminate poverty (depending on how poverty is defined), which is an issue of central concern to the political left.

* EPIT would simplify the tax-welfare system, with the result that more people could understand it. That would reduce the current advantage enjoyed by those with better education (to understand the intricacies of the current system) or financial resources (to employ accountants to manage their finances).

The right wing should nevertheless be pleased about the following central features of EPIT:

* Small government: a significant reduction in the amount of pseudowork (bureaucracy), and hence in the size of the public service

* Personal freedom: a significant decrease in governmental interference in private lives of individuals

* Incentive: The current system motivates welfare recipients not to work - for if they work, they risk losing their benefit, or their benefit may be reduced. For them, the line on the above graph is horizontal or even downhill. EPIT would ensure that everyone is financially rewarded for extra paid work, and to the same degree.

Eliminating welfare traps. A welfare trap (aka poverty trap or unemployment trap) is a situation that discourages people from accepting offers of employment because their total income after accepting the offer would not increase enough to make the change worthwhile. In deciding whether to accept a job offer, they must take into account their total income from all sources - including the means-tested welfare support, their new income, any income they would lose due to the reduction in their free time, and any new costs such as the cost of child care for parents (especially single parents).

Anyone who has ever received welfare benefits knows what a welfare trap feels like. As every good capitalist knows, or should know, welfare traps are bad for business, because people who could be working are encouraged to stay on welfare instead. Not only that - a system that motivates people to do whatever they can to maintain their welfare benefits promotes a culture of dependency and deception.

The rational solution is not to reduce the amount of welfare, but to straighten out the line on the graph of net income against gross income so that no matter what your gross income is, you will always increase your net income significantly by increasing your gross income. That way, everyone is motivated to work, which will eventually increase the gross national product and hence the standard of living of everyone.

EPIT abolishes all welfare traps. Given the central importance of this point, objections to the system are unlikely to be well unfounded. What could possibly be wrong with taking the current relationship between gross and net income in a given country and drawing a straight line of best fit through it? Any objection to that would be an argument in favor of bending that line, which goes against fundamental economic and democratic principles. The economic or capitalist principle is that every bend creates a welfare trap or other disincentive, for a given socio-economic group (defined purely according to their income). The democratic or socialist principle is that there can be no good reason for negatively targetting any socio-economic group.

Both socialists and capitalists will agree that a tax-welfare system should allow and even encourage socioeconomic mobility. There should be no barriers to those striving to change their "class". EPIT promotes socioeconomic mobility by removing all correlates of socio-economic class from the tax-welfare system. Both means-tested benefits and progressive tax scales are completely avoided.

Pensions. Under EPIT, pensioners would receive the basic income just like everyone else. But their basic income would be higher due to their reduced ability to work. Let's assume for the purpose of argument that it is €1000 per month. Beyond that, they would receive pensions from state and private funds as in the current system. Under EPIT, this could be done in a number of different ways.

* The system could be left largely as it is, with the exception that pensioners with little or no pension fund receive the basic income as an absolute minimum.

* A radical - and presumably politically impossible - solution would be to treat existing pensions as gross income and input them to the above graph. If the basic income for pensioners was €1000 (again, for sake of argument), the break-even point on the above graph - the point where gross and nett income are the same - would shift from €1000 to €1500. Thus, pensioners who in the current system receive less than €1500 would receive a bonus under EPIT and those who in the current system receive more than €1500 would receive less - which would reduce the currently large gap between rich and poor among pensioners. Of course this idea would be welcomed by poorer pensioners and strongly resisted by the rich.

* An intermediate solution might involve leaving basic income the same (at say €500) and reducing the tax rate (to say 25%). That would again increase the break-even point (in this example, to €2000). This would again have the effect of increasing smaller pensions and reducing larger ones, but to a smaller extent - similar to the "solidarity contribution" that better-off pensioners are sometimes asked to make to the incomes of worse-off pensioners.

Tackling poverty. One of the biggest problems facing the modern world is the large and expanding gap between rich and poor, both within and between countries. There is no easy solution to this problem, because the rich generally have the power to determine how wealth is distributed. In other words, democracy is not working very well. (It especially does not work between countries, where the distribution of wealth is primarily determined by multinational corporations. So far, international democratic controls are weak or non-existent. But that is another issue.)

