by Fred Foldvary
image : wikipedia
Universal Basic Income (UBI) is defined as income that is provided to every person who resides in a specified locality, without any conditions other than residency. Income to a minor would be held in a trust and used to pay a minor’s expenses such as school tuition and medical care, with the remainder to be paid to that minor upon he or she becoming 18 years old.
The question is, then, how to pay for UBI. Some advocates, such as former 2020 Presidential candidate Andrew Yang, have proposed a value-added tax, while others propose to “tax the rich.” To determine which is the best source of funding, we need to analyze the affects of UBI.
If UBI were provided to all U.S. residents (regardless of citizenship), so it is argued, then immigrants would seek to become U.S. residents in order to take advantage of it. To limit immigration for the sole purpose to obtain UBI, there could be a residency requirement. The State of Alaska provides UBI to its residents, funded from its oil revenues, with a residency requirement of one year.
The original and ultimate factors which determine production are land and labor. First, let us analyze the affect on labor. Studies of experiments with UBI have found that there is little negative affect on work effort. Current welfare programs do reduce work incentives, because the benefits are reduced as wages increase, thus creating in effect an extra tax on wages. But UBI would be tax-free and would not decrease when wages increased. Economic analysis concludes that the replacement of means-tested welfare with UBI “will almost certainly lead to increased work effort.” [1]
If UBI were introduced throughout the U.S. without any change in other fiscal and economic policies, the effect would depend on the amount of UBI. In Alaska, the UBI is around $2000 per year per person, which is not enough to replace a person’s normal wage income. Alternatively, a guaranteed income of $1 million per year would decrease employment. But suppose UBI was $1000 per month, as proposed by Andrew Yang. The $12,000 per year would not be sufficient to pay for all normal expenses such as housing, food, and transportation. Many people would use the money to, for example, pay off debts or to make repairs. “Despite what the fearmongers might predict, unconditional cash handouts would not compel us all to give up work.” [2]
Next, we analyze the affect on land value. The supply of land within a given locality is fixed. The amount available for sale varies, but the total land area available is fixed, and land cannot be moved. Therefore, a greater demand to buy or use land would increase the rent and price. Since greater income would increase the demand for all normal goods, including housing, UBI would increase residential rent and land value. Land rent typically tends to capture much of the gains from economic progress. Thus much of the gain from UBI would go to landlords rather than worker-tenants. If UBI was financed from taxes on wages, goods, or value added, worker-tenants would be double-billed; that is, they would pay both higher taxes and higher rent. When worker-tenants are double-billed, someone is getting a subsidy; that is, landowners are receiving more rent.
Therefore, the best source for funding UBI would be land rent. A tax on the market value or rent of land would avoid double-billing tenants. As well, a land-value tax does not get passed on to tenants, because the tenants are already paying rent to the landlord. If landlords tried to raise rents, having already charged what the market could bear, then residents would decrease the quantity of land they use. This would create vacancies, and thus landlords would reduce rents back to what they were.
The overall affect of UBI on land rent would be neutral. UBI would increase housing rent, but there would be an equal reduction in the rent kept by landowners. There would be a shift, in the rent obtained, from the landowners to the tenants. For owner-occupied houses, the owner is also the tenant, and the tax on the owner’s rent would be offset by the amount of UBI from this rent, not exactly in every case, but generally.
Therefore, again, the best source of funding for UBI is a tax on land value or rent. Moreover, and with this precedent, it would be best for the economy if all taxes on wages were abolished and replaced by a tax on land value. But for just applying it to UBI, the best source of funding would be, as we just stated, a national tax on land rent.
Now let’s do the math (Andew Yang would like this!). The total annual land rent in the U.S. is calculated to be about one third of national income (when based on studies of land rent in Australia which calculates its rent at one-third of national income). [3] This would amount to about $7 trillion of land rent in the U.S. The total UBI rent in the U.S. then would be $12,000 times 330 million, or $4 trillion per year. Of course, some rent is already being tapped as property taxes. “On average, state and local governments collected $1,556 per capita in property taxes nationwide in FY 2016.” [4] Calculating land value as half of the property value, the total of property taxes paid is only $256 billion. The amount of land rent collected as income tax is unknown, but a national tax on land value would greatly reduce taxable rent for income tax purposes. Thus, there is more than enough land rent to pay for UBI in the U.S.
UBI funded from land rent is also morally proper. Henry George and other economists and moral philosophers have viewed persons as co-equal self-owners. This is one reason why slavery is evil. The moral law of the market is “to the creator belongs the creation.” If you build or produce something with your own labor, the product should be yours. But no human being created land and its natural resources. Therefore, if, as stated in the Declaration of Independence, it is a self-evident truth that all persons are created equal, then we should all have an equal share of the benefits of land, as measured by its rent value. UBI is therefore not only economically beneficial, it is a moral imperative.
