Basic income, resource taxation, and inequality: Egalitarian reservations about tax shifting Lessons from the Alaska Permanent Fund Michael Howard University.

Basic income, resource taxation, and inequality:

Egalitarian reservations about tax shifting

Basic income, resource taxation, and inequality:

Egalitarian reservations about tax shifting

Lessons from the Alaska Permanent Lessons from the Alaska Permanent FundFund

Michael HowardMichael HowardUniversity of MaineUniversity of Maine

[email protected] NOT QUOTE WITHOUT AUTHOR’S PERMISSIONDO NOT QUOTE WITHOUT AUTHOR’S PERMISSION

Lessons from the Alaska Permanent Lessons from the Alaska Permanent FundFund

Michael HowardMichael HowardUniversity of MaineUniversity of Maine

[email protected] NOT QUOTE WITHOUT AUTHOR’S PERMISSIONDO NOT QUOTE WITHOUT AUTHOR’S PERMISSION

Question:Question:

Should a state experiencing a resource boom replace its income tax revenue with resource revenue, as did Alaska? Or should it continue to finance government with income tax, and channel most of the resource wealth into a fund like the Alaska Permanent Fund, and finance a dividend like the Permanent Fund Dividend (PFD), at a higher level?

Should a state experiencing a resource boom replace its income tax revenue with resource revenue, as did Alaska? Or should it continue to finance government with income tax, and channel most of the resource wealth into a fund like the Alaska Permanent Fund, and finance a dividend like the Permanent Fund Dividend (PFD), at a higher level?

Goals of the paperGoals of the paper

Show that it is more progressive to fund government through income taxes and pay out a dividend similar to the PFD, than to fund government through resource taxes, while paying lower dividends.

Defend income taxation against libertarian objections

Show that it is more progressive to fund government through income taxes and pay out a dividend similar to the PFD, than to fund government through resource taxes, while paying lower dividends.

Defend income taxation against libertarian objections

The functions of government and taxation The functions of government and taxation

minimal night-watchman functions redistribution public goods, etc.

minimal night-watchman functions redistribution public goods, etc.

Exporting the Alaska ModelAdapting the Permanent Fund Dividend

for Reform around the WorldEdited by

Karl Widerquist and Michael W. Howard

Exporting the Alaska ModelAdapting the Permanent Fund Dividend

for Reform around the WorldEdited by

Karl Widerquist and Michael W. Howard

One lesson of the Alaska modelOne lesson of the Alaska model

large untapped potential for resource taxation Vermont

Between $2000 and $8,000 per person per year

AlaskaDividend average: $1400/person/yearPotential….

large untapped potential for resource taxation Vermont

Between $2000 and $8,000 per person per year

AlaskaDividend average: $1400/person/yearPotential….

Alaska: a hybridAlaska: a hybrid

What if…What if…

A. Alaska had maintained its income tax, and put all the oil revenue into the APF?

APF in 2011: 5x ($225 bil.)50/50 government/dividend: 43% of

government spending; dividend of $6400

Or, 100% dividend: $12,800

A. Alaska had maintained its income tax, and put all the oil revenue into the APF?

APF in 2011: 5x ($225 bil.)50/50 government/dividend: 43% of

government spending; dividend of $6400

Or, 100% dividend: $12,800

What if, in addition…What if, in addition…

B. B. the $300 billion in oil had been taxed at two thirds (vs. one third)

APF in 2011: 10x ($434 bil.)50/50 government/dividend: 83% of

government spending; dividend of $12,000

B. B. the $300 billion in oil had been taxed at two thirds (vs. one third)

APF in 2011: 10x ($434 bil.)50/50 government/dividend: 83% of

government spending; dividend of $12,000

What if, in addition…What if, in addition…

C. had Alaska’s other non-oil resource rents been collected

APF in 2011: 15x ($650 bil.)50/50 government/dividend: >100% of

government spending; dividend of $18,000

C. had Alaska’s other non-oil resource rents been collected

APF in 2011: 15x ($650 bil.)50/50 government/dividend: >100% of

government spending; dividend of $18,000

A fourth scenarioA fourth scenario

D. if Alaska D. if Alaska retained two thirds of the oil wealth (scenario B) it could have: abolished the income tax, funded state

