I’ve been deliberating how I should describe this section
throughout the process of writing this book.
Honestly, there is no easy way to describe it using actual cashflow data
from Canada or the US, and just making changes.
Those budget numbers would be somewhat meaningless when reframed for an
economy of abundance focused on providing the basic needs of the people, where
the people own the land and lease it out.
That being said, I to paint the proper picture for you, my dear readers,
I have no choice but to use real numbers to give the right sense of scale and
help you understand how we could reorganize cashflow to satisfy the needs of
this new ideal economy.
What is certain is we want to keep government as low cost as
possible and keep it in its role of supervision and regulation. We definitively want as many private sector
engagements as possible to execute on the governments’ (and its ministries’)
initiatives. Most importantly, the new
financials of a nation should be meant to serve the people’s fundamental needs
first.
Starting
with the land
Since the land belongs to the people, it is rented under specific
terms agreed upon by the Ministry of Economy & Trade, who take lead from
the people themselves. The land contains one of the primary values we’ll be
playing with here so best start with that.
What makes it interesting is that starting with the land value as a
base, the people as a collective have all the wealth. Neither the government or
companies decide the fate and use of the nation’s land. So, what we must figure out is how to
redistribute that land value equitably.
The simplest way to go about it is to ask for money from the
companies or individuals that lease the land.
This is not a land tax. The
people own the land; therefore, the lease amount goes to the people to pay for
other things important to the people. The
higher value and bigger the land, the higher the lease rate. Lease rates can be agreed upon on the lease
with renegotiable terms. To keep the
Ministry of Economy & Trade small, many standard templates for leases could
be created and used directly, managed by private companies assigned to manage
the people’s land properties under limited-time contracts. These private companies would act as property
managers for different areas under contract and thus do the heavy lifting on
behalf of the ministry, keeping the government assets small. Having private companies work as property
managers for us ensures efficiency, if private property management companies
are kept in competition with each other for the privilege of managing the nation’s
land. I recommend these companies only
allowed to manage a certain area of land to prevent abusive behavior on their
part.
Either way, the Ministry of Economy & Trade would eventually
collect the lease revenues at all appropriate levels of governance and later
redistribute the amounts to the national, state and regional budgets as
structured on a nation to nation basis.
Let’s just do some simple math to give a sense of the total value
of the available land in Canada, our model country for this economical exercise
(because I know this country best):
- Canada has 519,205 square kilometers of cultivated land and a total land area of 9,984,670 square kilometers (much of which is under snow most of the year).[1]
- The land area used by cities is somewhat negligible and in the absence of the data I’ll simply round out the currently used land area in Canada to be approximately 550,000 square kilometers for this exercise. Suffice to say, there is a lot room for growth beyond this and most likely plenty of land that is used and not accounted for… so just to be safe, let’s call it an even 600,000 square kilometers, or 148,263,000 acres (let’s round it up to a nice number, like 150,000,000 acres).
- The average agricultural cost to rent Canadian land ranges quite a lot from somewhere around $40/acre to $400/acre per month depending on where the land is located, the land purpose and the quality of the land. I could not find a true average in statistics so let’s just assume an average of $200/acre for this exercise.
- This means the total land rental income for Canada would be $360 billion CAD.
That’s a lot of money in a nation’s income.
People that use up just a small parcel of land to live on will pay
a very small land lease amount with no need for a land tax. Developers would pay rental costs and would
recuperate that cost through renting living space like we see today. This is all very simple math and not unlike
how we do things today as we trade goods and services.
Now that we have that income, how do we spend it?
Well, as planned, we spend it first on our priority: ensuring the population have basic needs met
while keeping their freedom to spend their money however they wish. This is the key concept behind basic income.
Since, all citizens are equal in their ownership of the land (it
is a collective ownership), the basic income sent back out must be
unconditional.
According to Statistics Canada, the minimum amount needed today to
pay for basic needs, called the “poverty line” is about $22,000 CAD for a
single person or $1,800 CAD per month.
So, in our ideal world, this is the amount we need to provide to our
citizens to ensure it covers all needs.
Moving forward, instead of using dollars, I’ll use Units instead
because the ideal economy will be working on a form of cryptocurrency
anyway. So, one Unit equals one liter of
water in value and the assumed amount for an individual to live comfortably is
1,800 Units per month or 22,000 Units per year.
This 1,800 Units will be our amount of basic income to guarantee basics
are covered in the ideal economy. Since
this is Canada, basic needs means food a home and some additional money to pay
for a bit of medicine and education.
