A Town Without Poverty: The Canadian Basic Income Experiment

[Rogue 9]

Managers and owners are actually barred by law from dipping into the tip fund.

Which from my personal experience doesn't actually stop them, but there you go.

[Zaune]

Better is to just force restaurants to pay better than $2.13 an hour so that getting stiffed, be it through malice or ignorance of local tipping customs, doesn't suck so bad. Or, better yet, pay servers well from the word go and bump up prices a little to make up for it so that tips are a way to actually say "You went above and beyond, keep up the good work." I know I'd still give a tip to servers that provided the fastest service they could and were generally pleasant to have around.

That would indeed be the ideal solution, but the chances of that coming about in the current US political climate are pretty remote, so let's focus on what we can do.

[spaceviking]

Managers and owners are actually barred by law from dipping into the tip fund.

Which from my personal experience doesn't actually stop them, but there you go.

In Canada. I believe all money that is transferred in a place of business belongs to the owner, this includes tips. Though generally it is then paid back to waitress, with maybe a cut for the cooks etc.

[Rogue 9]

Managers and owners are actually barred by law from dipping into the tip fund.

Which from my personal experience doesn't actually stop them, but there you go.

In Canada. I believe all money that is transferred in a place of business belongs to the owner, this includes tips. Though generally it is then paid back to waitress, with maybe a cut for the cooks etc.

So you'd best have exact change, then?

[spaceviking]

You know what I mean.

[Broomstick]

Federal US minimum wage is $7.25/hour, which is supposed to be the floor no worker falls under. However, certain workers, such as restaurant waitstaff, can has a minimum wage as low as $2-something an hour because the presumption is that they will make up the difference in tips (which is why, if you're in the US, you really should tip your waitstaff if you eat at a restaurant).

This is something you could try a lot harder to warn tourists about, I might add.

It's something we need to educate a lot of Americans about. It's appalling how many people who have lived here all their lives are unaware of that fact.

[Questor]

Washington State does not have an exception for tipped employees, which makes me really proud of my homeland.

This seems to be a West Coast thing. The states where minimum wage for waitstaff is both above federal minimum wage and equal to state minimum wage are below:

Alaska
Washington
Nevada
California
Oregon
Montana (Only for businesses with gross receipts over $110,000 - As that's gross, it probably effectively means anything making a profit with more than one or two employees)

From Here

EDIT: As an aside, I wonder what the explanation for Nevada is. $2080 doesn't buy a very good health plan (I'm actually not sure if it would buy any health plan) so I'm not sure if employees and employers would find the minimum wage drop for it worth it.

[RogueIce]

Better is to just force restaurants to pay better than $2.13 an hour so that getting stiffed, be it through malice or ignorance of local tipping customs, doesn't suck so bad. Or, better yet, pay servers well from the word go and bump up prices a little to make up for it so that tips are a way to actually say "You went above and beyond, keep up the good work." I know I'd still give a tip to servers that provided the fastest service they could and were generally pleasant to have around.

Well they do. As Sea Skimmer pointed out, they still have to be paid (at least) minimum wage either way, be it from tips or directly from the restaurant if the tips don't cover it.

Whether or not the business does it or whether the employees will complain if they don't is another matter, but it's still legally required.

[The Duchess of Zeon]

The problem with the system is that the tips are distributed as widely as possible to the restaurant employees, not just the person you tipped, with the intention of guaranteeing that management has to pay as few people as possible and that as many people as possible are being counted as tipped employees, so that your tips at a nice restaurant aren't going to giving the waitress the equivalent of $18/hr, they're going to the waitress, busboy, and greeter to make them all make $7.25/hr, and that's not what I intend when I tip, nor do I want to be subsidizing scrooge like that.

[ray245]

Why don't US implemented a mandatory service charge for restaurants?

[Guardsman Bass]

Why don't US implemented a mandatory service charge for restaurants?

Most restaurants do, but only for parties above a certain size. Usually if it's a party of six or more, they'll stick on an automatic gratuity on to the bill.

[Surlethe]

I think it was Surlethe who said that somewhere...

It would probably be the most efficient way to do assistance spending, particularly compared to the patchwork of programs we have in the US right now.