government from oil revenue deposited $100 billion in the APF

(=scenario A) Dividend = $6400

D. if Alaska D. if Alaska retained two thirds of the oil wealth (scenario B) it could have: abolished the income tax, funded state

government from oil revenue deposited $100 billion in the APF

(=scenario A) Dividend = $6400

The dilemma for resource poor states:The dilemma for resource poor states:

a. abolishing income taxes (or reducing them to a minimum), and not paying dividends (or paying a comparatively small dividend), OR

b. directing resource wealth toward dividends (directly, or through a sovereign wealth fund), so as to maximize the dividend, and financing government through income taxation.

a. abolishing income taxes (or reducing them to a minimum), and not paying dividends (or paying a comparatively small dividend), OR

b. directing resource wealth toward dividends (directly, or through a sovereign wealth fund), so as to maximize the dividend, and financing government through income taxation.

A liberal egalitarian case for progressive income taxationplus resource dividends

A liberal egalitarian case for progressive income taxationplus resource dividendsA. Luck egalitarianism:A. Luck egalitarianism:

People are responsible for their choices,People are responsible for their choices, Not for their social/natural endowmentsNot for their social/natural endowments Justice: choice sensitive, endowment Justice: choice sensitive, endowment

insensitiveinsensitiveProperty and tax policies should Property and tax policies should even out the

inequalities due to inheritance, social class, and unequally distributed natural talents.

No objection to income taxation.

A. Luck egalitarianism:A. Luck egalitarianism: People are responsible for their choices,People are responsible for their choices, Not for their social/natural endowmentsNot for their social/natural endowments Justice: choice sensitive, endowment Justice: choice sensitive, endowment

insensitiveinsensitiveProperty and tax policies should Property and tax policies should even out the

inequalities due to inheritance, social class, and unequally distributed natural talents.

No objection to income taxation.

Liberal egalitarianismLiberal egalitarianism

B. RawlsB. Rawls social and economic arrangements should

be designed so that inequalities of natural ability can lead to unequal amounts of income, wealth, and power, only to the degree that such inequalities are to everyone’s advantage, in particular to the advantage of the least advantaged (the difference principle)

B. RawlsB. Rawls social and economic arrangements should

be designed so that inequalities of natural ability can lead to unequal amounts of income, wealth, and power, only to the degree that such inequalities are to everyone’s advantage, in particular to the advantage of the least advantaged (the difference principle)

Liberal egalitariansLiberal egalitarians

All converge on poverty elimination.All converge on poverty elimination. More progressive taxation More progressive taxation

What about the dividend/tax cut tradeoff?What about the dividend/tax cut tradeoff?

All converge on poverty elimination.All converge on poverty elimination. More progressive taxation More progressive taxation

What about the dividend/tax cut tradeoff?What about the dividend/tax cut tradeoff?

The basic problemThe basic problem

What if a state or country has a significant source What if a state or country has a significant source of common wealth, like Alaskaof common wealth, like Alaska’’s oil resources? s oil resources? How should it be used?How should it be used?

1. Give it away, or1. Give it away, or2. Sell it2. Sell it

If 2, what to do with the revenue?If 2, what to do with the revenue?a.a. Immediately spend itImmediately spend itb.b. Deposit it in a fund for the futureDeposit it in a fund for the future

i. to i. to finance governmentfinance government? Or? Orii. ii. Pay dividendsPay dividends to citizens to citizens

What if a state or country has a significant source What if a state or country has a significant source of common wealth, like Alaskaof common wealth, like Alaska’’s oil resources? s oil resources? How should it be used?How should it be used?

1. Give it away, or1. Give it away, or2. Sell it2. Sell it

If 2, what to do with the revenue?If 2, what to do with the revenue?a.a. Immediately spend itImmediately spend itb.b. Deposit it in a fund for the futureDeposit it in a fund for the future

i. to i. to finance governmentfinance government? Or? Orii. ii. Pay dividendsPay dividends to citizens to citizens

What to do with the fund?What to do with the fund?

Fund

Government

resources

???

