Basic Income: Here’s Where the Money Will Come From.

It’s actually quite simple.

I’ve already written an article about how Basic Income is EASILY affordable, in terms of the fundamental economics of real resources. That’s much more important than the relatively trivial question of where the money is coming from.

Nevertheless, people still want to know where the actual money for everyone’s Basic Income payments will come from.

The answer will vary from one country to another and will depend on the particular scheme in question, but I’ll try here to give broadly applicable answers about how funds will most likely be raised in a fairly typical, advanced, developed economy.

For the purpose of this article, I’ll leave to one side both MMT-based explanations (which aren’t necessarily wrong) and suggestions based on having an entirely new monetary system. I’ll stick to the conventional approach of paying for government spending through taxation.

So, how will Basic Income be funded?

There are perhaps five main sources:

1. Money diverted from existing welfare schemes.

Basic Income can replace many existing welfare schemes. All sorts of existing welfare payments — for the unemployed, for the sick, for children and for other people on low incomes — will no longer be needed, because all citizens will be receiving a Basic Income.

Not all current welfare schemes can be abolished, but even some of those that remain will be able to be scaled back, once every citizen is receiving Basic Income.

Most of the money currently being used to fund existing welfare schemes can simply be diverted to pay for Basic Income instead.

2. Money diverted from existing state pension schemes.

Some basic state pension schemes will no longer be required, because pensioners will be receiving a Basic Income instead. So the tax money that was used to pay those state pensions can be redirected to the Basic Income scheme.

It is often envisioned that Basic Income rates for pensioners will be higher than for working age adults. So this switch doesn’t mean pensioners will lose out in any way.

3. Money currently spent on bureaucracy.

Many existing welfare schemes rely on a complicated, bureaucratic system of means-testing. A sizeable army of government administrators is required to administrate this system — and they’re employed at taxpayers’ expense.

The vast bulk of that bureaucratic means-testing industry will no longer be needed under a Basic Income system — enabling significant cost-savings.

Furthermore, those administrators can then be employed in the private sector — and their earnings will be taxed. They can do something economically useful, and contribute to tax revenues, instead of being a net drain on those revenues.

4. Money diverted from tax allowances and tax reliefs.

Personal Tax Allowances protect the initial incomes of wage earners. Basic Income, however, would take over this task, by providing a guaranteed income to every resident citizen — meaning those tax allowances could be scrapped, saving the treasury vast sums in lost tax receipts.

This will mean that a lot of additional tax revenue can be raised, without any actual increases in tax rates.

Taxpayers will be paying more in tax, because they no longer have a tax allowance, but they’ll be compensated by getting a Basic Income instead.

Furthermore, with every pensioner receiving a Basic Income, the need to incentivise people to save for retirement will not be so great. Consequently, tax relief on pension contributions may be reduced or may no longer be considered necessary at all. Other, more modest tax-efficient savings schemes might be used instead — at much lower cost in terms of lost tax revenues.

5. (Modest) New taxes or changes to tax rates.

In all likelihood, some new taxes or increases in tax rates will accompany the introduction of a Basic Income system. But because the bulk of the costs, in most cases, can be covered by the sources outlined above, only relatively modest changes to actual tax rates are likely to be required.

Not so difficult, after all.

All in all, organising the finances for a Basic Income scheme isn’t anywhere near as difficult as a lot of people seem to imagine.

The idea that Basic Income is financially unaffordable, is simply a myth, often perpetuated by people who are not taking into account the simple, logical and fairly obvious changes that would most likely accompany its introduction.

Basic Income is very much affordable — economically and financially.

So what are we waiting for?