UBI Now

COVID-19 is causing all sorts of economic problems. Rather, reactions to COVID-19 are causing all sorts of problems. Behaviour that is good for reducing the spread of this virus is bad for the economy. Nobody is quite sure what to do or how to moderate the inevitable recession.

Our government has a plan, this plan involves giving people money, albeit through means testing. In Ontario, where I live, my government will not be enforcing evictions. There’s been talk of suspending rent and mortgage payments.

These feel like half measures. To what extent will these measures work? And any policies involving the suspension of payments involve enforcement measures which will cost money.

In fact, all means-testing actually does, is waste government money and resources. Qualifying people for assistance requires money, it requires time and it requires people working in offices. (Perhaps even enforcement.) It also creates social stigma for those who get the assistance.

One interesting private proposal is that those of us who can spend money as we would normally do so. The problem is that many of us are not making money and so cannot do this.

Another interesting proposal is to pause everything. This is far too crazy to gain widespread acceptance and it’s probably not even possible. (It might be theoretically possible but us human beings probably couldn’t handle it. Though a growing number of people are supporting instances of such a possibly, such as suspending rent and mortgage payments.)

But there’s an obvious measure that has been experimented with here and there but would ensure the consequences of high unemployment would not occur: Universal Basic Income.

Universal Basic Income is the idea of paying every single person in society, without qualification, a fixed, non-taxable amount of money which allows them to afford the necessities of life, including rent and food.

(One of the biggest problems with UBI is that the cost of living varies widely throughout the country, so a fixed UBI will help someone in rural Nova Scotia more than it will help a homeless person in downtown Toronto. One solution would be to peg UBI to the Cost of living for the physical residence of the Canadian receiving the UBI.)

How Do We Pay For This?

UBI will cost an absolute ton of money. There are nearly 38 million people in Canada. Say the UBI is CAD$1000 per month (not enough to afford to live in Toronto at the moment), that’s $30 billion per month (if we exclude children from these payments).

The first thing is to get rid of tax credits.

Tax credits are dumb. The only people who like tax credits are the specific groups of people who receive tax credits. Most economists agree that tax credits are unnecessary and needlessly complicate our tax system. Tax credits only exist for political reasons.

Besides, UBI removes the need for tax credits. If I have a basic income, why do I need a GST/HST rebate?

If that doesn’t raise enough money, the next step is to further tax the rich:

The 33% rate on income earners over $214,368 can be increased. It’s already pathetically low.

Another option is to create a new bracket for those who earn far more than this, for example, 45% on people who earn more than $1,000,000 or what have you; 51% on those who earn more than $5,000,000 or what have you.

Another option is a wealth transfer tax, both generationally and internationally. I.e. you are taxed when you give your children money over a certain threshold, and you are taxed when you move your money outside of Canada.

Tax hikes are always unpopular but now is as good a time as any to give them a try. There is a lot more political will for tax hikes right now if they are marketed correctly.

(Somewhat related: we need to do a better job at convincing the rich to pay their share. Otherwise, we can hike the taxes all we want, it won’t be enough.)

Finally, UBI reduces the cost of government by removing the need for social assistance programs and their administration. Costs for public goods may also decrease to the degree which poverty is reduced.

UBI gives every Canadian the means to make it through the crisis. But it also eliminates the need for a complicated tax system. And it will reduce the costs of public services overall since poverty causes health problems. It’s a means of smoothing out the highs and lows of the boom-bust cycle because everyone always has at least some money. And there are many other benefits.

Yes, we don’t know what the consequences will be. There will be people who will take this money and put it in a shoebox. There will be people who will spend it on the “wrong” things and still need public services. There may be people who use this money to stop participating in society. But the idea that these groups of people will be even a small percentage of society is preposterous. Who knows what else will happen?

But what’s the worst economic consequence of UBI? The government will spend more than it takes in, right? We’re already there. And there are additional ways the government can raise money if UBI doesn’t pay for itself, such as the government proposal to tax luxury goods, if broadened.

Why make this crisis a push-pull between people dying and people losing their jobs? We can do better than that.

Originally published at https://rileyhaas.com on March 26, 2020.