Equal dividends for allEqual dividends for all

Fund$3000 available

Government

resources

Poor$1000

Middle$1000

RichRich$1000$1000RichRich

$1000$1000

Abolish (or reduce) taxes, fund government out of resource wealth

Abolish (or reduce) taxes, fund government out of resource wealth

Fund$3000 available

Government

resources

Poor$0

Middle$0 RichRich

$0$0RichRich$0$0

$3000

Suppose all revenue is used for equal dividends for all.How should we fund government?Progressive income tax

Suppose all revenue is used for equal dividends for all.How should we fund government?Progressive income tax

Fund$3000 available

Government

resources

Poor$1000

Middle$1000

RichRich$1000$1000RichRich

$1000$1000

$0 $750 $2250

Is this better than abolishing taxes?

Who gains and who loses, compared to abolishing taxes?Who gains and who loses, compared to abolishing taxes?

Fund$3000 available

Government

resources

Poor$1000

Middle$250

RichRich-$1250-$1250

RichRich-$1250-$1250

$0 $750 $2250

Who gains and loses from abolishing (or reducing) taxes, and funding government out of resource wealth?

Who gains and loses from abolishing (or reducing) taxes, and funding government out of resource wealth?

Fund$3000 available

Government

resources

Poor-$1000

Middle-$250 RichRich

$1250$1250RichRich

$1250$1250

$3000

Conclusions from Part 1Conclusions from Part 1

1. Funding government from common wealth 1. Funding government from common wealth instead of progressive income tax (after paying instead of progressive income tax (after paying dividends) is regressive.dividends) is regressive.

I.e., with respect to social justice, it is better to I.e., with respect to social justice, it is better to pay dividends from common wealth, and fund pay dividends from common wealth, and fund government from taxes. government from taxes.

““it never makes more sense to cap dividendsit never makes more sense to cap dividends than to simply ratchet up taxes to raise the same than to simply ratchet up taxes to raise the same amount. In effect, capping dividends taxes only—amount. In effect, capping dividends taxes only—and all—Alaskans. Increasing most taxes and all—Alaskans. Increasing most taxes spreads the burden to those best able to pay.spreads the burden to those best able to pay.””

--Jay Hammond, former governor of Alaska--Jay Hammond, former governor of Alaska

1. Funding government from common wealth 1. Funding government from common wealth instead of progressive income tax (after paying instead of progressive income tax (after paying dividends) is regressive.dividends) is regressive.

I.e., with respect to social justice, it is better to I.e., with respect to social justice, it is better to pay dividends from common wealth, and fund pay dividends from common wealth, and fund government from taxes. government from taxes.

““it never makes more sense to cap dividendsit never makes more sense to cap dividends than to simply ratchet up taxes to raise the same than to simply ratchet up taxes to raise the same amount. In effect, capping dividends taxes only—amount. In effect, capping dividends taxes only—and all—Alaskans. Increasing most taxes and all—Alaskans. Increasing most taxes spreads the burden to those best able to pay.spreads the burden to those best able to pay.””

--Jay Hammond, former governor of Alaska--Jay Hammond, former governor of Alaska

LibertarianismLibertarianism

Priority for Priority for self-ownershipself-ownership, including , including ownership of the fruits of one’s labor. ownership of the fruits of one’s labor. (Therefore no income tax. Exc…)(Therefore no income tax. Exc…)

RightRight: : Natural resourcesNatural resources up for up for grabs; taxation only for night watchman.grabs; taxation only for night watchman.

LeftLeft: Natural resources owned in : Natural resources owned in common; appropriators owe common; appropriators owe compensation to those compensation to those excluded….Resource taxation+ distr.excluded….Resource taxation+ distr.

Priority for Priority for self-ownershipself-ownership, including , including ownership of the fruits of one’s labor. ownership of the fruits of one’s labor. (Therefore no income tax. Exc…)(Therefore no income tax. Exc…)

RightRight: : Natural resourcesNatural resources up for up for grabs; taxation only for night watchman.grabs; taxation only for night watchman.

LeftLeft: Natural resources owned in : Natural resources owned in common; appropriators owe common; appropriators owe compensation to those compensation to those excluded….Resource taxation+ distr.excluded….Resource taxation+ distr.

