The Simple Two-Part Solution to Poverty: Universal Basic Income and LVT

Imagine a society in which each citizen is guaranteed a minimum monthly income. People do not work to survive; they instead work to contribute to their country, supplement their income, and enrich their minds and bodies. Poverty rates have plummeted, and socioeconomic divides across an entire populace have shrunk. It may sound like a socialist utopia, but a number of countries are considering the idea of a Universal Basic Income (UBI), with some poised to implement it in 2016.

UBI has existed as a concept for hundreds of years. The idea was first posited by Johannes Ludovicus Vives in the 14th century and evolved via the work of Enlightenment figures like Thomas Paine and then,  in the 19th and 20th centuries, by Western economists and politicians . The idea even surfaced in the 1972 United States presidential campaign in the form of a negative income tax, with both candidates expressing some form of support.

The concept of a UBI has found support across the political spectrum. The Cato Institute, an American Libertarian think tank, has proposed that a UBI could be the better way for governments to redistribute income versus complex entitlement programs. Andy Stern, former president of one of the largest unions in America, the Service Employees International Union, believes a UBI is an effective way to target poverty at its core – a lack of income.

 

Child Living in Smokey Mountain Dump, Manila Philippines via photopin (license)
Child Living in Smokey Mountain Dump, Manila Philippines via photopin (license)

 

Centuries of hypothesizing notwithstanding, there have been few concerted efforts to implement a UBI until now. Y Combinator, a Silicon Valley-based company that provides seed money to startup companies, will be giving 100 families in Oakland between $1,000 and $2,000 per month for up to one year. Researchers will measure “happiness, well-being, financial health, as well as how people spend their time.” Finland is currently drafting a proposal for a UBI that would give each citizen 800 euros per month, and the Labour Party in the United Kingdom is considering backing a similar initiative.

Some economists warn that a UBI would be ineffective if not paired with other policy changes. A potential downfall of UBI is that the greater income of citizens would be captured by landlords via rising rents. Therefore, efforts must be taken to ensure that rents do not absorb government-supplemented income.

 

bbb low-cost housing, tegnestuen vandkunsten via photopin (license)
bbb low-cost housing, tegnestuen vandkunsten via photopin (license)

 

The addition of a Land Value Tax (LVT) to funding the UBI would limit, if not eliminate, the amount of income absorbed by rents while providing the necessary revenue stream to support it. Martin Farley, author of the “Transformation Deal,” has calculated that this approach would create a revenue stream to support at least a moderate UBI. Furthermore, since the burden of an LVT is on landlords, excessive rents captured by them would be recouped by the LVT and re-injected into the UBI program. In addition, LVT has been shown to promote the best use of land, generating more lower-cost yet high-quality residential and commercial space, a further benefit of UBI. It has been argued by many that the dual combination of LVT and UBI would work extremely well together to resolve a number inequities in any economy.

Economists from across the political spectrum will be watching Y Combinator, Finland, and other test programs closely as they experiment with a UBI. Success could mean an entirely new approach to the welfare state. Most important will be whether and how socioeconomic conditions change. And from those changes, new understandings may well arise to support ideas such as Land Value Taxation. For now, the world is watching.

Cover image: Money! via photopin (license)

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5 thoughts on “The Simple Two-Part Solution to Poverty: Universal Basic Income and LVT

  1. I have found in Australia that if you do not have to pay rent/mortgage. A family can live on $25,000/year.

    It has to also be about developing strong, vibrant and resilient communities that share resources. How many lawn mower do we need? Plus convert lawns to food growing. Develop a cradle to cradle approach to all consumption.

    At its core is collaboration and not wanting to be independent but to be interdependent

    • Social and technologic advances are helping solve these problems. A system for sharing a lawn mower for each neighborhood would be a burdensome bureaucracy with troubling ideological foundations. But equipment-sharing phone apps, simplified use goods classified sales, etc. can reduce the redundancy. The social aspect is our willingness to stop caring about competing with each other over how well-manicured our green grass lawns are. These general trends encompass far more than lawns, of course. I’m hopeful.

  2. Yes LVT is promoted by Prosper in Australia. It suggests that dozens of other highly inefficient taxes could be removed at huge savings to the national budget. Of hundreds if taxes, 90% of revenue comes from the ten highest taxes, so get rid of many of the others.
    The UBI sounds good, but a long way off unless we have a revolution.

  3. LVT or land Value Tax deserves some better explanations than what has been provided here. It is the long-term way of elimination poverty because it aims at its basic cause, that of land appropriation and its monopolization for private and company benefit, which are morally wrong. Taxes are the means for a government to add to its income but they are destructive to the efforts of individuals. LVT is strictly not a tax because it takes money that is not earned or spent in the usual way and because when its effects are felt the opposite of a tax happens, there is an incentive to better use the land.

    The land ownership and speculation in its rising values goes along with the dismissal of any likely appeals for the sharing of its natural use and bounty in a socially just manner. This is not a light matter and the subject needs greater study than the summary below. The following 17 points are directly related to the benefits and losses in our social system due to the introduction of LVT.

