How to Pay for Universal Basic Income

Universal income can come from universal assets

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By James K. Boyce and Peter Barnes

Lately there’s been renewed discussion of universal income: regular cash payments to everyone, regardless of race, gender or need. Past proponents of the idea include the revolutionary Thomas Paine, civil rights leader Martin Luther King, Jr., free-market econ­omist Milton Friedman and President Richard Nixon. Today’s interest has been sparked by the income stagnation experienced by America’s middle class and working poor, and by the per­sist­ent slow growth experienced by our economy.

The idea finds support across America’s ideological spectrum in an era when hardly anything else does. Liberals, or at least some of them, like it as a way to preserve our middle class when jobs no longer pay enough. Conservatives, or at least some of them, like it as a way to reduce depend­ence on our byzan­tine maze of welfare programs.

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But universal income is expensive and quickly runs into the stumbling block of how to pay for it. Its wide appeal is checked by an equally wide­spread aver­sion to taxes, especially for the purpose of redistributing income. Fortu­nate­ly there’s another way to pay for it: universal income can come from universal assets, a.k.a. our common wealth.

The wealth we inherit and create together is worth trillions of dollars, yet we presently derive almost no income from it. Our joint inheritance includes invaluable gifts of nature such as our atmosphere, minerals and fresh water, and socially created assets such as our legal and financial infrastructure, without which private corporations couldn’t exist, much less thrive. If our common assets were better managed, they could pay every American, including children, several hundred dollars a month.

Consider, for example, the limited capacity of our atmosphere to absorb pollutants that cause climate change. By charging polluters for using that scarce asset, we can both protect our climate and generate dividends for everyone. Other forms of pollution could be similarly priced. And we could charge market prices for extracting resources like minerals and timber from public lands that are now leased to private firms cheaply in sweetheart deals. Making polluters and extractors pay, without abandon­ing regulation, would provide market-based incentives to respect nature.

And that’s not all. Universal assets include gifts of society as well as nature. An example is our legal and financial infrastructure, without which the private fortunes of billion­aires would be impossible.

Here’s what investor Warren Buffett once said to Barack Obama: “I was lucky enough to be born in a time and place where society values my talent, and gave me a good educa­tion to develop that talent, and set up the laws and the financial system to let me do what I love doing — and make a lot of money doing it.” When asked how much of his wealth was created by soci­ety, Buffett says “a very significant percentage.” Nobel econ­omist Herbert Simon was somewhat more precise. “If we’re very generous with ourselves, I suppose we might claim we ‘earned’ as much as one-fifth of our income. The rest is patrimony associated with being a member of an enor­mously productive social system.”

Currently, those who benefit most from our socially built assets pay almost nothing to use them. But that needn’t always be the case. We could charge for using key compo­nents of our legal and financial infrastructure; for example, modest transaction fees on trades of stocks, bonds and deriva­tives could generate more than $300 billion per year. Such fees would not only generate in­come for everyone; they’d discourage speculation and help stabilize our financial system. Similar fees could be applied to patent and royalty earnings, which are returns not only to inno­va­tion but also to mono­poly rights granted and enforced by society.

Here’s the bottom line. It would not be difficult to create a portfolio of uni­ver­sal assets that could pay, say, $200 a month to every U.S. resident with a valid Social Security number. Such money could be wired automa­tically to everyone’s bank accounts or debit cards, with virtually no bureau­cracy. It would be paid to everyone as joint owners of our universal assets; it would be paid by those who use these assets in proportion to their use. These pay­ments would not be a taxes accruing to and spent by govern­ment, but rather pay­ments to all of us for value generated by our jointly owned assets.

If everyone received regular income from common assets, would anyone have an incentive to work? Unless the asset-based income were improbably high, most people would still want to work to earn better livelihoods. Sure, some people might be freed from the need to do work they really hate, but that’s a good thing. Others might be freed to do work they really love, even if it doesn’t pay all that much. That’s a good thing, too.

In the game Monopoly, $200 is the amount every player gets for passing Go. Such cash infusions aren’t bad for the game; instead they help all players play the game. The same would happen in our real economy if everyone gets infusions of $200 a month. The extra money would relieve some burdens of working families and heighten their chances for success and satisfac­tion. And it would stimulate our economy without higher debt.

The gifts of nature and society will not come to us as gifts from our poli­ti­cal leaders; we will win them only if we join together to claim them. Fittingly, we can do that by using another asset we won the same way: our democracy.

