Proposal

There are a litany of implementation details to consider: entity-type, governance, taxation, ‘free-riders’, income streams, payout streams, etc. I do not claim have a silver bullet. For most of these questions there simply isn’t a ‘right’ answer; so, let’s recognize that it’s not going to be perfect and layout something workable. 

Comments and suggestions welcome. Edit on gDocs: https://tinyurl.com/VoluntaryBasicIncome

Last updated from proposal: 15 June 2017

Example: Benefit and contribution by income

Table: Benefit and contribution by income Assumes the member pool is identical to the US at-large [Census Bureau, Poverty Guideline, Income Percentile Calc].

Table: Benefit and contribution by income
Assumes the member pool is identical to the US at-large [Census Bureau, Poverty Guideline, Income Percentile Calc].

 

Working class individual who earns the median income

  • Pre-tax annual income: $30,000

  • Monthly contributions: $250

  • Monthly benefits: $370

  • Monthly net: +$120

 

Homeless individual of limited means, previously unbanked

  • Pre-tax annual income: $4,000

  • Monthly contributions: $33

  • Monthly benefits: $370

  • Monthly net: +$337

 

Affluent tech worker

  • Pre-tax annual income: $200,000

  • Monthly contributions: $1,667

  • Monthly benefits: $370

  • Monthly net: -$1297

 

Married family of 4 (2 parents; 2 children) living at the Federal Poverty line

  • Adult, Annual income: $24,000, 2 adults

  • Child, Annual income: $0, 2 children

  • Adult, monthly contribution: $200

  • Child, monthly contribution: $40 ($20 min, per person)

  • Monthly benefits: $1110 (2x adults at $370/adult + 2x children at $185/child (the remaining $185/child is held in trust by the organisation to be disbursed at 18 and 25).)

  • Monthly net: +$870/month

  • Lump-sum for each child: $24,000 at age 18 and $27,000 at age 25 (assumes member from birth; see detail in Minor members subsection).

 

Example: Net contribution percentages

Assumes the member pool is identical to the US at-large [Census Bureau, Poverty Guideline, Income Percentile Calc].

Assumes the member pool is identical to the US at-large [Census Bureau, Poverty Guideline, Income Percentile Calc].

The pledge of 10% of income is the gross contribution. Because the benefit flows equally to all members, the net contribution will always be strictly less than the gross contribution. The net contribution (or benefit) would vary: your income versus the income of the member population. For example, if your income were the same as the population mean (~$44,500 if similar to US-wide income distribution), your net contribution would be $0. If your income were 2x the population mean (~$90,000), your net contribution would be 5% of income. If your income were 4x the population mean (~$180,000), your net contribution would be 7.5% of income.

Membership summary

Entity type: Benefit society, IRS 501(c)(8)

Inclined towards the less familiar IRS 501(c)(8) Fraternal Beneficiary Societies designation. The argument is that basic income provides the unifying purpose and member benefit, while the lodge system helps keep the organisation democratically controlled.

 

Benefits: Floating based on contributions

Redistribution without means testing, i.e. $1 in, $1 out.

  • Benefit paid monthly

  • Contribution collected before the benefit payment, i.e. two back-to-back transactions, possibly a few days apart to allow for funds clearance.

  • 1-year moving average of contributions, i.e. the benefit is floating and would change month-to-month.

 

Contributions: 10% of income; $20 monthly minimum

A redistribution scheme requires income to redistribute. Contributions via a monthly pledge seems sensible.

A minimum ensures that everyone contributes. 10% was chosen as a guesstimate for a number high enough to effect meaningful redistribution, but low enough that net contributors would feel comfortable pledging.

To keep expenses down, a direct bank transfer seems sensible (as opposed to more expensive methods like credit card payments). While it would be possible to ‘net’ the transaction, I think it’s principled to make two transactions, separating the monthly pledge contribution and monthly basic income benefit.This makes it clear in the very structure of the transactions that everyone contributes, and everyone benefits.

The pledge is on total income from all sources, not just W2 earnings: capital gains, royalties, dividends -- anything that would show as income on a Federal tax return.

 

Additional contributions accepted: In lieu of inheritance actively encouraged

Additional contributions over-and-above the 10% member pledge would of course be welcomed, and would be redistributed the same as monthly pledges.

 

Taxation: Contributions not tax deductible; benefits excluded as gift

My reading of the available guidance [1, 2, 3, 4] is that contributions to a 501(c)(8) used for the benefit of members would not be tax deductible.

I suspect the net benefit would be considered a gift [5]. The 2017 gift exclusion is $14,000 per donee; the organisation would have to track and apportion the each individual contribution between donees within a lodge. Do-able with software, e.g.

Person A: Net gift/contribution of $1,000 in 2018

Person B: Received gift of $500 from A, $250 from D (both gifts less than $14k exclusion)

Person C: Received gift of $500 from A, $250 from D (both gifts less than $14k exclusion)

Person D: Net gift/contribution of $500 in 2018

It’s a voluntary redistribution, so to my mind it makes sense that there would be no tax due.

 

Membership

Intake: 3 month incubation period

To apply for membership...

 

Adults, >= 18 years old:

  • Signed member agreement

  • US bank or credit union account capable of direct debit (contributions) and receiving funds (benefits)

  • 3-years prior tax returns OR IRS F4506-T-EZ, which allows the IRS to send the information directly. This can be done online.

 

Minor members, < 18 years old:

  • Parent must be a member in good standing

  • Parent must sign minor member agreement

  • US bank or credit union account capable of direct debit (contributions) and receiving funds (benefits)

 

To ease income verification, we recommend that all members file tax returns, even if they are not required to file. Members who do not earn enough to be required to file a tax return, and choose not to file follow a similar procedure. Verify non-filing with F4506-T (or F4506-T-EZ for initial enrollment). Income will be assumed to be the filing threshold amount for their household status and age, e.g. $10,350 for single filers <65 years old in 2017.

