I've done the math and you can get it to work. You need to make implementation choices that will make some people very unhappy though.
First, you start with non-institutionalized adult citizens that brings you down to a payee base of ~210M (this part will be unpopular as parents will want to get more than other adults). Next you set the basic income at the poverty level for a single person, $11,700. That gives you a total nominal cost of $2.47T. You do not exempt the basic income from the normal taxation rules. That means you get some of it back in taxes. If you figure 20% that gives you a net cost of $1.97T. You then take a buzz saw to all social spending aimed at US citizens, including all parts of social security (this would be very unpopular among the elderly, near elderly and disabled). With all parts of social security adding to more than $800B/year It's fairly easy to find a $1T in savings there. That brings the total to under a trillion dollars. You take a buzz saw to tax expenditures, e.g. exclusion of fringe benefits, preferential rates for capital gains and dividends, mortgage interest deduction, state and local tax deduction, etc. (this is also going to be very unpopular). If you add it up, that's good for another $550B.
That leaves you with another $420B in new non-offset spending. I'm certainly not going to to claim that's a small number, but it seems achievable. It's about 2.3% of GDP. Maybe you can get states to kick in (or force them to through reduced grants in aid) given that some of their social programs can also be largely reduced or eliminated.
Yes, I might quibble with some of your numbers a bit (for example I don't think you'll get 20% back in taxes) but I'll agree that you're in the ballpark. I think this is a good demonstration of how massive the changes we're talking about are. Particularly:
* The hit it will mean to many seniors standard of living due to social security cuts.
* The massive tax increases this will be on the middle class (primarily due to changes in tax deductions)
* The massive tax increase this will be on the upper middle class to rich (primarily due to changes on taxation of capital gains and dividends. Changes, by the way, that most economists oppose.)
* The additional massive tax increase that will come from somewhere to close the 2-3% GDP gap you mention.
I can see how some people might be in favor of this plan. I myself am not.
I agree the what comes back in taxes is a bit of hand-wave, it's hard to find stats on the average marginal tax rate.
I think the non-elderly middle class net effect will be close to if not a wash. They'll lose various tax deductions, but they'll get $11,700 x num_adults_in_household x (1 - marginal_tax_rate). And tax deductions only kick in when they are larger than the standard deduction to begin with. You need to be closer to the "upper middle" side of things to get there or have an unusually large deductions.
I don't think you need to get the gap amount wholly out of new taxes, as I said I think you can get some of it out of reduced aid to states, and/or as suggested by the poster below, military spending cuts.
As to your overall point, I concede that it is a tough sell.
Ya, you and I are definitely within the margin of error in our analysis of the situation. Thanks, by the way, for the very substantive comment. This is exactly what I was hoping for. I think a lot of people just say "UBI!" with close to no understanding of what they are proposing. I think it's very educational for them to take a look at the real tradeoffs involved.
* The massive tax increases this will be on the middle class (primarily due to changes in tax deductions)
* The massive tax increase this will be on the upper middle class to rich (primarily due to changes on taxation of capital gains and dividends. Changes, by the way, that most economists oppose.)
Well, UBI isn't supposed to be a tax cut for everyone, surely it'll be revenue neutral for everyone making over, say $50k?
Slashing the defense budget by 75% would help, too.
May as well clip out a few of the DOJ agencies like the DEA while you're at it. If you want to get get really crazy, cut foreign aid. Maybe even increase taxes on non-UBI income. Close a few corporate/personal tax loopholes...
I think it's physically possible. Politically, probably not.
That's true regarding the DEA and foreign aid, but defense is not a rounding error. National Defense and Overseas Contingency Operations are more than $600B. The next largest military spending is China at $145B (before the cuts just announced yesterday).
Defense is indeed not a rounding error. I myself think the Pax Americana the world has lived in for the past 50 years or so is worth it. But this is certainly something that others would disagree with me on.
You mean the Pax Americana where there are an endless series of proxy wars in the third world? Cause that one sure as shit wasn't worth it, especially considering that most (all?) of the interventions failed despite large scale slaughter.
