Does Basic Income + VAT “Solve” Immigration?

File:US Customs and Border Protection officers.jpg
US Customs and Border Protection officers enforce our labor market protections with paramilitary techniques.

One of my favorite liberal policies is the basic income proposal. The idea is that all citizens have a basic guaranteed income, below which no one may fall. As the argument goes, this supplies more flexibility than basic provision of essential services, and renders recipients much more autonomous than they currently are, since the government tends to spend redistributed money on the things it values the most, rather than the things that the poor value the most. There’s also a fairly easy way to run such a program: instead of making the basic income available only to the poor, you can make it a citizenship grant available to everyone who files tax returns, like social security. This radically simplifies the administration and eliminates the wasteful need to inquire into the deservingness of the recipients. If you’re a citizen, you get a check. Alaska has a system like this for all residents.

As I wrote recently, the dark side of the basic income proposal is that it privileges citizens over non-citizens. Perhaps this dark side is mitigated a bit if every nation-state in the world enacts a basic income, but there’d still be horrible inequalities between nations. However, in this post I want to argue that this kind of inequality is better than the status quo: “second-best” ideal theorizing… with a dash of public choice caution for good measure.

With a guaranteed basic income we might object that this causes some to receive a basic income who don’t actually “need” it. But that’s not such a problem if we fund the basic income with a different kind of tax: a sales tax or value added tax. (A value-added tax, or VAT, is like a sales tax that is collected all along the supply chain rather than only at the point of sale: it’s cheaper to administer and harder to cheat than a sales tax.) That way, we can recapture the basic income grant paid to the very rich, who will spend more of their earned and basic incomes on consumption and thus repay the basic grant. An ideal level for both the VAT and the basic income might be to cause the bottom two quintiles of the population to receive a subsidy paid by the top three quintiles. In the US, this would be about $34,738: anyone earning less than this would be subsidized by anyone earning more. Other proposals might aim to redistribute around the median income of $44,000, such that a household earning the median income would receive exactly the same amount in basic income that they pay out in VAT (if they spent every penny they earned.) Since the basic income is designed to supply the poorest with the means of subsistence, the VAT might be as high as 30%: in the median proposal, each household would receive 30% of the median income (about $13,200) as a guaranteed payment, but the median income household would pay out the same amount over the year in sales tax, thus breaking even.

The Basic Income + VAT proposal has a number of non-immigration-oriented advantages:

  • 1. It reduces the pressure on the poorest to work at whatever menial or degrading job is available.
  • 2. It serves as an automatic stabilizer against the vagaries of recessions and unemployment.
  • 3. It eliminates the sometimes massive disincentives to work. With programs targeted at the poor, it can sometimes be very expensive to have income rise above the EITC line or the qualifying line for other social services: for workers at a certain wage, additional income becomes a net loss. (This is the marginal taxation issue generally associated with arguments about progressive taxation, but it can also have pernicious effects on the poor and is currently under discussion in Great Britain.)
  • 4. Because it boosts income and taxes consumption, the incentive structure tilts towards savings and investment.
  • 5. Since only domestic consumption is taxed, a VAT encourages export-oriented industries.

Of course, there are some probable disadvantages, as well:

  • 1. A basic income would increase the cost of labor, which would reverberate throughout the labor market and increase the corresponding cost of everything. This would hurt the poorest the most, since the urban poor depend on the rural poor for affordable food.
  • 2. A VAT would further exacerbate consumer price effects by raising the price of the very subsistence goods that we all consume.
  • 3. There’d still be a massive population of illegal immigrants in the United States who were paying VAT but not receiving the stabilizing basic income to conteract its effects.

Both of the first two things can be counteracted by increasing the value of the basic income. It’s not an insurmountable problem, at all, and it has been seriously defended by both marxists like Jerry Cohen and conservatives like Milton Friedman. In that sense, it’s a classic “liberal” (what is now sometimes called “liberaltarian“) proposal encompassing the whole sweep of freedom-oriented political theorists.

The third disadvantage gives me pause. If you’re an old-school patriotic leftist, you may say that punishing undocumented workers is fine: perhaps you believe it is not our obligation to take care of criminals and line-jumpers who could not wait to enter the US through the legal process.

As a “cosmopolitan lefist” I think this is jingoistic nonsense, but I can still see reasons to support a plan like this, so perhaps we need not disagree so vehemently, or even be so callous to the needs of non-citizens. In a certain sense, a basic income + VAT might actually help to solve the immigration problem once and for all. Let me explain:

Many illegal immigrants now pay a portion of their incomes to dummy social security numbers that they have made up or stolen. Though they will never be able to collect benefits from the Social Security Administration, they still pay the taxes as a necessary prerequisite for employment. I happen to think this is radically unjust, but what’s important is that these fees hardly prevent massive numbers of immigrants from coming to work here. Even paying these taxes, it’s worth it for them to stay and labor, because the job opportunities are so much better, and so much better paid, than they would be in their home countries. What’s more, I find that this tax burden undermines the claims that immigrants are social leaches.

