A Universal Basic Income deserves to be implemented fast but carefully, little by little.

Sir, Lex writes:“Either the Universal Basic Income (UBI) has to be unrealistically low or the tax rate to finance it is unacceptably high. Suppose the US provided its 327m inhabitants with $10,000 a year. That would be less than the 2018 official poverty threshold of $13,064. But it would cost 96 per cent of this year’s federal tax take.”“{Universal basic income: } money for nothing” May 20.

Let’s face it, the UBI, being an unconditional payment, eats into the franchise value of the redistribution profiteers, and so there are many out there wanting it never to be launched or, if it is, to be unsustainable. The usual way to sabotage it, is precisely arguing that if it is too small it does not solve anything, or if it is too large, it is fiscally unsustainable.

In my mind UBI, the basing building block for the decent and worthy unemployments we need before social order starts to break down, and therefore such an immensely valuable social experiment, deserves to start small, but fast, and grow, slowly, to where the future will and can take it. 

The tricks for a successful launch of a Universal Basic Income are:

1. That it helps all to get out of bed but that it never is so big so as to allow anyone to stay in bed. In other words that it is a stepping stool that helps everyone to reach up to whatever there is in the real economy.

2. That it starts small enough and grows little by little so as to guarantee its absolute revenue sustainability. It should never be an UBI for the current generation paid by future generations.

3. That its revenue sources should as much as possible be aligned with other social interests, like a carbon tax that helps fight climate change; or sources aligned with the new times, like taxes on robots, intellectual property and exploitation of citizens’ data.

Sir, the UBI should have as little as possible to do with government and politics, that because it should foremost be as a citizen to citizen’s affair.

PS. In countries blessed with high natural resource revenues, these should feed a much larger UBI, but that is because of the importance of reducing the concentration, in the hands of a centralized government, of income that does not come from taxes paid by citizens.

@PerKurowski

Profits obtained under the protection of an IPR should be taxed higher than when obtained competing naked.

Sir, Martin Wolf discusses the vital topic of how intellectual property rights could, simultaneously, be agents that help promote the ideas and inventions needed for a better future, and an obstacle to competition. “Let knowledge spread around the world” April 25.

I have also grappled with this issue and although it might surely not be the only option, for a long time I have thought that placing a special tax on profits obtained under the coverage of an IPR, could help to bring forward that moment when sharing out freely the rights, instead of exploiting these up to the tilt, would make more business sense.

Also what justice is it in that those who have to compete completely naked in the market, should be taxed at the same rate as those who the society defends by defending their IPRs?

By the way, that special tax on IPR profits should go to partially fund, by means of a Universal Basic Income what could be considered as a Human Heritage Dividend.

@PerKurowski

The US might be an SOB of a superpower, but it is our (or at least mine) SOB superpower.

Sir, Martin Wolf writes: “China is, not the real threat. The threat is the decadence of the west, very much including the US — the prevalence of rent extraction as a way of economic life, the indifference to the fate of much of its citizenry, the corrupting role of money in politics, the indifference to the truth, and the sacrifice of long-term investment to private and public consumption. It is indeed a tragedy that the best way we could find to escape from a financial crisis was via monetary policies that risked promoting new bubbles. We could be better than this.” “The rivalry that will shape the 21st century” April 11.

On the “sacrifice of long-term investment to private and public consumption” I could not agree more. But that is precisely why I have been attacking, day and night, obsessively, the risk weighted capital requirements for banks. These make our banks favor way too much the financing of the present “safer” consumption (houses-governments) and stay away, way too much, from financing the “riskier” future production (entreprenuers). Unfortunately too many, Martin Wolf included, have been indifferent to that truth.

But, that said, on the first part “the prevalence of rent extraction as a way of economic life, the indifference to the fate of much of its citizenry, the corrupting role of money in politics, the indifference to the truth”, is China really better than the west or the US? 

I don’t think so, but even if it was so, when push comes to show, there comes a point when you have to decide what superpower you prefer. I have no doubt preferring the west, the US… though Graham Allison of Harvard seems to harbor some doubts on that arguing that “China rivals the US in…ideology”.

In what I entirely agree with Wolf is when, explaining it so well, he states “The idea that intellectual property is sacrosanct is wrong. It is innovation that is sacrosanct. Intellectual property rights both help and hurt that effort. A balance has to be struck between rights that are too tight and too loose”

Yes, and for years I have suggested that balancing could start by taxing the profits obtained when competing protected by intellectual property rights, at a higher rate than profits derived from competing naked in the market. And since what becomes protected with IPRs is the last leg of our human heritage inventiveness, those taxes should perhaps also help to fund a Universal Basic Income, something which would be a de facto social dividend.