>... $420B in new non-offset spending. ... It's about 2.3% of GDP.
This assumes GDP doesn't plunge because of disincentives to work and/or skyrocketing hiring costs for low-wage (now medium-to-high wage) workers. We don't have solid evidence of that not happening since no country has instituted basic income on the scale of 300 million citizens.
Your math model shares a common theme I see with many of these back-of-the-envelope calculations: they all assume a static economy where all the other variables that are affected by UBI -- which in turn also feed back into paying for UBI -- are unchanged. I've commented on this aspect elsewhere: https://news.ycombinator.com/item?id=10172421
Yes that's true. It's a very simplified, guaranteed to be wrong, calculation. But it gets us past the first order objections ("it's too expensive we couldn't afford it") to the second order objections ("the reduced incentives to work would crash the economy"). If you have a model for dynamic effects, I'm all ears.
Incidentally, from the linked comment:
The level of "afford" I'm thinking of is a scenario where the USA suffers zero productivity loss and the middle & upper class do not see a decline in the standard of living.
This seems an unreasonable standard to apply to anything. Hardly any policy is a Pareto improvement. Applying such a tough standard amounts to very strong status quo bias.
>This seems an unreasonable standard to apply to anything. Hardly any policy is a Pareto improvement. Applying such a tough standard amounts to very strong status quo bias.
Sorry I wasn't clear. I wasn't making that statement as a "justification" for not implementing UBI. It was about how it's being "sold" politically.
Personally, if I were to push for UBI, I'd tell people that the only realistic way we can afford it is if we all agree to take a hit in standard-of-living. I don't have irrefutable proof but that's what I think will have to happen. However, it doesn't necessarily we shouldn't do it. With the mass effects of citizens avoiding low-wage jobs, maybe it's better for society that Walmart is open 6 days a week 9am to 7pm instead of 24/7 and for Amazon-Prime to scale back to 1-week delivery instead of 2-day, etc, etc. Or Amazon-Prime costs $199/year instead of $99.
If sophisticated dynamic equations show that middle & upper class will have to "suffer" a bit to provide the entire country a UBI... fine. But sell it that way to them and let everyone have open eyes going into it. I'm skeptical that we can fund UBI just by renaming existing govt assistance programs so that it ends up being virtually "free" to taxpayers.
>UBI doesn't create a disincentive to work, UBI replacing means-tested programs eliminates a disincentive to work.
UBI has complicated secondary effects. Some of them can be contradictory. One who gets welfare would have disincentive to work because of the loss of benefits in today's govt programs. UBI may spur some (not all) of them to join the workforce. However, another scenario is the mass populations of part-time workers earning mininum wage ($7.25) that total less than $11k a year. That's ~1500 hours of lost labor hours for those who are perfectly fine with not making more than UBI's $11k.
It's definitely not as simple as saying, "UBI only creates incentives to work and never any disincentives, and GDP can only go up or stay the same instead of down."
Well, here's the thing, if the level it is set at leads to output-reducing withdrawal from the workforce more than output-increasing effects, then it also leads to inflation which drives price levels up and drives people back into the workforce [0] -- its self-limiting.
The bigger problem is that the economy might not yet be able to sustain a level at which UBI isn't substantially worse for the neediest populations than existing support programs -- increasing capacity through automation will get us there eventually, but its far from clear we're there now.
Which is why, while I think UBI is a great idea to adopt and phase in, I don't think a big-bang short-term conversion is a good idea.
[0] unless it is pegged to inflation, then if its set initially in a bad place, its stuck there. So, if you are going to index it rather than manually adjust it, don't index it to inflation, index it to output/revenue measures, not price levels.
Its not a matter of which price measure you use, using any price measure as a control for UBI means if you set it outside the stable range the economy can support, inflation no longer acts to reduce the real value of the benefit down to the level the economy can support.
