Ciph working paper

An Introduction to the CIPH-rate tax:
with some preliminary justifications
Douglas Bamford

Abstract: This paper is an introduction to my CIPH-rate tax system. The bulk of the
paper consists of an explanation of the unique form of tax calculation. This
calculation provides personalised tax rates and fully determines the value of property
each individual should receive. Furthermore, the paper introduces some preliminary
justifications for the superiority of the CIPH-rate tax over rival approaches to income
fairness.1

Introduction

In this paper I will present the CIPH-rate tax, which stands for Comprehensive
Income per hour rate, and then introduce some normative and philosophical
justifications for it. I will begin by explaining what I mean by comprehensive income,
and then explain the unique method of tax calculation. This calculation method is the
fundamental element of the CIPH-rate tax and I will explain this in detail before
explaining in greater detail the important role of—and basis for—hour-credits.
The primary aim of the paper is to introduce the tax system as a policy
proposal. However, after doing so I will introduce some normative considerations
relating to the CIPH-rate tax system. Firstly, I will consider the libertarian ‗free
acquisitionist‘ objection and then relate it to egalitarian entitlement theories. Finally, I
will make some elementary comparisons between the CIPH-rate tax and other types
of tax and income systems. I am not going to present the CIPH-rate tax in terms of
ideal justice, but instead raise some considerations. My contention is that an economic
system based upon the CIPH-rate tax is preferable to the alternative ones. More
specifically, it represents a much fairer entitlement theory of justice. Other entitlement
theories of justice, particularly libertarianism, are unfair, while many egalitarian
proposals do not pay sufficient attention to issues of property entitlement and
economic efficiency. Unfortunately, due to the wide ranging nature of this paper, I
cannot go into as much detail on either the philosophy or the practicalities of the tax
system as would be ideal. Such details would require at least a book, and this paper
can only provide an introduction to the justification of the CIPH-rate tax.

1
I would like to thank those who attended the CRIPS workshop on this paper, in particular Andrew
Walton, Chris Clarke and Katy Long. I would also like to thank Ed Page and Kazunari Morii, who
responded to an early draft.

Introduction to the CIPH-rate tax
Douglas Bamford

What counts as comprehensive income?

The CIPH-rate tax is a tax on comprehensive income, and I think it useful to
begin by explaining what this means. The notion of comprehensive income is
contested,2 but I need not offer a universal definition. For the purposes of my
proposal, the definition need only be consistent and practicable.3 As such, I will
briefly explain how to picture comprehensive income with the aid of an imaginary
person, Simone. We can imagine all the items of property that Simone owns as part of
an invisible bubble. When a new item enters that bubble it counts as net
comprehensive income at its money value at that point in time. The focus of the
CIPH-rate tax is to ensure that the value of Simone‘s incoming (net) property is
appropriately fair.4 This means that the gross income she receives should be taxed to
ensure fair net income. As such, we can imagine a second, outer, bubble into which
all gross income is received. The property in this outer bubble is split into net income
and taxation, where the net income moves into her personal sphere and the tax
revenues go to the tax authority.
Once we recognise that it is possible to exchange any item of property for
money before or after the transfer, we can see that the money value is the relevant
point of comparison. With this realisation, we can broaden our understanding of
‗property‘ to be anything of money value, including services. After all, the person
who pays for Simone‘s butler or accountant could have instead bought her land, or
just given her the money.
Clearly, some forms of income will not be financial in nature, and hence easily
split into tax and net income. An obvious example would be a piece of land and
building. When someone receives non-financial income they will only be able to take
full legal ownership of the item if they pay the required tax on it. Alternatively, the
recipient will have to sell the item with the proceeds split into tax and net income. As
indicated above, the receipt of services (with a positive money value) also count as
income received, and hence require a tax payment.
Not all incoming property comes in the simple form described above; people
can also gain from property they own. When Simone profits from transactions
involving the property in her bubble—either as an investment return or as capital gain
when she sells an item of property for profit—that profit should also count as taxable

2
See Henry Simon, in Parker et. al. (eds), 1986; Pechman (ed), 1977.
3
The CIPH-rate tax does not suffer from many of the problems that Bittker, for example, raises about
using a comprehensive tax base (Bittker, 1967). Some of Bittker‘s comments do raise important
questions for a comprehensive income tax; attempting to tax anything comprehensively (whether
income, consumption, or wealth) is always going to be difficult. However, the alternative is to have a
mixed tax base with all the complications, loopholes, and injustices that approach entails.
4
You might say that the CIPH-rate tax in fact defines what fairness is, though I am not presenting it as
an ideal theory of justice.
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Douglas Bamford

(gross) income such that she only receives a fair (net) quantity. 5 There is not room
here to go into further details on this point, but suffice to note that all realised gains
are treated as taxable income according to the CIPH-rate tax.
It is worth mentioning that Simone should of course be able to swap her
property for other forms of property, so for example, when she buys food in a shop
she exchanges one form of property (money) for another (food). This would not
represent income as long as there was no profit on the money, which we can fairly
assume since we judge profit in money terms. Another practical point worthy of
mention is that it would be necessary to ignore and exempt low-value non-financial
gifts, up to an annual limit. This would allow people to give and receive tokens of
affection without requiring them to use their time accounting for them, and reduces
the bureaucratic burden on the gifters and the tax-payer.
We can take gross lifetime income as given because it simply results from
economic transactions by free individuals. However, a lifetime comprehensive income
tax is necessary to ensure that individuals obtain an appropriate, or fair, net
comprehensive income. The role of the tax is not just to create revenue for
government, but also to ensure that all receive a fair income.
A noteworthy feature of comprehensive lifetime income taxes is that they are
not only tax systems. Looked at from a different vantage, they are comprehensive
income systems. As it fully determines the value of the property each person should
receive, it is also possible to view it as a system of property entitlement. We can even
describe the resulting economic system as of a distinct kind. For the purposes of this
paper I will mostly refer to it as a tax system, though I will also compare it from the
other perspectives towards the end of the paper.

