Unconditional basic income given to all citizens

This morning I listened to a radio talk with Götz Werner, the founder of the very successful drugstore chain "dm". He is the well-known promoter of an unconditional basic income in Germany (bedingungsloses Grundeinkommen; with modifications, this idea is discussed elsewhere, too).

In short, this would mean that each citizen is entitled to a basic income without having to work for it. Estimates say it could be around 800 €, which would cover most of the expenses of a (frugal) lifestyle. It would be up to the people to decide how much payed work they do to improve their standard of living.

The basic income would be financed by a drastic increase of the value-added tax, while at the same time reducing or even eliminating most other taxes like income tax, company taxation, profit taxes in general. So the idea behind it is to move taxation from work/added value to consumption of goods/services.

The defenders of the basic income envision many positive effects:

– lower incidental labour costs and wages
– lower net prices, which would increase export
– simplification of the state's subsidies system (e. g. pension system would be replaced by voluntary private insurance)
– improved social climate, less exclusion because of poverty
– more personal freedom, more time to do volunteer work, be with family, education etc.

So what are your thoughts on this? Is it utopian or, on the contrary, a solution for industrialized countries with high productivity which leads to structural unemployment, and on the other hand many people doing jobs they actually hate because they have to earn a living?

Homepage Götz Werner

MP3 podcast of HR1 talk

Consumer tax is the worst idea ever. Just look what happened to the boating industry in Florida and the car industry in Detroit when Bush I introduced the luxury tax. The only way to go is to have an income based simplified progressive flat tax.

The problems with a narrow tax base are that no effort will be spared to avoid it, and it would be ridicously high even if if it were essentially the sole tax. If implemented, it would crush much, if not all, of the retail sector here. The current VAT brings it something like 30% of state revenue, if I remember correctly. How high would VAT rates have to be for it to bring in 60-70% of state revenue? Talk about a regressive tax.

Rather than discouraging work, as a (presumably Netto) income of 800 euros a month might do (depending on the VAT rates), the tax system should be reformed to encourage work, saving, and investment more than it currently does. It would also wreak havoc on the labor supply for unskilled work.

Less reliance on public pensions is a worthy goal, but this is not the way to do it.
As for time off, don't people have enough of that already?

I am a fan of a basic inccome - negative income tax - citizen income coupled with a flat tax. It would mean a revolution in thinking alas...

Seeing that most people I know can easily live off of 800 euro (ok, I still have student loans, so I'd have to make an additional couple hundred), I'd see my friends a lot more...the lazy bums they are.

Haha yeah €800 are fine to live off, however if sales tax went up a lot and health care and other social services were privatized, it would probably be a bit harder (also depending on where you live, and how much rent you pay).

Paying 800 € per month to everyone in Germany would add up to roughly 800 bn € per year, more than 1/3 of Germany's GDP. And all other government expenditure comes on top of that. Hard to imagine how this could be financed by an increase in VAT, especially if you want to abolish all other taxes...

Why dont we just capsize all wealth in the country and re-distribute it back equally ?

Who would actually do all these unpleasant jobs, if nobody is forced to make a living anymore? Presumably, you'd have to give people a really big financial incentive to be a trashman, a cleaner, etc... (i.e. their current salaries would have to be doubled or tripled, or else nobody would bother doing these things anymore)

It depends what you need and want from life. If your priorities are Material then you`l need more cash and will have to work for it. If you prefer to sleep late, sit in the sun and enjoy life...and can get by on 800 Euronen..then OK. Maybe they should phase in the option from a certain age - say 40 + so that the obligation to work is there at the beginning and you can work towards a "Work free life" later on. (The German Beamten call this "Frührente!")

Im 46 now and I`ve worked all my life - I´ve never been unemployed...and I have a role model.
My next door neighbour had a small electricians business and worked hard all his life. Once his 4th child was through University he sat down with his Missus and said OK...we`ve got a thriving business, the kids are grown up - What do we have...what do we want and what do we need. They decided to sell off the business and he retired at 55. I shit you not...the guy has an excellent life and enjoys it to the full -they travel, entertain guests, do a bit of gardening and in general do what they want when they want - they are masters of ther own time.