To anyone who’s paying attention, the system as it is grants illegal immigrants a striking nobility. They’ve come all this way just to do the jobs we don’t want at a wage we won’t accept, all while paying fees for services they’ll never receive and suffering the contempt and persecution of the natives for whom they labor! While it’s definitely an unjust arrangement, it’s also unimaginably charitable and altruistic of these workers to do all this for us while we treat them so badly! The fact that many such undocumented workers also remit money to their families in the home countries makes the whole story seem like a saccharine Christmas tale of divine generosity. It reminds me of the Christian story of Jesus, forsaken by his father, then tortured and reviled by those he came to save.

Of course, illegal immigrants don’t just pay Social Security taxes; they also pay sales tax on everything they purchase! And so they would also pay the VAT, which would be much higher than the current sales taxes, and without receiving a corresponding basic income. This would make it very remunerative to have undocumented workers in the country: more money payed in VAT would mean a higher basic income payment for all citizens. So it might finally legitimate the flow of workers into the US.

Even though this seems like an unfair burden to place on those who are here illegally, I believe it would be much fairer for them to pay higher taxes than for them to face the current threats of detention and deportation under a system that grants very few due process rights. What’s more, the US could avoid the German problem of reserving lucrative citizenship rights only for certain ethnicities because of our birthright citizenship standards. So there would be no longterm communities of second-class inhabitants: within a generation, all of these undocumented workers would be replaced by their documented and legal children, who would be entitled to receive the basic income and treated as equals before the law. It’s not a perfect solution, but I do suspect it comes closer to “solving” the problem of borders and labor flows than some of the other proposals, and it has the added benefit (from my perspective) of eliminating the need for the militarization of the border. Rather than building walls and training paramilitary units to round up undocumented workers, we could hire customs agents who were focused on policing imports and taxing goods. Admittedly I’m prejudiced in favor of proposals that generate more revenue, distort fewer markets, and legitimate fewer men with guns, but can you blame me?

Comments

17 responses to “Does Basic Income + VAT “Solve” Immigration?”

  1. […] dropped this video in the comments to my last post. It’s a short recording of Martin Luther King: “We are demanding an emergency to […]

  2. […] might be a great time to try out a VAT + Basic Income, for instance. That way workers’ demand for jobs will decrease just as business’s […]

  3. Ed Burley Avatar

    A couple of things. I love the basic income idea. Conservatives used to say that it would have been cheaper to just cut a check to the poor to bring them up above the poverty level than to have all of the expensive programs that really never helped anyone, and in fact, penalized them for seeking work. A basic income would be guaranteed, and if someone wanted to find a job to supplement it, they could, without penalty.

    By having a basic income, we could eliminate those ineffective programs (like welfare, food stamps, rent assistance, etc.). Social Security would no longer be necessary either. We could restructure it to pay out smaller amounts, or eliminate it altogether (as the Basic Income should be at least as high as most people's SSI should be). The money in the Social Security system presently could be utilized to help pay the Basic income.

    Also, I don't agree with using VAT. I like using a combination of Single Land Tax, Henry George's proposal from the 1870s, and a Raw Materials Tax, on corporations extracting raw materials from the earth (like oil in Alaska). I also recently read about The Sky Trust, which charges corporations for sending carbon emissions into the atmosphere. This would encourage those manufacturers to find ways to minimize their polluting, but would give a consistent income for redistribution for the basic income.

    Just a few quick comments…

  4. Ed Burley Avatar

    Oh, I forgot to mention the immigration issue. This solves one big problem. IF, as conservatives claim, the immigrants are coming to get welfare, etc. that incentive would be removed. Thus, if conservatives are right (and they are not), the "illegals" would stop coming. However, if the reality is that they are coming for work, then the work should still be there…and more of it, in my opinion. Though the immigrants wouldn't get the basic income, nothing would be preventing them from working…

    In my case, I think a basic income would be quite beneficial. I am currently an unemployed social worker. I'd love to start ministering to people, but must spend hours each day looking for a "job." If I received a basic income without stipulation, I could spend my days doing social work for people who can't afford it – counseling, basic care, etc.

    Basic income solves so many problems, I can't believe it hasn't already been implemented. EITC is one type of basic income, and it was invented by Milton Friedman, signed into law by Gerald Ford, and expanded by Reagan. If these conservative heroes did all that, why wouldn't other conservatives be willing to join progressives, classic liberals, and independents in promoting this wonderful idea. Its time has come.

