The problem with a basic income is that for it to be close to enough to live off, it'd be very very expensive — way too expensive. Giving everyone in the US enough to be above the poverty line, say $12,000 (which is hardly enough to live off in many areas), would cost $3.8 trillion, which is what the entire US federal budget is now.
So, people with disabilities and people who are unemployed would be left worse off, with an amount they can barely live off. Not exactly the situation we want after enacting our utopian basic income program.
The only way around that would be to give people with disabilities and the unemployed more money. But then that means you can't eliminate the welfare institutions needed to identify them and cut them checks.
You can correspondingly increase taxes on people earning substantially more than the basic income. Unconditionally increasing everybody's final (post-tax) yearly income by $12k isn't an outcome anybody expects (or should expect).
One way of modelling basic income is as a negative income tax.
However one of the advantages of making it "unconditional" (but not necessarily actually beneficial to high income people) is that it buys political acceptance from the middle classes especially.
That doesn't mean the cost goes away. You'll still have to increase marginal rates by at least 20% across the board, or if you have lower marginal rates for the poor, then even higher for the rich. ($12K is about 20% of the per-capita income in the US).
A 20% increase in marginal rates is definitely going to affect the incentive to work. Middle class wage earners will be paying 50% to 60% of their income.
If you want to save on the cost by scrapping existing benefits, the $12,000 a year would probably not fully replace the social security pension, disability benefits, or EITC/food stamp/TANF benefits people get, or at best be approximately the same. So you haven't changed things much for people at the bottom, in exchange for a massive tax hike.
> So you haven't changed things much for people at the bottom, in exchange for a massive tax hike.
A massive tax hike combined with a simplification in government should result in larger revenues. If things don't change for people at the bottom, who did they change for - all that extra money has to go somewhere, holding all other government spending constant. Presumably the lower middle classes ended up the recipients of this massive tax hike, in your perspective. But this is just a function of the progressive tax curve; it and the fixed payment can both be adjusted to achieve a particular redistribution.
The more interesting thing, to me, about an unconditional fixed income, is that it changes the nature of work at the margin. Benefits don't turn into poverty traps if they're unconditional. Incremental part-time work doesn't come hand in hand with the risk of losing your benefits. I think employment overall, and productivity, would increase.
Either you need to make a massive, basically unaffordable tax hike on middle-class and upper-middle class people, or make a decent size tax hike on everybody.
Pensioners/disabled/people receiving unemployment benefits would be worse off.
The big winners would be people who are not working and not receiving benefits today, and presumably the people who live in the same household as them.
1. It's not going to be an amount barely above the poverty line. If it's implemented "correctly" it needs to be enough to do away with all the other welfare programs. Think way, way higher than $12K per person per year.
2. With less revenue coming in, guess who's going to be hit with higher taxes? All those suckers working to make a marginally higher income.
3. If the BI is sufficiently high (think in the $45K range), there will be a lot of people leaving their jobs to live a life of leisure and avoid having their income taxed at a >50% rate. I know I would.
This utopian idea is like every other: sounds great on the surface, may even work reasonably well at a small level, but doesn't scale. Human nature is what it is.
BI alone is by definition the poorest you can be. That's never going to be nice. It's almost certainly never going to be $45k. So long as money motivates people, people should still be motivated to have more than the poorest.
OTOH, BI does not disincentivize recipients from working, like current schemes do.
The specifics vary by place but almost everywhere unemployment benefits recede rapidly when you are.. employed. If you are disabled but manage to work part time, that can be used to invalidate your disability claim.
The whole point is to get more people working, and make it worth their while. If BI results in fewer people working, it has failed.
The benefit will be universal, but then you have to pay for it with increased taxes. So the increased marginal rate will disincentivize people from working.
$45k is way too high. A basic income is per person, not per household. Median personal income in the US is only about $24k (https://en.wikipedia.org/wiki/Personal_income_in_the_United_...). About 20% of adults with income currently make less than $12.5k. And if children also receive a basic income payment (which seems to be the case in the parent post's calculation), then no one will be starving at $12k/person.
Right, but like I said, if this is to be implemented correctly your BI has to be high enough to replace existing welfare programs. One of the benefits is that you eliminate the overhead of maintaining said programs and just cut everyone a check.
You need to look at this in the "end game" scenario, which is, we need BI because there will be so much automation that hardly anyone needs to work anymore. You're not going to sell this to the poor by telling them that they're now unemployable and their BI is going to be less than their previous income + food stamps + housing subsidy + etc. So right off the bat, yeah, the BI floor needs to be the cash value of a person with full welfare benefits. And that's a lot more than $12K.
You're also discounting the inevitability that politicians will promise bumps to the BI for votes, people protesting that they can't afford to live in Manhattan on their BI, etc. It will quickly reach a point that even skilled workers will say "F this" and join the ranks of the unemployed.
If per person, it would need to top out at some level.
Assuming your household consists of 5 kids, your spouse and you. 7 people x $12K/person = $84K. That would be 2x the average family income in the US today!
Generally, I think a strong version of BI is a payment of similar value to an unemployment/disability pension.