Since basic medical needs are covered by taxes, and education is either
paid through taxation or subsidized somewhat by government (college and
university), only a fraction of the total national amount of medical and
education costs are covered by spending basic income. Most medical and education costs are paid for
through taxation, which is something we’ll keep and discuss later in this
chapter.
The ideal
economy
If we look at the way revenues are collected in Canada right now,
almost half of the federal government’s revenues comes from personal income tax
while only 14.4% of revenues come from corporate income taxes. Thus, 63.4% of all the government’s revenues
come from income taxes in general (as per FY2016-2017).[2]
The provinces perceive revenues divided in approximately the same way, two
thirds of its total income, give or take a few percentage points.
Revenues in an ideal economy doesn’t need to change in its
proportions much, aside from the rental revenues mentioned earlier, which is
different. Without the need to work for
a living, most people will still seek work.
In fact, basic income experiments around the world has shown that people
will still seek work for revenues beyond the income provided, go to school
longer, thus allowing for retraining or training for jobs harder to replace
with automation. There would also be a
huge increase in the amount of new businesses that get started due to basic
income’s inherent protection against risk.[3] All of this would have positive impacts on
people’s ability to start and grow new businesses. Also, a report by the Roosevelt Institute in
August 2017 has shown UBI (unconditional basic income) would expand an economy
according to the Levy Model, by over 12% over the baseline over eight years and
then stabilize while permanently retaining a higher economic output.[4]
The only major revenue Canada perceives that would not be
reflected in the ideal economy is the Employment Insurance (EI) premiums item
because that is replaced by basic income.
We could just add that revenue to corporate tax revenues as a surtax
without causing any change in corporate expenses.
So, what would change the most between the current economy and the
ideal economy would be the distribution of expenses. Again, if we look at
Canada now, 29.2% of the budget is spent on major transfers to persons, things
that would be replaced by an unconditional basic income. Another 22.1% is spent as major transfers to
other levels of government, of which a large amount is redistributed at a
provincial level to free healthcare and free education.
As you can see, in Canada, only 8.2% of government revenues goes
to National Defence, leaving most revenues to helping people with their basic
needs. Other transfer payments include
housing programs, programs that help the Aboriginal peoples of Canada and some
post-secondary education programs. All
in all, a total 64.7% of federal expenses go to pay for services that help
people with their basic needs as defined in this book. Another 19.4% of the federal budget pays for
government operations in one way or another and only 7.7% to pay off public debt.
In our ideal world, we’d need to increase the amount of money
going to transfers to persons somewhat, counterbalanced by reduced amounts in
national defence, operating expenses for ministries due to automation and AI
implementations and things like healthcare and education would likely need less
funding too.
If we make very simple math assuming all 35 million individuals in
the country would need 1,800 Units of basic income, the government would need a
total of 770 billion Units total. Some
would argue that families need less to cover their basic needs as they share
resources like a home and that children need less because they have fewer
expenditures. However, I think we should
truly keep it at the same amount per individual to minimize administrative
costs. Also, increasing household income
by incentivizing having more adults and children living together without
penalizing their basic income amounts would encourage better use of living
spaces, which is good for the environment.
The amount for children would be given to the children’s guardians
(parents or otherwise), serving a dual purpose:
cover the basic needs of each individual child, but also serving as a
pay for the value of raising the children until the child is self-sufficient. Once a child becomes an adult, they would
receive those amounts directly and start their lives as adults with their own
budget to spend on their basic needs.
Now, 770 billion Units is a lot of money (remember we are going
with a roughly 1 to 1 comparison with Canadian dollars here, as a frame of
reference). Well, in Canada, the total
amount of revenue perceived at all levels of government was $641 billion CAD when
adjusted to 2017 numbers.[5] To
cover the stated basic income cost, we can assume about 75% (64.7% + 10% assumed shift from lower
government operating costs and defence to the people) of the 295 billion Units
revenues from the federal government could be used to pay for basic income,
healthcare and education. We’ll assume
for the time being that UBI is federal and we’re not touching the provincial
and municipal tax revenues, leaving those to current major expenditures in
healthcare, education and other programs.
We want to keep much of that budget even though automation could reduce
the amount. Keeping these budgets intact
and as-is simply confirms the government’s intent to expand healthcare and
education coverage while increasing productivity thanks to automation.
That’s 221 billion Units from the federal that could easily be assigned
totally to the UBI expense, replacing current welfare, employment insurance and
other payment to persons programs already in place.
