Amidst the COVID-19 Pandemic, Are We Experiencing the New Universal Basic Income?

The only way for a universal basic income (UBI) to be funded would be through raising taxes – substantially. There I said it! It was simple. No one really debates this topic since the idea of raising taxes is very unpopular. And this is just a start. Since taxes are the government’s real source of income. The national debt continues to rise to make things even more difficult to fund something like UBI. And then you have a situation where the US is a debtor to China and Japan- approximately 37% of the US public debt via bonds. The debt was pretty bad in the 1940s due to WW2, however, the debt was an investment to stimulate the economy. Franklin D. Roosevelt raised spending but also raised taxes. The important distinction here is that he raised taxes to balance the debt. However, we are currently reaching those heights without a crisis such as WW2 and now that we have COVID-19 we can expect a much higher debt since it was already at an all-time high just prior to the pandemic.

Much of this has to do with political parties in their management of fiscal policies. “During the Clinton administration, there was an official surplus of $419 billion during fiscal years 1998, 1999, 2000, and 2001” Balanced budget amendment. (23 April 2020) while Republicans tend to be viewed as fiscal conservatives (based on research it seems further from the truth). If you look at the US debt under Bush it skyrocketed because Bush gave tax cuts and increased spending in an unpopular war. Most of these tax cuts were aimed at benefiting the wealthy. Wars tend to add to the US debt (both Bush presidencies started wars). Republicans overall tend to be war-prone. And then the Obama Administration had to deal with the Great Recession and the housing crisis where he then injected stimulus further increasing the US debt, however, this seems to be the right move to getting the economy back in action as it seemed to have worked. The federal government actually made a profit with the business loans. And then came Trump Administration taking over while there’s a booming economy and did the same thing Bush did – tax cuts without cutting spending and further increased the national US Debt. I don’t find any particular reason the economy needing this tax cut except to gain further political popularity towards Trump’s base supporters which further placed the country in greater debt.

And then there’s the situation with the baby boomers retiring. What’s worse than tax cuts is social security and medicare taking the biggest piece of the government income pie. These are the two entities that are growing out of control as far as spending and it’s getting worse every year. The US is the only advanced economy where the debt relative to GDP is to continue growing. It’ll be like Greece’s and Italy’s debt situation. Only that these two countries had the European Union to bail them out. Nobody is going to bail out the US it’s “tooo huuuuge” (Trump’s version).

The US has an AAA credit rating giving investors confidence in buying US bonds which may now be at risk. Here’s where it gets dangerous. At the rate of accrued debt, in less than 10 years from now, 1/5 of all federal taxes will go to interest payments. That’s 20% of the government’s income that is taken away for defense, infrastructure, education, etc… and that’s with low-interest rates. If the interest rates increase, it gets worse. If the debt continues to rise over GDP then the US will not be able to pay its bills that include bonds to investors (china/japan and US), national security, social services, etc.

To get out of the growing debt, the US will have to restructure two of the most financially degenerative entities: medicare and social security. The issues with medicare and social security have been a heated political debated for decades. To address the problems with Medicare, the Medicare Prescription Drug Benefit seems to be a promising move in the right direction. However, that alone will not be the silver bullet. Either income taxes would need to be raised to twice its current amount or sales taxes to approximate a 30% hike. In order to address social security, in addition to the income or sales tax hike, raising the retirement age to 70-plus would be needed.

Even though the Universal Basic Income idea seems like a good plan for some, dealing with the US debt would have to come first. Most of the initiatives that combat the US debt tend to be politically unpopular. Eventually, a US President will be forced to deal with these really unpopular obstacles and major change is going to be needed. I wouldn’t want to be in the shoes of such a US President.

Author: Luis Fernandez

Luis Fernandez is a businessperson in the hotel and software industry. When not glued to a screen, he listens attentively to his 4 years old's imagination.

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