PS. That said, when Wolf says “the US can huff and puff about Chinese theft of intellectual property” then I am not sure really which SOB is Wolf’s favorite superpower.

PS. For full disclose, had it not been for the US, I would certainly not be around.

PS. All morphed faces look ugly but, in reference to Times’ recent cover, if faces have to morph, what faces would you prefer to see morphing, Trump-Putin, Trump-Xi Jinping or Putin Xi-Jinping?

@PerKurowski

Tax profits obtained under the umbrella of patents higher, and plough those revenues back lowering medicine prices.

Sir, I refer to Jonathan Ford’s “Pricing of life-saving drugs is put under the microscope” Monday 17.

It is for sure a very difficult and delicate topic that of harmonizing the incentives needed for research to be carried out, with the need of the results of that research ending up being accessible for the general market.

Since open ended (no profit limits) intellectual property rights is the source of much current income inequalities, I have for some time now been suggesting those profits generated under the umbrella of patents, should be taxed at a higher rate than profits obtained when competing completely naked in the markets. 

Perhaps the revenues obtained with such taxes could be ploughed back in exchange for lower prices and thereby help to bridge somewhat the divide between the two objectives.

http://perkurowski.blogspot.com/2014/08/my-current-list-of-prominent-inequality.html

http://perkurowski.blogspot.com/2006/05/human-genetics-made-inhuman.html

@PerKurowski

“Regression to the mean”, if allowed by politicians and regulators, will take care of the plutocrats, in due time.

Sir, Paul Marshall in “Blame the rise of the plutocrats on politics not capitalism”, January 9, holds that we need Schumpeter much more than Marx.

As you could deduct from my letter “Long-term benefits of hard landing” and which you kindly published, before you decided to name me a persona non-grata at FT, I totally agree with him

I have never been too much concerned by the rise of plutocrats, since I have always figured that, mostly, it was the result of something good… and I have always counted on the “regression toward the mean” theory, aka “reversion to the mean”, or aka “reversion to mediocrity”, to take care of the problem of the same plutocrats reigning into eternity.

But for that “regression to the mean” to happen, anyone that has that in him to be a plutocrat needs to be able to become a plutocrat… and that requires not only fair access to education as Marshall rightly puts forward, but almost foremost fair access to bank credit. And credit-risk weighted capital requirements for banks which operate in favor of those who have made it; and against those risky who have yet not made it, and who probably most of them will fail while trying to make it; blocks that fair access to bank credit.

And then of course, for the “regression to the mean” to happen, losses need to flow freely, and not be contained by QE dams, which quite often help to make the plutocrats even more plutocrats.

PS. There are some other issues related to the rise of plutocrats that need to be more closely looked into. One is intellectual property right. Why should income from a shielded property right be taxed at the same rate than those profits coming from competing bare-naked in the market?

Do not let the very natural splendors of richness distract from the very unnatural causes of unequal richness.

Sir I refer to Lawrence Summers’ “The rich have advantages that money cannot buy” May 9. 

In it Summers writes “In areas ranging from local zoning laws to intellectual property protection, from financial regulations to energy subsidies, public policy now bestows great fortunes on those who primary skill is working the political system rather than producing great products and services. There is a compelling case for policy measures to reduce profits from such rent-seeking activities…”.

Indeed that is the most important task at hand, and nothing should distract our attention from it.

For instance the fact that “the average affluent child now receives 6.000 hours of extracurricular education, more than the average poor child”… has absolutely nothing to do with the challenges at hand… but neither do I think that similar activities is what Summers now suggests we give the less fortunate ones to support their education… and this even though they might be much more motivated receiving it.

Taxing property or inheritance could, ceteris paribus, only lead to more inequality.

Sir, I refer to Janan Ganesh’s “Tory tax on property is perfect for the Piketty age” May 6.

If I was to make a fast list of what has increased inequality during the last decades that list would include rent extraction, crony capitalism, excessively exploited intellectual property rights, the power of global brands, be it Coca Cola or Real Madrid, the force residing in monopolies or excessive market shares, how managers have taken away corporate control from shareholders, and how bank regulators have allowed such incredible high leverages in the banks while ascertaining to the public these were sound institutions… inheritances would not be on it.

And if I was to combat inequalities I would not start by taxing properties or inheritance since, in the great scheme of things, ceteris paribus, meaning money will keep on flowing how it normally flows, that could lead to even more inequality.

Do I have any suggestions? For a starter two:

First all profits derived from operating under the protection of intellectual property rights or excessive market shares, should be taxed at a higher rate that profits obtained by competing naked in the market.

Second, the tax deductibility as an expense of any salary should be limited to fifty times the median salary of the nation.