The CIPH-rate tax calculation

On a basic level, the CIPH-rate tax is an income tax system that would operate
in an advanced market based economy of the sort with which the developed world is
familiar. A good place to begin to describe the workings of the CIPH-rate tax is by
explaining the acronym. I have discussed the CI element, which stands for
Comprehensive Income. As should be clear, all and any income is liable to taxation
under the CIPH-rate tax, not just earnings. As such, inheritance and gifts count as
income and any separate taxes on them would be abolished. The CIPH-rate tax system
should also replace all corporation, share, value added and sales taxes. As such, it is
intended to replace the many taxes we have at the moment with one. However, I

5
While this is a simple enough definition of comprehensive income, it may be difficult for the tax
authority to track all incoming items. There is, as such, an increased potential for concealed income
fraud. Unfortunately, there is no room here to detail the methods to combat such fraud and I will need
to do this elsewhere.
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Douglas Bamford

should say that one type of tax should remain; Pigovian taxes. These are taxes on
antisocial or damaging behaviour such as causing pollution or smoking. Pigovian
taxes aside, comprehensive income is the sole tax base under a CIPH-rate tax.
The second half of the acronym indicates the fundamental difference between
the current system and the CIPH-rate tax—Per Hour-rate. This refers to the unique
method of calculation. It is worth noting, also, that it works very differently from any
other tax system, real or imagined, because of the interplay of units within the
calculation, as I will now describe.

Years, hours and lifetimes

Income tax, as we know it, is an annual tax that applies to every year
separately. So each year is distinct from the last, and the tax calculation is based
entirely on the income received in that year. This means that the tax system cannot
take account of lifetime income. The CIPH-rate tax, by contrast, is an ongoing—
lifetime—tax.
The CIPH-rate tax does not have a horizon of one year, after which the tax
calculation begins again.6 Instead, it begins for someone when they reach adulthood
and ends when they die.7 Fortunately, the tax authority would not have to wait for
someone to expire before receiving his or her tax payment; the system calculates and
receives payments continuously. Although it extends the horizon of the tax from a
year to a lifetime, the basis of the calculation is reduced from a year to an average
lifetime hour at work. The introduction of hour-credits makes such calculations
possible, as will become clear. I will explain hour-credits in more detail later, for now
it is enough to highlight that people receive them for time spent at work. So instead of
basing everything on the calendar year, the CIPH-rate tax allows for lifetime tax and
income figures by utilising an hourly average. I have said that the CIPH-rate tax is a
lifetime tax on total gross income, utilising hourly averages, which gives an indication
of its scope. However, this does not explain how to calculate tax rates.
At present, people pay a percentage of their annual income as income tax.
Usually, a person‘s tax rate varies depending on the income they receive in that year,
though the range of rates is small. There is an annual tax horizon and an annual basis
for the calculation. I have said that the CIPH-rate tax has a horizon of a lifetime, and
an average hour as the basis. As such, tax is calculated as a percentage of average
hourly income, not the total income received in a given period. In order to express
how this is possible I will distinguish three terms, gross income, which is simple pre-

6
Of course, annual tax structures receive payments throughout the year, pro-rata. If these ‗proportions‘
prove to have been inaccurate, a person will receive a rebate or a bill at the end of the year.
7
This is one of the ways by which the CIPH-rate tax taxes individuals more explicitly. If an individual
pays tax on each year of their life separately it does not consider their economic lives as a whole, see
for example Parfit, (1986: part 3), McKerlie (1989), Temkin, (1993: chapter 8).
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Douglas Bamford

tax receipts, net income, which is the personal income received after tax and tax,
which is the amount that goes to the gathering authority. (This authority is often
called Revenue,8 but I will call it the tax authority.) Adding net income to tax will
always equal gross income, just as subtracting tax from gross income equals net
income. This tautology makes the CIPH-rate tax a very simple tax to calculate. The
tautology also means that I will sometimes refer to net income received and
sometimes refer to tax paid depending on the context—as the two are related this is
acceptable. Only three pieces of information are necessary in order to calculate
someone‘s total tax liability, their total gross income, the current tax rates, and their
total hour credits. Hour credits make the CIPH-rate tax calculations possible, and I
will discuss them in more detail later. Prior to that, I will fully explain the CIPH-rate
tax calculation.

Gross, net and tax calculations

Under a CIPH-rate tax system, an individual‘s tax-rate is set as a percentage
of their average gross hourly income. The simplest way to explain this is to describe
the straightforward calculation that would take place when calculating their tax
liability. The first step in the calculation is to divide a person‘s gross lifetime income
by the total number of hours they have worked (their hour credits), resulting in a
mean gross income per hour.9 For every mean gross income per hour there
corresponds a specific tax rate, expressing the split between tax and net income. I will
discuss tax rates in more detail in the following section. For the purpose of
understanding the calculation, it is necessary to remember that tax rates are not based
solely on gross income; so rather than basing tax rates solely on gross annual income,
the CIPH-rate tax uses lifetime gross income and the number of hours worked.
The second step is to apply the tax rate; after calculating the mean gross
income per hour, it is possible to calculate the split between tax and net income for
this ‗mean hour‘. For every mean hourly gross income there corresponds a mean
hourly net income, and mean hourly tax. For example, an individual with a gross
average of €26 may pay €13 tax and receive €13 net income for each hour. The third
step is to multiply both of these by the number of hour-credits, which indicates the
amount of money an individual should have received and paid in tax during their adult
life. However, they have already paid tax and received income during the course of
their life. The person‘s gross income has increased, which means that their tax and net
income has also increased. So the final step is to calculate the difference between the