I have a good regular job and I`m also a musician doing the Pubs almost every weekend - I earn good money on both sides and live quite well. I also was lucky enough to be able to invest a pension in the UK lots of years ago and can get at that from age 55. In the last few years work for me has become a means towards an end.

Should my plan work out then I aim to stop working for other people when I`m 55 and do what I want to do. If the investments grow well enough then a gig now and then should see me through... To me personally..being lord and master of my own time is much more important that having bags of cash/Big car etc etc.

I shall then "retire" set myself up a Workshop and build Guitars.

Time will tell

:-)

Enough with these, "Let's-try-communism-one-more-time" ideas!!! It didn't work and it won't work.

OK, it's not communism but it does lean in that direction if you think about it.

There was an eighteenth-century British experiment in poor relief commonly called 'Speenhamland.' According to Karl Polyani the system, "shattered the self-respect, productivity, and independence of the recipients.".

Nixon had a similar plan for Guaranteed Income in 1968/69. The plan was crushed.

Socialized medicine, Kindergeld and employment protection are wonderful but, Basic Income* is a terrible idea. Human beings derive self-worth through work. It doesn't have to be hard work, just work that they somehow feel contributes to their sense of autonomy.

*Kindergeld is a form of basic income that I think is beneficial. But anymore than that is too much.

Saint, then Mr. Werner would be the very rare case of a communist entrepreneur.

As far as I understand the finance model, the goal is to make production/services cheaper, which would be desirable in a country with notoriously high taxes and labour costs. In fact, if one talks of net prices (i. e. minus value-added tax) for goods and services, there are still taxes comprised, like company taxes and the employee's incidental labour costs. According to Werner, taxes are about 50 % of the price for goods and services.

As a result, product prices would fall (because of lower wages and price competition), so the value-added tax increase would be neutralized.

In addition, there are enormous sums spent on a variety of state subsidies, which would be subsumed under a reliable basic income without preconditions. The realisation of this model would be a combination of step-by-step rising basic income (up to existence minimum) and rising value-added tax.

The predicted effects on the economy are: attractiveness for investors because of low production costs, flexibilisation of labour market restrictions (because employees depend less on their jobs), labour as a resource would be used more efficiently (people work because they are motivated intrinsically), more potential for cultural work, care etc.

Let's be realistic: Many people work all day in a not very fulfilling job, for example at an assembly line or in a call center, come home and collapse on the couch because they lack the energy to do (or find out) what they really would like to do.

RainyDays, what you descibe is almost word-for-word verbatim the same plan that Nixon created in the late 60s. Basically, do away with all social security, unemployment etc..and create a Guaranteed Income.

But how does the model adapt to inflation and how does it actually affect inflation to start with?

The predicted effects on economy aside, what are the predicted effects on society and education?


This isn't a reason to have a basic income for everyone but a good reason to implement guaranteed grants to absolutely anyone who wants to go back to school to change careers. The grants could cover the cost of education and supplement monthly income.

Lacking the energy to find out what you really want to do is no excuse for being a layabout. I am currently going through a crisis of "what do I really want to do?" and at the same time I am not working. I HATE it. I am so damn bored, I can't stand not working. I must be proactive in order to be energetic. You would be amazed at how tired doing nothing can make you!

I'm going to be now folks, bon nuit!

Think its a good idea, but not funding it from huges increases in VAT.

And don't believe the employer class bitching about the cost of labour in Germany either.

Why does being proactive mean working to earn your living? And why shouldn't it be allowed to do nothing if one is happy with it? Isn't it a problem of our western society that we cling so much to a paid job, in contrast to other societies or the ancient Greek-Roman world where leisure (otium as opposed to negotium) is or was seen as the most noble and human form of existence?

EDIT: MT, I think the global competition for the lowest labour costs is a reality, and at the disadvantage of highly industrialised countries.

I must be an exception to this rule, because although i enjoy my work and find it in many ways fulfilling, I do not derive my worth from it.

I can not really see how this model will make services and production cheaper. Not only it will drive them up like crazy,it will also boost inflation, whcih will make 800 euros worthless. At the end people holding capital will be richer.

It's already allowed, isn't it? The tricky bit is expecting society to pay you for it...