When referencing cash, remember it is usually not really cash... & do we need special taxes on profits from patents?

Sir, I refer to Sarah Gordon’s “Be wary of the tax incentives in pharma’s deal financing” May 1, in order to make the following two observations:

First I believe that we should take the opportunity of the inequality frenzy that Piketty’s Capital has brought on, to discuss the treatment given to intellectual property right profits… as there can be little discussion that patents and similar, are among the biggest de facto inequality drivers. I, for instance, have held for some years that profits obtained under the umbrella of patents, and or of extravagant market shares, should be taxed higher than profits obtained from competing naked in the markets.

Second, when Gordon writes about the “$1.64tn of cash” that Moody estimates US companies held at the end of 2013, she would do better referring to “$1.64tn of liquid assets”… since we have no reason to believe the CFO’s of those companies keep stacks of notes hidden in their mattresses. I say this because we should not forget that any alternative use of these assets, will require their disposal… which has other effects in the market.

In the absence of QEs and TARP, would Piketty have written the same “Capital in the Twenty-First Century”?

Sir, I refer to Martin Wolf’s review of Thomas Piketty’s, “Capital in the Twenty-First Century” April 15.

First, I need to make two disclaimers. I have not read the book and, as suddenly references to it exploded on the web, I must confess I first thought of it as a too pushy publisher campaign, and I have not been able to free myself from that impression. From the little I have read of it, that in significance it is going to be up there with Hayek’s “The Road to Serfdom”?… no way Jose. 

Now if I could only make two questions on Piketty’s book these would be:

Would Piketty have written the same Capital in the Twenty-First Century in the absence of QEs and TARP which obviously helped to keep the wealth… or if profits derived from protected intellectual rights had been taxed at a higher rate that profits derived from competing naked in the market?

Where does Piketty think all inherited but dissipated wealth has gone? Is he unaware of the real difficulties of keeping the value of an inheritance?

By taxing more the profits derived from patents you might, on the margin, reduce conflicts between true inventors and trolls.

Sir, Richard Waters discusses that delicate issue about a too rigid or too lax patent allocation system and so rightly states “The trouble is, one person’s abusive troll is another’s deserving inventor”, “Tech industry opens a Pandora’s box of patent strife”, April 4.

One way to diminish the conflict might be to reduce, on the margin, the worth of patents and other intellectual protection.

Since some years I have for instance argued that it does not really fair that profits obtained by competing naked in the market, without any safety net, should be taxed at the same rate as profits derived from an activity that has the protection of a patent… especially when the government is expected to spend tax revenues in its protection.

Tax income from protected intellectual property rights at a higher rate than income from when competing naked in the market

Sir, Martin Wolf writes “Property rights are a social creation. The idea that a small minority should overwhelming benefit from new technologies should be reconsidered. It would be possible, for example, for the state to obtain an automatic share in the income from the intellectual property it protects”, “Enslave the robots and free the poor”, February 12.

And that as you know, is a theme close to my heart. On it I have written to you, to Martin Wolf and to other of your journalists many letter over the years. In fact only last week I wrote you a letter referring to Martin Wolf's article titled just like this one. I did not copy Wolf, and you might have not either.

Though it might very well have been thought of earlier by someone else I started to formally promote such a tax scheme in 2008, by means of an Op-Ed in El Universal, Caracas, titled “We need a tax intellectual property rights’ income”.

Wolf also writes “We must reconsider leisure… let people enjoy themselves busily”.

And that is another theme that I have often written about, as I feel it is of utmost importance for any society to know what to do well with its structural unemployed. As a example you can read “We need worthy and decent unemployments”

PS. Sir, I leave it in your hand to copy or not copy Martin Wolf with this letter, since I do not wish to receive a letter from him telling me again I write too much, or that he already knows what there is to be known, on issues such as the risk-weighted capital requirements for banks.

Income derived from protected intellectual property should be taxed at higher rates than income obtained from competing naked.

Sir, Martin Wolf refers to “the role of rental income, particularly from intellectual property” as one explanation of “rising inequality of labor income and of the distribution of income between labor and capital”, “If robots divide us, they will conquer” February 5.

In this respect I would just want to note that for years I have argued that all income which results from an intellectual property that is being protected should be taxed at a higher rate, than any income that is produced by competing in the markets naked.

But I need also to express certain uneasiness with the concept of capital getting more and more rewarded than labor, because the truth is that, currently, because of artificially low interest, very much capital is almost not being rewarded at all. Many pensioners are not receiving what they should be receiving for that capital they worked and saved so hard to obtain.

