The problem with universal basic income is that none of the ways to pay for it are palatable. Let'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.
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.
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'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'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.
The net result is a trilemma in implementing a UBI that cannot be avoided:
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
Silly articles like this on the UBI never bring up any of the public policy issues that must be addressed to implement a UBI and it's pretty clear why. The UBI as I see it proposed incessently is basically the perpetual motion machine of political thought
I suggest you look at Andrew Yang’s 2020 platform of Freedom Dividend and explanation of how to pay for it.
Yang would offer each person an annual choice between existing benefits or an unconditional transfer payments (UBI). This allows for an easier transition to more UBI while preventing lapses in important benefits for those who need it.
As for the pay-fors: You do NOT need a policy proposal to be revenue neutral (ie 100% paid for by spending reductions and/or tax increases) if it grows the economy or if it saves costs elsewhere in the system. This is true of any policy. We have never paid for our spending during and after WW2, but that doesn’t matter because we grew our economy as to make that debt trivial to the size of the economy.
In UBIs case, we have strong evidence from studies that it tends to improve health (especially child health), reduces crime, and increases business creation (a stable albeit small income is a fantastic platform for entrepreneurship), among other benefits. How much does it cost society to fail to eradicate below-poverty incomes? How about failing to end involuntary homelessness? UBI is the cheapest way to get those things.
Back to Andrew Yang’s plan:
1) Institute a 10% VAT.
2) Save on reductions in social services (to the degree Freedom Dividend is chosen)
3) Remaining balance paid with deficit spending, growing the economy and reducing upstream costs.
Except he doesn't explain how to pay for it as far as I can tell. He has four funding sources that don't come close to adding up to the $3 trillion he would need to fund a UBI. The $800 billion for a vat is incredibly generous but even assuming that he can only come up an additional $500 billion by assuming that everyone will prefer a UBI over other government programs. He also assumes $100-200 billion will be saved by the government due to lower costs of other government programs.
Even assuming everything adds up that still only gets you to $1.5 trillion, you still to come up with another trillion at least! Borrowing the money will result in the US running the largest peacetime budget deficit of any developed country ever. A budget deficit of 15% of GDP would be at least 3 times what the budget deficit was at the height of the Reagan era. It's simply disingenuous to claim that this is par for the course for advanced economies. It isn't.
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.
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'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'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.
The net result is a trilemma in implementing a UBI that cannot be avoided:
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
Silly articles like this on the UBI never bring up any of the public policy issues that must be addressed to implement a UBI and it's pretty clear why. The UBI as I see it proposed incessently is basically the perpetual motion machine of political thought