If the VAT went way up to cover it, do you think anyone in Germany would make any large purchases (or even small purchases if they live near a border) within Germany anymore?

I sure as fuck wouldn't...

I see some merit in this idea, however the point you make above is the reason I think it won't work, not the reason it will.

As you point out, a lot of people work all day in non-fulfilling jobs. Who the hell would want to take these jobs if they could get by without them? Further to that, you're suggesting that people would take these jobs for less money than before! I think what would happen is that less people would be willing to take such jobs, therefore the employers would have to pay MORE to get their stuff done. Wages in this case would rise, and employers would be more out of pocket.

As I said, I do like some points to the argument. It would be great to know that you're covered no matter what and you could just do a job for the "fun" of it. Trouble is, there are a lot of jobs out there that are simply not fun.

Hutcho, the wish of most people to live above the existence minimum would still be enough of an incentive to also do these not so great jobs. But it would be an improvement if people could choose to work only part-time in these jobs and still get along financially thanks to the basic income.

Sharpe and Hazza, according to the theory, prices would fall because companies are forced to give their increased profit (made by paying less taxes) back to the consumers in order to stay competitive. The VAT increase shouldn't be abrupt to avoid tax evasion. When the VAT rose to 19 % in Germany, the feared drop in consumption didn't happen.

Tom a, it's my impression that even people who live on their own means "not doing much" are subtly made feel guilty.

OK, I'm off to work now.

nice idea, but seems like Gotz needs to read "atlas shrugged"

What a fabulous idea. Let me ask my Uncle Joe what he thinks...

i don't know if the unconditional basic income would be able to keep up with inflation so well, if it were implemented. i'd favor a model where each adult individual could chose between entering the private sector, or entering a socialist style labor force. if you entered the socialist style labor force, your pay would be based on the time you were in the force, and how much you got promoted. the pay and heirarchy structure would be somewhat similar to the military. the pay for the average worker would be mediocre (say 10€ per hour at today's rates), the main benefits however being no fear of unemployment and paying health insurance. you'd be free to leave for the private sector at any time, or work part time in the private sector, for which you'd be taxed. if you left entirely and wanted to re enter, you'd have to start back at the bottom. there'd probably be a good deal of potemkin style worthless jobs, just to keep people busy, but i guess we have that now anyway. all unemployment benefits we know of today would be wiped out.

you'd either be rich, satisfied being homeless and free, good at working in a total free market situation with no guaranteed benefits or minimum wages, or simply join the state run labor force and never worry about job hunting and unemployment again. i think it would be possible for a more or less hardcore no holds barred style of capitalism to co exist (or rather support with its revenues) a everyone who joins is quite well taken care of socialist sort of new deal style labor force.

I don't see why it would stoke inflation tbh.

i see the inflation angle is not such a sure thing. ok, maybe the unconditional basic income would in fact be a nice easy way to solve a lot of the stresses many people are faced with. people might be more willing to take risks, which could amount to a lot of growth potential. it would be a very nice thing if it worked.

Any citizens income or negative income would basically work like your tax free allowance instead it would be paid out. So for those who are working all your income would be taxed. If it was my scheme I would then have a flat rate income tax maybe with two bands... around 20% upto £100k and then 30-35% for those above.

There would be no tax allowances or tax dodges and capital would be taxed the same as income to stop the rich switching income to capital. All allowances and rules would be scrapped - so firms work to create, innovate and produce - not dodge tax...

Oh after that we could sack loads of civil servants and send them out into the private sector to create some exportable wealth...

Stanford...the flat taxer...

No, it wouldn't, necessarily. Note that only citizens get the basic income.

The answer to the question of who would do all the shite jobs is non-citizens.

I agree with you, Conquistador, that encouraging people not to work is a pretty stupid idea. But I also suspect that such a plan would create an underclass of non-citizen unskilled laborers with even more economic disadvantages than they have now.

Saint mentions other supplements, like Kindergeld, which are granted to all legal residents. Goetz's plan specifies citizens only.

