UBI

Section 9 - Practicalities

It would not be such a good idea to, in one day, change society so broadly. So there is a way to do it gradually and cautiously, in stages.

Again, there are options:

• UBI is just a recalculation of everyone's tax bills and dole payments. For most people their total income will stay about the same. So you can have a transition period where the money to be taken is a weighted average of the old and new calculations. For example:

• Each year the dole drops by 50euro, and UBI increases (from 0) by 50euro. The new flat tax goes up (from 0) by 5% each year. After 4 years you have UBI. But at any point you can pause the rates, if there is a bigger economic shock than expected.

• It could be done by region. UBI could be first implemented by a small regional government or council, then copied in others. But it might be legally difficult have a different tax system in just one region. It could create its own incentives for large numbers of people to migrate into/out of the region.

• You can introduce full UBI for everyone on his 18th birthday. It will be complicated to avoid a drop in the state's tax-income but it can be managed.

• You can introduce it by sector. Start with the least controversial and most beneficial. You can stop at any point. Step 1, extend the dole to all workers - this is the only important step. Step 2, to all students. If the benefits are great, you can keep going... Step 3 - all housewifes/husbands, etc. What about the artist/self-employed/etc group? Even immigrants?

This way UBI doesn't have to be truly universal, so you can keep the benefits, and keep any unforseen problems under control.

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Section 10 - Inflation

UBI will definitely cause inflation. The first consequence of destitute people becoming not-destitute is inflation.

People who now are struggling to survive (many students for example) will be able to afford proper food, clothes, haircuts, etc. This creates a demand and in the short term allows businesses to increase prices. In the long term it causes the local economy to grow - more hairdressers, clothes shops and cafes will open.

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Section 11 - Employment rates

It can be argued that UBI either increases or decreases total employment rates. In fact there have been many global trials showing both results. Generally they have not been properly implemented though, so it's hard to extrapolate the results to real UBI as described here.

• People stuck in the welfare trap will be free to get jobs. But in general there is a shortage of jobs and a large surplus of job-seekers (although in highly-skilled jobs it's often the reverse). So this alone won't increase employment rates. Under UBI, everyone has an incentive to get a job, but nobody will be forced by regulation to fill in futile applications each week, or accept job offers they are not suitable for. All of the people who are not really able, available or motivated to work will stop applying. So life will become much easier for both employers and serious job applicants - both will immediately see greater prosperity. But this won't be visible in the headline employment rate.

• Students, entrepeneurs, charity volunteers, many of the groups in section 3 - many will quit their day-jobs. This might cause wage-inflation in casual labour. Or maybe the people from the welfare-trap will immediately take all of these jobs.

It's hard to predict. I think it's safe to say that the overall employment rate will not change much, but the employment landscape will change for the better.

Section 12 - Redistribution

In the example above, dole-earners and high-earners both pay about the same tax as before. The high earner pays slightly more tax - but he gets it back indirectly if he has adult dependents. But single high earners will lose income, and very low earners are getting much higher income than before. There are three ways to deal with this:

• Do nothing - UBI has a slight wealth-redistributive effect

• Lower the minimum wage to 200euro/week. This acts like a subsidy for employers. They save 50% on their payroll - it can an incentive to hire more.

• Add a 50% tax on the first 200euro/week earnings. So the state gets some extra income.

Options 2 and 3 mean that every type of worker has about the same income as before. But we have still achieved the goal of removing the welfare trap.

It sounds unfair that low-earners must pay 50% tax - much more than high earners - but this is what they do today. Today, there is a hidden 50% tax on low earners. It is created by the interface between the welfare/tax systems. UBI (with option 3) just makes this explicit.

Section 13 - Real welfare trap examples

Of course legislators have thought the welfare trap before and tried to fix it. For example here and here where your income stays nearly the same no matter how much you work, which is effectively a 100% tax on the lowest earners.

This increases complexity but does not actually solve anything. It creates smaller welfare traps which the poor need to navigate, to avoid being pushed further into poverty.

(another example)

Section 14 (TBD) Balancing the budget

It would be useful to prove that UBI does not cost the government money, using calculations on real-world data.

