UBI crushes macroeconomic sustainability – decks GDP growth and labor participation

[Rachael, "Five Problems with Universal Basic Income – Third Way," Third Way, 5/28/18, https://www.thirdway.org/memo/five-problems-with-universal-basic-income, accessed June 29, 2023, GDS-LL]

Economic growth would suffer

With a foundational, albeit limited, income under UBI, some Americans may choose to work part-time instead of full-time. Others may leave the labor force for years when they would have otherwise worked. Eduardo Porter writes that, as almost one quarter of US households make less than $25,000 a year, a $10,000 check each for two parents could change their decisions on how to balance work, child care, and other obligations, resulting in less full-time participation in the labor force.8

If people transition away from full-time work, the US economy would suffer. Macroeconomic theory holds that economic growth is dependent on three factors: increases in capital, advances in technology, and growth of the labor force. UBI has the potential to directly decrease the growth of the US economy, namely GDP growth, through reductions to labor force participation. With GDP shrinking, tax revenues would fall. This would in turn mean fewer resources to help the disadvantaged or to invest in the future, resulting in lower overall prosperity.

UBI is incredibly expensive

The numbers speak for themselves: UBI is either very expensive or very stingy. The progressive version of UBI is expensive to the point of impossibility, while the conservative version is penny-pinching and punitive. Looking first at the former, consider an annual grant of $12,000 for all American adults aged 18 to 64, like Stern proposes. Stern estimates his plan would cost between $1.75 trillion and $2.5 trillion. The high end of this range seems realistic. Almost two-thirds of the population, or 200 million people, would receive a monthly UBI check for $1,000, with a cost of approximately $2.4 trillion every year, or one-eighth of GDP.9 Social Security beneficiaries currently receiving less than $1,000 a month would also get a supplement, adding an estimated $52 billion a year.10 By comparison, our entire existing social safety net costs $2.6 trillion. That includes Social Security, Medicare, Medicaid, Unemployment Insurance, and veterans’ benefits.11

Unless these critically important programs are eliminated, a UBI program would need to be paid for with higher taxes. It’s not clear whether it’s even possible to raise enough revenue for this initiative. The federal government took in approximately $3.3 trillion in 2017, so a taxes-only approach to funding Stern’s UBI would require an unheard-of 73% increase in federal revenue.12 Even if defense spending was slashed by one-third, for example, a 52% tax increase would still be required.13 Funneling all of a tax increase into UBI would also neglect our existing programs, like Social Security, which needs financial support to remain solvent past 2034.14