Cinzia, good point, I did note that as well; however, I don't think Götz specifically wanted to exclude legal residents who aren't German citizens, which I believe would anyhow violate German law and public policy. Someone who knows for sure if this can be implemented for citizens only, please correct me if I am mistaken. I don't think he wants to give the basic income payments to German citizens living abroad. I think Götz is trying to gain a greater level of support for his proposal by stressing its benefits for citizens, as many, if not most, people would be hostile to the idea of such payments going to noncitizens who would come to Germany solely to collect these payments.

It's no secret that much of the unskilled work in Germany already is done by non-Germans, and I would be shocked if there was any significant support among the German electorate for increasing the numbers of unskilled foreign laborers in Germany.

What do you mean "create" ?

Such a scheme would apply to legal residents not citizens.
I am not sure it would act as a magnet for mass igration to germany, as stanford has pointed out this is like a tax allowance but paid out.
€ 800 is only a bit above Hartz IV is now, the money would only a cover a VERY basic lifestyle.
But at the same time would lift a lot of people out of poverty.

Before we go down this road though, i think minimum wage should be the priority.

having paid 800euors..without working

ufff.."height of luxury"

thread starter forgot to mention..one more point in positive effects..

"no more unemployment"

or

"high rise in Unemployment"???!!!

The question of who should actually receive basic income is certainly tricky. Götz Werner just says that, in a first step, only German citizens and "perhaps longtime foreign residents". Those who wouldn't be included, i. e. Non-Germans with shorter residency, would be able to find jobs more easily. Germans could also live on basic income abroad (pessimists might predict German mass migration to warmer countries )

The low-paid jobs would need to be made more attractive by raising wages; but there would also be a tendency towards further automation where this is possible.

If one believes in the liberal idea of the beneficial effect of human egoism, which makes individuals strive for profit (sounds very negative, but this can also be immaterial rewards) and thus contribute to the wealth of society (directed by an "invisible hand"), then this engrained human motivation should also work without the amount of constraint that many people experience today. I read in a wiki-article on Milton Friedman that he also supported the similar idea of a negative income tax.

Werner's ideological background is liberalism mixed with the "Katholische Soziallehre" (he cites Oswald von Nell-Breuning). So as a true liberal, he wouldn't tax companies or capital, he just reminds people that, according to the German constitution, property comes with obligations and wealth should be used in the public interest.

I actually think the idea of basic income is unlikely to be accepted in today's German society. The most common objection would be: Why should I work so that someone else can laze about? I also see a problem in giving basic income to very young people who sometimes don't think ahead very much and could seriously believe that living on basic income without vocational training is a career path.

Probably illegal at least as far as EU Citizens are concerned anyway.

Very interesting discussion so far.
The argument of "why should I work" already applies anyway as Hartz IV is only around €750 or so and obviouls ypoeple DO go to work for higher income.

Well, non-German EU-citizens are only eligible for Hartz-IV or Sozialhilfe under certain conditions; I remember threads where this problem was discussed.

By the phrase about "Why should I work ..." I wanted to point out the widespread resentment directed towards receivers of state subsidies who don't work, this won't change overnight IMO.

But someone who had fulfilled the conditions WOULD be entitled so it isn't for citizens only and couldn't be.
As €800 is basicly what you need to live on, it wouldn't attract a huge ammount of people to migrate long term to Germany I don't think.

I think the idea could have merit. Presumably you could work it so that companies actually paid much lower wages (i.e. they top up the basic guaranteed income) maybe that would help cover costs

How would it affect immigration though? I mean, who would qualify? All the Eu people who move to Germany? Everyone with residency?? Could be complicated

That's a problem I hadn't thought of in this scenario. There are discussions to be had about how much the general tax pot should subsidise employers wage bill.
This would have to come after a minimum wage anyway which is a more immediate issue.

The payments are going to increase government spending, that is for sure.

That means more tax revenues will have to be collected, a prospect made much more difficult by the narrowing of the tax base.

The notion of letting Germans abroad get the payments is crazy. Ever heard of Florida Rolf?

Then there are all of the issues surrounding noncitizens and those without a Niederlassungserlaubnis. You will be forcing these people to pay the same (higher) taxes as those collecting the 800 euros while telling them that they cannot collect these payments. This will not help Germany's image and will discourage many skilled immigrants from accepting jobs here unless their salary offers are higher than those collecting the benefit in order to compensate them for not getting the benefits as well as the higher tax load.