8
For example, the Inland Revenue—recently renamed Revenue Customs—in the UK, and the Internal
Revenue Service in the USA.
9
These two pieces of information—gross lifetime income and the number of hours they have
worked—are the only information required about a person in order to calculate their tax and net
income.
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Douglas Bamford

new amounts and the old. This indicates the money due to the individual and the tax
authority.10 It is straightforward to describe this process in action.11
To reiterate, it is easy to calculate the amount that is due to someone at the end
of each pay period (e.g. a month). Presumably, they will have increased both their
hour credits and their gross income. Dividing gross income by the number of hour-
credits will show a gross hourly income. This gross hourly income will correspond to
an amount of tax and net yield for that average hour. So the tax rate creates two
hourly figures from one, net income and tax, which total to gross income. Multiplying
average hourly tax and average hourly net income figures by hour credits will indicate
the amount of tax the individual should have paid, and the amount of income they
should have received over their lifetime. In order to calculate net income for the
period in question, subtract the amount of income received previously from the total
amount that they now should have received, and similarly with tax.12 I will give an
example.
Let us consider someone with a fifty percent tax rate, who previously had
9,825 hour credits and a gross income of €255,450. In the past month she has worked
175 hours and received €4,550. So she has now worked 10,000 hours, earning
€260,000. As she has a 50% tax rate, she should have paid €130,000 in tax and
received €130,000 in net income. In this simple example,13 she has previously
received €127,725 and paid that amount in tax. Her additional 175 hours and €4,550
therefore nets her €2,275 this month, which is also her tax bill.
Tax rates vary according to average hourly gross income, as I will explain in
the following section. For now, it is useful to consider how an individual will view
her net income under the CIPH-rate tax system. She will receive net income when she
obtains hour credits, when she receives gross income, or when she obtains both
together.14 When it comes to income, people need to know how much they will get in
the future, but will they know how much they will get? Everyone will have a good
idea of his or her tax rate (assuming that their new hour credits and income are small
relative to their pre-existing quantity). So if an individual receives an hour credit, they
will have an idea how much they will get as a result; an hour credit, for them, is worth
x amount of money. If an individual receives a windfall, they will have an idea of
their tax rate, say 25%, and will know they will receive 75% of their windfall up
front. So people can always estimate their future income by using hour credits, or

10
Remember that adding net income and tax will always equal the gross income.
11
I will not discuss here the order of payments—tax authority or individual first—as either is possible.
12
In fact if you do one of these calculations you will have the answer to the other.
13
It is unlikely that any individual would have a marginal tax rate equal to their average tax rate—the
odds on this would be astronomical.
14
This is confused slightly by non-financial income, which cannot be split into a tax and net payment
and therefore must be settled separately.
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Douglas Bamford

their likely tax rate.15 The individual‘s tax rate indicates both the money they can
expect to get from an hour credit, and the percentage of any windfall they can expect
to receive. I will now explain the fair tax rates.

Tax rates

I do not here wish to stipulate where stipulation is unwanted and unnecessary.
In a sense, setting the tax rate under the CIPH-rate tax is up to those involved in the
task of creating the system. However, certain features of the tax rate are fundamental
to the CIPH-rate tax even if the details are not. As I have made clear, the tax rate is
based upon an individual‘s average hourly rate, and every gross hourly income will
have a corresponding tax rate (and hence net hourly income). We could plot a graph
with gross income and tax, and this graph is also expressible as an equation—just as
any graph can be. Even the tax bands with which we are familiar actually create such
a linear graph, albeit for a year rather than an average hour. It is also important to note
that it is perfectly possible for hourly tax rates to run to several decimal places, even
though the currency does not run so small. This accuracy is possible and advisable
because of the multiplicative nature of the calculation; gross amounts are divided and
multiplied by hour credits. As individuals get older they will amass a large number of
hour-credits, and so greater accuracy will make a real difference. I will now describe
the features of the tax-rate graph for the CIPH-rate tax. These aspects make the CIPH-
rate tax fair and efficient.
Firstly, there would be a negative income tax to ensure that everybody who
works receives a reasonable income for his or her time. Secondly, tax rates would rise
reasonably steeply to rates in the 80th and 90th percentiles. The rates would then level
out somewhat and cease to rise above 99%—or perhaps even 99.99%—at extremely
large average hourly incomes. Somewhere between these extremes, nearer to the low
incomes, there will be a gross income that will be equal to net income—i.e. a tax rate
of zero. But without mentioning figures, what does this mean? The figures do not
matter because they are relative, so I will explain the tax rates in relative terms. I
would say that the tax rate should be ninety-something percent by the time net income
has increased to three or four times the minimum hourly net income. This means that
someone with a gross hourly of income of about forty times the minimum hourly
income will receive about four times as much net income for each hour worked as the
lowest paid person.
Thirdly, the tax rate must never drop with an increase in gross hourly
income—the percentage must either rise or stay the same as income increases.
Fourthly, any increase in gross income should always yield an increase in net income,

15
The tax authority can offer services to give individuals more precise information about hypothetical
future income.
7

Douglas Bamford

even if the rise in net income is a small fraction of the gross. Another way of putting
this is that the marginal tax rate would never rise to 100%. As the average and
marginal tax rates16 never rise to 100% it is always economically rational for an
individual to accept a gift, or a pay rise for the same work. If they were already
paying a high rate of tax, their tax rate might be 99%, but no one would refuse 1% of
anything if it were free. Therefore, while an increase in gross mean income will
always result in a higher rate of tax, the CIPH-rate tax does not create a reason to
reject extra income.17
I will invent some figures to indicate how this might work. Let us assume that
a society decides that no one should receive less than $10 per hour credit. So for a
gross hourly income of $0.01, the net income is $10. Net and gross incomes equal one
another at about $12 an hour—the point with a zero tax rate. Someone with a gross
hourly average income of $36 an hour will receive $18 net, at a tax rate of fifty
percent. Someone with a gross income of $300 an hour would have a net income of
$30 an hour—a tax rate of ninety percent. The tax rate should therefore have a similar
shape to a logarithmic function when plotting gross income against tax rate, as
follows:

