Elections are approaching. With regard to the elections that elect representatives to the courts of the Kingdom of Spain, there is a new electoral proposal which is “Sumar”. It is not here that we wish to analyse either this political force or the forthcoming elections. There will be time. We only want to refer to one of the proposals of “Sumar” that has deserved some journalistic interest: the so-called “universal inheritance”. The press says that this proposal is based on the “economic theories” of Thomas Piketty and Tony Atkinson. Let’s dismiss that out of hand. It comes from further afield. Let us honour the masters. It was to the great revolutionary Thomas Paine that we owe the idea in his not infamous Agrarian Justice[1]. Two centuries ago, Paine already proposed the combination of a universal endowment at the age of 25 (what is known as the basic capital, which “Sumar” calls in a more journalistically appealing way “universal inheritance”) with a universal pension from the age of 50 onwards.
By Jordi Arcarons and Daniel Raventós.
“Sumar” proposes the allocation of 20,000 euros when a person reaches the age of majority, financed by a tax on large estates. Thomas Piketty proposed it years earlier and Bruce Ackerman and Anne Alstott worked on it much earlier, at the end of the last century. The former will be about 120,000 euros and the latter 80,000 dollars (more than 25 years ago). No one could accuse “Sumar” of being foolish with radicalism, quite the contrary, of being foolish with hyperrealism.
The similarities between a universal inheritance (or basic capital, as it is better known in the academic literature) and basic income have been compared many times. The academic debate goes back a long way. Technically one can become the other. A basic capital can be transformed into a basic income and a basic income can be transformed into a basic capital. So far as similarities are concerned. The important differences are of a moral nature, which some political philosophers have dealt with at some length. But we will not go into them now. Let us only go to the similarities. Let’s say that a “universal inheritance” can last a person 80, 60, 50, 40, 30 and 20 years, depending on how long he can keep himself alive. These six cases will suffice. Anyone can calculate other life spans. 20,000 euros of basic capital, without having to take into account other factors that can sometimes be very important such as inflation, would be equivalent to receiving a basic monthly income of 21 euros per month in 80 years, 28 euros per month in 60 years, 34 per month in 50 years, 42 per month in 40 years, 56 per month in 30 years and 83 per month in 20 years. A proposal that even the most moderate or stingy or ultra neoliberal advocate of basic income would consider to be little short of minimal. As we assume no one can object.
Let’s continue with the “Sumar” proposal of 20,000 euros given to people who have reached the age of majority. In the Kingdom of Spain, according to the most recent data from the National Institute of Statistics for July 2022, there were just over half a million people with exactly 18 years of age (503,000 to be exact). This indicates that in order to finance this universal inheritance, a little more or less than 10 billion euros would need to be made available each year. And this amount should be obtained, although it is not very clear from what has been said in the press, from the new solidarity tax on large fortunes (which would become permanent and not only for the two years provided for in the current law); although in another section of this information it is stated “… could be financed with a wealth and inheritance tax of less than 10% and exempting the habitual residence and wealth up to one million euros”. We have searched and have not found a way to finance the proposal. Perhaps someone can illustrate further and we will rectify what needs to be rectified. If that is the case.
The truth is that, according to the current Spanish government’s own figures, the Temporary Solidarity Tax for the Very Rich is expected to raise around 3,000 million euros in the two years (1,500 in each year) in which it is supposed to be in force, a figure from which a part of the current wealth tax collection should be deducted, since the latter can be deducted from the former. Therefore, given that, with the above, only less than one-sixth of what is needed annually is obtained, there are some doubts about the financing of the universal inheritance proposal.
We would like to point out some data[2] that may be of interest and that may shed some light on the doubts raised about this financing. When we talk about wealthy people, what are we referring to? Firstly, we must differentiate between income and wealth. It is basic, but sometimes forgotten. To refer only to the Kingdom of Spain, although it could be generalised to many other states, income is very unequally distributed, but wealth is much more so. According to data recently published by Forbes, 9,554 people in the Kingdom of Spain have a net debt-free wealth of more than 10 million euros. In this group of almost ten thousand privileged in comparative wealth, there are very notable differences. Having 10 million euros is a fortune that is out of this world for the vast majority of the population. 9,554 people is an insignificant percentage of the just over 47 million official population of the kingdom. An insignificant 0.02%. But having 56.6 billion is far above the “poor” who have only 10 million. 56,600 is what, according to Forbes, Amancio Ortega has (one year it goes up, another year it goes down). The tenth richest person according to this magazine was María del Pino with 2.5 billion. 2.5 billion is still well above the “miserable” 10 million.