I am all for a simpler, more efficient tax system, but this is not one, and it will have some very nasty side effects.

Conqui, I also see a problem in wanting to diminish social tensions in one part of society (i. e. unemployed or working poor) without having them reappear in a different part (non-German residents).

Then again, in the basic income model the income tax is supposed to be very low, and if there is a drop in work force because people decide to work less, according to the law of supply and demand, wages would need to rise – and non-German employees would also benefit from this.

With my very limited economical knowledge I find it difficult to judge the viability of this model, but I also wonder what 'work' will mean in a few decades' time in western industrialised countries. Jobs in production and also services will on a very large scale disappear or be transferred to emerging markets, and how can societies counter or even prevent the consequences of such sweeping changes?

If it is linked with tax then it HAS to include ALL resident taxpayers, not just Germans or EU Citizens.

This is exactly what would happen, which is why the workers not receiving the basic income supplement would suffer under the plan. It would depress wages for everyone, including workers not receiving the basic income.

Goetz surely knows that if he proposed to offer the basic income to all legal residents, not just citizens, the whole plan would be a total non-starter as far as Hermann is concerned. German citizens would absolutely hate the idea of Auslaender receiving it.

MT and Cinzia, you seem to have a valid point there. Mr. Werner should explain this contradiction between paying taxes but not receiving the benefits!

Then there's the generali ssue of "no taxtation without representation!"

Excellent point, especially considering that there is already a significant part of the labor force which is non-German, and that percentage should rise further in the future.


Theoretically, the income tax will be low. Problem is, the plan necessitates increased government spending, yet the government is implicitly saying that it ialready sn't taking in enough tax revenue to cover its near and long-term spending. We have had this year a VAT increase, and now Beamter pensions have also been curtailed. There is an increase in capital taxation coming in the next few years and inheritance taxes on property will rise. The trend towards higher taxation is clear. Increasing the welfare state is entirely a move in the wrong direction, especially when you say that increased taxes on consumption will largely replace current taxes on income and other taxes if the Götz plan is enacted. Problem is, comsumption taxes are not low, and already account for 30% of German tax revenues. Businesses also don't pay VAT on intermediate transactions in the production process, nor is VAT paid on exports. If the VAT is your sole or majority tax base, how high will the rate have to be to replace most other government revenues, especially taking into account the inevitable tax avoidance that will occur- shopping in neighboring countries as well as the decline in quantity demanded by the sharp increases in prices for consumer goods and services? I am afraid to find out, even if static scoring is used, i.e., no tax avoidance or change in quantity demanded is assumed.

I very much doubt people would be able to work less if consumer staples skyrocketed in price, along with the uncertainty caused by the other changes advocated by Götz, and the German economy would become even more oriented towards export and less oriented towards non-tradable domestic services.


It will depend on the country. Germany may keep most of its industrial base if it can prevent Chinese knockoffs of its autos and rising petrochemical prices don't kill of its chemical exports. The aging of the population is a negative for domestic consumption, though. Germany will have to find new niches for growth- biotech, medical technology, and nanotech are potential areas, and maybe aerospace. Education is another potential area. There is ample scope to stimulate domestic consumption, but that assumes a significant amount of deregulation which faces staunch opposition from vested interests.

It is hard to see the welfare state not being trimmed back, which makes Götz's proposal particularly nonsensical to me, as it is in fact an augmentation of it.

RD, I don't know if it is in German translation, but I strongly recommend reading "The Competitive Advantage of Nations" by Michael Porter. It was published in 1990, but anyone familiar with Porter's books will vouch for their agelessness. Porter is an economist at Harvard Business School. Once you have read his book, you should be able to decide for yourself which areas various countries will need to focus on in the years to come.

And I thought Schlaraffenland would be right around the corner!

I'm not sure if basic income means more welfare state; in fact it would replace most of the existing social benefits. Even the pension system, although this would pose another legal problem, since it's an insurance and people so far expect to get a pension in proportion to their individual contributions and not a levelled Grundrente, which might be a false belief anyway ...

Thank you for the book title, I can get it at the library, also in German ("Nationale Wettbewerbsvorteile", 1993).

Exactly. There would be an income improvement for the poorest benefit recipients which is a good thing.