Add to that, the land rent income of $360 billion CAD annually
(thus 360 billion Units). And we have
581 billion Units out of 770 billion Units covered for UBI already.
From the provinces, roughly 65% of expenditures per province goes
to healthcare and education while the rest go towards the debt and social
programs that could be replaced by basic income.[6] Making a rough adjustment for a much smaller
government footprint and removing the debt concern, we can approximate about
50% of all expenditures per province going to providing free healthcare and
education, the other half going to our blanket social program replacement,
universal basic income. The total amount
of expenditures for all provinces and territories equals 346 billion
Units. Half of that goes to basic income,
therefore 173 billion Units, for a total of 754 billion Units cumulated for
UBI.
Since most of the tax already perceived in Canada (49%) comes from
personal income, I think it is fair to look if we could fund our basic income
deficit.
Thankfully, good research can help us out. Our purpose is our citizen’s well-being and
their happiness. A paper produced by Dr.
Deaton and Dr. Kahneman of Princeton University has shown that happiness is
primarily the result of two abstract psychological states – emotional well-being
and life evaluation.[7] The paper shows that emotional well-being
caps at approximately $75,000 USD and does not waver in different areas of the
world where cost of living increases or decreases. This means people feel personally fulfilled
at that amount of money in the short term.
Life evaluation, on the other hand is long term goal and gaining
more money generally increases life evaluation, as it should. That seems to be the main driving force
behind our motivation to do more even when we already have enough over the long
term.
The $75,000 CAD is important because it gives us some number to
play with and tells us just how much tax much tax we should be paying to the
government and still be fair. If 75,000
Units per individual is the cap of well-being, well-being being our basic
social goal for low stress and happiness, then tax rates should increase
considerably beyond that point.
Why? Well, once our well-being is
covered, we don’t mind as much sharing with others our good fortune. The concern beyond that is life evaluation,
hence the “what” we are achieving is much more important than the financial
compensation itself.
We’ll do simple mathematics using 22,000 Units, the poverty line
amount, as a non-taxable annual amount for everyone in the nation. So, anyone making an income worth less than
53,000 (75,000 – 22,000) should have a standard tax rate of 25%. This is the tax rate including both
provincial and federal taxes for anyone living in Ontario, Canada, plus 5%. Basically, someone on the fringe making
exactly 53,000 Units in a year would contribute 13,250 Units in taxes, paying
more than half the UBI received on income taxes. Citizens that make significantly more cover
their own UBI costs, balancing things out.
It sounds ludicrous for many to suffer such a high-income tax rate
increase. However, if we look at very
social countries like Denmark, where 90% of the population polled are in total
agreement with their 45% income tax rate, it’s not so bad. In fact, in Denmark, the reason why the
people agree with this high-income tax rate is because they are aware the taxes
are going towards services they all want, namely money for the individuals to
spend (not quite basic income there), free healthcare and free education up to
and including university level.[8] We’re trying to do the same here but we don’t
need to make a big change because the people are getting money from the land
rental, which pays almost half of the UBI on its own.
If people make more than the “happiness-level income” of $75,000
including the basic income, then they get taxed significantly more.
Making adjustments following the Canadian income tax rates and
estimating average income levels per bracket, we can increase the amount of
income received from income taxes by the Canadian government by about 78
billion Units. I used the Canadian
taxation model where each tranche is taxed at increasingly high rates as
taxable income increases. The first
tranche up to 53,000 Units of taxable income is taxed at 25% in my model. Income received above that up to 100,000
Units is taxed at 35%, the amount between 100,000 Units and 150,000 Units is
taxed 50% and so on.
Add 78 billion Units to the 754 billion Units gathered so far to
cover UBI, and we’re way above the necessary 770 billion Units needed to keep
everyone covered.
Comparison
of Canadian Income taxes 2017 collected (approx.) with suggested new “ideal
economy” rates (data sources from the Canada Revenue Agency tables). Provincial rates calculated using Ontario
rates.
Current tax rates
|
||||
Range and tax rates per income brackets
|
Income tax rate
|
Average income
|
Population at rate
|
Tax collected ($Bn)
|
$53,000
or less
|
20%
|
$26,500
|
18,100,000
|
$96
|
Between
$53,000 and $100,000
|
30%
|
$76,500
|
6,500,000
|
$116
|
Between
$100,000 and $150,000
|
37%
|
$125,000
|
1,440,000
|
$49
|
Between
$150,000 and $200,000
|
41%
|
$175,000
|
380,000
|
$20
|
Over
200,000
|
46%
|
$250,000
|
240,000
|
$21
|
TOTALS
|
26,660,000
|
$302
|
||
Plenty of assumptions were made for this following table but I
used most of the same data adjusting the tax rates only.
