How a Basic Income combined with Land Value Tax could work in the US

 

A Land Value Tax equivalent to 5% of the value of property would provide revenue to pay every adult American a Basic Income of $9,400 as well as help generate growth and reduce all other taxes.

Crowd of workers

In my previous article about Why Land Value Tax and Universal Basic Income need each other I set out the reasons why both Land Value Tax (LVT) and Basic Income could support each other and help transform the UK economy. Most of the response I received from that article came from readers in the USA, so I thought I would have a quick effort at describing a similar scenario there, which I outline below.

In truth, this model could be applied to any economy where there is private land ownership and the adminstrative capacity to collect taxes. If anybody would like to do the same for other countries, I would be more than happy to help.

Land Value Tax in the USA

The starting point is to attempt to value all the land in the USA. One recent estimate put the total value of land at $22.98 trillion, but I don’t have access to the source data, so let me attempt a more detailed description below.

Land Value ($trillion)
Residential 26
Commercial 15
Agricultural 2.4
Total 43.4
LVT 5% 2.17
Other Commons Licence revenues 200
Total revenue 2.37

I have linked to the sources which are of varying degrees of reliability, but the total value of real estate (i.e. land and buildings) I estimate to be at $43.4 trillion ($26tr in residential property, $15tr in commercial property and $2.4tr in agricultural land).

This is a conservative total compared to the UK total land value, which at £6.2tr./$8.7tr is about one fifth of the US total.The US economy is approximately 6 times the size of the UK, and it’s land mass about 30 times the size, so I’m comfortable that this valuation is well within the bounds of reality and quite possibly an under-estimate.

So, if a Land Value Tax the equivalent of 5% of all real-estate value were to be levied, this would raise $2.17tr.

Commons Licences

On top of this a levy on other Common resources could be made to generate at least another $200bn.

These are things like charging Banks for their licence to print monetary reserves and to compensate the public for other subsidies (explicit and implicit). The banking sector in the USA has a turnover in excess of $1.2 trillion so a modest tax of 10% of turnover would produce revenue of at least $120bn.

Also, mineral extraction could be taxed to compensate the public for their loss of these resources. Oil and Gas has a turnover of $217bn, while coal comes in at $46bn, so a 10% tax on these three minerals alone would generate at least another $26bn. One estimate of Oil and Gas reserves put their value at $128bn, but in the interests of our environmental future I’m going to hope that value is never realised (it would be better to keep it in the ground).

Another subject I explore in the UK context is pollution taxes, which are another form of Commons Licences (if you use the common areas by offloading pollution into them, then you pay a fee). Just implementing the idea of a Carbon Tax could easily bring in another $80bn.

So that gives us an LVT fund of $2.37 trillion.

Basic Income in the USA

Divide this by the number of adults in the USA (260 million) and we arrive at a figure of $9,115 per person.

This Basic Income level is lower than many have argued for, but is still at a reasonable level in relation to meeting basic needs.

Looking at this from the point of view of households we can say from using these figures that the average US household (there are 134 million of them) would pay $9,700 in Land Value Tax (5% of $26tr divided by 134m), assuming they own their home, but receive an average of $17,686 in Basic income – a net gain of $7,986

Other Federal Government spending

Let’s assume, as in the UK model, that payments to children are also made ($3,600 per year per child, or $240bn in total ) and that other targeted benefits are maintained (let’s put aside another $160bn), which would add another $400bn in costs.

The Federal budget currently stands at $3.7tr per year. The Basic Income outlined above would replace $1.3tr of that (the amounts under ‘Social Security’ and ‘Other Welfare’ in the table in the link) reducing required expenditure to $2.4tr. Importantly, the Basic Income would not replace Medicare or Medicaid, which would continue to be provided as before.

Add in the $400bn of extra welfare payments outlined above and we have around $2.8tr to find.

The Federal fiscal deficit currently stands at $450bn, so assuming that would be maintained for now, remaining taxation would have to raise just under £2.35tr.

Fed budget $bn
Fed spending 3700
Welfare Spending 1312
All non-welfare spending 2388
Non-Basic Income Welfare 400
Total budget 2788
Fed Deficit 450
Total tax required 2338

A Flat Tax on all personal income

So how would the US government make up this amount?

According to the US Department of Commerce, the total personal income per annum in the USA is $12 trillion (see table below). If a simple Flat Tax of 20% were applied to all income, this would yield $2.4 trillion dollars, which would cover all remaining Federal Government expenditure

Personal Income $bn
Wages 7951
Salary benefits (i.e. pension contributions etc) 1855
Interest 1318
Dividends 877
Total 12001
Flat Tax 20% 2400.2

I accept there will be further complexity in the application of this model as the myriad existing taxes, their rules and regulations make for a complicated picture. However, as a model (which by its nature will be simplified) this demonstrates quite clearly that the US could easily afford a Basic Income for all citizens, set at a level that would lift most of its poorer citizens out of poverty, as well as provide a financial boost to many of those in work and/or earning a living.

Positive effects

And end to poverty (just a little thing…)

A good measure of the level of Basic Income compared to the US Census Bureau Poverty thresholds is in the table below. It demonstrates that the Basic Income would automatically lift all households out of poverty except for the single person households and the lone parent household, who hopefully would be supported by the $160bn of further benefits available under this model.

Factor in the removal of disincentives to work and empowering people on low incomes to earn more for themselves, and it would be well within the reach of the Basic Income to move all US households above the poverty line.

U.S. Census Bureau Poverty Thresholds, 2014
Size of Family Unit Poverty Threshold Basic Income (Child related payments included)
One person  $12,071 $9,404
Under age 65 12,316 9404
Age 65 or older 11,354 9404
Two people 15,379 18808
Three people 18,850 28212
Three people with two related children 19,073 16604
Four people with two related children 24,008 26008
Five people with two related children 28,960. 35412
Six people with two related children 33,303 44816

And end to taxes on Commerce (that doesn’t pollute)

By relying on Taxes on land and other common resources (LVT) and a Flat Income Tax on personal income, the US government could do away with all other Federal taxes, including the many taxes on business activity. Of course the business world will continue to contribute to the tax take via LVT on commercial and agricultural land, the taxation of the dividends paid to their shareholders, two forms of taxation that are much more difficult to avoid and evade.

Simplification of tax laws

Reducing the federal tax take to just 2 main taxes (or at least 2 tax principles) might go a long way to reduce the current tax code from its whopping 74,600 pages.

I can’t even begin to imagine how you might start unpicking that, so straightforward abolition and replacement with a Land Value Tax and Flat Income Tax would be an enormous relief to those millions of US citizens and businesses that struggle with their tax returns each year

And one more thing…

Unrelated to the agenda here, but if the US government struggled to make these numbers add up it might find the spare financial capacity by reducing the ridiculously large military budget.

The USA spends an eye-watering $800bn per year on the military each year. It could cut $300bn from that budget and still have greater military spending than the next 10 largest spending nations combined.

It wouldn’t pay for the entire basic income, but it would certainly help…

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