2016 November 28

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  • Duncan Cairncross

    Good idea – except that $200 is not nearly enough

  • John Danenbarger

    I think that each time the idea is raised, it is important to remind the reader that the people with the most need, i. e. the lowest income, will spend the money and help the economy. This will help the greedy understand.

    • Derryl Hermanutz

      Yes, “putting a floor under spendable incomes” was Milton Friedman’s rationale for his negative income tax proposal. When you give money to people who will spend it, the money is earned by the landlords and businesses who sell stuff to the people. Adding demand at the bottom, adds business income and re-investment, which increases employment and earned incomes, in a virtuous spiral.

      Money flows “up” to producers/sellers and their workers/suppliers; goods and services flow “down” to the people who need and want to consume them. Money pools up at the top. Without redistributive taxation, producers end up with all the money — just like the game of Monopoly. I’m not a big fan of redistributive taxation, but I can do arithmetic, and the game of Monopoly does not end well for the producer-consumer economy that requires spendable money in the hands of consumers to stimulate production of stuff for sale. For the past several decades the spendable money has been created by commercial banks as the ongoing increase in household credit/debt; and its flip side — the global savings glut.

      In his 1948 paper, A Monetary and Fiscal Framework for Economic Stability, Friedman was still advocating the Chicago School position of Iriving Fisher et al that the government should create the money to fund the negative income tax: money-fund the “Basic Income” payments, rather than tax-fund or debt-finance (by selling bonds to banks and investors). Friedman never fully abandoned his advocacy for government creation and distribution of “helicopter money”. I think a Basic Income should be money-funded with helicopter money, rather than tax-funded with Georgist “land taxes” as this article’s authors are recommending.

      • Yes… fund it by creating money. However, the money creation should not be under the direct control of politicians. The central bank should have the power to issue new money to all citizens in keeping with its objectives to keep inflation and unemployment low.

        The bank could start by issuing small daily or weekly amounts and see what happens. At first, little would happen, except a lot of the extra money would get spent, giving a small stimulus to the economy. The bank could gradually increase the amount, keeping an eye on both inflation and real unemployment. As the money boosted demand, idle resources including labour, would be picked up. Inflation would be unlikely as there are huge idle resources in the world at present.

        As the rate is gradually increased, some people will decide to stop looking for work, or reduce their hours and ultimately stop doing paid work altogether. This will leave openings for others still wanting the extra money paid work provides.

        In time a new dynamic balance will ensue where there is a group of people (depending on age and circumstances) who are happy to live on the UBI (plus any other money they may have). It would be a free choice. No one could complain because by definition, if there is a balanced labour market, there are no jobs for them at the time, and everyone has the same UBI and hence the same choice. This will free people to do the huge amount of unpaid yet valuable ‘work’ like better caring for their kids and older relatives and other social activities.

        If inflation does start to kick in due to too much money chasing too few resources, you can take it out using a flat % tax on all transactions to damp demand, with the money written off into the thin air from which it came.

        I say ‘bring it on’!

        • This would do nothing to create jobs for those that find themselves unfit for work currently. It would do nothing to aid in helping people engage with their community and develop skills. It would do nothing to preserve human capital in a private sector downturn. All federal spending is money creation, and a Job Guarantee ensures it is spent into the place that needs it most and has the biggest net benefit to society. I’ve been collecting discussions and resources on JG vs “U”BI:

          • Iain, I can see some sense in Job Guarantee for two reasons:
            there is work to be done that cannot be done by the private sector, and it is good to keep people occupied.

            The issue for me is that putting ‘money creation’ in the hands of bureaucrats is dangerous, as it can quickly lead to pork barrelling and corruption.

            If the money is given directly to all citizens they can decide how they want to spend their money. Then, if there is work that needs to be done that requires an increase in taxes to fund it, people can vote for the work to be done by voting to pay higher taxes. The government can also borrow from the private sector to fund long-term infrastructure investment. This means government must convince people that what they want to do is in the interests of the community.

            My preference is for the ‘vote’ on how to spend new money to be left in the hands of individuals. Also, I believe that there are many things that
            people can do with their time that is more fulfilling and socially rewarding than work for work’s sake.

            With a UBI that is set to keep the labour market in balance (including govt jobs), there will be by definition no jobs not filled and no people looking for work. It means that people can choose to undertake the available work or not, and those that choose not to, are then free to pursue whatever other interests they may have without any recriminations from those working, as everyone gets the same UBI, and there are no jobs for them anyway.