EPIT would contribute to a solution of these problems by making the financial relationship between individuals and national states more transparent. This makes it easier for voters to bring about changes that are in the interest of the majority.

But that would not be EPIT's main achievement. EPIT could eliminate poverty altogether if basic income corresponded to the poverty line - which of course depends on the definition of poverty. At one extreme, the OECD and EU define the poverty line as 50% of median income. At the other extreme, the world bank regards people whose purchasing power is equivalent to less than one US dollar per day as poor. Depending on definition, the poverty line in central (western) Europe currently lies between €700 and €900 per month. To eliminate poverty, a basic income should lie in this range. Even if it were set slightly below the poverty line, an unconditional universal basic income would go a long way toward eliminating poverty (recall that parents would receive more than one basic income).

Foreigners and the underground economy. Some consider EPIT to be unworkable, because all work would have to be legal and controlled. The benefits of the underground economy (illegal cash economy, shadow economy) would disappear. But this may not be such a bad thing:

* The underground economy is fundamentally dishonest and therefore corrupt. It encourages the proliferation of other forms of corruption and reduces social and political transparency. If we are to make progress along the path towards an honest, open society, it is necessary to gradually reduce all forms of corruption.

* Immigrants who depend on the underground economy would either benefit from the new system or be unaffected by it. They would have the choice of receiving the basic income on the condition that they declare their income, or remaining "underground". Employers might be legally required to find out whether their employees are receiving the basic income and if so to declare the wages that they pay them, or to deduct tax before any payment to employees who receive basic income.

Public discussions about foreigners tend to be dominated by xenophobia - the irrational fear of cultural groups who are in some way different. It is important to remember the following two points:

* All signatories to the Geneva convention are obliged to accept genuine refugees. And international agreements of this kind are important - in fact, the survival of humanity may depend on them.

* Modern industrial economies depend on immigrant labor, because immigrants tend to do work that locals avoid.

The first step would be to abolish work permits. Why should someone be prevented from working? The work permit system is irrational for the following reasons:

* It is another case of pseudowork. The system costs a lot of money to run, but there is no productive output. Quite the contrary.

* Worse still: the system promotes crime. People who have no money (no food, no shelter) and are not allowed to work are of course likely to resort to crime to solve the problem.

* EPIT introduces a new incentive to drop the work permit system. If everyone pays tax, every worker increases state revenue. Of course this may be difficult to control, but the principle is at least an interesting one.

How could the cash economy be brought under control so that workers who are receiving a basic income also pay their income tax? Currently, the responsibility for ensuring that income taxes are payed is shared between employees and employers. Under EPIT, the responsibility could lie entirely with employers (which of course includes the self-employed). They would deduct the flat rate of income tax from every pay packet and forward it electronically to the state. Employees would never see this money.

How much basic income would asylum seekers and citizens of other countries receive? In richer countries, the amount would have to be reduced to prevent a flood of asylum and immigration applications from poorer countries. Perhaps asylum seekers should receive 1/3 of the basic income, and "resident aliens" (those granted asylum and citizens of other countries with residence permits) should receive 2/3 of the basic income. But these numbers are little more than preliminary guesses; appropriate values should take into account current equivalent benefits and the social and economic impact of abandoning the work permit system. Different countries with EPIT schemes might agree that the citizens of each other's countries should receive the entire basic income. These details would have to be worked out. In any case, everyone would be allowed to work, and all employers would be legally required to pay the income tax of their employees.

Effect on the minimum wage. EPIT would not only reduce the gap between rich and poor - it would also reduce the gap between low and high wages. Recipients of unconditional basic income, would be less likely to accept poorly paid jobs, forcing up wages for such jobs. Companies who rely on cheap labor would of course argue that that is bad for business. The advantage of the change in the long term would be that wages would more accurately reflect the market value of the corresponding work.

Exposing illusions. The importance of transparency becomes evident when one considers the illusions inherent in the current system. These would be exposed and rectified by EPIT.