More specifically, according to our calculations based on data from the 2019 Household Panel, which is produced by the National Institute of Statistics, the State Agency of Tax Administration and the Institute of Fiscal Studies for what is called “common fiscal territory” (i.e. all the autonomous communities except the Basque and Navarre)[3] there are 1.6 million truly rich people, who simultaneously accumulate more than 1 trillion euros in personal wealth and more than 135,000 million euros in personal income. When we say “truly rich” we have to be precise. These are the people who are at the intersection of the top 5 percentile of the distribution of income and personal wealth. We only take into account the data from the Household Panel, i.e. we disregard what these fortunes have in tax havens or hidden in paralegal networks. Only legal data.
But let’s be precise. If we were to limit personal net worth to half a million euros (which would be like establishing a minimum exemption from taxation, although this is more extensively explained in the book mentioned in note 2), the 1.6 million “truly rich” to whom we referred earlier would be reduced to just under 350,000 euros (less than 0.8% of the total). 350,000 (less than 0.8% of the population), but they would continue to concentrate more than 770,000[4] million euros of net wealth (32% of the total) and would continue to accumulate 54,000 million euros of personal income (8% of the total). The table below shows these results in a disaggregated form, using 13 different levels of personal net worth.
Focusing only on these 350,000 people, if they were to be taxed with a progressive wealth tax with marginal rates graduated in 14 brackets of their personal net wealth, from 0.2 % to 10 %, and on which the following conditions should be applied:
1) their personal income should exceed the limit at which the intersection of the upper 5 percentile of the income distribution is set.
2) your personal net worth should exceed the minimum exemption limit of EUR 500,000.
3) their accrued tax could not exceed 60% of their personal income.
7.6 billion euros could be raised. As a reference for this last figure: the current wealth tax raised 1.15 billion euros in 2019, which is the reference year for the whole analysis. In other words, we will be proposing to raise 6.6 times more for this concept.
If instead of the above proposal, we were to use what Piketty suggests (one of those cited in the press, with more or less fortune, as the inspiration for the “Sumar” universal inheritance proposal) with 7 cuts according to this proportion: multiples of 0.5, 2, 5, 10, 100, 1,000 and 10. 000 on the average wealth, this would represent, applied to the same sample of the 2019 Household Panel and with the same three conditions noted above, a collection of 9.1 billion euros, i.e. almost 8 times more than what the wealth tax collected in 2019.
Therefore, all of the above means that with a wealth tax that is not very moderate and that of course has absolutely nothing to do (like an egg to a chestnut) with what currently prevails, it is not enough to cope with the financing of the “Sumar” proposal of a universal inheritance. Other taxes will have to be adjusted to contribute to the redistribution necessary to sustain this proposal.
And, based on all of the above, the question we now ask it is: for as little as the “Sumar” proposal involves – with the meagre monthly amounts that the young recipients will be able to receive – is it worth proposing it without explaining how it is going to be financed? It is fine to make proposals without providing the remotest details of how they are to be financed. Of course, the imagination should not always be bridled; let no one accuse us of not being poetry lovers! But we must remember that there are proposals for financing a basic income that are much more patiently reasoned than the universal inheritance of “Sumar”, which we have explained repeatedly in this magazine and with much more profusion in the book mentioned in note 2 above.
Let’s go a little further. We have explained it several times, we will continue to do so: a basic income is a proposal that is bankable, would allow no one to be below the poverty line and would mean greater freedom for the entire non-rich population. And it is better than a basic capital or a “universal inheritance”. To put it in the words of veteran basic income advocates: “If a choice must be made between a basic income programme of a significant amount and an ‘equivalent’ universal inheritance, those committed to freedom for all should certainly opt for the former”. And, in our humble opinion, it should be complemented among many other measures by a maximum income.
The devil: a maximum income. The reason for any democrat with his feet on the ground is that large fortunes represent a threat to democracy, and unfortunately more than a threat. What should be the maximum personal fortune that a democratic society can afford? One million euros, two, three, four, ten? Does a person who innovates, who works hard to bring society a lot of benefits, who knows how to anticipate business, who has a great capacity for initiative and all these virtues that the chearleaders of great fortunes are used to offering, need more than one million, two, three, four, ten as a reward? This is a democratic discussion that has not yet begun and cannot be resolved by any supposedly expert (expert in what, really?).
