Targeting and taxation

Articles 22 to 25 guarantee the right to work and income.

Article 22
Everyone, as a member of society, has the right to social security and is entitled to realization, through national effort and international co-operation and in accordance with the organization and resources of each State, of the economic, social and cultural rights indispensable for his dignity and the free development of his personality.

Article 23

1. Everyone has the right to form and to join trade unions for the protection of his interests.
2. Everyone has the right to work, to free choice of employment, to just and favourable conditions of work and to protection against unemployment.
3. Everyone, without any discrimination, has the right to equal pay for equal work.
4. Everyone who works has the right to just and favourable remuneration ensuring for himself and his family an existence worthy of human dignity, and supplemented, if necessary, by other means of social protection.

Article 24
Everyone has the right to rest and leisure, including reasonable limitation of working hours and periodic holidays with pay.

Article 25

1. Everyone has the right to a standard of living adequate for the health and well-being of himself and of his family, including food, clothing, housing and medical care and necessary social services, and the right to security in the event of unemployment, sickness, disability, widowhood, old age or other lack of livelihood in circumstances beyond his control.
2. Motherhood and childhood are entitled to special care and assistance. All children, whether born in or out of wedlock, shall enjoy the same social protection.

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Article 9 recognises the right to social security, Article 10 to protection and assistance, Article 11 to an adequate standard of living, and articles 6 and 7 to the right to work.

Article 9
The States Parties to the present Covenant recognize the right of everyone to social security, including social insurance.

Article 10

The States Parties to the present Covenant recognize that:

1. The widest possible protection and assistance should be accorded to the family, which is the natural and fundamental group unit of society, particularly for its establishment and while it is responsible for the care and education of dependent children. Marriage must be entered into with the free consent of the intending spouses.
2. Special protection should be accorded to mothers during a reasonable period before and after childbirth. During such period working mothers should be accorded paid leave or leave with adequate social security benefits.
3. Special measures of protection and assistance should be taken on behalf of all children and young persons without any discrimination for reasons of parentage or other conditions. Children and young persons should be protected from economic and social exploitation. Their employment in work harmful to their morals or health or dangerous to life or likely to hamper their normal development should be punishable by law. States should also set age limits below which the paid employment of child labour should be prohibited and punishable by law.

Article 11

1. The States Parties to the present Covenant recognize the right of everyone to an adequate standard of living for himself and his family, including adequate food, clothing and housing, and to the continuous improvement of living conditions. The States Parties will take appropriate steps to ensure the realization of this right, recognizing to this effect the essential importance of international cooperation based on free consent.
2. The States Parties to the present Covenant, recognizing the fundamental right of everyone to be free from hunger, shall take, individually and through international co-operation, the measures, including specific programmes, which are needed:
   (a) To improve methods of production, conservation and distribution of food by making full use of technical and scientific knowledge, by disseminating knowledge of the principles of nutrition and by developing or reforming agrarian systems in such a way as to achieve the most efficient development and utilization of natural resources;
   (b) Taking into account the problems of both food-importing and food-exporting countries, to ensure an equitable distribution of world food supplies in relation to need.
   

Article 6

1. The States Parties to the present Covenant recognize the right to work, which includes the right of everyone to the opportunity to gain his living by work which he freely chooses or accepts, and will take appropriate steps to safeguard this right.
2. The steps to be taken by a State Party to the present Covenant to achieve the full realization of this right shall include technical and vocational guidance and training programmes, policies and techniques to achieve steady economic, social and cultural development and full and productive employment under conditions safeguarding fundamental political and economic freedoms to the individual.