"Lost labor hours" in minimum wage fields might very well be spread across a larger labor base of formerly unemployed potentially reducing crime and incarceration rates.
Also, "lost labor hours" in what fields..? Reduced labor hours would not necessarily suggest reduced economic output, or a reduction in construction projects, or small business experiments.
>You do not exempt the basic income from the normal taxation rules
I have a really hard time understanding the logic here... "Let's give everyone 11 dollars, then spend a bunch of money (enforcement does cost) to make sure all those people give 1 dollar back to us before the year is up." What am I missing?
It's treated as income and consequently requires no additional enforcement. Whatever agency pays out this amount would also send some sort of 1099 like document. This information would be available to the IRS (which would also have greatly simplified tax rules with the other things GP is proposing). So if you fail to report your $11k on your tax documents it'd be glaringly obvious. If it's your only income, you pay no taxes (and don't get a refund, no taxes have been taken yet). If you have any other income, you might pay taxes on it at some marginal rate.
Or just remove the current terrible tax code and implement a fair flat tax on all new goods and all services at around 7%. Cut the military industrial spending in half ( US would still have a bigger mildick than anyone else ) and presto, we're living in a star trek future.
I'm occasionally asked where the money would come from, but it's not like we don't already just print it anyways. Although a gov. sponsored blockchain type distribution of the universal minimum income would be kinda neat.
Roughly 19% of the US population is on disability or social security retirement benefits. 23% are under the age of 18. 38% are employed full-time.
Disability/SS is a straight-up income replacement. They go off one program and onto another.
People under the age of 18 are much cheaper to support and would get somewhere between "much less" and zero dollars.
Full-time employees basically get an accounting trick - on average, taxes go up by roughly the amount they receive in benefits.
This makes up a combined ~80% of the population, meaning there's a new benefit for roughly 20% of the population. This is about the same size as the current social security program. Difficulty of going from our current regime to UBI is roughly as difficult as setting up social security in the first place, so it's roughly the size of the New Deal. Difficult, but not impossible - something that you'd expect politicians to accomplish once every generation or three.
Importantly, current full-time employees get an accounting trick but also a guaranteed minimum income in the case that they lose their job, go freelance, have a baby, move to a new city looking for work, start their own business etc. All of which happens without any paperwork, as they simply pay less tax when their income falls.
Reading the original questioners other replies, they assume everyone would get the money on top of current wages, tax-free. I'm not sure why they think that though.
Right now in the United States, 95%+ of people get their basic necessities covered, one way or another. The additional goods produced and services utilized will only require a "relatively" small reallocation of capital resources to their production.
The way I conceptualize UBI is partially an accounting trick, since a large portion of the revenues and outlays would be just changing money that people currently spend directly on goods and services to money that first gets taxed and then goes straight back to people who then spend it on the same goods and services. It's partially changing the incidence of social costs--hospitals that once had to eat the costs of the required treatment of poor people would then not be punished, and instead (depending on how the funding taxes are structured) the holders of income/wealth in society would eat those costs. Some of it is renaming existing programs and more efficiently administrating them (instead of food stamps with complicated bureaucracies, people just get a check). And for the few people actually starving or freezing to death because of lack of funds in the USA, yes, that's genuinely a new cost we'd have to bear, but that's a rarity and I don't feel too bad about new taxes if it's genuinely saving lives.
There are second order incentive effects in both directions that are certainly worthy of consideration, but a naive consideration of the facts on the ground suggests it's not at all impossible or even requiring any real magic, given the political will.
You're using arithmetic to model your scenario. I contend it requires differential equations.
For example, Mark Zuckerberg owns ~500 million shares of Facebook. If you only use arithmetic (multiplication) of share price, you get ~$40 billion. That's a theoretical number that journalists can calculate but it's not an accurate model of reality. If he was to really liquidate all those shares to 0%, his final sum would be much less than $40 billion. When he sells the first 10 million shares, the market will see that as a "signal" and react which sends the shares down in price. The final 10 million shares could be $1 each if the market was sufficiently spooked about his selloff. To model that requires a differential equation instead of arithmetic.