A top income tax (wealth is something else, we insist) can even be linked to the partial fate of those far down the income distribution scale. For example, a maximum income could be a multiple of the minimum wage, as Sam Pizzigati will be proposing. 200 times, 100, 30? It is not so much the multiple that matters here, but the idea. If I am a top income earner and I know that what I earn from 200 (or 100 or 30) times the minimum wage will have a marginal tax rate of 100%, I will be interested that the amount from which it is multiplied by 200 (or 100 or 30) is higher. It is not the same to earn 200 (or 100 or 30) times on 900 euros as on 1,400 euros, of course. Another different approach, but with the same intentionality, could be the average wage. Among others.
The maximum amount of wealth that a republican free society can afford is not something that can be fixed outside the public debate and the historical moment we are referring to. The accumulation of great wealth cannot be allowed in a republican society because of the possibility of these fortunes to interfere in the material existence of the great majority of the population, because of the capacity of these great fortunes to buy governments (only the great fortunes have the material possibility to bribe politicians or to influence them decisively to favour their interests) and, linked to the above, because of the corruption that it entails for democracies. “The great concentration of wealth undermines democracy, as many thinkers have long argued. Among these thinkers: the Americans who founded the first modern republic in 1776″[6].
Another basic aspect of the maximum rent is that it is not specifically designed to raise revenue. Without underestimating the revenue possibilities, it is primarily intended to reduce inequality.
The “Adding up” proposal of universal inheritance can be evaluated on the basis of what exists, on the basis of what would be desirable and on the basis of what would be ideal. There is no doubt that from the latter two perspectives it has serious, very serious problems. We are not going into it. We do not rule it out later, but we want to be polite. From the first perspective it is something that can give rise to some debate. That is fine. That said, let us not be ambiguous: in the debate of ideas there should be no mercy. Ideas are not to be respected, they are to be discussed. At least for those of us who are firm believers in rationality. Basic income is much better reasoned philosophically and economically[7] than basic capital, or “universal inheritance”. If it is a question of assessing political imagination alone, we discreetly turn away. On this point there are no calibration criteria. And broad is Castile.
[1] Articles and books have been written about Thomas Paine’s proposal as a precursor of basic income. A great many. One book published a couple of years ago and directly dedicated to it that is really worth considering is Alberto Tena’s book Los orígenes revolucionarios de la renta básica (The revolutionary origins of basic income). Texts by Thomas Paine and Thomas Spence from the last third of the 18th century that we recommend for anyone who wants to know the details of the issue. Alberto adds to Thomas Paine the contributions of Thomas Spence to the revolutionary origins of basic income, and there are solid reasons to include it.
[2] An extension of this data can be found in Arcarons, Bollain, Raventós and Torrens (2023): En defensa de la renta básica, Editorial Deusto (in press).
[3] This is a sample that contains, among many other elements, information on personal wealth and income for nearly 1 million household registers and more than 2.7 million individual registers, representing more than 17 million households and more than 44 million individuals, respectively. Also, the Household Financial Survey provides information on wealth and income and could equally be used to corroborate all the claims we make below (as discussed in detail in the book cited in footnote 2).
[4] For context: the GDP of the Kingdom of Spain in 2022 was 1.33 trillion euros.
[5] Van Parijs, Philippe and Yanick Vanderborght (2017): Basic Income: A Radical Proposal for a Free Society and a Sane Economy, Harvard University Press.
[6] Pizzigati, Sam (2018): The Case for a Maximum Wage [EPub]. Cambridge: Polity Press.
[7] We have explained how, in as much detail as we have been able to, to finance a basic income in the European Union based on a reform of personal income tax, a tax on large fortunes and another on Co2 in a work to be published next May by Fundació Irla and Coppieters.
Jordi Arcarons is Professor of Applied Economics at the Faculty of Economics and Business at the University of Barcelona. He is a member of the Basic Income Network.
Daniel Raventós PhD in Economics, Professor at the Faculty of Economics and Business at the University of Barcelona. His latest book is “La renta básica: ¿Por qué y para qué?” (Catarata, 2021).
