4 thoughts on “Universal Basic Income: Essential Knowledge”

  1. I found these chapters a very useful introduction to the questions relating to the cost of a UBI and how it might be paid for, and also very helpful in clarifying the issues over which MMTers and UBIers tend to disagree.
    I have one specific comment on the distinction you draw between the gross and net cost of a UBI (which I agree is an extremely important one): Towards the end of the chapter on the gross and net cost of a UBI you say that ‘to understand the costs and benefits of UBI, you need to understand that its gross cost is meaningless and that its net cost is what matters’. Earlier in the chapter you say that gross cost ‘indicates nothing about…any other variable that actually affects people’s economic behavior and material wellbeing’, and that ‘the portion of the UBI people pay to themselves is not a cost or an expense to anyone’.
    All of this may be true, but I wonder if there might be circumstances in which it is not. For example, might the relevance of gross cost depend on the particular scheme of taxation with which the UBI is financed? if the UBI is being financed by a VAT of 100% (or more), as some have proposed, it is not clear to me that the gross cost of a UBI funded in this way would be meaningless and irrelevant to questions concerning economic behaviour. My specific worry would be that a VAT of 100% or more might result in deadweight losses that reduce the available fiscal space, even if it is entirely recycled in the form of a UBI. The combination of expansionary spending (the UBI) plus reduced fiscal space would then be inflationary.
    I’m not saying I definitely think this is a problem – I don’t know if any taxes that are recycled directly as a UBI would result in deadweight losses. But my hunch is that some taxation schemes would be better than others in this respect, and if this is the case, the gross cost might turn out to be not entirely meaningless.

    1. Even with the VAT the gross cost does not matter. The marginal rate of the VAT matters, but the gross cost of UB does not affect the VAT rate. That’s determined by the size of the UBI and the net transfer.

  2. I found your remarks on the question of the sustainability of a UBI very persuasive. One thing that surprises me about the UBI literature on this question is the lack of emphasis on the importance of a low withdrawal/marginal tax rate at the bottom end of the income level (although there may be stuff on this I have missed, not being very familiar with the UBI literature). A low withdrawal rate (say, 20-30%) would probably reduce the likelihood of people being motivated to refuse to work if their basic needs are met by a UBI. If would surely be easier to make the case for a UBI scheme with a low withdrawal rate, which could be contrasted with the relatively high withdrawal rates characteristic of many currently existing benefit systems. This would make the implementation of a UBI less politically challenging, since one could then argue that the UBI (with its low withdrawal rate) would remove the poverty traps created by the combination of the conditionality and high withdrawal rates of existing benefit systems.

    1. You’ll see a lot of arguments like this in the 1970s literature on the guaranteed income. I’ve always thought of it as a basic property of UBI. Maybe I didn’t notice that it dropped out of the discussion.

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