It would absolutely be more efficient. Something we've known for a long time --- confirmed in both informal assessments and this CBO study --- is that the patchwork of means-tested assistance programs imposes an average 30% effective marginal tax on low-income households, and that the cessation of certain programs actually imposes an effective marginal tax rate in excess of 100%. When it comes to incentive to work, we are inadvertently taxing our low-income people at rates comparable to the rate we tax the wealthiest Americans -- and at certain incomes, we tax them at rates we'd never dream of taxing even the wealthiest Americans.

A simple guaranteed minimum income, paired with a truly progressive tax code --- say 0% marginal rates on the first $10,000 and then 25% marginal rates on the next $30,000 --- would be an ENORMOUS improvement over the regressive system we have in place.

It's also simpler and less opaque. The more complicated a system is, the harder it is to navigate and use*, and the easier it is for the system to opaquely evolve toward the situation that I outlined above, unintentionally harming the people it's trying to help.

*National Review, I know, but I don't think they'd go so far as to forge a draft application form.

It would also be a great way to boost workers' "exit power", by giving them greater power to walk away from jobs or even to sit out of the labor force until better opportunities come along (although this might be muted a bit if people both work and collect the basic income, and get "stuck" at a higher level of personal spending and debt).

As PeZook said I said, you want to increase people's freedom. As a rule of thumb, the more options you give people, the better off they'll be. The current system doesn't let anyone exit the labor force. If you're impoverished and struggling, you're vulnerable to any monopsony power employers have. You have to take the first job you get, you can't walk away from one with poor working conditions. A system that lets people exit the labor force entirely - if that's what suits them - is almost by definition superior to one that is the same in all other respects, but does not let them exit it.

Keep in mind this scheme only pays out the difference between income and the poverty line, so the costs would be a lot lower if you were only doing that - about a sixth as much at most since the poverty rate in the US is somewhere around 16%, and less than that in practice.

This would seriously worry me. What matters for incentive to work is the marginal effective tax rate, the rate on take-home pay, and in this case the marginal rate is 100% until your income is above the poverty line. If you're unemployed and your household gets $22,000 per year, will you take a full-time plus overtime minimum-wage job that pays $21,000 per year, knowing that your mincome check will drop to $1,000 per year and you'll still have $22,000? A reform in this direction would almost be worse than the current system -- at least its effective tax rate is 30%, on average.

[Stark]

Ideas like this are quite old, and its a bit sad that they aren't taken up when in addition to the accessibility advantages Surlethe discusses they also present much easier and thus cheaper compliance needs, as compared with the absolutely prohibitively expensive compliance needs of the systems currently in place in various countries.

But y'know the tax system is broken because rich people so the only solution is liquidation and hoping you get the 1% of actual beneficial change you're after. :V

[Surlethe]

Basically, you want to say that every citizen is guaranteed some minimal fraction of a nation's total production. Then you don't have to worry about checking income, you don't have to worry about pseudo-disabilities, you don't have to worry about people diving into the cash economy to avoid +100% marginal taxes ... I could go on.

(By the way, indexing tax brackets and the minimum income to NGDP/capita deals very nicely with increases in general productivity, changes in income inequality, and both types of inflation -- you don't have to argue over CPI vs chained CPI vs GDP deflator and so forth.)

[Guardsman Bass]

Basically, you want to say that every citizen is guaranteed some minimal fraction of a nation's total production. Then you don't have to worry about checking income, you don't have to worry about pseudo-disabilities, you don't have to worry about people diving into the cash economy to avoid +100% marginal taxes ... I could go on.

Now that would be an interesting idea, and one that I wish I had thought of before. In addition to the beneficial effects of a guaranteed minimum income in terms of efficiency and human welfare, it would also resolve the problem of labor's declining share of overall income. In effect, you'd be giving everyone a stake in the growth of the overall economy.

(By the way, indexing tax brackets and the minimum income to NGDP/capita deals very nicely with increases in general productivity, changes in income inequality, and both types of inflation -- you don't have to argue over CPI vs chained CPI vs GDP deflator and so forth.)

Wouldn't indexing it to the nominal figure potentially put you at risk of inflationary politics?

[Simon_Jester]

Indexing it to nominal GDP automatically controls for inflation, doesn't it? Doubling the money supply of the economy doubles all prices, but also doubles the stipend.

Or am I missing something?



Easiest way to implement this would be via the existing IRS system for reporting income. If you report less than, say... 0.25(X/Y)* in income, you get a 'refund' for the rest. If you report more than that, your income is taxed. The exact percentage need not be 0.25, that's subject to discussion.