16
As the marginal tax cannot reach 100% under the CIPH-rate tax, the average can never reach it
either.
17
The issues of efficiency and incentives require much more detailed discussion, for which there is not
sufficient room in this paper.
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Douglas Bamford

The line, of course, continues beyond the limits depicted in the graph. It is
worth emphasising that this is the tax rate for each individual hour credit, not for total
gross income. I have not included money values because they are relative anyway. At
this point I need merely state that the graph should take this shape and that those with
net earnings about four times the minimum hourly income should have a tax rate
above ninety percent on their gross income. Only graphs with this sort of shape will
live up to the intentions or purpose of the CIPH-rate tax. Mathematically, the graph
could have different equations within different ranges. Furthermore, it could take a
more angular form, which is unproblematic as long as it meets the above criteria.
Indeed, once the maximum tax rate is reached, let us say 99.9% at seven thousand
times the minimum income, the graph becomes a straight line with a gradient of zero.
This point must be reached, as an increase in gross income cannot lead to a fall in tax
rate (so it cannot go down), and obviously it would not be a maximum tax rate if it
went higher (so it cannot rise). With these tax rates, plotting gross income against net
receipts creates a graph like this:

The graph is steeper in the lower-middle region because this is where changes
in gross income will have the most effect. Changes in gross hourly income will have
less effect at very high and very low gross incomes. At these more extreme levels of
gross hourly income, the negative or positive taxes have a larger effect on net income.
At the lower range, the negative tax rate changes rapidly in response to changes in
gross income, so an increase in gross income is offset by a decrease in income from
negative tax. So at lower incomes, the tax rate has a large effect on income, but
changes very rapidly. At the other extreme, the tax rate changes little. So the high tax
rate dampens the effect of increased gross income on net income. The precise nature
of this graph, and its kink, depends upon the precise details of the tax rate graph. The
tax graph itself may also have kinks, as long as they do not violate the four conditions
set out above: that there are negative income taxes for low earners; that those with
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Douglas Bamford

huge incomes face high tax rates; that tax-rates always rise when gross income does;
and that tax rates never reach one hundred percent.

Inflation18

One of the major differences between the CIPH-rate tax system and the
current income tax is that the horizon of the tax is extended from a year to a lifetime.
Of course, the relative price of all goods changes over time, but the price of money
between different periods of time can change as well. As a result, inflation is an
additional issue for the CIPH-rate tax; unlike annual tax systems, the CIPH-rate tax
has to deal with changes in the relative value of money over time.19 On the
assumption that inflation generally takes place over time, this may appear to make the
CIPH-rate tax unfair. If the tax rates were set upon inauguration of the system, the
prices to which they refer will be worth much less thirty or a hundred years later. For
example, a high wage in 1910 would be a very low wage in 2010. This problem is
easy to solve, simply by indexing the tax rate to inflation. This means that the tax
graph will retain its shape but shift along the gross income axis in line with inflation
or deflation every year.20
However, this solution to one problem creates another. While indexing the tax
rate means that the tax rates represent up to date income, the calculation will contain
figures from many years earlier. There will be a disparity between the amounts that
older workers have earned and that for which they are liable to tax. Again assuming
inflation over time, past earnings will presently appear very small in comparison to
their value at the time of receipt. So every year people would effectively have the tax
liability of their past earnings written off at the level of inflation. This is clearly
untenable, but is also easily solved by periodically indexing each individual‘s
attributed past earnings to current prices. This is a very straightforward process with a
modern computerized system. This indexing is perfectly fair because the tax rate will
have been altered as well. In conclusion, both the tax rates and the historical
payments of all taxpayers should be indexed to inflation.
The downside of this indexing is that it is more difficult for individuals to
make simple calculations about their future income and tax liability. The
inconvenience is minor as individuals will be able to make accurate estimates—
inflation would hopefully be a very small percentage. Furthermore, they will be
making assumptions about all the other variables anyway, since no one knows exactly
what will happen in the future. As calculations about future earnings are never

18
This is a technical section and some readers may be happy to skip over it.
19
Taxation and inflation have been discussed at length, for example, see Chapter 6 of the Meade
Report (IFS, 1978: 99-123)
20
It could conceivably be done more often than this.
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Douglas Bamford

entirely exact, they can only ever serve as a guide anyway. This minor inconvenience
is a triviality when compared against the aim of having a fair tax system.
The readjustment of past income is another area in which the CIPH-rate tax
differs from other tax systems. Are there any potential problems with this? The
potential problem with doing so is that it overestimates inflation, not in terms of its
percentage, but simply by taking it as a discrete figure. The rate of inflation is
calculated for a set period—a quarter, or a year. However, the rate is a representation
of the multitude of changes that went on during that time frame. As a result, we can
consider an example of the extreme threshold case. Just before an inflation
revaluation, an individual is given the choice to receive a windfall immediately, or
just after the revaluation; they would probably choose to receive it afterwards.
This individual would take their windfall after the revaluation because they
receive the same gross amount either way, but if they receive the amount before the
revaluation, they will pay more tax on it. This occurs because past tax account
amounts—gross and net income and tax paid—shift after the revaluation, but the
windfall is the same either way. If the windfall arrives pre-revaluation, it too will be
revalued alongside the new tax rates. As an example, take an individual with a sixty
percent tax rate who is due a windfall of £1,000, and an inflation rate of one percent.
If the individual receives it before the revaluation they receive £400, but that amount
is soon revised up to £404 net income on their tax account. However, they did not
receive £404. After revaluation, their windfall is attributed as £1,010, split £404 to
£606. This simple example shows us the nature of the problem—the revaluation is a
sudden jolt to correct for a gradual change. Either side of the sudden jolt, there will
be two extremes for tax accounts, but there are no such extremes in the real world.21
For the most part, this problem would have very little effect on people—most
people receive a regular income and would not want to delay it because of a
revaluation. We can hope that inflation will be low, in which case the ‗jolts‘ will be
very minor. If the jolts became a serious problem, it is possible to lessen their impact
by increasing the frequency of revaluations. With quarterly revaluations, for example,
there will be a much smaller difference between the start and the end of each period.
Some may complain that taxpayers would need to understand this inflation
revaluation process and why it should happen so regularly; it may frustrate those who
are baffled by economics and mathematics. However, inflation occurs whether or not
people understand compound growth rates, and the tax system needs to be fair
whether or not everyone understands it.
There is another, more radical, way around this jolting problem. I have been
assuming that the revaluation would apply to one particular point in time, at which all
values would change at the same rate. However, it would be possible to smooth out