            I don’t imagine we will agree on these points, but that is OK 🙂

    • So why propose to give everyone money if only the most vulnerable and disadvantaged actually need it? The discussion is always about how a basic income will help end poverty and will help the poor and needy, so where does this notion of universality or unconditionality come into it? Nebulous arguments about how to “streamline things” and the fact that it would reduce stigmatisation are misguided at best and laughable at worst.

      • John Danenbarger

        Just think about it. How are you going to draw the line? How do you avoid all the cost of deciding whether the person requesting the payment is qualified or not. It is just not worth the huge admin.

  • 38Red

    On the right track but too modest a proposal. Combine a basic income with Land Value Tax.

  • Stephen Stillwell

    The notion of Universal Basic Income, and the arguments supporting it, center on human rights and access to these rights by each. Like the graphic at the top of the page, includes the entire planet.

    Mind that I think the notion here is entirely valid, and certainly each administrative zone would well include such a structure in their social contract, but for global effect there needs global change.

    The small global change suggested is to require sovereign debt to be backed with Commons shares, that may be claimed by each adult human on the planet, exclusively for deposit in trust with their bank, as part of an actual social contract.

    In this way each shareholder receives an equal share of the interest paid on global sovereign debt directly to their bank, and in keeping with a capitalist economic system, the return will ultimately be market driven.

  • The fatal flaw in this plan is revealed at the end. I’m a fan of land and wealth taxes. I’m also a fan of a job guarantee and as an MMT advocate can see immediately the flaws in a basic income but rarely are they so clearly articulated by the advocates themselves.

    In the monopoly example, a BI is not the same as receiving $200 when you pass go, it is the same as everyone receiving $200 every turn (or every X turns) which would obviously fuck the game up.

    Now imagine house prices were not fixed and people could bid up prices, and let’s see where the $200 goes …

    • Ian Tompkins

      Your statement pretty much just illustrated the need to have fixed house
      prices, since that market is particularly susceptible to inflating. MMT also brings up the
      thought that greater inflation could be a good thing, and also isn’t in
      conflict with UBI, as you could either have the $200 recirculate to the
      govt (luxury tax, loss on mortgaging, in game), or just inflate the
      game, which would work to devalue the loan costs IRL on housing and deflate
      bubble market debts.

      • We don’t need price controls on houses we need credit controls on banks. The market for property is distorted because it’s not dictated by what people are willing to pay but by what banks are willing to lend. We have seen an explosion in private credit creation in the past 40 years due to the systemic deregulation of finance and it’s crippling the economy. But that’s by-the-by. Price controls and central economic planning will only work once we have perfect information (ie. the Star Trek universe) otherwise it’s a disaster and is basically what spelled the end of communism. No-one can plan things that well. Price controls are universally a bad idea. But controlling the supply and availability of spending power either through fiscal policy or finance regulation is perfectly sensible.

        BUT … to the main point of your comment:

        “MMT also brings up the thought that greater inflation could be a good thing”

        Price stability is central to MMT. Inflation is politically untenable and uncomfortable for the population, so having an inflation anchor is very important in MMT. However, from a technical standpoint, all MMT economists would agree that inflation is nowhere near as bad as it’s made out to be, and that even mid-double-digit inflation can still be functional. Certainly they see that some inflation is preferable to some unemployment, for example. But through the Job Guarantee we can achieve both full employment and price stability, so we don’t have to choose.

        “and also isn’t in conflict with UBI”

        MMT (and all economics, really) certainly conflicts with the “U” in “UBI”. Also, there is no UBI proposal that I have ever seen that is truly universal, in that the money is clawed back through the tax system so it’s redistributive (the Georgist proposal above is the most sensible, trying to claw back the stipend through income takes makes no sense at all). But if you gave everyone in the 99% an extra, say, $30,000 per year and left the 1% of richest people footing “the bill” (so to speak) in their loss of spending power, all that would happen is that prices would go up by $30,000 for all the shit that the 1% sell.

        Now, a Job Guarantee does NOT NECESSARILY conflict with a BI, without the U. MMT economists differ on whether to have an unemployment benefit in addition to a job guarantee, but no MMT economist would ever advocate giving every person the same amount of money simultaneously on a regular basis.