[extra money needed] = ([adult population] - [unemployed])*[dole payment]

[extra money needed per employed] = [extra money needed] / [number of employed]

[rate of the new flat income tax] = [extra money needed per employed] / [mean wage]

dole = 200
unemployed = 127.90*1000
extra_cost = (adult_population - unemployed) * dole
employed = 2532.20*1000
mean_salary = 32381 / 52
population = employed * 100/65.20
cost_per_man = extra_cost / population
rate = cost_per_man / mean_salary
rate

The result is a 23% flat (non-progressive) tax. This is added to the existing taxes. So high earners pay a total of 63% marginal tax.

This may sound high. Some say that too-high income taxes reduce total tax revenue and also economic productivity, because people have less incentive to work more and earn more money.

Compare this to the existing situation, where low earners are effectively being charged more than 100% tax, which certainly leads to lower productivity and lower tax revenue, and is much worse. Also note that 63% is lower than the usual estimate for the optimal tax rate.

TBD: A plot would be useful, showing how an individual's income would change. X-axis is income before tax. Y-axis is income after tax. Traces: status-quo, single worker on UBI, worker with 3.1 dependents on UBI.

Section 15 - Other welfare programmes

The principle that is used here to design the optimum balanced tax/dole regime can and should be applied to others too. "What is available for free to some, should be available for free to all." To provide any thing to only the poorest creates a welfare trap, as well as bureaucracy, fraud, provision failures, etc.

For example ambulance and fire services are provided to the rich as well as the poor. If they weren't the services for the poor might be neglected by government, resulting in disaster.

Likewise, emergency housing, food and clothing provision must be available to all. Those who aren't immediately able to prove their need might be the ones in most desperate need.

Subsidies for water and electricity and food must be for all, or else people whose circumstances improve might suddenly find they can't afford them.

Child benefit and pensions must be given to people who don't need the money. The wealthy are the most entitled to it, since their taxes are already paying for their own subsidies, and subsidising other people's on top of that.

For a TLDR just read sections 2 and 3.

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Section 1 - background

Most states pay the long-term unemployed some kind of income (AKA the dole). It's supposed to be just enough to survive. If you don't pay them it, you end up with high rates of sickness, malnutrition, etc which the state then has to deal with - so in the end it's much less expensive to pay the dole than not to.

Note1. A regular payment is not the only option. It is just the conventional one. Other proposals such as guaranteed employment (building follies, moving the homeless to state-run farms), direct provision (eg food stamps, council housing, soup kitchens, communism), could be the subject of other proposals from other people.

Note2. Other subsidies are normally provided alongside the dole, like housing and disability benefit, and like state pensions for the old and child benefit for the young. But for now assume they remain unchanged. Only the dole for working-age adults will be transformed in the following sections.

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Section 2 - the welfare trap

When the unemployed get jobs, they stop receiving the dole. So when someone unemployed takes a job, he gains a new income but he loses another source of income.

In ROI the minimum wage is 400€/week and the dole is 200€/week. So if you go off the dole and get a job you gain 400€ but you lose 200€, so effectively, your new income is being taxed at 50%.

If you can only get a part time job for 20hours/week, you gain 200€ and you lose 200€, so you are working for nothing. On zero hours contracts the situation is even worse.

So there is a strong financial incentive to stay on the dole.

(On top of that, when you are at work, you need to pay for childcare, transport, lunches... And you don't have time to do the valuable things you spent your time on before - learning skills, maintaining your home, supporting your family, charity work or helping your neighbours.)

Most people want to get jobs, just for self-respect or other social reasons. There are also many people who don't want to work, and maybe have good or bad reasons for that. Either way, right now people are incentivised to remain unemployed. They are punished for getting jobs by being pushed into financial precarity, and rewarded for staying on the dole.

This is called the "welfare trap" - people literally cannot afford to get a job. This is the problem that UBI fixes.

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Section 3 - UBI and workers

The solution is to just pay everybody the dole. For example here is how it applies to workers:

The guy who gets a part time job on 200€ still receives his 200€ dole. The guy who makes 2000euro a week (100,000€/year) still gets paid an extra 200€.

There's a catch of course. The income tax rates go up too. That's how the whole scheme is paid for.