21
This effect occurs in many different places, thresholds can induce changes in behaviour. Examples
are the artificial seasons in sports, or annual tax thresholds under the current tax system.
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Douglas Bamford

the inflation of a period by assuming that it occurred equally throughout the period.
An inflation rate of one percent a year, could be assumed to have taken place at 1/365
percent a day for the duration of that period. The tax authority computer has the date
of all the transfers a person has received, and their values. As such, upon revaluation,
a transfer from the first day of the period would be revalued up by one percent, while
one from the last day would only be revalued up by 1/36500. In this way, historical
transfers are first aligned to the next revaluation, and from there can be revalued up
annually along with all other historical transfers in the discrete fashion described
above.
I have argued that the CIPH-rate tax requires the regular revaluation of past
transfers in light of inflation. When installing the CIPH-rate tax it would be necessary
to decide how this should proceed. However, it is possible to make changes later on—
to change the frequency of revaluations, or to introduce a ‗smoothing‘ system, at a
later date. There is no need for me to make prescriptions here; I have merely listed
some considerations and some options. The main conclusion is that inflation does not
undermine lifetime tax systems such as the CIPH-rate tax.

What are hour-credits?

Hour credits make the CIPH-rate tax calculations possible; they are an
essential component in the system. Put simply, hour credits make all the advantageous
aspects of the CIPH-rate tax possible. In this section I will draw out some of the
implications of hour-credits in order to explain some of the features and benefits of
the system.
One interesting point is that under the CIPH-rate tax hour credits are necessary
for income. If someone receives income from inheritance and gifts without ever
obtaining any hour credits on their tax account they will not receive any income; their
effective tax rate will be 100%.22 This occurs because, when their gross income is
divided by zero hours, tax calculated, and re-multiplied by zero, the result will of
course be no net income.23 Hour credits therefore embody the notion that what
someone receives from society should correspond in some way to the time that person
contributes to social activity.24 Overall, the amount of ‗unearned‘ income—gross
income received without spending any time performing an activity—that a person
receives will depend upon the amount of hour-credits that they receive.
A second unique feature of the CIPH-rate tax arises from the use of a lifetime
hourly average. As a result of this, the tax that someone pays at the time they receive

22
Of course, it is almost unheard of for someone to make no contribution whatsoever.
23
Dividing by zero is unintelligible. However, this does not matter in this instance as any number,
intelligible or not, multiplied by zero will result in zero.
24
There is not room here to discuss this in relation to ideal justice. However, I will compare rival
economic systems in later sections.
12

Douglas Bamford

their income is never the end of the story—the average can change over time,
potentially releasing some past gross income. Let us take the example of a sixteen
year old who receives a large bequest, say a million dollars. As the youth has no hour
credits, the entire amount would go to the tax authority. However, the amount is on
his account with the authority, and it will affect his receipts for the remainder of his
life. As our youth gets older, he will obtain more and more hour credits. As he does
so, his windfall will have a smaller effect on his gross hourly income, and his tax rate
will fall accordingly. Over time, the money he initially paid in as tax is effectively
released to him.
Compare with another recipient of a million dollars. This individual, however,
receives it at sixty years and has already built up a lot of hour-credits on her tax
account. At age sixty, all else being the same, the person who received his bequest at
age sixteen will have received the same amount of his bequest as the sixty year old.
Let us say that the tax rate for both at sixty years is sixty percent per hour, in which
case they will have received four hundred thousand dollars of their bequest. Of
course, the first recipient will have received it over the course his working life, while
the sixty-year-old recipient will receive the net amount at once. If they both continue
to obtain hour credits, they will continue to receive more with each additional credit
than they would have had if they never received the bequest.
The above example shows the role that hour credits play in the tax calculation,
but it does not explain exactly what they are. A brief description will hopefully ensure
there is no confusion. Hour credits are important because of their strong influence on
a person‘s net income. Physically, however, they do not take any substantial form;
employers would not give workers hour credits to take home after work. They are
rather a method of counting, undertaken by the tax authority. They exist primarily on
the tax authority computer, though hopefully this information would be backed up
onto paper every so often ―just in case.‖ Institutions that confer the credits would also
keep a record of the credits they have conferred.
Hour credits are important because of their effect on income; an individual
will always receive money when they obtain an hour credit on their tax account. The
minimum amount an hour credit can be worth is the negative tax amount someone
would receive if they had no gross income alongside their hour credits. This acts as an
effective minimum wage, though the money comes not from an employer but from
the rest of society via the tax authority. Furthermore, the amount of hour-credits a
person has will strongly influence their tax rate when receiving unearned income, as
described in the above examples of the fortunate beneficiaries.
I would really like to drive home the point that hour credits do not have an
eternal monetary value for their recipient, they continue to have value through their
influence on future tax rates. In this section I have hopefully made this point with the
use of examples. When an individual receives an hour credit, they will receive their
net hourly pay at that point in time. The hour credit will continue to influence all their
future receipts, and is therefore potentially worth more than the net income it confers
13

