Understanding the Socle citoyen, "Citizen's Basic Income"
This expression was launched for the first time on Monday 4 May 2020 in an op-ed written by the economist Marc de Basquiat, the philosopher Gaspard Koenig and the deputy Valérie Petit, signed by more than 80 personalities including 45 members of parliament, published here. Basically, the idea is to make explicit an individual "tax credit", a form of universal income, in an income tax that is also universal. This has been fairly easy to achieve since the introduction of the "withholding at source" of income taxes. Explanations...
Understanding the Calculation of Income Tax The key to understanding how the Socle citoyen works is to visualize the redistributive effect of our income tax. Everyone knows that it is made up of five brackets, the rates of which have been revised for 2020: 0%, 11%, 30%, 41% and 45%. The last two brackets concern only 1.2% of taxpayers, the richest in the country. The Citizen's Basic Income optimizes the tax for 99% of the population and leaves the 1.2% specifically treated, with an annual calculation—we won't come back to that. In the "Practical Brochure 2020," which deals with the 2019 income, this table can be found on page 329 in the "tax calculation" section:
In this table, it is an annual income (R) after various adjustments. The number of shares (N) is equal to 1 for a single person and 2 for a couple (married or common law) without children. Let's look at the third bracket, for tax households whose R/N for the year 2019 is between €27,794 and €74,517. The tax is calculated by taking 30% of the income and subtracting €5,856 for each tax portion. The same logic applies to the other brackets (except for the first bracket where the tax is zero). A graph can be used to plot the representative tax curve for single people. For the sake of clarity of explanation, this graph is reduced to monthly values, dividing everything by twelve.
It is interesting to note that the curve in red, which represents the tax (in negative, downwards, because it is a decrease in household disposable income) is a continuous line, with inflection points. The above curve has been drawn with the parameters applicable to income in the year 2020, for which we currently pay the " source deductions ." Notable evolution compared to 2019: the rate of the second bracket has gone from 14% to 11%.
Combining the effects of the RSA (welfare), the PA (activity premium, similar to the EITC) and income tax
In an interesting way, we superimpose on the previous graph green-coloured areas that show the effect of two complementary social benefits: the Active Solidarity Income (RSA) and the Activity Premium (PA). Surprisingly, the effect of these two mechanisms is a continuation of the line corresponding to the third income tax bracket (following the red dotted line).
Let's check it out in the numbers. For income in the year 2020, the third bracket concerns income per share (R/N) between €25,659 and €73,369 per year. The annual tax is calculated by always taking 30% of the income and subtracting €5,982.25 per share. Divided by 12, this fixed term is exactly €498.52 per month. On the other hand, for single people with no income, the maximum RSA is €564.78 per month, from which a "housing lump sum" of €67.77 is deducted in the vast majority of cases. In more than 90% of cases, the RSA paid to a single person with no income is therefore currently €497.01 euros. This amount is almost identical (€1.51 difference) to the fixed term corresponding to income tax bracket 3. The dotted line in the previous graph, drawn in the continuity of bracket 3, falls almost on the maximum RSA peak. For those with modest incomes, around the minimum wage (SMIC), the effect of the activity bonus is also very close to the dotted line. So why not simplify all this?
The Citizen's Basic Income is the same calculation for everyone. This is exactly what the Socle citoyen proposes to do: at the beginning of each month, each tax household pays 30% of its income for the previous month and receives €500 (double for a couple). This is exactly what the calculation of bracket 3 of income tax does, even if you don't quite realize it. Let's take an example. A single person receives an income of €60,000 a year. In bracket 3, he will pay in 2020: 30% of €60,000 minus €5,982.25, i.e. just over €12,000. This can be calculated directly on a monthly basis: 30% of €5,000 per month, minus €498.52. The result is the same: €1,001.48 per month. In the case of a couple, whose taxable income is also €60,000, the division by the number of shares (2) is €30,000, which still corresponds to the third bracket. The annual calculation is then 30% of €60,000 minus twice €5,982.25, which is a tax of just over €6,000 per year. On a monthly basis: 30% of €5,000 euros minus two times €498.52. The monthly tax is €502.96 per month. As a final example, consider a single person with no income currently receiving an RSA of €497.01. What if we applied the bracket 3 calculations to him? This would give 30% of zero income, i.e. zero minus €498.52. The taxman would therefore pay him €498.52 each month, which would not change much for him since he would continue to receive his housing benefit Anyone is free to check how this Citizen's Basic Income would work for their personal situation or in any other case, thanks to the online calculator lemodele.fr (in French)
Why source deductions make it possible to set up the Citizen's Basic Income Since January 2019, the tax authorities have introduced monthly information exchanges with organizations that pay regular income to citizens: companies, administrations and associations that pay employees, pension funds and agencies that pay pensions. Occasional incomes are also tracked with payers: banks, insurance companies, etc. The modern and efficient system of withholding tax therefore enables the tax authorities—subject to a few adjustments to the process—to find out most of taxpayers' income each month. It is therefore very easy to calculate 30% of income, subtract €500 and pay the difference directly into the taxpayer's bank account or deduct it.
This particularly unfair treatment of poor and low-income couples can be explained by a theory used indiscriminately in the design of public policies: equivalence scales. The Socle citoyen rejects this by emphatically refusing to differentiate between rich and poor people, depending on whether they are single or in couples. This intrusion into private life has no justification other than saving money on the backs of poor couples. This is grossly unfair. The Socle citoyen costs around €25 billion, mainly because it closes the funding gap that currently penalizes poor and low-income couples. It is exactly this gap that we can see on the previous graph, between the dotted blue line (the Citizen Basic Income for couples) and the solid blue line, which wanders without any logic.
How to Finance €25 Billion
The simplest and most effective solution is to slightly increase the marginal tax rate from 30% to 32%. Applied to €1,500 billion of personal income in France (before the covid-19 crisis), this largely covers the financing need.
Of course, this question is eminently political and cannot be decided on the basis of a technical study, whose interest is only to highlight the current inconsistencies, to show a possible rational path and to give orders of magnitude of the parameters to be adjusted via national democratic deliberation.
This proposal has been studied for three years by the Assembly of Corsica, which unanimously voted a resolution proposing that it be experimented as soon as possible on its territory. It is now a matter of studying it at the level of the central services of the State, in particular at the Ministry of Finance.
Translation: Pierre Madden.
The original French version can be found on the
Association pour l'Instauration d'un Revenu d'Existence, (AIRE) website