Universal Basic Income (‘UBI’) is an income distribution system in which everyone, no matter what their economic situation, is paid a monthly income that is sufficient for their basic needs – with no strings attached.
In 1969, Richard Nixon was persuaded by 1,200 economists (including John Kenneth Galbraith and Paul Samuelson) of the value of a basic income plan. They wrote: “The country will not have met its responsibility until everyone in the nation is assured an income no less than the officially recognized definition of poverty.” Nixon’s 1970 Bill passed in the House, but failed in the Senate, after Nixon was persuaded to drop his support by the libertarian Martin Anderson.
Several countries (including Canada, USA, Finland, Switzerland and India) are considering implementing some form of UBI, although it has yet to get past the pilot project stage. The general approach is to regard UBI as a replacement for the hodgepodge group of welfare support systems. Few pilots are considering a true UBI, as the payments are only considered to be made to those in need. There is a lot of controversy relating to the absence of control over the recipients, even though several studies have shown that most recipients would use the money for basic needs while looking for a job, or upgrading skills or education.
While a UBI would eliminate most poverty by definition, its value to society would be far greater if it is seen as a wealth distribution system, reducing the increasing gap between the wealthy (the so-called 1%) and the rest of the world. That gap is caused, not so much by the greed of the wealthy (although there is much of that), but by the reducing value of human labor. In effect, the gap comes from entrepreneurs, who are investing and creating economic value while building their wealth, and workers, who are seeing their economic value deteriorate.
The current trend towards paid-joblessness is creating a need for governments to make a major change in taxation. If fewer people are being paid to work, governments are going to have to find a replacement for their loss of revenue from income taxes. And then there is also the question of how to get money into the hands of people in order to maintain the economic cycle:
Let’s briefly and simplistically review the current economic cycle (with approximate government revenue % for Canada, BC province):
- People work at jobs, provided by businesses (and government) for which they are paid wages.
- Government takes a portion of those wages in taxes. (50, 17%)
- The remainder of the wages are used to buy goods and services (and ideally to save);
- Government adds consumption taxes to those sales. (5, 7%)
- Businesses take the revenue from those sales, deduct their costs, and pay a portion of the profit to government. (15, 6%)
- Businesses use the remaining profit and investment from people’s savings to expand, providing more jobs for people.
The cycle collapses if there are no wages because no-one is working!
UBI is one way to put money in the hands of the people. Then the question for government is how to find a source of that money. One viable option would be to increase consumption taxes (also known as sales taxes), charged on the sale of a product or service to a consumer (or end user). To replace current income taxes in Canada, a consumption tax would average around 35%, but would best be achieved with a layered structure. For example, basic necessities would incur a low tax rate, other goods and services would incur a modest tax rate, while luxury goods would be highly taxed. In effect, a significant source of government revenue would come from the wealthy’s purchases, and the desired transfer of wealth would be achieved.
Another viable taxation source is a VAT (Value Added Tax) in which a tax is paid on the increased value of all products or services, like a consumption tax but including the sale of raw material or products or services used in the creation of a finished product. This is a far more complex approach, which would be loved by the civil servants required to police it.
None of this negates the opportunity for entrepreneurial activity, which would provide economic growth, in addition to independent existence for some people, and paid jobs for others. (Think of the encouragement for starting up a new business or service if you already have sufficient income for your basic needs, and you can get staff without needing to pay them until the business can afford it!)
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India's 2nd smallest state is committed to implementing full UBI by 2022 (UBI - 2019-02 - BasicIncome.org)
The party governing Sikkim, the 2nd smallest state in India with a population of 610,000, has written full UBI into its manifesto for the 2019 Assembly elections, and aims to have it implemented by 2022. Sikkim has a 98% literacy rate, and poverty below 8%. Financing sources may include surplus energy generation revenue, redirecting costs from welfare programs, and tourism.
Finnish UBI experiment showed increased happiness, but no effect on job seeking (UBI - 2019-02 - Technology.org)
Preliminary results have been published of a Finnish UBI experiment, conducted between 2017 and 2018, whereby 2,000 people (aged 25-58) on unemployment benefits were guaranteed enough income for reasonable living, irrespective of other earnings. Questionnaire results, using 5,000 controls, showed improved health, level of trust in government, and future outlook on life – and no change in job seeking.