The lodge membership may decline a prospective new member by supermajority vote (3/4).

The new member will then begin a 3 month incubation period. During this incubation period, new members would make their monthly pledge contributions, but be ineligible for benefits. Thereafter, the new member would automatically convert to full membership.

 

Ongoing: Remain in good standing

To remain in good standing simply keep current on benefits and contributions.

Once a year:

  • Confirm contact details

  • Submit annual tax return OR F4506-T, which allows the IRS to send the information directly. This can be done online.

 

Egress: Free to leave at any time, for any reason

As a voluntary association, members would naturally be free to leave at any time, without penalty or ill-will.

 

Re-enrollment: 50% penalty

To discourage abuse, there is a penalty for re-enrollment::

  • All new member requirements apply, including the 3 month incubation period.

  • Back contributions + 50% penalty for the lapsed period (max of last 3 years)

  • No back benefits for the lapsed period

For example, let’s assume a $72,000 income during a 1 year lapse period. 10% pledge for lapse period is $7,200. With 50% penalty, $10,800.

For another example, let’s assume the member has been lapsed for 5 years. Only the last 3 years are included. The incomes for these three years were: $30,000, $45,000, $25,000. 10% pledge on the total lapsed period income is $10,000. With 50% penalty, $15,000.

 

Minor members (children): Eligible for membership

Minor children of members are eligible for membership. A child’s membership follows that of his/her parents:

  • No parents are members: Ineligible for membership

  • At least one parent a member: Eligible for membership

  • If a parent ceases to be a member, the child’s membership also ceases. The funds held in trust would still be paid-out, but no additional benefit would accrue. If as an adult the former child member decides to become a member, they’d be treated as a new adult member, i.e. no re-enrollment penalty would apply.

For example, a child with no income would contribute ($20/month minimum), and receive the benefit ($370/month), for a net benefit of $350.

50% of the ($185/month) benefit is paid to the child’s account (UGMA/UTMA Custodial Savings Account for Children). Following the existing strictures of UGMA/UTMA accounts, the child’s custodian (probably the parents) would control the account until it’s handed-over to the child at the age of majority (18).

The remaining 50% is held by the organisation in trust for the child. How to distribute the funds held in trust is question in and of itself: straight-line over a period of time, lump sum, staged-lump sum, etc.

I would propose two lump-sum payments, at 18 and 25. Admittedly, two payments is a paternalistic, but it has the advantages of providing young adults two opportunities to empower themselves with a cash lump sum.

The funds held in trust would accrue and compound at a base interest rate; the 5-year treasury (currently ~2%) would be reasonable. Negative yields would not be applied, meaning the funds held in trust would not decrease in a deflationary environment.

Assuming membership from birth and a ~2% yield a child would accrue about $48,000.

  • $24,000: 1/2 paid at 18

  • $27,000: Remainder paid at 25 (more because of 7 years additional accrual)

A child-member in good standing at the age of 18 by-passes the new member requirement if they opts-in to adult membership between the ages of 18 and 25.

 

Governance: Democratically elected board

The IRS definition of a benefit society, the proposed entity type, specifies some aspects of governance.

The board of each lodge would be directly elected by the members of the lodge (geographic cachement areas to start with; possibly add other affinity lodges later). The board of the national organisation is directly elected by the entire organisations membership.

Board composition:

  • Term: 3-year term. Annual elections for 1/3 of the board

  • Size: 9 members

  • Impeachable: Individual board members, as well as the entire board, are impeachable by supermajority vote (3/4) of membership. 5% membership petition to call vote, 1% of membership to demand consideration by the board.

  • Voting: Rank voting (1-3 for each ‘class’ / annual election), probably single transferable vote

  • Eligibility: Any adult member (not suspended, not incubating). Child members are not eligible to vote, nor may parents vote on their behalf.

  • Decision: By simple majority of the board.

 

The board is empowered to:

  • Operate the organisation and make day-to-day operating decisions

  • Appoint management and hire staff. That said, staffing, if any, should be very light to maximize efficiency (99%+). Any hypothetical staff must be members. There’s just something about dogfooding that helps align folks.

  • Annually select the chair, vice chair, secretary and treasurer from among board. Unless there are fewer than 4 board members, the offices shall not be held by the same person.

  • Put charter and by-law changes to membership, which would pass with a supermajority vote of membership (3/4)

 

Members are empowered to:

  • Vote for the board

  • Stand for election

  • Petition for charter and by-law changes. A petition endorsed by 5% of membership compels the board to put the no-confidence/charter/by-law amendment to supermajority vote (3/4) of membership.

  • General petitions to the board. A petition endorsed by 1% of membership demands consideration by the board.

 

Dissolution

Organisations fail for a variety of reasons. See the “Risk Statement” section for more details. Though process explained in [footnoteC].

Scheme dissolution can be triggered by the usual governance mechanism. Petition to trigger the dissolution article, followed by super-majority (3/4) vote of current membership. In the event of a YES vote on dissolution:

1) Member intake and egress will be ceased.

2) Any prospective members will be reimbursed their contributions for the 3-month probationary period

3) Any vendors/legal/administration stuff will be paid

4) Any remaining funds will be dispersed to all current and former members (including child members, following the usual breakdown: 50% to UGMA account; 50% in trust), apportioned by their total tenure (in days) as members in good standing (including time spent in probationary period).

 

Funds held in trust for child members

1) Benefits/contributions cease. Funds will be disbursed at ages 18 and 25.