    17 Aspects of LVT Affecting Government, Land Owners, Communities and Ethics

    Four Aspects for Government:
    1. LVT, adds to the national income as do other taxation systems, but it should replace them.
    2. The cost of collecting the LVT is less than for all of the production-related taxes–tax avoidance becomes impossible because the sites are visible to all and who owns each is public knowledge.
    3. Consumers pay less for their purchases due to lower production costs (see below). This creates greater satisfaction with the management of national affairs.
    4. The national economy stabilizes—it no longer experiences the 18 year business boom/bust cycle, due to periodic speculation in land values (see below). The speculation in and withholding of unused land is eliminated, see item 7.

    Six Aspects Affecting Land Owners:
    5. LVT is progressive–owners of the most potentially productive sites pay the most tax. Urban sites provide the most usefulness and resulting tax. Big rural sites have less value and can be farmed appropriately to their ability to provide useful produce.
    6. The land owner pays his LVT regardless of how his site is used. A large proportion of the present ground-rent from tenants becomes the LVT, with the result that land has less sales-value but a significant “rental”-value (even when it is not used).
    7. LVT stops speculation in land prices because the withholding of land from proper use is not worthwhile.
    8. The introduction of LVT initially reduces the sales price of sites, even though their rental value can still grow over a longer term. As more sites become available, the competition for them is less fierce.
    9. With LVT, land owners are unable to pass the tax on to their tenants as rent hikes, due to the reduced competition for access to the additional sites that come into use.
    10. With LVT, land prices will initially drop. Speculators in land values will want to foreclose on their mortgages and withdraw their money for reinvestment. Therefore LVT should be introduced gradually, to allow these speculators sufficient time to transfer their money to company-shares etc., and simultaneously to meet the increased demand for produce (see below, items 12 and 13).

    Three Aspects Regarding Communities:
    11. With LVT, there is an incentive to use land for production or residence, rather than it being unused.
    12. With LVT, greater working opportunities exist due to cheaper land and a greater number of available sites. Consumer goods become cheaper too, because entrepreneurs have less difficulty in starting-up their businesses and because they pay less ground-rent–demand grows, unemployment decreases.
    13. Investment money is withdrawn from land and placed in durable capital goods. This means more advances in technology and cheaper goods too.

    Four Aspects About Ethics:
    14. The collection of taxes from productive effort and commerce is socially unjust. LVT replaces this national extortion by gathering the surplus rental income, which comes without any exertion from the land owner or by the banks– LVT is a natural system of national income-gathering.
    15. previous bribery and corruption for gaining privileged information about land cease. Before, this was due to the leaking of news of municipal plans for housing and industrial development, causing shock-waves in local land prices (and municipal workers’ and lawyers’ bank balances).
    16. The improved use of the more central land of cities reduces the environmental damage due to a) unused sites being dumping-grounds, and b) the smaller amount of fossil-fuel use, when traveling between home and workplace.
    17. Because the LVT eliminates the advantage that landlords currently hold over our society, LVT provides a greater equality of opportunity to earn a living. Entrepreneurs can operate in a natural way– to provide more jobs because their production costs are reduced. Then untaxed earnings will correspond to the value that the labor puts into the product or service. Consequently, after LVT has been properly and fully introduced as a single tax, it will eliminate poverty and improve business ethics.

  4. Yes, the entire world most certainly needs a UBI. The sooner we get this going, the sooner it will fix most our current world wide social and economic problems.

    A UBI must effectively be funded from capital income to prevent the problem talked about in the article — of raising rents (rents are capital income) absorbing the gains and flowing back to the 1% creating more inequality. Land rent however, is not the only form of capital income. And when you fund a UBI ONLY from land rent, you solve the problem of incomes shifting to land rents, but you leave the door wide open for the same problem with all the other forms of rent (all other forms of capital income). Such as patents, copyrights, trade secrets, market shares, information monopolies. So with LVT we fix the problem of rising apartment rents, but that just encourages the 1% to shift their hunt for capital returns to places like drug patents, or technology patents, or information monopoly. Economics is like water. If you plug one hole with a tax, but leave others untaxed, the system just shifts the wealth to the places you failed to tax. This is why a LVT alone, won’t work well to fund a UBI. The wealth will still go to ground, but it will go to virtual ground like patents, creating even higher drug prices and medical care, and higher profits for technology patents, like phones and internet products, with huge corporate profits still going to the 1% nullifying what the UBI was meant to do.

    A UBI is a broad based redistribution of income for the purpose of reducing the income inequality created by all forms of rent seeking (capital income) and to make it work correctly , it must be funded by a matching broad based tax on all forms of income including taxing corporate profits (which is corporate income) to guarantee that all holes in the system are plugged.

    Even labor must be taxed at the same rate even though the goal is to shift rent income from the 1% to everyone because if you don’t tax labor, the 1% will just reliable capital income as salaries — turn all corporate profits into consulting fees for the stockholders instead of calling them dividends to prevent the tax.

    Taxing income will not be a problem, because the UBI will allow people to work less while at the same time reducing their after-tax take home pay reducing their motivation to work in a low paid job even more. This creates an artificial labor shortage that drives wages back up to the level needed for the capitalists to get the workers to keep working. It forces the capitalists to reduce their rent income to keep the business running. So the end result is exactly what we need — less capital income for the 1%, higher pay for labor. Even when we tax all income with a single flat tax, we get the result we want — we turn capital income, given to the 1%, into a Basic Income, give to everyone, and greatly reducing economic income inequality. Funding it only with an LVT won’t produce this same result. And LVT only funded Basic Income will allow the inequality to live on in all the non-land forms of rent seeking like patents and trademarks and trade secrets.

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