Abstract
Universal Basic Income (UBI) can serve as a beneficial public policy to reduce poverty and inequality, yet a great challenge is how to fund it. This article offers a roadmap for fully funding UBI in a manner that: eliminates poverty; bolsters the middle-class; eliminates the stigma and government bureaucracy of social welfare programs; reduces ever-expanding inequality; initiates a path to meeting climate change goals; reduces speculation; and increases fairness and opportunity in the tax code. As stand-alone policies, these revenue proposals are valuable correctives in their own right. If the entire package of UBI and funding sources were in effect, society (and American capitalism) would be on a more stable, equitable, and environmentally sustainable footing.
Additional UBI opposition points
Why has UBI not been implemented? While the main opposition to a UBI program is the supposed ‘infeasibility’ due to cost, there are several other oppositions points that have been raised (Milanovic, 2019; Stiglitz, 2019):
Limited experience with UBI. Trials have been too small, too short, or not truly universal or unconditional. As examples, Finland’s trial only included unemployed, and the State of Alaska’s dividend is a “windfall grant” and therefore varies too much to be considered guaranteed income.
While limited data exists for a full scale implementation, experience and comfort can be gained by incrementally increasing UBI payments as funding sources are put into place (a “piecemeal” approach). Social welfare programs would stay in place until UBI payments are sufficient to elevate individuals above the poverty level.
UBI payments represent “money for nothing” thereby diminishing labor output and harming individuals by reducing their work ethic and dignity through work.[25]
UBI does not require less work but rather offers a choice especially to those in duress (e.g. to better negotiate or refuse low-paying “bad jobs”, return to school, etc.). Allowing individuals a solid income base can facilitate new work paradigms, such as shared work programs where two workers share a full-time job. This allows more individuals to maintain active work experience and is more practical with a UBI-like program.
Notably, since UBI is received unconditionally, the substitution effect between work and leisure is largely unimpacted, particularly at low levels of income and taxation (Milanovic, 2019, p. 204). Moreover, removing social welfare rules that reduce benefits when income increases may increase labor supply at low income levels.
Early evidence and theoretical frameworks indicated modest effects on labor supplied (Marinescu, 2018, Jones & Marinescu, 2018). In a recent trial, Finland showed a modest increase in days employed of UBI recipients (Kela, 2020). Individuals who reduced labor hours often did so to provide care for aging parents and/or young children, or acquire skills through education and/or job training (Hoynes & Rothstein, 2019). Education and training in particular can have beneficial long run effects on labor and productivity.
A jobs guarantee program has been presented as an alternative yet it would require a large bureaucracy creating jobs, placing and overseeing workers, and mandating work for those who would rather care for family, start a business, or attend school.
Despite the historically low unemployment rates experienced over the last decade, we have experienced ever expanding inequality and increasing “deaths of despair” (Case & Deaton, 2020). Why would forcing work through the threat of poverty inspire dignity? It is plausible that employers would treat workers with more dignity as workers gain leverage. Conversely, it seems paternalistic to claim that individuals gain benefits, that they are somehow unaware of, or would willingly refuse, from work, yet economists are aware of these benefits. UBI would allow greater ability for individuals to work in other ways including volunteering (a “dignified” endeavor). Interestingly the “dignity of work” concern is rarely addressed for those who inherit massive wealth. However, a significant tax increase in inheritances as a proposed funding source reduces the potential for an idle wealthy class.
Philosophical rethinking of welfare state. UBI would alter the public safety net from social insurance (in which individuals receive payment only after certain adverse conditions unfold), to one in which the safety net is provided continually.
This is a core feature of UBI as it is meant to avoid or soften the impacts of economic uncertainty and adversity. The current social welfare structure is burdened with stigma, bureaucracy, and administrative costs which have resulted in low participation and chronic underfunding (as poverty rates are in the mid-teens and welfare payments average roughly half the poverty level) (Hoynes & Rothstein, 2019; Semega et al., 2019). Milanovic (2019, p. 204) allows that a philosophical change is not a dispositive argument against UBI, and that the philosophy of the current system “perhaps should be changed.”
Strong political opposition of powerful interests to a significant redistributive policy that will likely alter the power dynamic between employers and employees.
Recently (2011 and 2013) it has been challenging to even increase the U.S. debt ceiling. In this environment, major policy enactments are unlikely. However, crises often allow legislative breakthroughs that were unimaginable a decade prior (e.g. Social Security and Affordable Care Act). UBI had been gaining traction in public dialog (e.g. Yang campaign). Moreover, piecemeal implementation as each funding source is secured will allow the program to expand as the politics allow. It will be important when the opportunity arises to have a vision of how UBI can realize its aspirations.
A UBI program would “crowd-out” other public programs.
Notably, other important needs can still be financed. Firstly, there are still sufficient funding sources available to enact additional social programs. For example, the UBI program in this paper is overfunded by roughly $50 billion per year (even with a Financial Transactions Tax that is much more modest than alternative plans). As a recent example, a Brookings paper (Whitehurst, 2017) estimated $42 billion would be needed for subsidized childcare. While the surplus of $50 billion under this UBI proposal could be used, a significant source of funding proposed in the Brookings paper is still untapped (reducing the charitable deduction, which costs $55 billion per year).