Libertarianism and AlaskaLibertarianism and Alaska

Both left and right: Alaska was correct Both left and right: Alaska was correct to abolish income tax; fund government to abolish income tax; fund government from resource revenue; limit dividend to from resource revenue; limit dividend to the surplus.the surplus.

Hillel Steiner: “the fruits of labour are Hillel Steiner: “the fruits of labour are not taxable; the fruits of nature are.”not taxable; the fruits of nature are.”

Both left and right: Alaska was correct Both left and right: Alaska was correct to abolish income tax; fund government to abolish income tax; fund government from resource revenue; limit dividend to from resource revenue; limit dividend to the surplus.the surplus.

Hillel Steiner: “the fruits of labour are Hillel Steiner: “the fruits of labour are not taxable; the fruits of nature are.”not taxable; the fruits of nature are.”

Defending income taxationDefending income taxation

1. Granting self-ownership, it is 1. Granting self-ownership, it is compatible with income taxation. compatible with income taxation.

2. Assuming self-ownership is 2. Assuming self-ownership is incompatible with income taxation, the incompatible with income taxation, the principle of full self-ownership can be principle of full self-ownership can be rejected for a weaker principle rejected for a weaker principle (compatible with income tax), without (compatible with income tax), without serious loss. serious loss.

1. Granting self-ownership, it is 1. Granting self-ownership, it is compatible with income taxation. compatible with income taxation.

2. Assuming self-ownership is 2. Assuming self-ownership is incompatible with income taxation, the incompatible with income taxation, the principle of full self-ownership can be principle of full self-ownership can be rejected for a weaker principle rejected for a weaker principle (compatible with income tax), without (compatible with income tax), without serious loss. serious loss.

The appeal of self-ownershipThe appeal of self-ownership

Kantian principle, treat no one as a Kantian principle, treat no one as a mere means to an endmere means to an end ? ? Liberal objections to utilitarianismLiberal objections to utilitarianism Libertarian objections to Rawls et al. for Libertarian objections to Rawls et al. for

“enslavement of the talented,” insofar as “enslavement of the talented,” insofar as natural talents are considered “social natural talents are considered “social assets”.assets”.

Kantian principle, treat no one as a Kantian principle, treat no one as a mere means to an endmere means to an end ? ? Liberal objections to utilitarianismLiberal objections to utilitarianism Libertarian objections to Rawls et al. for Libertarian objections to Rawls et al. for

“enslavement of the talented,” insofar as “enslavement of the talented,” insofar as natural talents are considered “social natural talents are considered “social assets”.assets”.

Right and Left libertarianismRight and Left libertarianism

Right: nature up for grabs, subject to a Right: nature up for grabs, subject to a weak “Lockean proviso”: weak “Lockean proviso”: no one should be rendered worse off by someone’s appropriation than they would be in the conditions of an unappropriated commons. Leads to capitalist inequality

Right: nature up for grabs, subject to a Right: nature up for grabs, subject to a weak “Lockean proviso”: weak “Lockean proviso”: no one should be rendered worse off by someone’s appropriation than they would be in the conditions of an unappropriated commons. Leads to capitalist inequality

Left libertarianism:equal shares of resource wealthLeft libertarianism:equal shares of resource wealth

Left (eg. Steiner): Left (eg. Steiner): a condition of appropriation—and continued ownership—is that the appropriator pay a tax equal to the value of the resource appropriated, and that everyone receive an equal share of the revenue. Late comers are not disadvantaged. Future generations are not excluded.

Left (eg. Steiner): Left (eg. Steiner): a condition of appropriation—and continued ownership—is that the appropriator pay a tax equal to the value of the resource appropriated, and that everyone receive an equal share of the revenue. Late comers are not disadvantaged. Future generations are not excluded.

Defense of income taxation I.Defense of income taxation I.

Left libertarianism is not sufficiently Left libertarianism is not sufficiently egalitarian.egalitarian.

If it is fair to compensate those who have the bad luck to be excluded from appropriation of natural resources, why is it not also fair to compensate those who are less fortunate in the “natural lottery” of talents?