So to apply that logic to your example:
GDP of USA: 1.5 * 10^13
This assumes GDP stays the same if millions of people decide to quit working because they have basic income. If we think GDP will drop, we need to model that somehow.
Basic level of sustenance for a person in USA: 10^4
This assumes that prices will not go up significantly as landlords, grocery stores, etc respond to everyone having basic income. How can there be extra money or "inflation" if we're just shuffling money around? Well, women with children qualify for welfare+foodstamps but single childless men typically don't qualify for anything. Perhaps they live with their moms or sibling. Also, prices will go up because there are less low-paid workers manning the stores. I don't claim to know all the complexities of side effects but to think prices won't change at all doesn't seem reasonable.
Lastly, I do think the USA has enough "wealth" to provide some type of basic income. The question is what the USA can "afford" and that word can have several interpretations.
The level of "afford" I'm thinking of is a scenario where the USA suffers zero productivity loss and the middle & upper class do not see a decline in the standard of living. I'm not convinced that the USA can provide a dignified level of basic income without affecting the goods & services the middle class' enjoy today (points back to claims of a constant GDP instead of a declining one.)
Show some Diffy Qs, explain the assumptions behind each of the variables, and throw them into a Google spreadsheet.
I'm not the one trying to quantitatively prove whether it will work or not work. I thought you were. So far, your mathematics model and your assumptions behind it are unconvincing.
This is a stupid burden to put on people, nobody here knows the national budget well enough to make any sort of reasonable prediction about the actual numbers. Besides, you don't need mathematical notation to make a good argument.
The budget numbers are readily available and not at all hard to understand.
And yes, you do in fact need to discus what something might cost when making a good argument that the expense is worth it. When choosing what sort of home to live in I'm certainly you inquired about the cost. Unless you still live with your mother? You don't live in your parent's basement do you?
Beyond the problems with the math, people need to take into account the perverse incentives that are created... Let's say you give people enough UBI to pay for all their groceries, guess what: The price of groceries will suddenly shoot up, because grocery stores start having a hard time finding employees willing to do the menial labor required to keep a grocery store running.
>because grocery stores start having a hard time finding employees willing to do the menial labor required to keep a grocery store running.
You are over-estimating the value of the income. People won't be "livin' large" on the basic income. The intention is to keep people out of abject poverty. I'd even argue it would be easier to find people willing to work part-time at places like grocery stores to supplement their income.
"People won't be "livin' large" on the basic income."
Not at first.
I'll tell you one of my big fears about UBI, though: The first vote that comes in Congress about whether to raise it. What happens then? Obviously, you are an asshole of the highest order if you so much as fail to support raising it, let alone arguing that it perhaps needs to be reduced for some reason. It becomes a "race to the top" to compete as to who can promise the biggest increases.
If you don't agree, well, let me get this straight, today's politicians are reckless and stupid for not implementing UBI and having all these separate wasteful programs, but the instant they pass it, they suddenly become responsible caretakers of the common good?
Also: Suppose we become unable to support the UBI for some reason and have to reduce it. How many cities burn as a result? Or do we just not reduce it until society keels?
It makes socio-economic failure states go from "bad" to "catastrophic to the body politic".
(As for observations that the same is true of many social programs today... yes, I fear that too. The only thing that prevents cities from burning when we must inevitably cut SS benefits is that the affected will be too elderly to go out there and burn things. But it's still less of a problem, because the separation of concerns makes it hard for systematic calls to raise benefits to really get going, except maybe SS. Unifying them into one easy phrase changes that.)
I want to see this work at a smaller scale before I would even remotely support recklessly experimenting with the largest economy in the world with such a fundamental change. Yes, I am familiar with the much too small semi-studies that have been done, most of which have bad caveats and ran for nowhere near long enough to matter. Let's at least see a county or something run this for 5 or 10 years, and through at least one reduction.
Not ever unless the economy gets incredibly more productive.