I don't think this is impossible, but it's pushing the limits of what's possible.
To take one example, "social welfare" in Ireland is widely quoted as costing 20bn, about €370 per person. Maybe close to 500 per adult. If you could scoop 75% of that amount into a BI fund, you would be about half way to funding a BI scheme.
The other half would come from increased income tax, a low band increase. Realistically, there will be a break even point that probably should sit around median income. IE, for a median income person, their increased tax equals their BI income, more or less. So, a lot of that tax come from people who are still net beneficiaries. Most people are close to break even.
There is an extra tax burden but it's not an impossible one.
So, if I'm following your math right, you're proposing a basic income of €1000 per person annually?
That would indeed be basic and probably too low to achieve what proponents want, which is to allow the elimination of other welfare programs for the truly disabled, etc.
That doesn't make sense. You're not going to give everyone that 12000. Just those that make less than that per year, right?
If that's the case, then the amount is a whole lot less than $3.8 trillion. The calculation is then 12000 * (Amount_of_people_that_get_less_than_12k).
Latest poverty numbers (2013) that I could find indicate only 45million are living in poverty. Assuming that poverty maps to less than 12k (and assuming they get all of it, and not simply the difference), then the calculation is:
12000 * 45,000,000 = $540 billion.
Which is a lot less than what you mentioned, and would probably be even less. That is definitely do-able, if the political and social will is there.
In the first article, he says we'd need to increase taxes 35% if we don't cut any programs. If we cut them, he says we'd "only" have to increase taxes 18%. Neither seems particularly affordable to me — remember, this is on top of our existing rates.
If we cut existing beenfits, it still seems to me many disabled/unemployed people would be worse off with BI, or about the same, as the current system. So we're left with massively higher taxes, and people who can't work will be left poorer.
The second article mentions all the secondary social benefits, and all the costs we'll avoid associated with people living in poverty. I buy that, but a 18%-35% tax rate itself is also going to have a massive deadweight losses as well which he's not accounting for. Current marginal rates are 30-40%, so we'll now have 48%-75% marginal rates (or assuming a 35% increase, 65% to 75%). Think that won't make society poorer and decrease the incentive to work?
I want a stronger social safety net. But BI seems to me like a extremely costly way to do it. There are many things we can do that would have higher bang for the buck.
Looks like each year of age under 18 makes up about 1.33% of that, for a total of 77M residents under the age of 18.
Suppose you don't give a cent to anyone under 18 (which is not consistent with the UBI arguments I've seen, but whatever). 244.5M residents, times $12k, gives $2.9T.
Sure, that's "residents", not "citizens". Otoh, non-resident citizens might be entitled as well. Either way, how can you argue with "over 300M times over $10k gives over 3 trillion"?
Edit1: screwed up reading the graph, fixed above numbers.
Edit2: oh, just saw your comment suggesting "18 to 65" Fine, integrating by eyeball the graph from my link, I see 47 years at more than 1.2% of the pop per year, gives roughly 60% of the population in your age bracket. Now it's 200M recipients, or $2.4T.
Bi has two main savings, direct welfare and indirect welfare from a flat tax rate. The vast majority of workers make over to 9,225$ per year which is taxed at 10%. If they had a 39.6% tax that's 2730.6 new taxes to offset a BI of 12000$ for a net cost of -9269.4.
Next $9,226-$37,450 is at 15%, bump that to 39.6% and someone making 37,450 costs -9269.4 + 6943.104 = -2,326.30$.
Now if you continue this you find a medean income gets a bigger tax break than 12,000$ per year from the graduated tax rates. Also, with BI you don't need a standard deduction...
Net impact BI's are not simply whatever the BI is * the population.
Whether you call the way of paying a "claw-back", "flat-tax", or just straight up higher marginal rates, you need to pay for it somehow. In the end someone is getting less of each additional dollar they earn. All these need to add up to BI * the population.
BI makes a lot of implicit subsides explicit. If someone gets a tax break that adds up to 1k/month and you replace that with a check for 1k/month and do away with their tax break it's no net change in there cash flow. All that you’re doing is acknowledging a tax break is equivalent to a cash handout.
If we decide that 12,000$ is enough to live on then it calls into question why people get a larger payout from SS on top of a large tax break from low incomes.
Add it all up and a 12k BI costs less than SS + all other tax breaks and subsides. But, people rarely think of tax breaks as a subsidy so there is a lot of cognitive dissonance on this topic.
PS: Another way of looking at it is to consider the Canadian government spends less per person on healthcare than the US government while covering their entire population. Presumably the US government could do the exact same thing which makes it a worthwhile thing to consider.
I am agreeing with you that there's really no difference between a tax break and a subsidy.
However, I don't understand your next point. If you're saying a $12K BI wouldn't cost anything extra after getting rid of social security and all tax breaks in our tax system, well then maybe. But then you've made SS pensioners much poorer. And increased taxes on all the rest of the population. Also keep in mind the standard deduction is sort of like a BI for people who earn above a small threshold so if you get rid of it the net benefit of implementing a BI for low income people is even less than $12K.
