Palgrave Macmillan, 2012, xv + 204 pp, 1 137 00570 0, pbk, £17.50, 1 137 34788 6, hbk, £62.50
Each adult who files an income tax return receives an annual ‘BIG’ [Basic Income Guarantee] or ‘refundable tax credit’ of $10,000 – just under the official 2010 poverty level of $11,139 for one person. The ‘refundable tax credit’ is available to everyone … All income other than this credit is taxed. If a person has no income at all, he or she keeps the full credit and pays no taxes. … If a person’s income is high, the amount to be paid in taxes will be larger than the credit received and … the person will pay out the difference in positive taxes. … the system is universal – everyone files a tax return, everyone gets a tax credit, and everyone with any income pays taxes. There is no means test, no work requirement, and no explicit eligibility criteria. No one receives a net transfer from the government unless the taxes on the person’s income from all sources are lower than the tax credit. (p.86)
Sheahen suggests on page 3 that different people use the term ‘Basic Income Guarantee’ in different ways, and indeed he offers different definitions on pages 3 and 86. I am assuming that the definition above from page 86 is the one that Sheahen wishes us to employ: and, if that is so, then in this revision of a book that he published in 1983 Sheahen has given us an accessible (in fact, quite chatty) book on Tax Credits: the genuine kind, and not the separately administered means-tested household benefits labelled ‘Tax Credits’ by the UK Government.
Sheahen sets the scene by offering a brief history of the recent US debate on poverty and the benefits system. He goes on to show that employment can no longer provide everyone with a subsistence income (because manufacturing and other processes are increasingly automated), and that inequality is becoming a serious problem; and he rightly suggests that a Basic Income Guarantee would contribute to the solution of these problems. Objections are tackled (such as ‘Is it moral for people to be given income that they haven’t earned …?’ (p.63) and whether people would continue to work: they would). Sheahen studies alternative approaches – such as the Government as the employer of last resort: an idea dismissed as impractical.
A Negative Income Tax (NIT) would be almost identical to Sheahen’s Basic Income Guarantee/ Tax Credit, so he studies NIT experiments undertaken in the USA between 1968 and 1979, and suggests that the fact that a NIT was associated with an increase in the divorce rate should not be regarded as a reason not to establish one. Sheahen studies the Alaska Permanent Fund Dividend, and he also studies discussions on benefits reform in a variety of countries and asks how the benefits reform debate might evolve in the US. Appendices explore affordability, describe the US’s current benefits provisions, and offer additional historical material.
Sheahen’s scheme is similar to that proposed by the Conservative Government in the UK during the early 1970s. The difference is that the UK proposal assumed that employers would administer the Tax Credits alongside Income Tax, whereas Sheahen’s scheme would be administered by the US Government, which for everyone with a tax liability lower than the Tax Credit would pay the difference into their bank account. These two administrative options suffer from different difficulties. If an employer is to administer the Tax Credit then the employer needs to know details of the employee’s income and tax liability relating to sources other than the employer’s payroll; and they need to know how such other incomes and tax liabilities change from month to month. If the Government is to pay the monthly difference between the Tax Credit and the total tax liability accurately each month, then it needs to know how all of that citizen’s incomes from different sources are changing from month to month. Whichever option is chosen, the administrative demands are considerable, as they would be for the similar Negative Income Tax.
Terminological clarity might have been helpful. The BIG scheme proposed is a Tax Credit scheme, and it might have been helpful to call it that (in the same way as Negative Income Tax is correctly described). The BIG described is not a Basic Income (or a Citizen’s Income), which will be confusing for people coming to this book thinking that ‘Basic Income Guarantee’ means ‘Basic Income’: it doesn’t. A Basic Income is an unconditional, nonwithdrawable income paid to every individual as a right of citizenship. Sheahen’s BIG is withdrawn as income rises, it is completely withdrawn at the break even point where tax liability equals the BIG, and it is not paid above that point. It is not a Basic Income, but it would have effects similar to one.
As long as readers approach this book with an understanding of these terminological issues, they will find it a useful contribution to the debate on the reform of tax and benefits systems.