We get lied to on the pension system as it is anyway. We are now paying a HUGE ammount of money with no guarantee with what we might get out.
A basic income could cover that and people could top up as they wanted to from any extra income they had.

I would happily do nothing for 800 euros a month... would be a huge improvement

Sorry to come in at the end of the conversation. Here are some points that I have been thinking about:

1. Greener Economics: With a basic or citizen's income, the Government has a better moral case to introduce proper green and pollutions taxes - I would say. At present any green taxes or pollution taxes hurt the poorer member of society but if there was a citizens income you can at least point to the fact that people should have their basic needs covered - so should not resent when we curtail some economic activity. The Green Party in German and some other countries support citizen's incomes.

2. Calculations for the UK: I have done calculations before on this topic for the UK as I am interested in the idea. Can not remember the exact figures I built into a model but it was something like £4000k for 50m people per year figure would cost around £200bn. At present the UK government spends around £50bn on pensions (non-funded) and about £75bn on other welfare payments. These are really of the top of my head but you get the picture: there is a funding gap even taking my approach of taking away the tax allowance. So, we would have to look at pluging this gap by doing away with subsidies and tax loop holes in other areas. In my humble opinion if you are going to go down the road of a citizen's income it has to be a substantial amount; a liveable amount.

3. Reform of Welfare: The attractiveness of a citizen’s income is to stop the stupidity of the welfare system that we have in the UK. There are now millions of families paying taxes in one hand and receiving welfare payments in the other (with all the bureaucracies that this system entails) albeit it family tax credit, pension credits, winter fuel payments, housing or child benefit. Movement away from this nanny state approach to directing who gets want would promote individual freedom. Strangely enough the old UK welfare state and left supported universal benefits as was believed that by providing for everyone inc. the middle classes - it would mean the system received wide support from the populace. Whilst, the UK right brought in mean tested in the eighties which has proved to be inefficient and costly (and Nulabour has taken on this approach and seem to love even more social engineering by directing money here and there!!!).

4. Freedom: A citizen’s income would reduce the worry about being unemployed because there would be an automatic safety net which would be transparent and certain. Also, it would promote job flexibility as moving between jobs or trying to find the right job would not hold the risks it has now. Finally, life long education would receive a boost as people could study at any stage as long as they are willing to survive on the citizen’s income.

5. Incentive to work: The idea that a citizen’s income would be a disincentive to work fails to recognize that the poorer member of society in the UK have effective marginal tax rate of between 50 to 70%. This is where the effects of loosing benefits and paying more tax kick in. So at present there is little incentve to earning more for many people in the UK. The great thing about a citizens income is the marginal benefit to work is largely positive; especially if you couple the citizen’s income with a flat tax. How many people are lazy bastards is a unknown? I would guess most people are not that bad - a few weeks hanging around at home watching daytime TV would soon get them back out working. And anyway you would not be able to consume that much with a income of £4000k a year! Also, there are 6m inactive people in the UK - maybe alot of them would join back into the workforce - as there is less worry about loosing benefits?

6. Wages: There is a question mark here in that for low paid and unrewarding jobs there would be less incentive for unskilled workers to do them. In effective the bargaining power would shift to the citizens away from the employers. For people whose income bracket is well higher than £4k - near £25k or £50k there would be little or no effective especially coupled with the tax free allowance going they would not be earning much more or less (with a 20% flat rate tax).

7. EU laws: This would be a problem as you can not discriminate against any EU citizens when it comes to free movement of people i.e. they get the same as what your nationals get. Not sure what would be the way around this.

8. Small Government: Simplifying the tax and benefit system would mean fewer civil servants and would promote small government. However, small government would not have right-wing connotations of leaving the people to sink or swim as you would already have supplied them with a dingy boat just in case they get into trouble. By shifting more resources into the private sector it would potentially lead to more economic activity that is exportable. Last time I looked civil servant do not earn foreign currency….. So hopefully would be a boost to the economy.

Anyhow, I should stop rambling there – I hope these add a little to the debate.

If anyone is interested in this idea, there is a book called Fair Tax by Neal Boortz. Google it andlet me know what you think. He has a radio show out of Atlanta which you can hear over the web.