> Also: Suppose we become unable to support the UBI for some reason and have to reduce it. How many cities burn as a result? Or do we just not reduce it until society keels?
If we can't support it, it will reduce itself -- not in nominal terms, of course, but the fact that we can't support it means that it will will drive inflation, which will reduce the real value of the set level of basic income.
As long as UBI isn't pegged to inflation, setting the level too high is self-limiting.
> I want to see this work at a smaller scale before I would even remotely support recklessly experimenting with the largest economy in the world with such a fundamental change.
The smaller the scale the less well its going to work; it makes more sense to try it at a lower level displacing fewer existing programs than to do it at a smaller scale.
"As long as UBI isn't pegged to inflation, setting the level too high is self-limiting."
Yeah, to my mind it should grow just above targeted inflation. Pegging to measured or expected inflation replaces a stabilizing negative-feedback loop with a potentially explosive positive-feedback loop.
Universal Basic Income isn't creating imaginary money into the existing supply, it's just shuffling tax resources around. Potentially lifting impoverished people out of excessive meager full time busy work, and allowing several workers to live a higher quality of life (reduced hours) yet the sum of their employed paycheck + UBI equating about what they had as a full time employee of BusyWork Inc.
Pegging the UBI to the consumer price index could possibly help as well. Or segregating luxury items outside of UBI credits. Or just taxing luxury goods and services.
"Pegging the UBI to the consumer price index could possibly help as well."
Don't do this! If we set the UBI unsustainably high, that will probably be reflected in a rise in prices. In that case, we want the real value of the UBI to fall, reducing that pressure.
"Or segregating luxury items outside of UBI credits."
Also don't do this. If there are fewer things competing for my UBI-tagged dollars, then we'll be needlessly driving up the prices of acceptable things.
> Or segregating luxury items outside of UBI credits.
What does that mean? Prohibiting using UBI funds on luxury items? So, instead of unconditional basic income, it becomes a prescribed-use benefit like food stamps, but with slightly different prescriptions?
One of the sources of administrative inefficiencies UBI is proposed to eliminate (as well as those associated with means testing) are those associated with managing and enforcing use limitations.
> Or just taxing luxury goods and services.
You could do that, or you could just use a progressive income tax.
Anecdote: A good friend of mine lives with his parents in suburbia. Upper middle class, rich, comfortable massive 2 story home in a nice gated community. He dropped out of art school to work at the grocery store nearby where he's worked full time for the last 10 years or so. Because the store gives him wage increases for every 1000 or so hours he's worked, he's now making about $20/h as a normal cashier/stocker. He spends his free time playing video games, beefing up his home entertainment network, hiking, and hanging out with neighborhood friends. He seemingly has absolutely no financial incentive to continue to work at a grocery store, but ultimately he's been motivated to go back to work for the last decade at a super market.
The challenge with doing the math is the mount of unpredictable aspects of a UBI. We are not good at predicting human behaviors. What happens for those who are struggling to survive when they have enough money for a decent living? Will they spend it in a way that revitalizes the economy? Will they use the time they spent struggling to survive in doing other things that make the pie bigger for everyone?
What happens for those who were already earning a (barely) decent living? How will their spending habits change? Maybe some of them will choose to contribute to society in non-traditional ways. Would that be good? Will any of them stop contributing to society?
We don't know if its a zero-sum change. Its unclear if the pie will get bigger, smaller, or stay the same; if the rich will get richer, poorer, or around the same; if the money we would get from taxation will sustain a UBI in the steady state.
The studies on minimum wage increase is the closest we have, but that is unrelated enough that it misses many of the complexities (and advantages) that a UBI could have.
Just as a completely rough order-of-magnitude approximation meant to spark discussion of the viability of a universal basic income in the United States:
Wikipedia estimates the total net worth of US households and non-profits at $55 trillion in 2009. Assuming a 1% annual wealth tax on all assets (Norway currently has a 1.1% annual wealth tax, albeit only on fortunes greater than $120,000), we get annual proceeds of $550 billion. Social Security pays out $813 billion in total annual benefits.