Of course, the catch is that the IRS would need to be prepared to pay large sums of money back, and would probably need a realistic projection of how many poor people there were in the country if it wanted to budget correctly.

*where X is national GDP, and Y is the national population

[Stark]

Done correctly rich people and corporations would probably pay more (even if more sensibly assessed) and this would have knock on effects backward. There's a reason the inertia exists.

[Patroklos]

The problem with the system is that the tips are distributed as widely as possible to the restaurant employees, not just the person you tipped, with the intention of guaranteeing that management has to pay as few people as possible and that as many people as possible are being counted as tipped employees, so that your tips at a nice restaurant aren't going to giving the waitress the equivalent of $18/hr, they're going to the waitress, busboy, and greeter to make them all make $7.25/hr, and that's not what I intend when I tip, nor do I want to be subsidizing scrooge like that.

Thats if the tips are shared, I have worked at several local joints and Outback (their entire group works the same way) and the only tip share is between the servers and bus boys. The bartenders have something going on with the wait staff but I was not privy to this and it appeared to be between them and not official. The entire back of the house had an hourly wage, no tips.

I used to feel bad for wait staff until you do a bit of math. If you do two tables of four, $15 each, in an hour your tip is $11.00 an hour minus whatever the bus boy share was which I believe was 10%. That would be extremely slow, A normal dinner service at Outback probably got you 4-6 tables or more an hour with probably $100 a table at least, so assuming everyone tips at least 15% (and many people do 20% because the math is easier, AND tip on taxes because they don't know they shouldn't) thats $60 in tips. Granted dinner highs probably only lat for three hours and you have average that with lower tipped lunch service (less expensive food is eaten at lunch at discounts so less tip) or the dead hours prior to closing depending on what type of place you are at, but most wait staff worth their salt are averaging significanlty above minimum wage on tips alone for what is for all intents and purposes an unskilled labor job.

I don't feel bad for traditional wait staff, who I feel bad for are the jobs increasingly being pushed into tip shares like valets at cheap hotels or lunch counter type servic staff who are in jobs never likely to provide enough tip opportunities to get them above minimum wage. I used to scoff at the coffee bar tip jar when service consisted of passing me a cup you spent 30 seconds filling until I realized some places consider those employees wait staff.

[The Duchess of Zeon]

I don't tip except for exceptional service at coffee bars, since that's the norm in Washington where minimum wage is around 9/hr even for tipped jobs and they're everywhere. I don't think I could actively stand to do so; it's just a totally different thing to me and a lot of the businesses make it very hard to tip by not putting a tip line on for paying by card, which I do more or less exclusively (I don't carry cash for security reasons--my credit union has excellent fraud prevention to the point where it wouldn't make sense)--always kind of frustrating when that puts you in a position where you can't tip, though.

Anyhow, we would need to find the smallest sum the government can electronically debit to peoples' accounts without being inefficiency (i.e., the point at which the processing charges are rendering it worthless), and then scale the mincome around multiples of that, so that we can decrease it very slowly so that the reduction serves as a relatively minor marginal tax. If reductions start at 15,000 USD and end at 60,000 USD, with taxation beginning at 30,000 USD, we can phase it out for richer people without any difficulty.

Of course, to make it simple, it needs to be automatically based on your reported income for the last year, which is another argument in favour of just giving it to everyone.

Anyway, one observation is that we'll have to set the tax rate very high, right around the optimum for the Laffer curve, on income above 100k for this to work, probably at 45 - 50%.

[Surlethe]

Now that would be an interesting idea, and one that I wish I had thought of before. In addition to the beneficial effects of a guaranteed minimum income in terms of efficiency and human welfare, it would also resolve the problem of labor's declining share of overall income. In effect, you'd be giving everyone a stake in the growth of the overall economy.

Yes. I don't think it would resolve labor's declining share of overall income, though; this is a giant transfer, and that ratio is set by the relative returns to capital and labor. Currently, I believe that labor's share is declining because of global factor-price equalization -- by transferring from wealthy to poor, you're not going to fix those equalization pressures.

Wouldn't indexing it to the nominal figure potentially put you at risk of inflationary politics?

It's inflation-neutral!

Indexing it to nominal GDP automatically controls for inflation, doesn't it? Doubling the money supply of the economy doubles all prices, but also doubles the stipend.

Or am I missing something?

