With soaring unemployment and persistence of the “lockdown”, $3 trillion plus emergency funding already passed by Congress for economic sustenance is clearly inadequate. Senators Harris, Markey and Sanders have proposed another bill aimed at families: $2,000 monthly payment to individuals who make up to $100,000 per year plus $2,000 monthly payments per child up to three children. Our estimate is that this bill would cost around $3-$4 trillion! There is yet another $3 trillion plus bill sponsored by Speaker Pelosi that is making its final rounds through Congress. I predict neither bill will be passed; there is valid concern about the national debt that is soaring with the passage of each emergency funding bill.
All these “stimulus” packages and additional monies to mitigate the financial impact of the novel coronavirus could have been avoided by Congress if they simply adopted universal basic income (UBI) that caught the public eye due to Andrew Yang’s Presidential campaign. There are significant benefits of having a UBI of $1000/adult/month in the United States. If this coronavirus pandemic does not make this clear, nothing will.
For starters, everyone will have money for basics, workers could have been furloughed rather than fired, healthcare would be affordable, and the economy would not have shut down. We will also not be soon dealing with unemployment of 20+%. People who had the symptoms of COVID-19, especially the gig workers would probably have stayed at home because they were not stressed about becoming destitute. This would have certainly mitigated the spread of the virus and death due to COVID-19. It would also been easier for those losing money to follow “stay at home” directives in most states. Our fragile healthcare system and economy would have been much more resilient with a well designed UBI.
Our research project at the University of Maryland shows that it is not difficult to finance a UBI. It would cost $2.984 trillion to provide every adult citizen (76% of the U.S. population) $1000/month without any means testing. Of this, $400 billion would be recovered from taxes, and $300 billion could be saved by eliminating “income security” now provided by the government to the very poor in the form of welfare, food stamps, housing support and such. So the net cost is only $2.3 trillion, lower than anything being proposed right now.
The $2.3 trillion could be paid for by introducing a value added tax (VAT), a wealth tax (WT) or a financial transactions tax (FTT) or a combination of all three. These components of taxation prevailed in the 1950s when the U.S. also had some of the highest growth rates in history.
In 2018, Americans spent $13.95 trillion on personal consumption and expenditure. A 16.6% VAT on personal consumption will easily cover $1000/adult/month of UBI. Most European countries have VATs in the 18-20% range. Clearly, a tax on consumption is regressive because the poor will pay at the same rate as the rich. One way to deal with this is to exempt food, clothing and healthcare from the VAT which would still leave $10.3 trillion subject to tax.
Increasing the wealth tax could also pay for universal basic income. A 4.5% tax on wealth above $1.5 million would easily pay for UBI. This may be too drastic. Elizabeth Warren’s WT proposal of 2% on wealth above $50 million and an additional 1% on wealth over $1 billion will raise about $300 billion. Tomas Piketty’s proposal of 1.5% on wealth over $1.5 million would raise around $600 billion. Some combination of a modest VAT (say 10%) and a reasonable wealth tax (say Warren’s) would pay for UBI.
A financial transactions tax could also do the trick. Our calculations show that a flat out 1% on stock transactions and bond sales would easily pay for UBI. If this is too drastic, one could pass the Ellison-Sanders bill: 0.50% on stock transactions, 0.10% on bond sales and 0.005% on derivatives, which would raise $300 billion/year. Again, some combination of VAT and FTT and Wealth tax can support a universal basic income of $1000/adult/month.
There are further benefits of UBI: Dismantling the entire government apparatus set up to police the poor to ensure that they are not welfare cheats will save money and improve morale. Studies show that people who are not stressed about money actually behave in a more entrepreneurial and socially conscious way; crime would also go down when individuals have UBI. While during bad times UBI would provide a safety net, in good times this addition to income will actually give a small boost to economic growth.
Having universal basic income will ensure that the country will not be as devastated when either the next public health pandemic or the next employment destroying technological upheaval happens; indeed we will be ahead of the curve.