Imagine everybody pays an extra 20% tax with no income threshold:

• The guy on the dole still gets 200€

• If he gets a part time job his income is 200+200x80%=360€

• If he gets a full time job it is 200+400*0.80=520€

• The guy getting 2000€/week - his net income changes by 200-2000*20%. He loses 200€/week. He is paying somebody else's UBI. In the end there is no financial burden on the state. It is all covered by the extra income tax.

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Section 4 - UBI and other examples

[some of this section is just my personal opinion]

So the dole is no longer conditional - on visiting on office every week, writing a certain number of job applications per week, the duration of unemployment, being "available for work" or anything else. This is many consequences but here are some big ones:

• students - now they also get paid this "just enough to survive" cheque every week. No more need to also hold down a job, get into debt, or be malnourished for four years.

• housewives - they have their own independent income. This means financial independence.

• The artists and self-employed - they have a safety net of 200euro per week. It's expected that more people will become artists under UBI - more art will be created, because people will be more willing to take career breaks and see what happens, and struggling artists will be able to persist longer.

• The between-jobs - People will have more fruitful careers, because they can afford to spend time unemployed, looking for the right new job.

• Dole office workers. The dole offices can transform into job centres. They already pretend to have this function, but with UBI that will be their sole function.

• Abused workers - now that people are guaranteed a living income if they resign from a job, they will be more willing to bargain for fair work conditions, report employers breaking the law, etc. For example many people will quit amazon warehouses, and amazon will have to improve working conditions or else face a huge problem.

• immigrants - this is a special case. You might want to avoid incentivising immigration by, for example, excluding from UBI new immigrants who are not employed, for some time period. It's similar to what is done now with the dole. More on this later.

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Section 5 - Fairness

So as seen above UBI can be an incentive to quit a job, as well as an incentive to quit the dole. But in both cases, it is a good thing. Ther are no known situations where UBI results in a worse outcome.

Today there are separate taxation and benefits schemes. You can be a tax-payer or a beneficiary. People can be trapped in welfare or trapped in employment. UBI unifies the tax/benefits systems, so there is no barrier. People can move between employment and unemployment to improve their lives or escape bad situations. UBI just removes a problematic barrier. That's all it does. It is an improvement and simplification of two existing dysfunctional systems.

An analogy is stamp duty. It creates a barrier to moving house, so it's more difficult to up-size when you're young, and it's also more difficult to down-size when you're old. Lots of people stay in houses much too big or too small just because of the expense of moving. It's a barrier to changing your living condition - in either direction - when you need to. And it's bad for the individual and also for society. There would be only good results if stamp duty were removed, and replaced by a fair tax (eg a property tax or land tax).

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Section 6 - Families

This section is about the aforementioned guy above who earns 2000/week and is now losing 200 of that.

He is paying mostly for students and housewives. But when he has a family, each of his dependents will be receiving a UBI, saving him money. He might not be so opposed to UBI when he sees the benefit of his student-children being financially independent of him.

So UBI is costing him money now, but it will pay him back in the future at the time when his family has the most need of it.

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Section 7 - The old and young

In general society comprises children, the working age, and pensioners.

Child benefit is already just a UBI for children. It is a 35euro/week payment to support each child, regardless of income. It is a good example of a real-world UBI. There is no need to change it.

Pensioners already have a somewhat fair system. It may need some reform but that is another day's work. For example the state pension can be replaced with a UBI for the old, as an optional second step.

The issue now is a simple one - UBI for everyone of working-age.

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Section 8 - The welfare system

All of the above benefits happen naturally. You get all these good effects, all across society ... not by creating a complex legal and institutional framework to consider each point and make it happen ... but by removing one.

You get rid of the whole complex dole/benefits institution, and you create one universal tax levy and one universal payment. Then this whole societal transformation comes for free.

This is why UBI proponents, some of them sound a bit naive, like they believe in an impossible dream. UBI sounds too good to be true. But the maths and the sociology are both sound. It's just a very good idea - so good it's hard to believe until you look closely.

Proponents also mostly think the payment should be much higher than the dole is now, to have the effect of shifting income from the rich to the poor. But really that's a separate issue. You can do that just as easily today but shifting around the tax burdens, without introducing a UBI at all.

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