Universal Basic Income The Problem with Universal Basic Income

The idea of guaranteeing every citizen a state-funded allowance in place of welfare payments has gained widespread backing. But two new books supporting the idea betray its practical drawbacks.
Quelle: dpa
Switzerland had a referendum on universal basic income last June, in which 77 percent voted against the proposal.
(Source: dpa)

When a political idea meets almost no opposition, it’s usually down to one of two reasons. Either its time has simply come, or it’s so unusual that no-one dares confront its complicated details. Which category the idea of a universal basic income, or UBI, falls in is still uncertain.

In the last two months, Thomas Straubhaar, former president of the Hamburg Institute of Economics, and Götz Werner, founder of German drugstore chain DM, collaborating with best-selling economics authors Marc Friedrich and Matthias Weik, have both released books in Germany backing the idea.

UBI is a no-strings-attached monetary allowance provided by the state to all citizens, regardless of their employment status, age or existing wealth. It is often designed to replace social benefit schemes altogether. Those in favor see it as a solution to unemployment and the changing economy in the wake of automation. However, it draws criticism from both right and left, with conservatives convinced it will lead to no one ever working again and those on the left taking umbrage at the prospect of giving handouts to even the very wealthy.

Mr. Werner’s book connects UBI to other reform proposals, such as stricter banking regulations; the introduction of a completely independent bank; and a Marshall Plan for crisis states, although the connection can be hard to recognize.

Reading the books, one begins to understand why UBI has advocates from so many political corners, but also why, despite such popularity, it has not yet been introduced anywhere. The concept is used as an umbrella term for countless slightly contradictory tax and social reform proposals.

Mr. Straubhaar and Mr. Werner et al have similar rationales for why we so urgently need UBI, but their proposed solutions are rather different.

At the core, a universal basic income is nothing more than a fundamental tax reform. Thomas Straubhaar, former president, Hamburg Institute of Economics

Mr. Straubhaar writes “at the core, a universal basic income is nothing more than a fundamental tax reform.” The Swiss economist suggests financing UBI by taxing all income evenly. He emphasizes that UBI would solve the demographic problem of state pension schemes, and frames it as simply broadening the tax basis, rather than an unconditional payment to everyone.

Mr. Werner on the other hand wants to exempt all income and assets from taxation, and finance UBI entirely from VAT. But he conveniently fails to address the small detail that a basic income wouldn’t be worth much if the VAT from which it was funded pushed prices so high it would negate individuals’ extra wealth.

The tax burden is ultimately on the consumer, as “companies pay corporate and income tax, but calculate that when setting prices,” according to Mr. Werner. This argument would hold if all companies made the same planned minimum profit, but in reality some companies experience losses while others achieve huge profits, and so the ability to shift their tax burden on to their customers therefore differs widely between companies.

Mr. Werner categorizes every bank deposit and every purchase of shares or property as an investment, and believes these should be exempt from taxation, with VAT solely funding UBI.

Mr. Straubhaar rejects this idea, as do Mr. Weik and Mr. Friedrich. Mr. Werner's collaborators write that that “a lot of money in the hands of very few will sooner or later guarantee an extraordinarily inefficient distribution of funds.” If fewer people decide what capital is used for, then that has “nothing to do with the free market and fair competition.” It should be apparent that doing away with all income and wealth tax, as Mr. Werner suggests, would bolster unequal concentration of wealth rather than counter it.

Neither book advocates such a generous amount of UBI as was mooted as part of a referendum on the matter in Switzerand last year: 2,500 Swiss francs, or about €2,300, a month). Instead, they leave the job of providing exact figures up to policy makers.

One thing the many differing proposals for UBI seem to agree on is that there should be a minimum allowance for everyone in the population, regardless of income, assets and work. But theories on execution vary. Mr. Straubhaar’s theory would allow Germans to claim the sum no matter where in the world they live. Mr. Werner and co, on the other hand, don’t specify a part of the world, nor the conditions under which they’d be eligible for their proposed unconditional basic income.

When theorists ignore the difficult questions, even half-baked theories can sound visionary.


Norbert Häring reports on economics and finance for Handelsblatt from Frankfurt. To contact the author: [email protected]