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Comment by douche | Hacker News Reader

I support the idea of a basic income, but only if it is a replacement for the system of piecemeal welfare programs and tax-breaks that we currently have. The entire system could get so much simpler than it currently is.

You get your basic income check for X dollars a month. If you work a job, run a business, whatever, in addition to that, you get taxed Y% on your earnings, excluding the basic income amount. No deductions, no write-offs, no tax-shelters. If you wanted to have a progressive sliding scale tax rate, fine, although that makes it more complicated than a flat tax.

HR Block and Intuit would scream, but if you could do your taxes with just your W-2 and a four-function calculator, how many billions of dollars could we avoid wasting and invest in a more productive sector of the economy?

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You are going to have issue with telling the basic incomers in more expensive places (like cities) that they have to move or else you are going to have to adjust basic income by cost of living.

The former is politically very dangerous (more so than BI already is) while the later is going to quickly add complication to the issue that you are trying to simplify.

I'd suggest replacing an income tax with a sales tax though. One 'punishes' earning, the other 'punishes' spending. Additionally you simplify enforcement by narrowing the collection points considerably. Talk about simple, you don't ever files taxes as an individual.

That mixed with basic income is a good plan from my non-economist POV.

I've sure someone far smarter that I can explain why I'm amazingly naïve.

From what I've read on the subject:

Economically, you want to keep money flowing through the system as fast as possible. One dollar spent three times in a year contributes more to the economy than two dollars spent once. (I could imagine it even contributing more three dollars spent once due to participating in more transactions, but I don't know how you'd model that.)

If you tax spending, you incentivize hoarding cash, which decreases the "monetary velocity".

The psychology is different when income is taxed. People can choose to defer spending, but the only way to reduce income tax is to make less money- sure, some oddballs may do so out of spite, but most people prefer to maximize their income.

Furthermore, when combined with basic income, income tax does a better job of reducing the magnitude of inequality. While on its own that's a social argument, it becomes an economic argument very quickly: since it "takes money to make money", extreme inequality levels actually disincentivize productivity from the have-nots, since the expected return on effort becomes negligible.

Is not spending money such a bad thing?

If your entire economy is propped up by increasing levels of spending, isn't that a serious problem that could explode?

Even if you tax sales and incentivize saving, people will still spend money. They obviously need to purchase basic goods, and people will still want luxuries.

So, will people save more? Probably. Will they stop spending and throw the economy into a downward death spiral? Highly doubtful.

As a followup, it has the added benefit of still getting tax money from the black market. If you are a drug dealer, you don't pay income tax, right? But you still buy goods and probably quite a few luxury goods. It also would capture tax money from the very wealthy if you drop all tax exemptions so they couldn't pay someone to find a loophole. It's not like they sit on their large sums of money and never purchase things.

If an economy is propped up by personal debt, things can (and have) exploded, yes.

But when not fueled by personal debt, you generally want faster spending, so that potential productive capacity gets used instead of left sitting for lack of demand.

Taxes: You definitely want to reduce loopholes as much as possible, and a sufficiently generous basic income would reduce the need for a lot of tax breaks, yes.

It is observed, however, that the very wealthy spend proportionally less on goods and services; most of their income gets reinvested. Good for them, but it leads to a positive feedback loop.

> I've sure someone far smarter that I can explain why I'm amazingly naïve.

I actually like your plan a lot, but it's worth knowing the weak points of any plan.

> Additionally you simplify enforcement by narrowing the collection points considerably.

That's one weak point. As long as there's big money involved, there will be incentives to minimize, cajole, hide, smuggle, etc. For example, the tax burden for cigarettes is already rather high, so there's a market for legal (Native American smoke shops), quasi-legal (online ordering), and illegal (selling loose cigarettes on the street) cigarette sales to get the "tax free" discount.

Extrapolate that to taxes on all goods and you see burgeoning black and grey markets and the organized crime that goes along with them.

...and there will be incentives for fraud with the basic income reporting as well.

There may be less regulation and enforcement overall, but it won't disappear by any means, especially given enough time for fraudsters to become more sophisticated.

As I said in another reply, there is already tax-evasion at the business level. Only having to enforce tax collection at the business level allows more focus on ensuring compliance. I would think the penalties would be much higher as well.

As far as basic income fraud, I think it should a basic income for EVERYONE, no matter the income level. If you are a real person with identity documents and of a certain age, you get a check. Will people try to defraud that, of course. They already defraud all the existing government programs. But as with dropping income tax, with basic income you drop all other government merit based assistance programs and focus only on a basic income program. Your fraud detection is now focused on a single program.

I even like the FairTax idea of an across the board tax 'prebate' for poverty level spending. Then every eligible citizen gets a basic income AND doesn't pay taxes on spending below the poverty line.

The question would be, would the taxes collected on above-poverty spending fully fund the program AND federal/state/local government spending? That's where I'm totally clueless. I tend to think that it would work out if it was a complete changeover. All government assistance programs would need to be merged into a single program and the federal/state tax systems would need to be scrapped en masse and replaced with a flat federal sales tax.

Will it ever happen? Hell no. Even if it is economically viable, there are way too many special interests that would lobby against anything like it happening.

Undeclared sales

That's already an issue though. With just a sales tax then you cut individual tax evasion out of the mix and allow the tax authorities to focus on tax evasion at the business level. Ignoring any arguments about the tax revenue difference between income + sales vs. sales only, I would think you could ensure much higher compliance if you only had to enforce at the business level with the added benefit of less bureaucracy.

Of course some people need more than just basic income to survive - if your medical expenses are 10x basic income, and you cut out all other welfare, how are those people meant to compensate?

There are some kinds of welfare that you can replace with basic income, but not all of them.

I should have distinguished, but I wasn't including healthcare. More along the lines of TANF, food stamps, fuel assistance, unemployment, all the other drips and drabs of money that can be applied for if you know about it and can work the bureaucracy.

US healthcare is fucked nine ways from sunday; maybe someday we'll adopt something on the Canadian pattern (I've had emergency surgery done in Quebec on vacation, anesthesia, overnight stay, 70-mile ambulance ride, the works - and the total was 1/10th of what it would cost in the US.)

Social Security is another sacred cow that you probably couldn't touch, at least until it goes tits up because all the boomers start drawing and there aren't enough of us left to pay in.

It is better to offer free health care that is paid via taxes/lower BI because it is cheaper to a society at large if people get regular checkups and fix problems earlier instead of waiting until the problem can no longer be ignored.

I gather you could still have something like Medicare (Australia) with a basic income. It's administrated entirely separately from welfare.

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