        And the Alaska thing doesn’t count — it’s a variable once per year grant. You don’t change your mortgage or rent payments based on that. You might go on a holiday or buy something nice for the family for Christmas but that’s about it.

        “as you could either have the $200 recirculate to the govt (luxury tax, loss on mortgaging, in game), or just inflate the game, which would work to devalue the loan costs IRL on housing and deflate bubble market debts.”

        I don’t understand what you’re saying here.

        I also have this page of UBI vs JG resources including articles, videos and lengthy Facebook discussions if you’re interested:

  • Ben Jamin’

    In the UK, a basic income paid for from the rental value of land used for housing alone gives every man, woman and child an income of around $3600.

    Thats without any other changes to the tax/benefits system.

    Furthermore, as an LVT levels the playing for all participants, the market can then allocate immovable property at optimal efficiency.

    Good for growth, good for equality.

  • William Hodge

    The simple way to finance Basic Income is for the Treasure to sell the Federal Reserve System 100 year 2% Bonds. At the end of the Hundred years the Bonds can be retired. The Federal
    Reserve has no need to make Profit and it has no need for Money because Congress delegates it the Power to Create Infinite amounts of Money at any moment .

  • geonomist

    You can forget BI and funding sources simply by sharing society’s surplus. Just redirect the annual spending for land, resources, EM spectrum, and government-granted privileges like corporate charters (limiting liability), utility franchises, and patents/copyrights. The rental value of nature-in-use and those little governmental pieces of paper is trillions and trillions. Spend your share on anything, forget basic needs. You might not need a house but a trip around the world. Do like Singapore but writ large — pay a Citizen’s Dividend, something we should’ve been doing all along.

  • Lexi Mize

    Implementing UBI without correcting the underlying broken system will not actually help anyone.
    Currently all wealth funnels up to the plutocrats. Where it sits like some swollen fatted calf.

    Giving everyone $X would not solve this one way channeling. Those rentiers at the top will just continue to manipulate rent, the debt, Congress, property laws, tax laws (as all capitalists are wont to do).

    Your monthly $UBI would work — for a year — and then the rent would go up. And the cost of beer, diapers, and cable would go up. No, what needs to happen, before any UBI program ever gets initiated, is the rules must change. The rules that govern corporations must change — corporations being the primary tools of the rich for wealth accumulation.

    How do you change the rules for corporations?

    The Equalitocracy Manifesto:
    • Amendment 28: Corporations are not people.
    • Amendment 29: Non-sequential term limits for Congress.
    • Amendment 30: Campaign contributions limited to one day’s average
    gross pay, per candidate, per annum, by natural citizens only.
    • Stronger financial regulations (Glass-Steagall).
    (Equalitocracy – government by the equal)

  • Patricia

    An UBI is a sensible suggestion and I do like your ideas of how to raise the money to do it but $200pm isn’t enough to even pay a week’s rent so the welfare system would have to continue to exist in its present form. If you are going to do a job do it properly. Work out what the medium rent is, how much food costs, electricity, petrol etc and then work out a monthly income based on that. It must be indexed to inflation too. The idea that people will not work merely because they have an income is, in my view erroneous. That view is based on emotion not reason. The rich still work even though they have enough money. Here in New Zealand ALL New Zealand born citizens, irrespective of income or assets, over the age of 65 get a net superannuation of approximately $1539.04 each month. (If you are living with someone it is slightly less). This has been in existence for around 60 years. It is indexed to inflation and a percentage of the average wage. Many of those over 65 and over still work. In my view that should be extended to all citizens over the age of 16 years then as technology overtakes jobs all can live in dignity.

  • George McKee

    So, “It would not be difficult to create a portfolio of uni­ver­sal assets that could pay, say, $200 a month to every U.S. resident with a valid Social Security number.” Can you do the math to compute how big that fund would have to be, yielding 2% annually for 300 million citizens? My math says $36,000 billion — that’s right, 36 trillion dollars. That’s twice the national debt — we are indeed wealthy, but we just don’t know it. And to provide an income capable of replacing programs like Social Security, it would need to be ten times larger.

    I would really like to see details on how that portfolio would be assembled, and how it could be protected from poaching by Congress. I can see a slow assembly process created by allowing businesses to pay their taxes “in kind” with equity rather than cash, but I can’t see Congress having the discipline to keep their hands off of it, without a Constitutional Amendment equivalent to the 16th Amendment that instituted the income tax.