Article 7
The States Parties to the present Covenant recognize the right of everyone to the enjoyment of just and favourable conditions of work which ensure, in particular:
(a) Remuneration which provides all workers, as a minimum, with:
(i) Fair wages and equal remuneration for work of equal value without distinction of any kind, in particular women being guaranteed conditions of work not inferior to those enjoyed by men, with equal pay for equal work;
(ii) A decent living for themselves and their families in accordance with the provisions of the present Covenant;
(b) Safe and healthy working conditions;
(c) Equal opportunity for everyone to be promoted in his employment to an appropriate higher level, subject to no considerations other than those of seniority and competence;
(d ) Rest, leisure and reasonable limitation of working hours and periodic holidays with pay, as well as remuneration for public holidays

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• A Basic Income is an ideal way to ensure that all residents have sufficient income to meet basic needs.
  • However, the introduction of a Basic Income increases government expenditure.
  • This increased expenditure is offset in part by using the Basic Income to replace all welfare payments of similar or less value and to partially replace larger payments.
  • Using an appropriate taxation that targets the expenditure toward those who are most in need further reduces the cost of the scheme.
• With taxable Basic Income payments, increased government expenditure is offset by:
  • The elimination of all welfare payments of equivalent or less value and partial replacement of larger welfare payments,
  • The Income tax paid by each person on their total gross income, which includes a taxable Basic Income, reduces the cost by taxing the Basic Income at a person’s highest marginal tax rate.
  • GST and other tax income are received by the Government when Basic Income payments are spent, and again as the money paid out continues to circulate.
• The net cost to the government is the total of the gross payments less the income taxes deducted, while the real cost is the net cost less welfare payment savings and other savings, and less additional taxes returned to the government.
  • Net cost provides a better indicator of the real cost of a Basic Income Scheme than the gross cost.
  • The net cost, less the welfare savings, less GST and other taxes returned as the money is spent, and less other government savings, again provides a more accurate indicator of the real cost.
• Another way to measure the cost is to consider the net transfer, the money that is transferred from net payees to those who are net recipients when the scheme is implemented.
• With a Basic Income, the simple sum of the payments, the total gross cost, is neither a true nor meaningful indicator of the cost of a Basic Income scheme, but a very simplistic and misleading way to look at the cost.
• A Taxable Basic Income, paid in conjunction with a suitable or appropriate tax regime that provides Broad Targeting, is another way to reduce the real cost to a government of a Basic Income scheme.
  • Broad Targeting reduces the real cost of a scheme and aids the introduction of a scheme.
• An appropriate Broad Targeting taxation scheme targets the payments toward those on the lowest incomes while reducing or minimising the benefit for those who do not need the extra income received from a Basic Income. 

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Governments seek to achieve a suitable relationship over time between income and expenditure.

• Inflation may occur if government expenditure exceeds government income by an amount that is greater than the economy can accommodate.  
  • An exact balance is not required, as an economy can expand as the money supply increases, but increasing the money supply at a rate faster than the economy can expand may produce inflation.
• Consequently, governments seek to target expenditure to where the perceived need is greatest and to areas of the economy where the money can be absorbed without inflationary pressures.
• Governments may also seek to target money within a particular area of expenditure to ensure that the money is spent where the need is greatest.
• Targeting expenditure to where the need is greatest in one area ensures that the government has money available to spend in other areas.

Targeting Basic Income payments toward those most in need can take place either after or before the payments are made.

Targeting after payments are made is known as Broad Targeting, while targeting before the payment is known as Narrow Targeting.