    1. anotherpanacea Avatar
      anotherpanacea

      Sadly, I think the entrenched administrative class is the largest opponent of a basic income. Public sector employees, lobbyists, and politicians all benefit from the piecemeal way in which the state distributes public goods. Like tax reform, the winners all receive small benefits while the losers would take hefty losses, so the buy-in is greater for the status quo.

  5. […] incomes on consumption and thus repay the basic grant. I’ve written about this before, here, here, […]

  6. […] Basic Income and the Value-Added Tax: I’m not sure I’m “most likely to be wrong” on BIG+VAT, but I do think […]

  7. Rufus Avatar
    Rufus

    GST VAT etc are constantly gained in Britain, Austrlia, New Zealand as you can claim it back against other losses. What you really want is a flat rate transaction tax, a tax on the velocity of money. This would also address the issues with HFT and other exotic financial instruments.

  8. Steve Avatar
    Steve

    A few thoughts that come up for me:

    Proposals for (what amounts to) increased sales tax tend to make me cringe, as sales taxes are *regressive* taxes (that is, if a rich guy and a poor guy both buy an apple, the sales tax they both pay is the same amount, but is a higher percentage of the poor guy’s income. Regressive taxes weigh heavier on the poor than on the rich).

    Furthermore I think the assertion that “rich people will consume more” is–while certainly true–not a thorough-enough examination of consumption. Surely rich people will spend more money from month to month, but I honestly doubt that their ratio of consumption to a poor person’s would be equal to the ratio of their wealth to a poor person’s. (Maybe a rich person spends 100x what a poor person does but they actually have 10,000x the wealth of the poor person.)

    All this is to say that if the goal is redistribution–and I think it should be–then VAT is an imprecise and ultimately foolish way to go about it. A simple progressive income tax (without loopholes) and LVT would be more effective.

    The one thing that’s cool about VAT is that provides additional disincentives for illegal immigration and (ought to) kill the arguments from people who want to deport illegal immigrants. However this isn’t a good enough reason (in my opinion) to enact a regressive tax. We already know that basic income will likely increase inflation, thus driving up the cost of goods. Driving the cost of goods up even more seems like a bad idea.

    If we want to redistribute wealth (which–again–I think we should), we should prioritize approaches that directly accomplish this. Much like basic income directly abolishes poverty, progressive income taxes, capital gains taxes, land value taxes, these all would directly decrease the wealth of the ultra wealthy.

    Alternatively, we could embrace inflation by minting new money to distribute as basic income, which would then essentially dilute the values of the vast fortunes amassed by the ultra wealthy. This isn’t “redistribution” per say but certainly would have the effect of decreasing the wealth of the ultra wealthy.

    Of course these don’t solve the immigration problem. But before we go worrying about immigration, I’d worry about the primary issue, which is abolishing poverty. Giving the poor basic income is awesome, taking more of the poor’s money with increased sales taxes is not awesome.

    1. Joshua Miller Avatar

      So I deal with a lot of these issues in more recent posts. (This post is from 2011.) But I think a few things are relevant: redistributing “wealth” as income strikes me as a bad idea. You don’t want to dismantle the factories and consume them: you want to redistribute the income that flows from them, specifically, the consumption income. (Income that is re-invested in making the factory produce even larger amounts of income in the future is not really contributing to inequality.)

      The real difference between the rich and the poor strikes me as two-fold: the rich control more stuff, and the rich consume more stuff. Insofar as the rich have skill at controlling the stuff they control, it’s probably a bad idea to turn that control over to the poor. But insofar as they enjoy outsized benefits as a result of that control (specifically in consuming more resources of all sorts, but also political benefits) that is what we should aim to redistribute.

  9. […] because they’re assuming UBI will be given to everyone instead of only citizens, and therefore the potential for UBI to actually incentivize legal immigration is […]

  10. […] because they’re assuming UBI will be given to everyone instead of only citizens, and therefore the potential for UBI to actually incentivize legal immigration is […]

  11. […] inmediatamente una inflación masiva, si serviría para desincentivar la inmigración ilegal o si la gente dejaría de trabajar si recibiese un ingreso garantizado cada mes. Su […]

  12. Peter Rodes Robinson Avatar
    Peter Rodes Robinson

    “It eliminates the sometimes massive disincentives to remain jobless.”

    I believe you mean to say:

    It eliminates the sometimes massive incentives to remain jobless.

    or

    It eliminates the sometimes massive disincentives to find a job.

    Also:

    very expensive to have income rise about EITC line

    –>very expensive to have income rise above the EITC line

    https://docs.google.com/document/d/1M-nqriNyklww9OKkEKv7GawqAG4ydtAvpZpydqGVnKE/

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