Cooperative Income & Expense Sharing

I hope to live cooperatively with others in my life. One way is sharing income and expenses. Within are several models that I just thought of, with some sample people, income, and expenses.

I’m interesting in cooperative living. Right now I live in a housing cooperative, where we share household expenses and employ consensus-based democratic-if-necessary decision-making. In the future, when I live with more permanent housemates and family members, I would like to employ some sharing of expenses that is proportional to income. Here are some ways this could happen:

Full Collective

One can go full collective, pool all resources and plan spending by committee or officer, with small discretionary allowances of cash given (this is how Twin Oaks Intentional Community works).

Shared Money

In contrast, the three next strategies equalize either effective tax rate, money left after basic living expenses (BLE), or profit-income ratio.

I think I prefer some amount of welfare, where each member is guaranteed basic living expenses (BLE). For example, say a straight percentage of income is taken from each member, sufficient to provide each member with basic expenses.

So, if Mallory, Sterling, and Carol are in such a coop, they first determine their basic living expenses and total income:

(assume living in the same city, same housing requirements and food requirements. If not, adjust BLE below accordingly) In a small-enough coop, we can audit each other or determine reasonable expenses for each person. Some may have expected medical built-in. Basically, things go into this list that the coop agrees to pay for communally.

Basic expenses:
M: 500 rent + 150 food

S: 500 rent + 150 food

C: 500 rent + 150 food + 40 maintenance meds

Income per year (month):

M: 30000 (2500)
S: 20000 (1666.67)
C: 5000  (416.67)

Proportional Profit

total expenses per month=1990
total income per month=4583.30

expenses/income = 0.43418 = 43.418% tax rate

So monthly taxes are:

M: 1085.50
S: 723.63
C: 180.91

Then tax revenue is distributed according to basic living expenses, giving a final monthly income after taxes and distribution:

 ==========    effective tax rate    income after BLE   profit/income
 M: 2064.60      17.4%               1414.60            56.6%
 S: 1593.00       4.4%                943.00            56.6%
 C:  925.76    -120.0%                235.76            56.6%

This gives incentive for every member to make more money, even if their income is less than their expenses. If Carol doesn’t make any money, her expenses are still covered. If she starts to make any money, she starts getting extra spending money immediately.

I like this system better than the next system I present. Note that this equalizes the ratio of excess money per earned money (profit/income).

Incentive to reduce expenses: tax rate is lower, so profit/income ratio increases. For every $1 you reduce your expenses, the tax rate goes down by 1/(total income). Therefore, your profit goes up by (income)/(total income). For Mallory, if she reduces the expenses by $10, then she makes $5.45 more. In contrast, Carol only makes 90 cents more for that same $10 reduction. Sterling makes $3.63.

Incentive to increase income: This one is more complicated, since it depends on your own starting income. If Mallory increases her income by $10, she increases her profits by $8.10. If Carol increases her income by $10, she only increases her profits by $6.06. Sterling makes $7.24.

Percentage Contribution

Otherwise, if you wanted to subtract the living expenses first, this is how it works:

Taxable income:
M: 1850.00
S: 1016.70
C: 0

Unmet expenses: 690-416.67=273.33
expenses/income = 0.095347 = 9.5347% tax rate

Final monthly income becomes:

 ==========    effective tax rate    income after BLE    profit/income
 M: 2323.60      7.1%                1673.60             66.9%
 S: 1569.80      5.8%                 919.80             55.2%
 C:  690.00    -66.0%                   0.00              0.0%

This does not give any direct monetary incentive for Carol to make more money, until she makes more than her living expenses, at which point no taxes are needed, unless the coop decides to share other expenses. Compared to the above system, this means that members are agreeing to split the rent equally instead of it being proportional to income.

Incentive to decrease expenses: If Mallory decreases her expenses by $10, she increases her profit by $0.60. If Sterling decreases his expenses by $10, he increases his profit by $0.34. If Carol decreases her expenses by $10, she doesn’t affect her profits at all.

Incentive to increase income: For $10 more income, M: $9.70. S: $9.32. C: $0.

Hardcore Sharing

What if we wanted to equalize profit?

total income – total expenses, divided equally:

 ==========    effective tax rate    income after BLE    profit/income
 M: 1514.40      39.4%               864.44               34.6%
 S: 1514.40       9.1%               864.44               51.9%
 C: 1554.40    -263.0%               864.44              207.0%

This makes raises easier to think about: For every 3 more dollars you make, you see 1 more of those dollars, no matter your relative income level.

Other communal expenses

If the coop is sharing other things, like household expenses or other things that the house wants to share, then they can be just treated as members with no income. That is, they add to the “expenses” value, but not the “income”.

If members are living together, they don’t need to list their share of the utilities or mortgage separately from other members, as all expenses that the coop agrees to pay for get lumped in together and are indistinguishable.

This system does not account for pay-per-use things like a vehicle might be. Check back for a following post.

Which system of these would you prefer? Or is there another that you use, or would rather use?