Why prepare a UBI now (but keep it dormant)?
History’s best natural experiment in “cash for all”—Alaska’s Permanent Fund dividend—suggests small, universal transfers need not kill work. Over four decades, researchers find no fall in overall employment and a modest rise in part‑time work (~1.8 ppts) when the dividend arrives, consistent with local‑demand effects offsetting any labour‑supply drag.
Formal trials echo this. Finland’s two‑year basic‑income experiment improved well‑being and eased bureaucracy; employment effects were small/insignificant. Stockton’s guaranteed‑income pilot, by contrast, raised full‑time employment and improved financial stability—likely because volatility fell and job search improved.
But design matters. The COVID‑era surge showed that large, deficit‑financed transfers into supply‑constrained economies can stoke inflation. Federal Reserve researchers attribute roughly ~3 percentage points of the 2021 inflation burst to unusually strong U.S. fiscal support (estimates vary). A UBI must therefore be revenue‑backed, smoothed, and conditional on macro room.
The UBI “autopilot”: rules, not discretion
Pass the plumbing now; pay later, by rule. Enact a statute that defines the benefit formula, funding sources, and automatic triggers, but keeps the per‑capita amount small until the triggers fire.
Formula (illustrative):
Base dividend per adult each quarter = three‑year moving average of earmarked per‑capita revenues (see Pay‑fors) × safety factor, where the safety factor adjusts to keep the primary deficit within an agreed band over the cycle.
Escalator triggers (all must hold for ≥6 quarters):
- Productivity–pay gap: real output per hour rising faster than median real earnings.
- Jobs shortfall: prime‑age employment‑to‑population below a benchmark trend.
- Inflation anchor: 2‑year‑ahead expectations inside the target band.
Pause rule: if market‑ or survey‑based inflation expectations breach the band, freeze the escalator. (Think of it as a fiscal version of the “Taylor rule”—transparent and reversible.) Evidence on pandemic‑era inflation underscores why this brake matters.
“We’ll turn on more cash only when productivity is up, middle incomes aren’t keeping pace, jobs lag—and inflation expectations stay behaved.”
Keep it pro‑work: a small universal floor + an earnings bonus
A UBI that replaces earnings is a political and economic dead end. Instead:
- A modest universal floor (predictable, monthly), high enough to insure against shocks and bargaining‑power losses as automation spreads, but not high enough to discourage work.
- An earnings bonus (negative‑income‑tax/EITC style) that rises with wages at the bottom and phases out slowly. Decades of evidence show the EITC boosts labour‑force participation—especially for single parents—while any reductions are concentrated among some secondary earners; shallow phase‑outs keep work incentives strong.
- Participation “credits,” not sanctions. Add a small monthly kicker for verified hours (work, accredited study, caregiving, or community service). No punitive conditionality; just a bonus for participation.
- Nudge saving, not a spending spike. Default 20–40% of the dividend into Skills/Retirement/Health wallets(fully opt‑out). Defaults are powerful: automatic enrolment has massively raised 401(k) saving. The same behavioural logic tempers demand surges while building household balance sheets.
Pay‑fors that scale with the economy (not with headcount)
1) Carbon & climate revenues (where they exist).
- In the EU, the ETS raised €38.8bn in 2024 (cumulative ~€184bn since inception). The new ETS2 (fuels for buildings/road transport) starts in 2027 and will also feed the Social Climate Fund (SCF), budgeted at €86.7bn (2026–2032). Dedicate a fixed share of ETS/ETS2 proceeds to the dividend.
- Note (Canada): the federal consumer fuel charge and Carbon Rebate to individuals ended on March 15, 2025; any UBI there would need alternative bases (e.g., resource royalties/LVT) or provincial schemes.
2) Land‑value taxation / value capture.
A classic economist’s favourite: LVT is efficient (non‑distorting) and progressive on wealth. Hypothecate a slice of municipal LVC (zoning/transport uplifts) or a national LVT to the dividend.
3) Stock buyback excise—use the increment.
The U.S. already levies 1% on net buybacks; the administration has proposed 4%. Earmark only the increment above today’s rate to the UBI fund to avoid double‑counting baselines.
4) Sovereign‑asset dividends (resource royalties, spectrum, landing rights).
Where resource rents or licence auctions exist, follow Alaska’s playbook: seed a Future Dividend Fund whose investment returns co‑finance the UBI. Alaska’s labour‑market record—no job loss, slight part‑time increase—suggests such funding can be macro‑benign.
5) CBAM/ETS linkages (EU/UK).
As the carbon border levy (CBAM) phases in from 2026, reserve a modest, rules‑based share to the dividend to keep the politics of climate policy durable.
Delivery plumbing: identity, rails, and fraud
- Payment rails: use real‑time systems (e.g., the U.S. FedNow, launched 2023) to pay monthly and reduce leakage.
- Identity & compliance: leverage existing tax/benefit IDs; apply KYC/AML proportionality (low risk for domestic, small, recurring transfers).
- Transparency: publish quarterly dashboards: revenue per capita, the moving average, the safety‑factor setting, and the state of triggers and pause rules.
Inflation safety: pair cash with supply unlocks
Cash without capacity can be inflationary. The autopilot therefore requires supply levers to move in step with any benefit increase: housing permits, grid/energy build‑out, and childcare places. Automatic stabilisers literature supports rule‑based fiscal tools; align UBI escalators with pre‑committed supply timetables to prevent bottlenecks from turning into price spikes.
