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. No-one is 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 labour. 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. 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, which would average in the 30s%, 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, the primary source of the money would come from the wealthy’s purchases, and the desired transfer of wealth would be achieved..
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 grows!)