Debunking Objections to UBI - Part 1

This morning my New York Times top stories email included this subject line:

“Silicon Valley is bracing for a permanent underclass”

The blurb read:

The people building A.I. fear that we have only a short time before it disrupts the labor force, writes Jasmine Sun in Times Opinion. Some even believe it could create a permanent underclass.

Many economists think we’ve had a permanent underclass for several decades already. We clearly need universal basic income as some of the tech “bros” say. But not everyone is on board. In this newsletter, we will briefly look at some of the objections to universal basic income.

Google’s AI comes up with this list: prohibitive cost, potential to trigger inflation, disincentives for workforce participation, and the dilution of targeted social welfare.

I’ll look at the first two of these here. The next post will look at the second two.

Objections to UBI: Prohibitive cost

This argument exposes a major misunderstanding. People hear that UBI might cost several trillion dollars and assume the government would somehow have to “come up with” trillions in new spending. But UBI is not like military spending, Medicare, or interest on the national debt. Those are expenditures. UBI is a transfer.

Money goes from one household to another. A dedicated UBI tax could be revenue neutral with every penny collected from households going back to households. In short its net cost would be zero overall.

The United States generated roughly $16.4 trillion in after-tax personal income in 2019. Under Shares UBI, total personal income would still have been roughly $16.4 trillion. What would have changed is how it is distributed.

In the last newsletter, and in the Shares in America book and website, we show a simple example of how a hypothetical progressive income tax surcharge could finance a $1000 per month UBI. Here’s how that would have affected income shares in 2019. The wealthy pay the most but remain wealthy. Upper-middle-income households see only modest tax increases, and everyone else comes out ahead. The bottom half of households see the largest percentage gains. Everyone, rich or poor get their Share.

What people often really mean when they say “UBI costs too much” is this:

“Taxes would have to rise too much.”

Since the large majority of Americans would benefit on net from Shares, that argument is essentially saying that taxes would have to rise too much on the wealthy.

But that argument also falls apart when you look at the numbers. The wealthy remain very wealthy after paying their share of the sample UBI tax used to create the right pie chart above.

And the required tax rates on the wealthy would still be well below the highest marginal tax rates under Presidents Eisenhower and Kennedy, during one of the strongest economic periods in American history. Furthermore, the required income tax on the well off would be far lower if we close the many loopholes that let the superrich get away with paying almost no income tax. (I plan on doing a post on those loopholes in the future.) No family making less than $300,000 per year would be likely to see a net tax increase if we tighten the tax code on the very wealthy.

Conclusion: We Can Easily Afford Shares/UBI

Objections to UBI: Potential to Trigger Inflation

The argument on inflation boils down to this: if people have more money, they will buy more stuff and drive up prices. At first glance, that sounds plausible. But remember: under a tax-funded UBI, total personal income in the economy stays the same. The money is redistributed, not created.

Under Shares, income will be distributed differently across households and people will spend the money differently. There will be less spent on yachts and more on food and housing. Will this cause inflation?

During covid we saw that handing out money seemed to cause inflation. But studies concluded later that supply side issues related to the pandemic were behind most of the price increases[1]. Under Shares, demand will increase for some goods and services but there will be no comparable supply shock. The free market is great at matching supply and demand, and with so many consumer goods to choose from price spikes will be minor and supply will quickly adjust to accommodate demand.

The bigger problems we have with inflation right now all have to do with supply limitations we have to deal with in any case, UBI or no. Housing prices are high because we haven’t built enough housing in places where it is in high demand[2]. Oil prices are high right now during the war on Iran because of supply disruptions (long term the obvious way to fix that is to switch to different energy sources).

In short, Shares/UBI would likely have modest inflationary effects at most, especially if phased in gradually. We could even allow people to automatically save a portion of their Share if policymakers wanted a slower rollout.

Conclusion: Shares/UBI Will Have Minimal Inflationary Impact

America is rich enough to ensure that everyone shares in the prosperity our economy creates.

The objections about cost and inflation sound serious at first—but under closer examination, they simply don’t hold up very well.

And despite the concerns of the tech billionaires themselves, Shares/UBI is not going to happen automatically.

We will need a grassroots movement to make it happen.

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