Country dials (same logic, different sources)
United States
- Funding mix: buyback‑tax increment + LVT/value capture + spectrum and other licence revenues; state‑level carbon where applicable.
- Integration: fuse the earnings bonus with the EITC (monthly advance option), maintaining shallow phase‑outs that preserve labour‑supply gains documented in the literature.
European Union/UK
- Funding mix: dedicated shares of ETS/ETS2 and CBAM receipts (complementing the SCF), plus municipal LVC. Do not crowd out the SCF’s poverty‑mitigation mandate; add a dividend slice on top as revenues scale.
- Governance: a euro‑area template for autopilot triggers avoids a subsidy race; member states adapt payout size and earnings‑bonus parameters to local labour markets.
Resource‑rich & emerging economies
- Funding mix: sovereign‑asset dividends (royalties, spectrum) seeded into an endowment; gradual LVT adoption; carbon‑market proceeds where present. Alaska’s experience shows how to build legitimacy early.
Policy Boxes
Box A — UBI Autopilot (one‑page explainer)
• Base: quarterly per‑capita payout = 3‑year average of earmarked revenues × safety factor.
• Escalator: turns on only if (productivity > median‑pay) and (prime‑age EPOP below trend) and (inflation expectations anchored) for ≥6 quarters.
• Pause: automatic if expectations breach band.
• Nudges: default 20–40% to Skills/Retirement/Health wallets (opt‑out).
• Earnings bonus: a monthly EITC‑style top‑up with shallow phase‑outs.
Box B — Funding menu (country mix differs)
• EU/UK: ETS/ETS2 shares + CBAM, with SCF unaffected; LVT/LVC.
• US: Buyback‑tax increment + LVT/LVC + spectrum; carbon where present.
• Resource‑rich: royalties/licences into a Future Dividend Fund (Alaska‑style).
Box C — Why this stays pro‑work
• Small universal floor + an earnings bonus that raises returns to work at the bottom.
• Evidence: EITC expansions increase participation; careful phase‑outs avoid second‑earner penalties.
Implementation playbook (12–24 months)
Phase 0 (0–6 months): Law & rails
- Pass the Autopilot Act: define revenue streams, formula, triggers, pause rule, and dashboards.
- Map revenue baselines: ETS/CBAM shares (EU/UK), buyback‑increment/LVT/spectrum (US), royalties (resource‑rich).
- Stand up real‑time payment integration (e.g., FedNow in the U.S.).
Phase 1 (6–12 months): UBI‑Lite
- Start a small dividend, strictly from earmarked revenues; launch the monthly earnings bonus (advanceable EITC in the U.S.).
- Default 20–40% into Skills/Retirement/Health wallets (opt‑out).
Phase 2 (12–24 months): Trigger readiness
- Publish the trigger dashboard quarterly (productivity vs median pay; prime‑age EPOP; inflation expectations).
- Adopt paired supply milestones (housing permits, grid capacity, childcare seats) that must be met before any escalator step takes effect.
KPIs
- Median real earnings vs productivity (gap closing).
- Prime‑age EPOP trend.
- Inflation expectations within band.
- Poverty among working‑age adults and child poverty (monthly). (The 2021 expansion of the U.S. Child Tax Credit offers a benchmark: it lifted ~2.9m children from poverty and pushed the SPM child‑poverty rate to 5.2%, illustrating the power of monthly payments.)
The politics
Tell voters: “As machines get better, your life gets safer.”
Tell investors: “We won’t yank the wheel—benefits scale by rule, not whim.”
Tell central bankers: “This is pay‑as‑you‑go and pause‑able; it won’t fight your anchor.”
Bottom line: Build the UBI rails now. Fund them from rents, pollution and land, not from payrolls. Keep a small universal floor, add a work‑boosting earnings bonus, and only scale when the economy can absorb it. That is how a liberal, future‑proof settlement shares the gains of abundant machines—without stoking inflation or dulling the urge to work.
Sources (selected)
- Alaska dividend — employment effects: Jones & Marinescu, AEJ: Economic Policy (2022); NBER WP (2018).
- Finland basic‑income results: Kela/European Commission summaries (no significant employment effect; better well‑being).
- Stockton SEED outcomes: University of Pennsylvania / SEED briefing (full‑time employment up; financial stability improved).
- Pandemic‑era inflation & fiscal contribution: SF Fed Economic Letter (≈3 ppts); recent Fed staff survey of estimates.
- EU ETS/ETS2 revenues & SCF: ICAP EU‑ETS profile (2024 revenue €38.8bn, cumulative €184bn); EC pages on ETS2 and SCF.
- CBAM timeline: European Commission/Parliament (transition 2023–25; full from 2026).
- Canada Carbon Rebate change (2025): CRA (federal fuel charge and rebate to individuals stopped March 15, 2025).
- Buyback excise (US): IRS final rules (1%); proposals to raise to 4% (FY2025 Budget).
- Land‑value tax efficiency: IMF working paper (Schwerhoff, Edenhofer, Fleurbaey, 2022).
- EITC & labour supply: Eissa–Liebman (1996 QJE) and subsequent reviews.
- Defaults & saving: Madrian–Shea (2001 QJE) on automatic enrolment.