Finally, with respect to the prospect of robots conquering us, I would hate that to happen, but, on the other hand, these would never ever come up with such crazy notions of basing the capital requirements for banks, those that should primarily be there to cover for unexpected losses, on the perceptions about the expected losses, and much less on these perceptions being correct.

And what about a special intellectual property monopoly tax?

Sir with today´s technology I am not that sure John Lennon will never ever sing another song, as John Kay holds in “It´s mad to give my heirs rights to a student lit crit essay” March 23. But, yes, John Lennon will not write another song, and even if some computer wizards used his old material to generate a new John Lennon song, we can rest assure John Lennon would not appear as the beneficiary of that copyright.

This touches on an issue not covered in John Kay´s excellent article, namely that all or at least most of the intellectual production rights, gets credited only to whom who ran the last leg of the corresponding human relay... and that to top up that injustice, the rest of us have to pay for the protection of these rights. I have often held that revenues that derive from the monopoly rights the society has awarded should be taxed on a higher rate than those revenues someone has to fight for all alone and without a protective shield.

Let the government charge for the protection racket services it already provides.

Sir your “Vice of necessity” July 25, where you start hinting at legalizing drugs so as to raise the taxes fighting this crisis needs, opens up our eyes to a lot of unexploited taxing opportunities.

Among these: charging for the protection services already provided to intellectual property right holders; imposing a special tax on government created monopolies and oligopolies such as those of the credit rating agencies; and finally a big special tax on all bonuses derived from capitalizing all those splendid arbitrage opportunities that the financial regulators provide.

Alternatively of course, and like what you seem suggesting, is to get out of protection racket altogether so that much of the illicit and informal economies that most probably are still growing at healthy rates, can join the rest of the economy and be taxed as all of us.

What does not seem logical though is to remain in the wishy-washy middle ground.

Taxation through reverse mortgages?

Sir in “Adapting to mediocre prospects” July 17 Martin Wolf writes “Let the cash-poor but land rich borrow their tax payments from the government and demand repayment on death”. Is Martin Wolf trying out as a modern Sheriff of Nottingham proposing the taxation through reverse mortgages?

Why does Mr. Wolf not go after the cash-rich to begin with? What does Mr. Wolf have especially against landowners? Why does Mr. Wolf for instance not go after all those intellectual property owners who are granted monopoly rights and protection by the state without paying anything special for that?

The remedy for the creative industries is already in their name.

Sir Stephen Garrett writes that “Piracy is threatening the survival of creative industries” June 15 because governments have not been cooperative enough blocking piracy on the web. But, since there are many that hold that the creative industries are themselves a major threat to creativity that might not be entirely such a bad thing. That some jobs are lost while the adjustments to the new world order are made? Could be, but there’s were real creativity comes in. Anyhow no one would dare to order the wheels off the luggage in order to safeguard the jobs of porters… or would they?

Risk is risk is risk!

Sir David Walker with “America’s triple A rating is at risk” May 13 gives new evidence on how dangerously the world has got itself trapped by some erroneous concepts about risk. Of course, America’s triple-A rating is always at risk, there is no absolute quality or anything inherently permanent with a credit rating, this no matter how much the financial regulators want us to think so.

That the US, and the dollar are in trouble, that there can be no doubt about, but the truth is that the US and the dollar could still remain for a very long time the most de-facto triple-A in the world, because, at the end of the day, risk is always relative, except of course, when we really reach the end of the day.

Now on the rest of David Walker’s message I could not agree more. Last year, during the annual meeting of the World Bank and the IMF, I went around asking “how are we going to pay for it all?”, and proposing a new generation of taxes, such as taxing income from protected intellectual property rights, only to be met with a “what is he talking about?”

Après us le déluge?

Preventing a global slump is indeed a priority as Martin Wolf says October 29, but relying solely on government to do so could mean breaking the back of their finances, further inflaming “xenophobia, nationalism and revolution.”

We need to help governments to be able to help in ways that keep their credibility and therefore, instead of talking about tax cuts, knowing that so many new and urgent real life spending needs will knock on their doors soon, more than recommend tax cuts, as if those had no costs or as in let-our-grandchildren pay, we need to start thinking about new taxes that could be perceived as legitimate and interfering little with the economy.

I am floating around two new tax proposals. A special tax on all profits derived from intellectual property rights that will help to pay for the costs of enforcing those rights and a progressive corporate tax based on market share and that, among other, could help to keep in check the too big to fail risks.

Another possibility is that governments use very long term zero-coupon bonds when providing assistance buying up portfolios or mortgages, remember the Brady bonds?. That could at least buy them the time needed for economies to reflate back to where this new public debts can be duly serviced. Yes, “deflation is lethal for indebted economies” but so is public debt when it surpasses the level of what is perceived as manageable.