UBI or the minimum wage?
evidence from a whole economy receiving a full-size UBI, and no examples of it replacing the minimum wage either, the evidence available suggests that a UBI would not have any negative effects on employment levels.
3.3
Funding a UBI
The main argument lobbied against a UBI is its cost, and this is likely the reason that one has never been implemented before. Unlike current social security schemes, a UBI would involve payments of a large size to everyone, regardless of need, and many argue that this is unaffordable and an inefficient way to spend government money. Nearly all models of UBI schemes agree that increased taxation will be necessary to fund the scheme (Krämer, 2020), and most agree that it would have to be the rich who are taxed. However, an increased and more skewed progressive income tax would essentially act as a phase out for the UBI; higher earners will not be benefiting from the policy if they end up seeing a larger tax increase than the size of the payment they receive (Hoynes and Rothstein, 2019). High income taxes would also disincentivize work for high-earners, as they would not receive as much money for their labour, leading to labour supply shifting in. While this shift in in labour supply is usually quite small, the tax hike needed to fund the UBI would be very large, so it would likely be larger experienced previously and may pose problems for the economy in the long run (Ghatak and Jaravel, 2020). The exact methods that could be used to fund a UBI are debated, but the following are my calculations on how it could be done. Firstly, the gross cost of the UBI (the total cost to the government) can be calculated by multiplying its size by the amount of eligible recipients. The living wage (which my UBI would aim to match) is usually estimated to be around £15,000, the UK population is approximately 68,117,554 ( U.K. Population (2021) – Worldometer, n.d.) , and 12.7 million of these were under 16 (A.I. team, 2021), leaving 55,417,554 recipients. This means that the gross cost of a UBI in the UK is approximately £831,263,310,000. In 2018, the government spent £224 billion on social security schemes, including national insurance pay-outs (Department for Work and Pensions, 2018), and since a UBI would replace these, this reduces the net cost of the UBI to £607,263,310,000. However, as of the tax year starting April 2020 the UK will have an 18% corporation tax (HM Revenue and Customs, 2021), one of the lowest in the world; France taxes 28%, Germany 30% and even America taxes 21%. Considering that, due to the abolition of the minimum wage, the cost of labour is also now considerably lower in the UK compared to rival countries, the corporation tax could easily be raised to 30%, or even as high as 35% without discouraging business too much. A raise of corporation tax to 35% would raise approximately £47 billion a year, leaving the total left to fund at £560,263,310,000. Furthermore, President Biden is currently pushing for a global minimum corporation tax to help close low tax havens, so this increase in corporation tax may be mirrored worldwide, reducing the amount of firms it would cause to emigrate. The rest of this would have to be funded through higher taxes, likely higher income taxes for the top earners. The UK government currently raises £778 billion a year through tax receipts, not including corporation tax (Keep, 2021), so would have to raise its tax receipts by almost 72% to fund a full-scale UBI. This is clearly not a realistic short-term goal – especially considering the government’s current high levels of debt – and would need to be worked towards for some time before it is achievable. This means that, while not impossible, building up funding for a UBI would take many years that would likely span over multiple terms in government. Currently, a UBI does not have widespread support, so it is unlikely that multiple, successive governments will agree and work towards one in the near future.
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