Douglas Bamford

at the time. The CIPH-rate tax deals with time in a different way to other tax systems,
as past contributions continue to interact throughout the lifetime of the individual.
Other tax systems attempt to tax all income streams separately and over limited time
frames, with distorted and unfavourable results.
Due to the nature of the CIPH-rate tax system calculations, the (effective)
value of past credits can increase or decrease in value after they have been received.
This feature makes the system fairer than others. However, the idea that someone
could receive net income from his or her hour credit, but that the credit will be worth
less than this in the future, implies a deficit to pay off. There is no need to worry here.
While hour credits may drop in value for some people over time, no one would ever
have to return money to the tax authority as a result. The consequence of a drop in
average income would never be this extreme. Any decrease in the overall hour-credit
value will always result from an increase in hour-credits, and hour credits always
bring in net income. The net income from receiving more hour credits will always
outweigh the drop in net income on the pre-existing hour credits. I will develop the
example of the fortunate young man from earlier in this section in order to illustrate
how this works.
Let us say our young man obtains one hundred hour credits for his first month
at work. He therefore has an average hourly gross income of ten thousand dollars
(around $1,000,000/100), giving a net hourly income, let us say, of eighty dollars. So,
after one month of work, our fortunate individual receives eight thousand dollars
(~$80 x 100). Of course, his average net income will continue to drop along with his
average gross income. After a second month, his gross hourly income will be around
five thousand dollars (around £1,000,000/200), meaning a net income of seventy
dollars. His net hourly income has dropped—both for amounts he has received
previously, and the amount he is awaiting—but he does not need to return any money
to the tax authority. According to the method of calculation, he now should have
received fourteen thousand dollars all told (~$70 x 200). He has received eight
thousand already, and so this month, he receives six thousand dollars.
In the second month, his net income per hour may have dropped by ten
dollars, but he has received this amount (~$70) one hundred times while at the same
time as losing ten dollars from the previous hundred hour credits. We can also see in
this simple exposition why he receives six thousand dollars in the second month—his
new hour credits are worth seven thousand but the lost value on his old ones reduce
this amount by one thousand.25 The properties of the tax are such that whenever
someone receives gross income or hour credits they will always receive some money.
In conclusion, individuals would never need to return money to the tax authority.

25
It is worth noting that the large drop in average in this example would be very atypical; it only arose
because the individual has a huge income and very few hour credits. Each month the drop will be
smaller than the last as each new batch of hour-credits has a lesser relative effect on the calculation.
14

Douglas Bamford

In this section I have emphasised how important hour credits are to the CIPH-
rate tax system. Hour credits have a lasting value to their holders because, along with
conferring immediate income, they remain on account for the lifetime of the
individual. The CIPH-rate tax is a single, but very dynamic, lifetime tax and income
system. It therefore has fair results for each individual, which non-individualized tax
systems cannot match. As the calculation is so important, it is vital to understand how
people obtain hour credits and what counts as gross income. These elements are
fundamental to the calculation of total net income, which itself is fundamentally
personally and politically important. I have explained how the calculation works, but
it remains to clarify what entitles individuals to hour credits.

For what do people get hour credits?

I will now explain in more detail the sources of hour-credits. As is obvious
from my earlier discussion, the primary source of hour-credits would be from
employers as indication of time spent in paid work. Employers would inform the tax
authority of the number of hours their employees have worked in each pay period,
information employers should know. They would know this either because they pay
their workers per hour, or else the workers have a contract and are salaried. The
authorities would have to be alert to hour-credit fraud, ensuring that all businesses
licensed to give out hour-credits are legitimate. Such licenses would be given only to
those businesses which are functioning and which can survive financially. This
particularly applies to the self-employed, who might have scope and incentive to
commit both hour-credit and income frauds.
In the name of fairness, people should also receive hour credits for other
reasons. Examples are for unpaid workers like students26 and carers.27 Furthermore,
those who suffer disabilities should receive hour credits rather than compensatory
payments in proportion to the amount of time their disability is likely to cost them.
This means that disabled persons will not suffer from higher taxes if they decide to
work less than other people. These additional hour credits exist in order to ensure
fairness throughout society.
What about people who cannot get work, and therefore hour credits? Since
hour-credits are so important, having no access to them would be disastrous. I suggest
that society should provide guaranteed work programmes via local-government
organised projects. However, those who are not found work by such a programme

26
Representing the amount of time they are expected to study for their course, and depending upon the
completion of each of the several parts of a longer course.
27
By carers I mean those who care for children or disabled adults, where hour credits represent the
amount of time professionals would spend caring for that person.
15

Douglas Bamford

should receive some hour-credits, which would effectively replace the current
unemployment benefit payment.28
Finally, there would be a maximum amount of hour-credits for each individual
in a given period (e.g. Month). This would reduce the scope for hour-credit fraud, and
indicates the most people are expected to work (though people could of course work
longer without gaining any additional credits if they wish).

Further points and issues

There are four miscellaneous items that I feel I should mention regarding the
CIPH-rate tax. The first is that it would be possible for couples to combine their tax
accounts into one, and if necessary also to demerge them later. This is perfectly
possible, though there is no room here to explain the details. Secondly, administering
a CIPH-rate tax system would admittedly be more expensive than the current system.
There are two reasons for this, the increased bureaucracy of accounting for hour-
credits and the increased scope for fraud. As I have mentioned, the CIPH-rate tax is
vulnerable to two additional types of fraud, concealed income fraud (which exists
under any income tax system) and hour-credit fraud. Technological advances reduce
the costs of both of these, though there is no room here to explain how.
Third, there is a problem of talent and capital flight where the CIPH-rate tax is
introduced in one jurisdiction only. The CIPH-rate tax would be acutely vulnerable to
tax competition, and would therefore need to be introduced internationally, though not
necessarily globally. This is an additional barrier to achieving it. Finally, I would like
to mention the large role of the state in such a system, and highlight the increased
potential for state power and tyranny. This would of course result from bad
governance rather than the tax system itself, but checks and balances—and watchful
citizenship—would be necessary to ensure that the state did not abuse its
informational power.

