For the last week or so, I’ve been preparing to speak against a Universal Basic Income (UBI) motion at a debate club.  Here’s the Motion:

The Motion: This House Supports a Basic Income for All US Residents

Motion Summary:  Basic income recipients would include children and adults; the employed and unemployed; and citizens, permanent residents, and all other residents who could prove a residency duration of at least three years. The amount given would start at $1,000 per person per month and be pegged to GDP growth going forward. No programs in the existing social safety would be replaced by this policy.

This is the second in a series of posts laying out my case against the above UBI proposal.

In the last post, we established the annual bill for the proposed UBI would be about 4.1 trillion. How should the US government fund the $4.1 trillion annual cost of the proposed Basic Income?

Budget cuts won’t get us far.  For example, reducing US military spending to 2016 levels saves about $.05 trillion – which may cover the costs of administering the UBI program (about 1%) but I didn't even include these costs in the original $4.1 trillion estimate.

Nope: We will need major tax increases.  And we will need a stable tax base – one not overly dependent on a volatile source of tax revenue, i.e., not too dependent on capital gains income.  And that's not just my opinion:

"Standard & Poor’s (S&P):
“State tax revenue trends have also become more volatile as progressive tax states have come to rely more heavily on capital gains from top earners.”

California’s Legislative Budget Office (LAO):
"Probably the single most direct way to limit the state’s exposure to the kind of extreme revenue volatility experienced in the past decade would be to reduce its dependence on the source of income that produced the greatest portion of this revenue volatility—namely, capital gains and perhaps stock options."

Nor would I recommend a big wealth tax on the rich, because most of their wealth does important economic work. For instance, almost half of the top 1%’s wealth is in unincorporated business equity (e.g., equipment, buildings/property, inventory) and much of the rest is tied up in the stock market (Wolff, 2016).  Tax this wealth a little – maybe, but not so much to discourage business growth and investment.

Bottom line: to fund this UBI proposal with a stable source of tax revenue, we will need a broad-based tax base, like that of the Scandinavian Counties. For instance, like in Denmark, where “plumbers pay the same 50 percent income tax as hedge fund managers.”

References:

A U.S. More Like Denmark? Be Careful What You Wish For – NYTimes (2015)

Wolff, E. N. (2016). "Household Wealth Trends in the United States, 1962 to 2013: What Happened over the Great Recession?" RSF 2(6): 24-43.