Everyone should get paid. Yes, even people who don’t work and even those who don’t want to work. Such is the principle behind Universal Basic Income (UBI), an idea that seems to contradict most of the Western World’s conceptions of labor, merit and effort. Yet, the leftist party “Podemos” in Spain and a growing majority in the European left would disagree. Could Universal Income be the answer for a recession and austerity stricken Europe?
The ethos behind universal basic income is not new. Growing attention to poverty and wealth inequalities in high income countries has prompted debates around minimum wage in the US and welfare mechanism in Europe. UBI’s innovation lies in the fact that it erases the government’s restriction on welfare recipients, effectively eliminating one of the most contested requirements of unemployment welfare: that beneficiaries need to continue actively looking for jobs or even accept jobs they do not want.
The main benefit of the UBI is its simplicity. By simplifying welfare transfers to a unique regular sum, governments would not need to maintain bureaucratic welfare offices. The whole apparatus related to social security (food stamps, Medicaid, etc.) could be better streamlined. Paradoxically, for this reason, UBI has been embraced by some conservative economists. Milton Friedman proposed a similar idea to UBI: a “negative income tax.” 1 On the other side of the spectrum, progressives also welcome the dismantling of welfare offices as it would reduce the control of the State over the disenfranchised. Mandatory urine drug tests to receive social benefits would be a thing of the past.
Other two important benefits of UBI would be labor related. If workers had a guaranteed safety income, they would have more power to positively influence their surplus salary and labor conditions, supporters argue. UBI would be more powerful than unemployment insurance because workers could potentially stay out of work indefinitely living out of poverty. Employers would need to actively woo workers. This could be an effective negotiation tool against possible labor exploitation and deterioration due to rising automatization. Some economists like William Buiter even go so far as to argue that the disruptive nature of technology in modern labor markets makes UBI not only good, but necessary. 2
However, the main concern surrounding UBI is who would pay for it. The answer is simple: it would need to be funded by an increase in income taxes. The Economist estimates that for a basic income worth 20% of the national average income, taxes would need to be raised by 20 percent points. The British magazine also analyzed the Swiss UBI plan and estimated that it would cost around 30% of the country’s GDP. “Basically unaffordable,” it concluded. 3 However, these calculations are based on the assumption of a flat tax rate, which few of the UBI proponents argue for. UBI could be funded without an increase in taxes for the average citizen with a bold progressive taxing plan. Scott Santens, a leader of the UBI movement, proposes that the plan could be funded with a “higher increase in the top quintile [tax rate], with no increase in the bottom four quintiles.” 4 In lay terms, the UBI would need an active wealth redistribution from the top 20% to the bottom of the population.
Certainly, increasing taxes is one of the most contentious topics in politics. The adoption of the UBI would need both a drastic change in our conception of work and a strong political will to implement it. Voters would be reluctant to support a measure that could be construed as an incentive for laziness. The opposing political ads would write themselves: “Why would you give your hard earned dollars to pay for people who don’t want to work like you?” Free income goes against the prevalent notion of social success based on “hard work” and effort, at least in the United States. Additionally, the top 20% would use its political influence fight tooth and nail against any tax increase (a task at which they have previously succeeded).
Universal Basic Income is a bold idea that would tackle the growing exclusion resulting from wealth inequality that many developed countries face today. For the moment, the potential benefits of UBI are dwarfed by the high political effort and cost that would take to implement it. Will we need Universal Basic Income in the future?
To answer this question, let’s look back at Podemos in Spain. The UBI proposal was popular last year, while Spain endured harsh austerity measures and an extreme level of income inequality. With the amelioration of the economic situation in Spain (return to positive GDP growth), both UBI and Podemos have lost political steam. The proposal is now labeled “too radical” even by the party itself. 5 Therefore in order for UBI to become a reality, its universality also needs to be political.