Nope! Even better: If a lot of people choose to opt out of work, then you get an inflationary supply shock, which decreases the purchasing power of your slice of NGDP/capita. This makes perfect sense from the perspective that everyone's guaranteed to a share of our common production: by opting out of the system, there's less wealth to go around, which means your mincome goes down. You're not going to have a huge free-rider problem because it's a self-correcting system.

Easiest way to implement this would be via the existing IRS system for reporting income. If you report less than, say... 0.25(X/Y)* in income, you get a 'refund' for the rest. If you report more than that, your income is taxed. The exact percentage need not be 0.25, that's subject to discussion.

First, when I think about this, I set X = Y = 1. (You're a particle physicist, so this shouldn't be confusing.) For the sake of discussion, let's say the GMI is 0.3. Now, what you want is 0% MTR on the first, say, .3 income, then maybe 25% MTR on the next .2 income, and so on. You *don't* want to just make up the difference between income and GMI, because that imposes a 100% MTR on the first 0.3 of income. This is makes things a little more delicate, but numerical simulation (in Mathematica, assuming a log-normal income distribution) indicates that for reasonable rates the tax is revenue neutral or slightly positive (on the order of 0.02).

Anyway, as far as implementation, I think month-by-month reporting would work. Collect taxes monthly (or even weekly), then send everyone who qualifies a check in the middle of the month, or for the previous month. Alternately, send everyone a check and then make up the balance from their monthly taxes. At the end of the year, the tax return is just an accounting formality to make sure everything is totaled up.

Bonus points if you also give every citizen a zero-interest, zero-risk account at the Fed. Just deposit their returns there.

Done correctly rich people and corporations would probably pay more (even if more sensibly assessed) and this would have knock on effects backward. There's a reason the inertia exists.

Very true. (Although you might be able to sweeten this deal if you abolish cap gains and corporate income taxes. Frankly, it would be worth it.)

[K. A. Pital]

I think it was Surlethe who said that somewhere...

...
A simple guaranteed minimum income, paired with a truly progressive tax code --- say 0% marginal rates on the first $10,000 and then 25% marginal rates on the next $30,000 --- would be an ENORMOUS improvement over the regressive system we have in place.

You are saying that what certain European countries already have would be an enormous improvement over what is present now. That's a bit sad when I think about it.

Also, I'm glad that I'm not the only one who can be summoned to threads.

A system that lets people exit the labor force entirely - if that's what suits them - is almost by definition superior to one that is the same in all other respects, but does not let them exit it.

I would prefer one that would reduce the workload on everyone as opposed to reducing the workload for those so desiring, but indeed this is true. Many circumstances in fact require a person to exit the labour force - personal trauma, preparations for long-range relocation, a desire to restart studies and improve his qualification, at last.

It would be optimal for all if the overall workday be reduced to 6 hours or less, of course, but barring that the next best solution is the guaranteed income.

[Surlethe]

You are saying that what certain European countries already have would be an enormous improvement over what is present now. That's a bit sad when I think about it.

Well, it's what we expect, right? I bet I could name those countries, too --- certain European countries have a great reputation for efficient government.

Also, I'm glad that I'm not the only one who can be summoned to threads.

It is a disease which I have somehow contracted

I would prefer one that would reduce the workload on everyone as opposed to reducing the workload for those so desiring, but indeed this is true. Many circumstances in fact require a person to exit the labour force - personal trauma, preparations for long-range relocation, a desire to restart studies and improve his qualification, at last.

It would be optimal for all if the overall workday be reduced to 6 hours or less, of course, but barring that the next best solution is the guaranteed income.

It may well be that as society becomes more automated and richer, the guaranteed income will permit the overall workday to naturally fall to six hours or less. If everyone is entitled to 30% of the nation's average income, then if we someday, somehow, come to the point where labor's share of income is 0% and capital's is 100% (since all the machines are doing all the work), then we'll be in position to move up to something higher, like 60% or 100%.

Now there's a thought. Perhaps everyone is entitled to a share proportional to the ratio of income which goes to capital, rather than to a share of total income.

[K. A. Pital]

Now there's a thought. Perhaps everyone is entitled to a share proportional to the ratio of income which goes to capital, rather than to a share of total income.

That sounds nice - you are entitled to a share of income, the source of which is capital accumulated by past efforts. It would be hard to attack such a measure as "taking money from hard-working ppl and giving it to freeriders", since you are not, in fact, enroaching on labour's current income.