Think Like a Martian About Money and Universal Basic Income
The problem with universal basic income is that none of the ways to pay for it are palatable. Let&#x27;s assume for instance that we want a UBI of something like 20% of per capita gdp.  Either we (a) cut spending from existing government programs or (b) raise taxes.<p>It is often suggested that the UBI can replace existing social welfare programs and save money in the long run by cutting out administration costs. First, administration costs are already quite low, social security administration costs in the US for example are usually around 2-3% of total outlays and there is no real reason to believe that similar old age pension programs in other countries are any less efficient. Secondly, existing government programs are usually significantly more generous than a proposed UBI to the recipients of such programs. Cutting existing spending means that the existing users of government welfare will suffer a massive drop in living standards. Leaving outside the moral consequences of imposing austerity on the most vulnerable in society this point is almost never acknowledged by proponents of a UBI.<p>Raising taxes is the second option but this is even more problematic than diverting existing government spending. Western governments already impose significant taxation on citizens. If you are living in a rich country with tax receipts over 50% of GDP increasing taxes by over 40% basically means restructuring your entire economy.  Since income taxes are already quite high you will almost certainly  need some mix of increases in payroll and sales taxes to meet the fiscal demands of a UBI. The poor can&#x27;t reasonably be exempted from this increased taxation as their income will either be hit by increased consumption taxes on almost every good or service they purchase or their after tax income will be hit by the higher payroll taxes. Trying to means test the payroll tax increase won&#x27;t work as governments will no longer be able to raise enough income to afford a UBI if they try to carve out exemptions for the poor and lower middle class. Assuming you are comfortable with these tradeoffs and the perverse incentives usually created as people try to avoid the large increase in taxes you will be faced the reality that the UBI will not go nearly as far as it would before the additional taxes are imposed. Not only have you given every worker a pay cut you have also increased the price of almost every good they could conceivably purchase with their new income. Finally, such a large increase in taxation will almost certainly impose a dramatic cost in economic activity. Increasing taxation from 50% to 70% of total economic output is far beyond what even the richest countries can support in taxation. No Scandinavian country is even remotely close to this level for example.<p>The net result is a trilemma in implementing a UBI that cannot be avoided:<p>a) if you reduce the level of the UBI below what a reasonable person could subsist on you defeat the entire point of having a UBI in the first place
b) if you cut existing government spending welfare recipients and existing users of government programs will be massive net losers
c) dramatic increases in taxation are beyond what is generally considered possible to put it politely<p>Silly articles like this on the UBI never bring up <i>any</i> of the public policy issues that must be addressed to implement a UBI and it&#x27;s pretty clear why. The UBI as I see it proposed incessently is basically the perpetual motion machine of political thought