Left libertarianism is not sufficiently Left libertarianism is not sufficiently egalitarian.egalitarian.

If it is fair to compensate those who have the bad luck to be excluded from appropriation of natural resources, why is it not also fair to compensate those who are less fortunate in the “natural lottery” of talents?

VallentyneVallentyne

“full-benefit-taxation conception of resource ownership.” tax not only the resource, but the benefit one gets as a result of owning the resource income taxation.

Compatible with self-ownership, because it leaves people free not to appropriate.

“full-benefit-taxation conception of resource ownership.” tax not only the resource, but the benefit one gets as a result of owning the resource income taxation.

Compatible with self-ownership, because it leaves people free not to appropriate.

Van ParijsVan Parijs

Jobs are assetsJobs are assetsTaxing the rents on jobsTaxing the rents on jobs income income

taxation at the maximum sustainable taxation at the maximum sustainable yield. yield.

Still preserves income proportional to Still preserves income proportional to work.work.

This dovetails with liberal egalitarianism.This dovetails with liberal egalitarianism.

Jobs are assetsJobs are assetsTaxing the rents on jobsTaxing the rents on jobs income income

taxation at the maximum sustainable taxation at the maximum sustainable yield. yield.

Still preserves income proportional to Still preserves income proportional to work.work.

This dovetails with liberal egalitarianism.This dovetails with liberal egalitarianism.

Defense of income taxation II.Defense of income taxation II.

Self-ownership: suppose it blocks income Self-ownership: suppose it blocks income taxationtaxation

Compatible with a range of allocations of Compatible with a range of allocations of external resources:external resources: Up for grabs (Locke; Nozick)Up for grabs (Locke; Nozick) Joint ownership (Rousseau?)Joint ownership (Rousseau?) Common ownership; equal shares (Steiner)Common ownership; equal shares (Steiner) Full benefit taxation (Vallentyne; Van Parijs)Full benefit taxation (Vallentyne; Van Parijs)

Self-ownership: suppose it blocks income Self-ownership: suppose it blocks income taxationtaxation

Compatible with a range of allocations of Compatible with a range of allocations of external resources:external resources: Up for grabs (Locke; Nozick)Up for grabs (Locke; Nozick) Joint ownership (Rousseau?)Joint ownership (Rousseau?) Common ownership; equal shares (Steiner)Common ownership; equal shares (Steiner) Full benefit taxation (Vallentyne; Van Parijs)Full benefit taxation (Vallentyne; Van Parijs)

Self-ownershipSelf-ownership

Actually entails very little about property Actually entails very little about property ownershipownership

Is not sufficient to make people free.Is not sufficient to make people free. Eg. Lockean appropriationEg. Lockean appropriationextremes of extremes of

wealth and poverty, personal wealth and poverty, personal dependencedependence

What matters is What matters is self-determinationself-determination, personal , personal independence. independence.

Actually entails very little about property Actually entails very little about property ownershipownership

Is not sufficient to make people free.Is not sufficient to make people free. Eg. Lockean appropriationEg. Lockean appropriationextremes of extremes of

wealth and poverty, personal wealth and poverty, personal dependencedependence

What matters is What matters is self-determinationself-determination, personal , personal independence. independence.

Self-determination, achieved throughSelf-determination, achieved through

Partial self-ownership (no full ownership Partial self-ownership (no full ownership rights over the fruits of one’s labor) +rights over the fruits of one’s labor) +

Egalitarian ownership and redistribution of Egalitarian ownership and redistribution of resourcesresources

******Resource taxation: a tool in the toolbox, not Resource taxation: a tool in the toolbox, not

a replacement for income tax.a replacement for income tax.Dividends AND progressive income tax.Dividends AND progressive income tax.

The EndThe End

Partial self-ownership (no full ownership Partial self-ownership (no full ownership rights over the fruits of one’s labor) +rights over the fruits of one’s labor) +

Egalitarian ownership and redistribution of Egalitarian ownership and redistribution of resourcesresources

******Resource taxation: a tool in the toolbox, not Resource taxation: a tool in the toolbox, not

a replacement for income tax.a replacement for income tax.Dividends AND progressive income tax.Dividends AND progressive income tax.

The EndThe End