New program tax rates
|
||||
Range and tax rates per income
brackets
|
Income tax rate
|
Average income
|
Population at rate
|
Tax collected ($Bn)
|
$53,000
or less
|
25%
|
$26,500
|
18,100,000
|
$119
|
Between
$53,000 and $100,000
|
35%
|
$76,500
|
6,500,000
|
$141
|
Between
$100,000 and $150,000
|
50%
|
$125,000
|
1,440,000
|
$61
|
Between
$150,000 and $200,000
|
65%
|
$175,000
|
380,000
|
$27
|
Over
200,000
|
80%
|
$250,000
|
240,000
|
$30
|
TOTALS
|
26,660,000
|
$380
|
||
If we look at actual cashflow for a single individual making
$20,000 CAD per year in a job, in Ontario, the person would have to pay 20% of
$20,000 CAD to the government for all its services. That would be $4,000 total for the government
and the person would net $16,000 for himself.
That same individual in the new system with basic income doing the
same thing, hence adding the same amount of value in the community, would be
gaining 22,000 Units in non-taxable basic income, plus 20,000 Units in
salary. Taxed at the 25% bracket, this
individual would net 37,000 Units and provide the government 5,000 Units for
basic income.
20% more Units would be in circulation via the taxation route to
pay for services and more than twice the number of Units would be flowing
through the economy as buying power. For
the individual.
If we take a larger salary, like say $180,000 and make the
comparison, in the current system, this person would have to pay $55,753 CAD in
taxes, while he’d pay 74,500 Units in the ideal economy. Thus today, the individual would net $124,247
CAD and in the ideal economy of tomorrow, he would net his basic income
allotment of 22,000 Units plus 105,500 Units.
That’s a total of 127,500. This
high salary individual is taking home almost the same net income than in the
current system, but he is comfortably over the well-being line of $75,000,
hopefully aiming towards great things in life-fulfillment as well as helping
others getting their basic needs met.
Basic income can therefore be paid for by the wealthy while most
of the population have more disposable income to play with beyond their basic
needs. This forcibly creates an economy
where not only the middle class contribute to the economy in a real way, but
absolutely everyone, including those who only perceive basic income payments.
Though the model is Canadian, giving the land to the people
ensures there is sufficient income going around to provide the people of any
country.
If you want to think of it in simple terms, simply think about
unconditional basic income being the nominal distribution of the wealth of the
land to its people in the form of exchangeable Units. Meanwhile, the more productive among citizens
and those that contribute more value to society get more Units to trade back
into the economy and work alongside automated systems to ensure nations are
productive.
[1]
Land use statistics by country.
Wikipedia. - https://en.wikipedia.org/wiki/Land_use_statistics_by_country
[2]
Government of Canada, Department of Finance FY2016-2017. Annual financial report of the government of
Canada. - https://www.fin.gc.ca/afr-rfa/2017/report-rapport-eng.asp
[3]
Nick Bunker. Protecting against risk can
help boost U.S. entrepreneurship. - https://equitablegrowth.org/protecting-against-risk-can-help-boost-u-s-entrepreneurship/
[4]
Michalis Nikiforos, Marshall Steinbaum and Gennaro Zezza. Roosevelt Institute. (August 2017). Modeling the macroeconomic effects of a
universal basic income. - http://rooseveltinstitute.org/wp-content/uploads/2017/08/Modeling-the-Macroeconomic-Effects-of-a-Universal-Basic-Income.pdf
[5]
List of governments in Canada by annual expenditures. - https://en.wikipedia.org/wiki/List_of_governments_in_Canada_by_annual_expenditures
[6]
Government of Ontario. Public accounts
2016-2017: annual report. - https://www.ontario.ca/page/public-accounts-2016-17-annual-report
[7]Jennifer
Robison (November 2011). Happiness is
Love – and $75,000. Gallup. - http://news.gallup.com/businessjournal/150671/happiness-is-love-and-75k.aspx
[8]
Meik Wiking (January 2016) Why Danes
happily pay high rates of taxes. US
news. - https://www.usnews.com/news/best-countries/articles/2016-01-20/why-danes-happily-pay-high-rates-of-taxes
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