Two aspects of the current system of seem, on the surface, to favor the poor:

* Welfare benefits, which are means tested

* Progressive tax scales, according to which the poor pay less or no tax

This apparent benefit is an illusion:

* Progressive tax scales exacerbate the difference between high and low wages. On the one extreme, the poor are willing (or can be forced) to work for relatively low wages because they pay no income tax. At the other extreme, head-hunters trying to convince high-earning professionals to switch jobs must offer them relatively large increases in income, since the increases will be taxed at the highest rate. Under EPIT, the difference between high and low incomes would decrease to a more realistic level; wages would better reflect their market value.

* In most industrial countries where the system of means-tested benefits and progressive income tax exists, the gap between rich and poor has increased rather than decreased during recent decades. The reason is presumably because the above advantages of the system are counterbalanced by the following two hidden disadvantages:
o Welfare traps: Poorer citizens have less incentive than rich citizens to work longer and harder - not only because they earn less, but because they risk losing their benefits.
o Complexity or lack of transparency: Only the rich can afford the professional help, or can develop the expertise, that one needs to exploit the taxation system's complexity and loopholes.

EPIT is an improvement on the present combination of means-tested benefits and progressive income tax in the sense that:

* EPIT is easy to understand. It avoids a lot of meaningless calculation and control by armies of tax consultants and public servants.

* EPIT treats everyone openly and equally. As such, it eliminates entrenched barriers to socio-economic mobility. It places no barrier in the way of people who wish to increase their income, no matter what their current income happens to be.


The transition to BIFT

The main problems to be addressed during the transition from the current system to EPIT would be:

* EPIT would cause gross incomes to increase for lower income earners, but should affect their net incomes relatively little. It would be necessary to adjust existing pay scales such that net incomes change as little as possible during the transition. This is essentially a mathematical and statistical problem. It can best be solved by experts with access to comprehensive information about gross and net incomes across professions and social classes.

* It would be necessary to explain why some groups find themselves with less net income after the transition, and others with more - which happens anyway every time the tax or welfare system is reformed. If the above graph is a line of best fit to the current relationship between gross and net incomes, the differences will be small. If the difference turns out to be considerable for specific groups, it may help to smooth some aspects of the transition over a number of years.

* After the transition to EPIT, many tax accountants and welfare bureacrats would need to be reemployed or find new employment, for example in the ongoing monitoring of the new system, or in information technology. It would be necessary to plan a gradual transition and to develop re-training and re-employment schemes.



The bottom line

Most people have a problem with EPIT, but find it hard to explain what the problem is, exactly. To criticize EPIT, it is necessary to explain what is wrong with the above graph. If the graphical relationship between gross and net income should not be a straight line that is shifted away from the origin, what should it be, ideally? Should the line include bumps (welfare traps)? If so, what is their function? Should the line sometimes be flat, i.e. should some people be expected to work for nothing? Should some people be able to keep more of their additional income when they work harder? If so, who and why?

From this point of view, there is no alternative to EPIT, and it is obvious that EPIT would work. The question is not whether EPIT would work. The question is what values of its two free parameters - the basic income and the flat tax rate - would work.

The transition to EPIT would not be easy. But after we got used to the new system and learned to enjoy its simplicity and transparency, we would wonder how we had survived for so long without it. In this sense, the conversion to EPIT may be compared with the conversions to the metric system of weights and measures and to decimal currency that took place in several countries in the late 20th Century.

That EPIT would work is conclusive proof that there is something very wrong with the present system of means-tested welfare benefits and progressive tax scales. Both of these systems aim to alleviate poverty, but they are obviously not achieving that aim. By contrast, EPIT would eliminate poverty by treating everyone equally. There would no longer be any need to allocate people to different social classes. Just imagine: no more stigma, no more condescension. Moreover it would finally become clear why the poor are poor. If EPIT works by treating everyone equally, then the current system must be perpetuating poverty. The fault lies not with individuals, but with the system.

Do the upper and middle classes want to eliminate poverty? If so, we should be thinking openly about alternatives to the current welfare and tax systems. The fact that we are not doing that (or not doing it enough) suggests that we feel good about having more money than the poor. That is why we are clinging to the present system and its complex web of arrogant work-ethic morality, illusion and deception. EPIT will have achieved its purpose if it does no more than expose these problems and stimulate progress toward a realistic solution.


Acknowledgements. I am grateful to John Parncutt, Russell Parncutt and Rosanna Scutella for helpful suggestions.



