UBI forces cuts to new infrastructure and affordable housing

Milton Ezrati, Economics and investment strategy consultant, serves as chief economist for the NY-based communications firm, and senior contributor to Forbes Magazine, “Universal Basic Income: A Thoroughly Wrongheaded Idea” January 15, 2019 dmr

Though UBI proposals come in many shapes and sizes, all share certain justifications. Prominent among them, not surprisingly, are claims that it would reduce poverty. Proponents have made an easy calculation from government statistics to show that a generous stipend of $3,000 a month for each adult in the country would cut the nation’s poverty rate in half. A stipend of $250 a month for each child would reduce child poverty some 40%. UBI, proponents claim, would break the cycle of dependency among the disadvantaged, giving them time and money at last to seek the training and higher education they need to climb the economic ladder. Some of the more starry eyed among those Silicon Valley billionaires behind the proposal add that UBI would help bring on a cultural revolution by allowing people time from toil to “contemplate the meaning of life." Matters, however, are far from as straightforward as these arguments suggest. Cost is an obvious consideration. The most quoted schemes today would, according calculations from Commerce Department data, cost the federal government between $2 and 4 trillion a year, amounting to a 50% increase in current federal outlays or more than 10% of last year’s gross domestic product (GDP). Such a draw on the economy would markedly burden taxpayers and increase government debt with all the associated economic ills. At the same time, such a huge draw on federal financial resources would also preclude other government priorities, such as infrastructure refurbishment, including the building of hospitals and the construction of affordable housing. Both effects would undermine productive incentives and otherwise constrain both public and private investment in the economy. Economic activity and growth potentials would suffer accordingly, not the least because UBI payouts would do little to invest in the future except if recipients really do use the funds for education and training. Not surprisingly, several UBI proponents suggest ways the country might finance the entitlement. These, though sometimes imaginative, would hardly lift the associated economic burdens. Some would sell off government land. That could certainly raise a lot of money initially, perhaps even enough to finance the giveaway for a while. As the government disposed of the land, however, this source of revenue would dwindle and fail to support what the proposers describe as a huge, ongoing entitlement. In any case, such an answer would surely provoke intense resistance from the green lobby. Other UBI proponents suggest a tax on the market capitalization of public companies. One proposal calls for an initial 3% levy on all corporations followed by a lower ongoing tax. Some would add a 5% levy on initial public offerings and a 3% tax on mergers. A carbon tax occasionally makes it into the mix. Even if these financing options could balance the accountant’s books, and that is doubtful, they, like other taxes, would still have ill effects on economic incentives as well as investing and hence on growth prospects generally.