Justifications for the CIPH-rate tax

In the remainder of this paper I will attempt some preliminary justifications of the
CIPH-rate tax. As I have indicated, there is not room here to present the CIPH-rate tax
in terms of ideal justice, except to argue against one such criticism from libertarians.
After dismissing the libertarian criticism I will provide comparisons between different
proposed economic systems and highlight the advantages of the CIPH-rate tax over its
rivals.

28
Currently called ‗jobseekers allowance‘ in UK, though colloquially known as ‗the dole.‘
16

Douglas Bamford

Libertarian property entitlement

Libertarian, or ‗free acquisitionist,‘ assumptions infect people‘s views on
property entitlement. The libertarian ideology is that once a piece of property is
owned by someone, that person alone should decide who should own it next, and this
should continue from owner to owner without interruption. This assumption was
utilised by John Locke in his writings on property in his Second Treatise on
Government,29 and developed more formally by Robert Nozick in Anarchy, State and
Utopia.30 I call this a ‗free acquisitionist‘ position because, while it is perfectly
acceptable for a property owner to decide what to do with their property, so called
libertarians also include the idea that the new owner should have the full right to
acquire it.
This leads us to the further question, in whose interest is the right to free
acquisition? The problem with the libertarian property system is that it works much
better for the talented and those from wealthy families, even though there is no reason
that the property system should be for the benefit of these people. This relates to the
liberal egalitarian hunt for a legitimate basic structure, or property system that is
justifiable to the worst off. This is notably found in Rawls‘ Theory of Justice31 and
also in Dworkin‘s Sovereign Virtue.32
Virtually no one actually supports a pure libertarian property system, so why
is it worth mentioning? I think it is worth mentioning because the property entitlement
system in almost all countries is a (variously modified) version of it, and people often
baulk at proposals that are not based on libertarian foundations. States have assorted
taxes which interrupt the libertarian process, but these taxes are generally designed to
raise revenue for government, not to ensure that people acquire a suitably fair amount
of property/to foster a fair property entitlement system. 33 Now, I do not wish to
challenge the entitlement aspect of property entitlement rules, which is also present in
the egalitarian views of Dworkin and possibly even Rawls.34 Indeed, the CIPH-rate
tax is itself an egalitarian entitlement theory of justice (or property entitlement theory
if you prefer). However, it is worth noting that this free acquisitionist prejudice
undermines the acceptance of fully personalised income taxation, where an
individual‘s tax rate depends upon her relevant circumstances. With these

29
Locke, 1988.
30
Nozick, 1974.
31
Rawls, 1999, for a restatement of his views see Rawls, 2001.
32
Dworkin, 2000.
33
There are many exceptions to this rule, most notably various benefits for the worst off. However, I
think these are intended more as a safety net than a means to justice. So for those who think justice
requires a safety net they appear to be there for reasons of justice, but to me they do not.
34
Rawls, 2001: 50-2, 72-9, Dworkin, 2000: 83-92.
17

Douglas Bamford

considerations in mind, I will explain the relationship between income and this
understanding of fair property entitlement rules.

Property entitlement and net income

Free acquisitionists need not concern themselves with the difference between
the value of the property acquired by one person as opposed to another; it simply
belongs to its designated new owner. However, others—such as entitlement
egalitarians—need to compare the property that individuals receive in order to assess
whether it is fair. The obvious way to compare the various types of property that
individuals receive in a market economic system is to compare the money value of the
property that each individual obtains.
Indeed, I do not think there is any need to differentiate between the sources of
income; we should seek a comprehensive definition of income. As such, I think the
proper focus of comparison between persons should be focused on net comprehensive
lifetime income. This understanding of property entitlement, measured in money
terms, represents the amount of resources individuals obtain from society in order to
live their lives, and is the proper location of comparison between persons. Consider
two people with the same circumstances who receive the same income over their life,
who will therefore have equal ability to live their lives as they wish. However, where
two people with similar circumstances have very different lifetime incomes then one
will rightly envy the opportunities of the other. The society that allows the latter
would be unfair.35 The CIPH-rate tax represents an egalitarian entitlement theory,
which combines the desire for an egalitarian society which treats all as equals and one
which enables each person to decide for themselves how to live their lives as they
decide.

Comparisons with other systems

I will briefly compare a CIPH-rate tax system with the major rival systems.
The obvious place to start is with the current system. This, as I have said, is based
upon the free acquisitionist/libertarian approach to property: people are entitled to
whatever they are given minus any taxes due. However, these taxes are somewhat ad
hoc, and are not holistically designed to ensure fair or appropriate property receipts.
As a result, this system works very well for the rich and or talented (who can generate
income easily), but less well for everyone else. In its favour, it does incentivise people
to produce more of what people want, and to do unpleasant but useful jobs, in order to
earn more income.