Literature sources

This account of EPIT is intended to be popular in nature. It aims to interest people with little or no academic background in the idea of EPIT. The following sources are more academic and research-oriented.

Atkinson, A. B. (1995). Public economics in action: The Basic Income/Flat Tax proposal (Lindahl Lectures). Oxford, England: Oxford University Press.

Strengmann-Kuhn, W. (2007): Finanzierung eines Grundeinkommens durch eine Basic Income Flat Tax. In G. Werner (Hrsg.): Symposium Grundeinkommen: bedingungslos. Universitätsverlag Karlsruhe.

Van Parijs, P. (2000). Basic income: A simple and powerful idea for the 21st Century. Background paper, 8th International Congress, Basic Income European Network (BIEN), Berlin.

Questions of income tax and social welfare are part of the discipline of public economics. A standard text:

Atkinson, A. B., & Stiglitz, J. E. (1980). Lectures in public economics. London: McGraw-Hill.


About the author

When I first dreamed of EPIT , I was on unemployment benefit in Australia in the mid 1980s. Luckily, that only lasted a few months, during which I managed to convert my PhD thesis into a book manuscript. If the unemployment office had known that, they would presumably have cut the benefit! After all, I was supposed to be doing nothing and feeling depressed.

Every week I went to a little office (hoping that no-one would see me), filled in a form on which I was supposed to declare any other income, and worried about whether to declare the cash I earned playing the piano in a restaurant, which would reduce the amount of the benefit (then about 100 Australian dollars per week). I guess the woman across the counter was constantly confronted with people lying about their income and I wondered hoiw she dealt with it. I now live in Austria and earn about €4000 gross per month, which in both the current system and on the above graph translates to about €2500 net.

I first published these ideas in a rather long letter to Neucleus, the student newspaper of the University of New England, Australia, in the mid 1980s. Little did I know that the Basic Income European Network (BIEN) had established itself at the same time and held its first conference in Louvain-la-Neuve in September 1986. My original concept was different in that it involved the combination of basic income and flat tax, which I regarded as an equal balance of socialist and capitalist principles. I was never especially interested in either basic income or flat tax by itself, and I still regard the two as inseparable.


Appendix: Flat wealth tax

The ability of EPIT to close the gap between rich and poor is limited, because it considers only income. The gap between rich and poor also depends on wealth, or capital. Thus, additional elements may be needed to generate the finances necessary for a universal basic income. These elements are capital gains tax and wealth tax (also called capital tax, equity tax, net worth tax, net wealth tax, solidarity tax, or property tax).

Capital gains taxes are already common in many countries. Wealth taxes are less common, perhaps due to the difficulty of estimating a person's wealth, which is strictly only possible to do when a buyer agrees to buy that person's estate. The amount that a buyer is prepared to offer depends on many factors.

Many think that a wealth tax applies, or should apply, only to the wealthy - say, those with a total capital of more than one million Euro. According to this concept, the rich should regularly part with a small percentage of that wealth. Politically, this option is difficult to achieve, although it has operated successfully in some countries. The reason is that wealthy have too much influence to allow the state to introduce a reform that they perceive as targeting them directly.

It is more realistic to propose that everyone, regardless of wealth, pays an annual wealth tax corresponding to the same proportion, say 1%, of their total estimated capital worth. To make this work, everyone with any capital would have to declare that capital each year, just as they currently declare their income. The advantage of this approach is that the rich could not complain that they are being treated unequally. The tax would nevertheless have the effect of reducing the gap between rich and poor.

This is another form of flat tax that is neither capitalist in nature nor associated with extreme right-wing politics. On the contrary, a flat wealth tax has a socialist flavour. But is not communist. In communism, everyone is supposed to have the same capital, or no capital at all. By comparison to the communist ideal, a flat wealth tax at the proposed rate would have relatively little effect on the gap between rich and poor. But it would have some effect, and the poor would feel the positive effect much more strongly than the rich would feel the negative effect.

Those who object to wealth tax may support their argument by reference to specific cases such as the following:

* What about a farmer whose land is worth about 10 million Euros? Should s/he pay the same rate of wealth tax as others? In response to this point, one might argue that a farmer with so much land should be able to generate enough income from it to cover the wealth tax. If not, s/he has the option of selling a small part of it, which would finance the tax for decades.