BI sounds attractive in theory, but the math around it seems hand wavey. When you try to add up the numbers, there's no way around increasing taxes massively, or leaving large groups like the retired/disabled/unemployed worse off.
It might be impossible to make significant change without making some group worse off. My point is the net cost of BI is simply the added benifits to very low income people as long as your also removing other subsidies. And we are already handing out a lot of subsidies.
Which subsides to remove becomes an open question. EX: With BI do we still pay post doc's a small amount for living expences?
PS: If nothing else BI is an interesting comparison point for the current system. EX: You get more from SS as a married couple than an unmarried couple.
> Now if you continue this you find a medean income gets a bigger tax break than 12,000$ per year from the graduated tax rates.
You're going to struggle to sell BI on the basis that the person with a median income should make higher net tax contributions to subsidise those that won't work as well as those the present system determines "can't" work at the moment...
You're assuming the goal is to increase the post-tax income of all citizens by $12k, and all current benefits schemes are kept running.
In the UK, there's a tax free allowance of ~10k then an income tax rate of 20%. If we gave everyone in the country £2k/year and dropped the threshold to 0, nobody earning more than £10k would get any extra money. This is just an example that seemed nice because the figures were pretty clean.
Even this toy example would still require a 3% rise in taxes on all workers, decreasing the incentive to work. Also, in this case you literally wouldn't help any poor wage earners at all, since a minimum wage job in the UK is already making more than £10k. (and maybe hurting them, if you increase taxes across the board — if not, then high earners will be seeing a rate increase of closer to 4% -- so top rate will go from 45% to 49%).
If you start getting to more life-changing money, like £6k a year, you're starting to talk about >10% increase in taxes on the whole working age population. The top rate will go from 45% to over 55%. And again, it won't add a penny to anyone who's earning more £10k.
On top of that, some people would presumably drop out of the work force, and the higher tax rates would reduce the incentive to work, so your tax base will be even smaller. That'll push up the tax rates a few more percentage points at least.
My math:
Going along with the example, around 65% of the UK is working-age, and about 62% of working age people work. So 15 million people in the UK don't work at all, let's assume they don't earn anything. Assuming you restrict the BI benefit to just to working age population (no pensioners or children), there are suddenly 15 million people who didn't get anything before who now get BI, costing £30 billion pounds. The UK collects/spends about a £1 trillion, so that would be a 3% rise in spending.
My point was simply that the cost of any form of unconditional income is not "population * amount given out", as with that maths the cost of £2k/year to everyone of working age would be over 80 rather than 30 billion. I'm not arguing that even small forms of unconditional income would be free, but the system is not as expensive as made out.
> 3% rise in taxes on all workers
A 3% rise in tax revenue, how that affects people will depend on how it's applied (changes to tax on businesses, for example).
We must consider at least
* Knockon effects of changing the tax thresholds / amounts
* Benefits that are being paid out that no longer need to be
* Changes in employment when people have a more reliable safety net
For example, with the £6k case, we can now remove JSA, ESA, Incapacity Benefit and Income Support I think at the least. That's about £20B we can knock off, while increasing the amount those people receive and removing the problems that come with things like benefits sanctions. The UK spends about £85B on welfare other than the state pension, and any of that spending that gets people's income up to £6k is completely covered already.
I would like to see more involved analysis for specific figures to know what the true cost might be.
> (no pensioners or children)
Children, yes, but any pensioners claiming more than this sum in state pension don't cost more.
> Also, in this case you literally wouldn't help any poor wage earners at all, since a minimum wage job in the UK is already making more than £10k.
Full time workers, true, but several forms of benefits now are restricted to those working fewer than 16 hours. A 20yo could be earning less than £4300 (£5.13 * 16 * 52).
Not a great source, but precise figures here aren't too important:
It can be unconditional and not apply to children and people collecting pensions. It would not create a huge mess by limiting it to people over 18 and under 65.
Wouldn't the simpler solution be to simply reduce the pensions by the amount of UBI?
For example, a pensioner gettin $40k/year would get $25k under a $15k UBI. You would have to get them to agree to the renegotiation, so I suppose it's not a realistic solution.
Yes it would, although getting people to give up something is hard. Personally I would structure a UBI as a large negative income tax to try and avoid these problems.
Why should people with pensions not get UBI? They saved their money into a pension vs into a bank account.
Unless you are talking about replacing Social Security, but even there the math isn't as straightforward.
As for 18 and under, I think it's a bit tough. A 6 person household with 4 kids needs much more than a 2 person household. If we don't supply UBI to the children / wards of the children then we risk needing to recreate social assistance programs. Although it does run the risk of having kids for money, which admittedly probably already happens.
I was making the point that a UBI can have age exclusions and still be simple. I would be reluctant to provide a full UBI to children since they don't have the freedom to spend the money themselves.
So, people with disabilities and people who are unemployed would be left worse off, with an amount they can barely live off. Not exactly the situation we want after enacting our utopian basic income program.
The only way around that would be to give people with disabilities and the unemployed more money. But then that means you can't eliminate the welfare institutions needed to identify them and cut them checks.