As the economic insecurity of a large segment of the country continues without relief (debts, taxes, low wages, health costs, education costs, etc.), some big new ideas (like the Green New Deal) are getting attention.
In my last piece at Counterpunch, “Your Check is in the Mail” (18 April 19), I examined one of these big new ideas: the proposal for a universal basic income (UBI) put forth by presidential candidate Andrew Yang, who proposes to give every US citizen over eighteen years of age $1000 a month. He calls it the Freedom Dividend.
Yang argues that automation and robotics are relentlessly eliminating wage-labor jobs, hence the need for a UBI. He may be right. I speculated that a UBI might be paid out of corporate profits, but it turns out that that’s not where the money is.
To see how it can be funded, let’s do some math:
The current adult (18 plus) population of the US is about 250 million people. Giving $12,000/year to each person would cost about $3 trillion. To put that in context, the federal budget is about $4 trillion/year, including $700 billion for the military, while total annual US corporate profit is about $2 trillion/year in an economy of about $21 trillion.
The total net financial assets of American households, according to the Federal Reserve, are much greater than that. They add up to about $70 trillion. What are net financial assets? They include stocks, bonds, funds, and other financial instruments. That’s where the money is.
The major asset for most Americans is their home. Net financial assets don’t include your personal property (your home, vehicles, furnishings, art, etc.); nor the debts you owe. Exempting personal property from a net financial asset tax protects the major assets of most people, and shifts the tax burden to those holding mainly financial assets.
If that $70 trillion of net financial assets were to be spread equally among 250 million adult Americans, each of us would own a piece of the nation’s financial pie worth $280,000.
But the pie is in fact not equally divided. Presently, financial asset distribution across the population shows that 22% of the population has financial assets greater than $280,000, and 78% has fewer or no assets at all. That’s one way to distinguish the haves from the have-nots.
Net financial assets, in short, may be the only pool of wealth deep enough to fund something as big as a UBI. To produce the $3 trillion dollars needed to fund Yang’s UBI, you’d have to tax the $70 trillion of net financial assets at a rate of 4.3 %.
Everyone would pay the same rate on the value of their net financial assets. But since every adult would also be receiving $12,000 UBI/year, only those with financial assets over $280,000 would actually pay the tax.
Actual tax payers would be the 22% of the population with net financial assets over $280,000. The vast majority–78% of the population–would receive more in UBI payments than they would pay in a net financial assets tax.
Some examples: If I had, say, $100,000 in taxable net financial assets, I would have a $4300 tax bill (at a 4.3% rate), but I would also have a UBI of $12,000, a gain of $7700. If I have taxable net financial assets of $280,000, the UBI and the tax would both be the same at $12,000. And if I had, say, $500,000 in taxable net financial assets, I would have a tax bill of $21,000; but I would still have the offsetting UBI of $12,000, trimming my actual tax to $9000.
In short, if you tax financial assets, it looks like there’s plenty of money to fund the UBI. Let’s consider some of the pros and cons.
Funding a UBI with a net asset tax has the advantage of not being inflationary. By redistributing existing wealth, it avoids the need to print money. It also avoids cuts in social programs which fall disproportionately on lower income individuals. And, as a simple redistribution system, it requires little bureaucracy.
Although Yang’s UBI is designed to make up for the long term erosion of jobs, giving out $12,000/year–combined with continued low-income supplements like welfare, food stamps, etc.–might lead to labor shortages, especially for low-paying jobs. A lower UBI–say $6000/year–might be less disruptive of important service jobs.
Perhaps the most visceral criticism of UBI is the widely felt moral reaction that money should be earned by hard work, not just redistributed with no strings attached. But, if Yang is right, some form of UBI may be in our future as jobs disappear.
Are holders of large financial assets–the 22%–willing to share their assets to make it happen? No doubt most would resist. Yet, without such a controversial tax, the much needed redistribution of wealth, which the UBI would promote, looks unlikely.