Who Will Pay the Taxes for Universal Income from the Federal Government?

Elon Musk is a visionary. He thinks he will build a spaceship to take rich people to Mars, and make a profit. He also thinks he will produce an electric car he can sell at a profit.

Along with these visions, he has a vision for a universal federal welfare scheme that will pay the vast majority of Americans a comfortable living because robots will have taken their jobs.

There is a pretty good chance we end up with a universal basic income, or something like that, due to automation. "I am not sure what else one would do. I think that is what would happen.

How good a chance is "pretty good"? I would rate this chance at about the chance of winning the next state-run lottery for $300 million, with 10,000 people buying one ticket each and then dividing the payout. It sounds reasonable until you look at the figures.

He is not alone in this suggestion. But the question arises: "Who will pay for this historically unprecedented permanent transfer of wealth?" How much? From whom to whom?

Robots do not pay taxes. So, revenues from income taxes and Social Security and Medicare taxes will fall.

What about corporations that use robots? Let's look at the main one: Amazon. Amazon bought the main supplier of warehouse robots, Kiva Systems, in 2012. It no longer sells them. It employs 100% of Kiva's output.

So, will the government tax Amazon? No. Why not? Because Amazon never makes a profit. It is corporate strategy to avoid profits. It never pays dividends. It never pays corporate income taxes. Its market share grows.

The people who say that there must be a permanent wage for non-working Americans do not understand the rudiments of economic theory. The free market system is consumer driven. Consumers own the most marketable commodity: money. Businesses compete to get access to this money: purchases. Businesses must constantly cut prices and increase quality. If one business makes a profit after the payment of all expenses, the others imitate this success. Profit margins then shrink.

There is an inherent tendency for business profits to fall in free market economy. Customers win from all innovation. This includes cost reductions through the introduction of robotics and algorithms: the famed "Internet of things." All of this tends to reduce manpower. The model is the history of agriculture: from 90% of the American population in 1800 to 2% today, plus maybe 10% in support industries.

In an important study by two economists at Ball State University, we learn that the decrease in jobs in American manufacturing has come from increases in productivity -- in short, mechanization.

Manufacturing has continued to grow, and the sector itself remains a large, important, and growing sector of the U.S. economy. Employment in manufacturing has stagnated for some time, primarily due to growth in productivity of manufacturing production processes. Three factors have contributed to changes in manufacturing employment in recent years: Productivity, trade, and domestic demand. Overwhelmingly, the largest impact is productivity. Almost 88 percent of job losses in manufacturing in recent years can be attributable to productivity growth, and the long-term changes to manufacturing employment are mostly linked to the productivity of American factories. Growing demand for manufacturing goods in the U.S. has offset some of those job losses, but the effect is modest, accounting for a 1.2 percent increase in jobs beyond what we would expect if consumer demand for domestically manufactured goods was flat. Exports lead to higher levels of domestic production and employment, while imports reduce domestic production and employment. The difference between these, or net exports, has been negative since 1980, and has contributed to roughly 13.4 percent of job losses in the U.S. in the last decade. Our estimate is almost exactly that reported by the more respected research centers in the nation (pp. 6-7).

There was no hue and cry for the federal government to put these people on a lifetime dole. There will be none in the future, either.

Almost 70% of the federal budget goes to Medicare, Social Security, the Pentagon, and interest payments on the debt. These are non-discretionary portions of the budget. Another 13% is non-discretionary, for a total of almost 85%. This money is spoken for.

Any additional programs must come through tax increases, not from raiding the other programs' budgets. Existing constituencies will block any raids on existing programs.

So, where will the money come from to put the unemployed on a lifetime federal dole? The proponents never say.

Until they say, and also show the figures, we can safely ignore this proposal. It is not going to happen.