35
The ‗envy-test‘ has been proposed by Varian (1974, 1975) and Dworkin (2000: chapter 2), with the
literature summarized by Arnsperger (1994).
18

Douglas Bamford

Another alternative is an equal-income (money-based) property entitlement
system, under which everyone receives identical money income. People could spend
this money as they desired, as long as they do not give it to others. While this would
be less skewed towards the rich and talented, it would discourage people from
working longer than others, since they would obtain no personal benefit from doing
so.36 Overall, the disincentives for all might even worsen the position of the least
well-off, resulting in a ‗levelling down‘ in contravention of Rawls‘ difference
principle.37 Furthermore, most people would agree that someone who chooses to
produce more than another, when both are equally able, should receive more as a
result. Therefore, on grounds of inefficiency and unfairness this alternative would be
worse than the current system.
The third alternative worthy of mention is one where income is linked solely
to hour-credits, where each hour-credit is of equal value. This system would
encourage people to work longer compared to the equal-income system, making it
more efficient. However, it would provide no incentive to work harder or more
productively, and leave no option to incentivise or reward people for undertaking
undesirable jobs. As such it would be both unfair and inefficient.
There are other alternative proposals which would merit further comparison.
For example the land value tax championed in the 1800s38 and recently revived by
Left-Libertarians such as Michael Otsuka.39 Other alternatives would include market
socialism40 and basic income provision, as defended by Phillipe Van Parijs.41 These
have a claim to being egalitarian, and have various forms of justification which there
is no room for here. Overall, however, I do not think these positions pay enough
attention to the circumstances of the individual in the way that a personalised
comprehensive income tax can.

Advantages of the CIPH-rate tax

The CIPH-rate tax harnesses the best of the first three alternatives above,
while avoiding their down sides. It is efficient because it provides incentives for
people to work for longer, like an hour-credit system. However, it retains incentives
for greater productivity and allows people to earn more money if they perform less
popular work. It therefore incentivises useful economic behaviour. Furthermore, as a

36
Except where people have ‗moral incentives‘ to work more effectively, as described by Joseph
Carens (1981) in his interesting book on the subject.
37
Rawls, 1999: 65-73.
38
Perhaps most famously by Henry George (2005).
39
Otsuka, 2003.
40
This notion could be understood in different ways, for example as co-operative firms which compete
against one another. See for example Miller (1989).
41
Van Parijs (1995).
19

Douglas Bamford

tax, it can be considered non-distortionary,42 and hence efficient. It is a capital-based
system, and so avoids the informational inadequacies of centralised economic
systems. As well as being efficient, it is fair. Unlike every rival tax system, it allows
strongly egalitarian tax rates without correspondingly reducing incentives. As an
egalitarian I find this convincing, and think it follows well from egalitarian thinking
such as equality of resources. Egalitarian proposals are often dismissed as
economically inefficient, but the CIPH-rate tax combines efficiency and equality in a
way that no rival can match. Unfortunately, there is no room to back up this in detail
here. I will hopefully provide these arguments in other works.
It is also worth mentioning that while I think the CIPH-rate tax goes a long
way to meeting egalitarian requirements; non-egalitarians may find the CIPH-rate tax
appealing as well. For example, utilitarians would find reason to prefer it. While I am
not myself a utilitarian, some—such as Richard Layard43—still cling to this
doctrine.44 Utilitarians are often torn between equality and efficiency because they
want to enlarge the size of the economic cake (usually requiring inequality), but
diminishing marginal returns make equality good for utility.45 As it combines equality
and efficiency, utilitarians would prefer the CIPH-rate tax to the above alternatives.

Conclusion

I have introduced the CIPH-rate tax system and presented some preliminary
justifications for it. In order to do this, I explained the meaning of comprehensive
income, and then the unique method of tax calculation. Using examples, I explained
the fundamental, but multi-faceted, role of hour-credits within the system. I then
briefly highlighted some issues before offering a simple comparison between the
CIPH-rate tax and some rival systems. The CIPH-rate tax represents an egalitarian
entitlement system that combines efficiency and equality in a way that alternative
types of economic system cannot match. Unfortunately there has not been room to
give a full justification of the features of the tax system, and that is an IOU I hope to
repay in the future.

42
See Varian, 1996: 518, Kay and King, 1990: 104.
43
Layard (2005).
44
Earlier proponents include Jeremy Bentham (see Bentham, 2000) and John Stuart Mill (see J.S. Mill,
1993).
45
Though of course, the law of diminishing marginal utility might not apply universally, and some
people may be particularly good or bad at converting resources into utility. Utilitarians may therefore
wish to channel resources to those who convert the more efficiently, as pointed out to me by Ed Page.
Whether a utilitarian government could turn this into a practicable economic system is another
question.
20

Douglas Bamford

References

Arnsperger, C. (1994) ―Envy-Freeness and Distributive Justice.‖ Journal of Economic
Surveys, 8, 155-86.

Bentham, Jeremy (2000). Selected Writings on Utilitarianism, Ware, Herts.:
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Bittker, Boris (1967). ―A "Comprehensive Tax Base" as a Goal of Income Tax
Reform‖ Harvard Law Review, 80, 5, pp. 925-985.

Carens, Joseph (1981). Equality, Moral Incentives, and the Market, Chicago:
University of Chicago Press.

Dworkin, Ronald (2000). Sovereign Virtue; Cambridge, Mass.: Harvard.

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--------------- (1993). Utilirarianism, On Liberty, Considerations on Representative
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Miller, David (1989). Market, State and Community: Theoretical Foundations of
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Nozick, Robert (1974). Anarchy, State, and Utopia, Oxford: Blackwell.
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Otsuka, Michael (2003). Libertarianism without inequality, Oxford: Clarendon.

Parfit, Derek (1986). Reasons and Persons, Oxford: OUP.

Parker, R.H., Harcourt, G.C. and Whittington, C. (Eds) (1986). Readings in the
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--------------- (2001). Justice as Fairness: A Restatement (edited by Erin Kelly),
Cambridge, Mass.: Belknap Press.

Temkin, L. (1993). Inequality, Oxford: OUP.

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Capitalism? Oxford: Clarendon Press.

Varian, H. R. (1974) ―Equity, envy, and efficiency.‖ Journal of Economic Theory, 9,
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--------------- (1975) ―Distributive Justice, Welfare Economics, and the Theory of
Fairness.‖ Philosophy and Public Affairs, 4, 223-47.

--------------- (1996). Intermediate Microeconomics: A Modern Approach; New York:
W.W. Norton & Co.

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