* What about a widow who owns the flat in which she lives and has otherwise very little income? Like the farmer, she has the option of using her capital to generate the income necessary to cover the wealth tax, for example by letting out a room. She also has the option of moving to a cheaper flat; the difference in the price of the two flats might easily cover the wealth tax for decades. In any case she is much better off than someone in a similar situation without capital.

In other words, a person with capital should be using it to generate more capital, which should enable her or him to pay wealth tax without losing capital. If they are unable to do this, it is their own problem and not that of the state.

Ever since taxation began, people who have more money have paid more tax - or have been supposed to pay more tax - whether that money was in the form of income or capital. That is ultimately where national states get their income from. Because the rich have often managed through influence or cunning to evade taxes, it has often been the middle classes that have paid most of them. For example a wealth tax that is only payable above a capital of say one million euros can be evaded by distributing capital between husband and wife, among other family members or among companies. A flat wealth tax reduces the chance that the rich will get away with such strategies.

Like flat income tax, flat wealth tax can be considered part of a strategy to eliminate poverty. Those fellow left-wingers who think it unfair that everyone should pay the same rate of wealth tax are asked to consider the following analogy. According to Newton's law of gravitation, the gravitational force between two objects is proportional to the mass of each object: the rate of gravitation is a flat rate. That means that there is a gravitational force between any two objects, for example between a person and a nearby mountain. But since the earth is so much more massive than a mountain, the force of gravity exerted by mountains on humans has no noticeable effect (although physicists have been known to measure such things). Similarly, a flat wealth tax at a low rate of around 1% is a small and perhaps negligible burden for people with little capital. Nor is it much burden on the wealthy (although they perceive it that way). But government revenue from wealth taxes can be considerable, and comes mainly from the rich. Consider the extreme case of Bill Gates, whose net worth is estimated at 50 billion dollars. If he paid a wealth tax of 1%, that would be 500 million, which is $2 for every person in the USA. With that kind of money the US government could do something about inner city poverty - if wasn't wasting it on military foolishness such as the 2003 invasion of Iraq. But that is another story.

A disadvantage of wealth tax is that it forces individuals to spend a lot of time calculating their net wealth, and periodically revising their calculations. One of the reasons why EPIT is so interesting is that it reduces the amount of pseudowork. Readers may wonder why am I promoting the introduction of a new kind of pseudowork, having just gone to considerable lengths to get rid of another kind. If, however, these calculations become public knowledge (as suggested below), society becomes more transparent. It becomes easier to understand the gap between rich and poor and to develop appropriate strategies to reduce it.


Transparency and public access

In Sweden, all income tax declarations are published in the internet. The advantage of this procedure is that it forces people to be honest. If they are not, others (journalists, ordinary citizens...) can complain, which can lead to investigations. The legal provision that makes this possible is the principle of public access.

The proposal of combining universal basic income with flat income tax, capital gains tax and wealth tax would be easiest to achieve in conjunction with the principle of public access. The wealthy have a responsibility to share a part of their wealth with the general public, because if they do not, there can be no modern social democracy. Society is where their wealth comes from and what gives their wealth meaning, so society has a right to some of it, too. A first step toward this goal is for the rich to make their wealth known. And if the wealthy are forced to do that, then it is only fair that everyone should do it. Thus, the declared income and capital of all citizens in previous taxation years should be public knowledge. This in no way affects the right of any individual to amass wealth; capitalism is surely ok, provided it is fair and transparent.

Transparency can also solve the problem of estimating a person's net worth in the absence of a buyer-seller relationship. If everyone is required to declare their net wealth and is taxed on the declared amount, of course they will tend to underestimate that wealth. But if the declaration is public and can be legally challenged, the degree to which wealth declarations can be underestimated will be limited.

The opinions expressed on this page are the personal opinions of the author.
Suggestions for improving and extending the content are welcome.

[Viktor Panic]

Die folgenden Grafiken habe ich in der DISKUSSION zum Logo-Wettbewerb des Netzwerks eingebracht,
und zwar beim Kapitalismus-Kommunismus-Grundeinkommens-Vergleich.
Ich halte sie für geeignet, die Fehler von Sozialhilfe- und Hartz-IV-Staat zu verdeutlichen, und warum das Grundeinkommen die logischste Lösung ist!