Image source: NYPL via Wikimedia Commons (public domain).
How do taxpayers pay for a UBI? If the "UBI" takes the form of a redistribution of market power, the question doesn't arise. But I'll answer it anyway!
As a base case, consider a Universal Basic Income funded by a tax on land. From the viewpoint of citizens who don't own any land, the UBI is just that: a UBI. From the viewpoint of citizens who own an average amount of land (however the "amount" is measured for tax purposes), the package is neutral: what the tax takes, the UBI gives back. From the viewpoint of citizens who own more than an average amount of land, the tax takes more than the UBI gives back. On balance, then, a UBI funded by a land tax is a redistribution of income from the land-rich to the land-poor.
But, to effect such a redistribution, we don't need to collect the redistributed income as tax and pay it out as welfare. We only need to strengthen the market power of the land-poor relative to the land-rich. Even if this redistribution of market power is achieved by means of a tax, the purpose of the tax is not to raise revenue, but to influence behavior; the revenue thus raised is not the point. (What then should the revenue be used for? Whatever would maximize support for the tax among marginal voters!)
A tax of $X/week on vacant lots and unoccupied premises imposes an additional cost of $X/week on failure to get a tenant, and therefore reduces, by $X/week, the minimum rent that will persuade the owner to get a tenant (the "reserve" rent). That doesn't mean that the actual rent falls by the full $X/week, for two reasons. First, if the supply curve is shifted down the price axis by $X/week, its intersection with the demand curve is shifted downward (giving a reduction in rent) and to the right (giving an increase in the quantity supplied), and the downward component is somewhat less than $X/week. Second, such a tax, by forcing land into use, generates economic activity which raises the capacity to pay rent for any particular piece of land, shifting the demand curve in the opposite direction. So the "reduction" in rent is not necessarily an absolute reduction, but a reduction relative to tenants' capacity to pay—which is what matters.
(And of course a UBI that only helps with the rent isn't enough to live on. But it still helps!)
Notice that the "vacancy tax" (as it tends to be called) applies not only to what real-estate agents call vacancies (properties advertised for rent), but also, and more importantly, to speculative vacancies—i.e., unoccupied properties that are not available for rent. The former "vacancies" strengthen the bargaining positions of prospective tenants; the latter weaken them. So the aim of the tax is to convert vacancies of the latter kind into the former kind and make owners try harder to fill them. To be effective, the tax must also apply to vacant lots, so that it cannot be avoided by demolishing buildings or failing to build them in the first place. To create jobs as well as housing (or, perhaps we should say, to reduce rents for people-as-producers, as well as for people-as-residents), the vacancy tax should apply to commercial/industrial property as well as residential property. The central bank will not step in to reverse the ensuing fall in unemployment, because a vacancy tax, being disinflationary, reduces the NAIRU.
So let me return to the original question: How do taxpayers pay for this off-budget UBI?
As taxpayers per se, they don't, for three reasons. First, and most obviously, the redistribution of market power and the ensuing redistribution of income are off-budget. Second, although the redistribution is driven by a tax, the tax is meant to be avoided, not paid; it's the avoidance of the tax that redistributes market power. Third—and this is the big one—avoidance of the vacancy tax requires economic activity, which broadens the bases of other taxes, allowing their rates to be lower. Thus proponents of a vacancy tax can offer an overall tax cut that opponents can't.
But if taxpayers don't pay as taxpayers, in what role do they pay? As property owners? Not necessarily, because the reduction in rents is only relative to capacity to pay, and this capacity increases as wasted land is made available for earning and producing. (Indeed there is a long list of ways in which property owners would paradoxically profit from a vacancy tax.) So there is nothing to say that property values must fall in absolute terms. And if they don't, who pays? Obviously those who are earning and producing more. But that is no loss to them, because they are only doing what they always wanted to do, but were previously prevented from doing by lack of available, affordable space. In short, under that scenario, the UBI is paid for by the improvement in the health of the economy. So it isn't exactly free. But neither is it exactly a burden!