Secondly, government investments (e.g. infrastructure, education, research and development, etc.) that expand productive capacity and grow GDP (and tax revenues) faster than borrowing costs should be undertaken with debt. To do so, at least to the point that expected GDP returns are at or above borrowing costs, would ensure they are funded adequately (Krugman, 2020). This is not dissimilar from how private capital financing decisions are made. Likewise, to maintain intergenerational equity and neutrality, each generation should pay the costs of initiatives to the extent that they disproportionately benefit. When benefits accrue largely to future generations, it makes sense for government expenditures to be expensed by paying for them largely in the future (i.e. borrowing). Of course, the expected benefits should outweigh the costs. For example, climate change infrastructure investments greatly benefit future generations in mitigating climate change damage. Government borrowing for these investments reduces present day opposition and better matches the benefits with costs intertemporally (Bovenberg and Heijdra, 1998). To do otherwise, risks underfunding these programs, as current generations will probably be less willing to be taxed to fully pay for future generation’s benefits. In contrast, UBI, and perhaps even a meaningful amount of healthcare spending, fall more in the category of benefits accruing to current taxpayers and therefore should be paid for largely out of current funds.
Finally, while healthcare is a critical social issue, the American healthcare system is a far too complex and beyond the scope of this paper to adequately address here. In brief, there are significant financial resources spent on healthcare by government (actual spending plus tax deductions provided at state and federal levels) and privately spent by individuals and corporations (e.g. premiums). In total, the United States’ per capita healthcare spending is over 40% higher than the next closest country, Switzerland (OECD, 2020b). Yet, the USA has the lowest life expectancy at birth of any G7 country (OECD, 2020b). Perhaps, a better allocation of these resources could deliver results in line with comparable nations. Nonetheless, UBI trials have been shown to increase recipients’ mental and physical well-being (Kela, 2020; Marinescu, 2018). If poverty alleviation must wait until healthcare is fully resolved it could lead to indefinite delay and is perhaps a false choice.
UBI payments and contributions for representative “median” and “top decile” families.
| $60,000 income “typical” US household (two adults, two children) | Notes: | $300,000 income. “average” top decile (two adults, two children) | Notes: | |
|---|---|---|---|---|
| Poverty level income (two adults, two children) | +$33,820 | $12,490 × 2+$4,420 × 2 | +$33,820 | $12,490 × 2+$4,420 × 2 |
| VAT “top-up” | +$4,400 | Roughly 13% of poverty level income | +$4,400 | Roughly 13% of poverty level income |
| Carbon “top-up” | +$750 | $250 × 3 ( 1 share per adult, 1/2 share for child) | +$750 | $250 × 3 ( 1 share per adult, 1/2 share for child) |
| Total UBI payment | $38,970 | $38,970 | ||
| Gross cost contributions | ||||
| VAT tax (applies to 65% of consumption goods) | −$5,850 | Assume 0% savings and net paycheck of 75% of gross pay. | −$24,863 | Assume 15% savings and net paycheck of 75% of gross pay. |
| Carbon tax | −$800 | See link to calculator (CCL, 2019) | −$1,140 | See link to calculator (CCL, 2019) |
| Capital Gains tax | −$70 | (Tax Policy Center, 2018b, Table 1) | −$1,280 | (Tax Policy Center, 2018b, Table 1) |
| Inheritance tax | NA | Unlikely to impact | See note | Likely impact upon death and/or inheritance. 90%-ile have average estates of roughly $3 million so a married couple may provide an inheritance of over $1M/heir. |
| Corporate tax | -$270 | Incidence estimated (Furman, 2008, Table 6) as corporate tax change compared to baseline (after tax assumed to be 75% of gross income) | -$2,250 | Incidence estimated (Furman, 2008, Table 6) as corporate tax change compared to baseline (after tax assumed to be 75% of gross income) |
| Financial Transactions Tax | −$240 | Incidence from (Weiss & Kawano, 2020, Table 5). Estimate increased 50%, to match the larger revenue estimate. | −$1,935 | Incidence from (Weiss & Kawano, 2020, Table 5). Estimate increased 50%, to match the larger revenue estimate. |
| UBI taxable | −$2,928 | Adding UBI to income and replacing UBI amount for standard deduction likely to increase tax incidence by negating 2019 standard deduction ($24,400) amount. Taxed at 2019 MFJ marginal tax rate of 12% | −$9,353 | Assume deductions are itemized and larger than UBI. So impact is to increase taxable income by total UBI payment ($38,970). Taxed at 2019 MFJ marginal tax rate of 24%. |
| Land Value Tax 2.5% | −$1,700 | Assume median home value of roughly $228 k and 30% of value from land. | −$15,000 | Assume home value of $1.2 M and 50% of value from land. |
| Social Welfare cuts | NA | Assume to be unaffected. | NA | Unlikely to be affected. |
| Wealth tax | NA | NA | Unlikely to have net worth above $50 million. | |
| 60% Millionaire’s Tax | NA | NA | ||
| Subtotal gross cost contributions | −$11,118 | −$55,821 | ||
| Total net impact | +$27,112 | −$16,851 | ||
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