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• Governments use several methods to target welfare payments or benefits to those most in need.
  1. Eligibility.
     First, there are eligibility tests.
     • Means test. Welfare payments (benefits) may be means-tested. This can penalise those who have saved and invested their money before becoming otherwise eligible for a benefit.
     • Relationship tests. A person in a relationship may be disqualified if they have a partner who is earning a minimal income or more. 
     • Income tests. People who might otherwise be eligible for a benefit may be disqualified if they have other sources of income, even when other income is minimal and arising from a person’s savings.
  2. Standdown periods.
     Second, governments often require unnecessarily long standdown periods before a person becomes eligible for a benefit. This may force those waiting for a benefit to spend their savings, or if they have none, to rely on charities.
  3. Thresholds.
     Third, those who are receiving benefits are subjected to limits (thresholds), often quite low, on income from other sources before their benefit payments are reduced (abated). 
  4. Abatement.
     Fourth, those who receive a benefit will have their benefit abated at a set rate for every dollar they earn above the threshold until there is no benefit left to receive.
  5. Abatement of living allowances.
     Fifth, living allowances, which are tax-free payments received in addition to the basic benefit, may also be abated at 25%.
  6. Tax on benefits. 
     Sixth, because benefits are taxable, taxation will also reduce the benefit received as other income increases. 
  7. Sanctions.
     Seventh, governments often set rules that those who receive benefits must follow. Failure to follow the rules can result in sanctions, such as stopping the benefit for a period of time.
• Narrow or Hard targeting, as described above, is difficult and costly to administer.
  • The information must be gathered manually on money earned in one week in order to reduce the value of the benefit paid in the following week.
  • Errors can occur in both the collection of data and in the calculation of deductions to be applied.
  • Spending money on the administration of a complicated system is a waste of money that might be better spent on those who will benefit from it. 
• Hard targeting produces poverty traps where the monetary reward for work reduces to the point where there is little or no monetary incentive to work, or perhaps even a monetary disincentive. 

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Click on either of these two proposals to see details.

Conclusion. A taxable Basic Income with an appropriate tax system is preferable to either of these proposals.

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No. Personal tax exemptions and tax cuts are both regressive.

• They give more to those on high incomes than to those on low to middle incomes.
• They reward those with higher incomes the most.

Personal tax exemptions or tax cuts are sometimes proposed as a means of increasing the net incomes of those with the lowest incomes. But they are not a good idea.

A personal tax exemption is to allow tax-free income up to a fixed amount, say $20,000, before income becomes taxable.

• In practice, a person’s annual tax is determined on their total annual income less the exemption.
• Those with low incomes will receive some benefit, depending on their marginal tax rate, but those with earnings in the highest marginal tax bracket will receive the maximum possible tax reduction at the highest marginal tax rate.
• Similarly, with a progressive tax system, tax cuts, reducing the tax rates for the lower tax bands, or increasing the thresholds between tax bands, will benefit those on low incomes but will benefit those on higher incomes more.
• Personal tax exemptions or tax cuts target the net benefit of the tax exemption or tax cuts to those with the highest incomes!

Personal tax exemptions and tax cuts are regressive, targeting the benefit to those on the highest incomes.

To counter the loss of tax revenue, higher tax rates for those with higher incomes are required.

A Basic Income with an appropriate tax scale provides the best solution.

• Countries with personal tax exemptions propose abolishing them to provide funding for their Basic Income.
• Similarly, countries with progressive tax scales propose increasing the tax rates on lower incomes and on higher incomes to provide funding for the Basic Income.
• With a Basic Income and well-designed tax rate increases, those with lower incomes will still see larger increases in net income than those with higher incomes.

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A Broad Targeting tax system would have one or more progressively increasing tax rates.

• The lowest tax rate would likely be set at the rate at which a person earning the current median income or a little more is taxed on their last dollar earned.
• The second tax rate is likely to be an increased rate applied to income earned at twice the median income or more.
• Tax rates and the number of different rates may vary to match the current tax rates of the country where the Basic Income is being introduced.
  • To avoid tax cuts, tax rates that match all current tax rates and thresholds above the median earned income are suitable.
• Eliminating the lower tax rates simplifies the tax system by reducing the number of different tax rates.
  • With a Basic Income in place, the lower tax rates may be abolished without reducing anyone’s income.
• Increased tax rates on higher incomes or adjusting the thresholds are an option that can provide additional government tax revenue and provide additional funding for a Basic Income scheme if increased funding is required.
• As lower tax rates on lower incomes also reduce the tax paid by those who have high incomes, retaining tax rates lower than recommended above for lower incomes will:
  • increase the complexity of the tax scheme,
  • reduce the targeting of the Basic Income to those who need it the most,
  • increase the overall cost of the scheme,
  • and unduly reward those with higher incomes.

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