Kill off Social Security entirely and institute the tax. Divided by USA's 320 million population, we end up with ~$4250 per citizen per year. So with an annual minimum wage of $15,000, on average no more than every third citizen would have to depend entirely on the basic income. Also, tax revenues or net worth would also not have to decrease once the program was started.
You can tweak the assumptions, add other possible sources of income to the system, approximate the economic surplus of the people who are now supported by UBI, question the viability of living on minimum wage, estimate the economic surplus of getting rid of means-tested welfare programs etc. Plenty of room for discussion!
Looks like the avg. monthly payout of social security in 2015 is 1,332.35. Your proposal would come out to around 350.00 a month. I'm not sure that would go over very well.
Of course not. I don't think it's politically viable to implement basic income the way I've sketched. Wealth tax of 1% probably wouldn't go over very well either.
If the net worth of the nation doubles twice more, though, it's a different question. It's far from impossible that this, or a similar situation which would benefit greatly from an UBI, occurs over the next 50 years.
We're on the right order of magnitude, which is as close as I feel confident estimating things without detailed knowledge of the tax system and social programs of the US. I could make a better guess for Norway, but even there it's sketchy because a lot of the non-social support programs that would become cheaper with basic income (e.g. student loans, support for artists) aren't part of the official social security numbers. There's also a lot of "number massaging" you can do to greatly increase the number, not least of which being to pay support only for adults.
~225M Americans 20+ years of age * $12,000 = ~2.7T.
As a point of reference that's around 15-16% of GDP.
It's also about 90% of current US gov't income or 80% of US gov't expenditures.
In other words it's really fucking expensive! I'm not saying the math is impossible but the conspicuous absence of details from most people saying it's a good idea is pretty telling.
Over 50% of government expenditure is on social security, medicare, medicaid, welfare, and other social services. A large percentage of that is inefficient and wasted. If you implemented UBI, you could get rid of all of that. Sure, the cost may be 80% of the current spend; but you could eliminate over 50% of it. What's left is a 30% increase in federal taxes.
Right now, I pay close to 50% in taxes living in SF in one of the top tax brackets. I imagine state taxes would go down as a result of UBI too. I despise the fact that 90+% of my taxes go to things I don't believe it. That said,I'd be glad to pay the 50-60% taxes if I knew it went to a basic income. And if I knew that it insured that if I ever lost everything, I'd have enough to survive with some dignity.
> Over 50% of government expenditure is on social security, medicare, medicaid, welfare, and other social services.
This is wrong (unless your definition of social services is broad enough to include things like schools and I doubt you want to dismantle the public education system).
> A large percentage of that is inefficient and wasted.
This is also wrong. Social Security is a direct cash transfer and Medicare and Medicaid are among the most efficient insurance programs in the world.
> I imagine state taxes would go down as a result of UBI too.
Sometimes I like to imagine a world of dragons and unicorns. But then I wake up and resume living in the real world.
There was no such analysis in what I responded to, nor anywhere else by him when I typed it. (Not sure there is even now.) Am I supposed to read his mind?
Sure, that obviously works as long as we model the economy as a static entity that never changes in response to stimuli, in which we model "dollars" as being able to buy an infinite amount of goods and services at the pre-change levels.
But that's not how the economy works. The rich can provide "dollars", but we can't raid them for man-hours of child-care, or care for the elderly, nor can they provide professional health care. They've got the same 168 hours a week the rest of us do.
This doesn't say that "BI can't work"... it does say you can't model the economy statically, use the prices and valuations of today, and assume that rewiring the fundamental economic fabric of society will result in no changes. You can't do that at this scale.
99% of people agree with you on that, but 75% of those people have no idea they're considered rich.
That how all populist ideas work. Take from the few to give to the many. Then, come to find out, there are too few to take from and too many to give to. So, in the end it becomes take from the many and give to the few.
It's not easy.