So, some people mention that a poverty line level basic income might not be "enough" to live on. Some think it might be too much. I think it varies. If you're an individual living alone, $1100 a month might be kind of rough. Maybe it's doable, but it was be very tight, and in many areas it wouldn't be practical. Rent would consume a minimum of half of that, and after utilities, you would likely have almost nothing left. On the other hand, an multigenerational household with 8 people in it might be able to rake in over $70,000 a year on UBI alone. Your typical average household likely would get something in between, around say $22,800 for 1 adult and 2 children, or $31,000 for 2 adults and 1 child. While statistically, poverty would be eliminated, some question if the poverty line is actually a valid measure at all in the first place.
At the same time, we gotta look at the sustainability of a basic income. The higher a UBI is, the more comfortable people live without work, but the higher the tax rates and labor force reduction would be. Eventually, if the basic income is too high, the nightmare scenarios many people will talk about will happen. Tax rates and work reduction will cause productivity to grind to a halt, while demand for goods and services will remain high. This could cause stagflation similar to the 1970s. Too large of a UBI would quite simply be too much of a drain on the economy. People would be too comfortable, and work wouldn't pay. While in the future, if robots do most jobs, we could bear the brunt of these higher tax rates and higher basic income without too many problems, in 2021, this could become a problem. That said, there is likely an upper limit to what is acceptable for basic income.
Based on my original model, I will look at what different amounts of money will require taxation wise.
Assumptions
I will assume that cut $448 billion from current government spending to fund this basic income. I will also assume additional spending cuts from social security based on the principle that the maximum beneficiary will earn the same amount of money.
I will assume a $187 billion carbon tax, and that other funding from UBI will be drawn from a flat tax on a $13.291 trillion tax base.
Original UBI plan ($13,200/$4800 a year)
Under this model I aimed for a $13,200 a year UBI for adults, and a $4,800 UBI for children. This required a $324 billion cut to social security, and a 19.6% flat tax to raise the required $3.565 trillion.
My original $1,000 a month UBI plan ($12,000/$4000 a year)
My original UBI numbers were $12,000 a year for an adult, and $4,000 for a child.
This would require $2.933 trillion to fund the adult program and $282 billion to fund the child's program, meaning $3.215 trillion to fund the entire UBI.
I assume $635 billion between the fixed spending cuts and the carbon tax, bringing the amount down to $2.58 trillion.
A 26% reduction of social security would satisfy the "maximum benefit remains the same" test, which would yield an additional $301 billion in revenue, bringing us down to $2.279 trillion to fund UBI.
That said, this old UBI plan could be funded with roughly a 17.1% tax rate. The actual benefit would be 9% less for adults, and 16.7% less for children, and the tax rate would be 12.8% (2.5% points) lower than it is currently.
A smaller UBI ($9000/$3000 a year)
Say a full UBI isn't politically feasible and we'd need to compromise, what would a UBI cost if we implemented it partially?
A $9,000 UBI for adults would cost almost exactly $2.2 trillion to implement. The childrens' UBI would cost $212 billion. That said the full price of this UBI would cost $2.412 trillion.
With the $635 billion in fixed spending would would be brought down to $1.777 trillion.
Social security would face a 19% reduction to maintain its maximum benefit with UBI, yielding an additional $220 billion, and bringing us down to $1.557 trillion.
At this point, we could fund UBI with a 11.7% tax rate. The benefit is 32% lower for adults, and 37.5% lower for children, but the tax rate is 40.3% lower (7.9% points).
An even smaller UBI ($6000/$2000 a year)
This is the bare minimum I would support, but it would be equal to the $500 a month we see in a lot of basic income trials. This is roughly the lowest UBI I would argue is worth pursuing.
This UBI would cost $1.467 trillion for adults and $141 billion for children. This is a total of $1.608 trillion.
With our $635 billion in spending cuts, we could bring down costs down to $973 billion.
We could cut social security by 13%, bringing in an additional $150 billion, and bringing that down to $823 billion.
This would require only a 6.2% flat tax to fund. The benefits would be 54.5% lower for adults, and 58.3% lower for children, but the tax rate would be 68.4% (13.4% points) lower.
Now, one thing that you gotta keep in mind here, a flaw of this at the lower levels, is that that fixed $635 billion in cuts includes welfare and unemployment spending. So cutting UBI without adding that back in would hurt people at the lower levels, potentially making some people worse off.
Still, say we cut $291 billion in spending cuts in half and required the taxation to raise an additional $146 billion in spending.
Well at that point we would have a 7.3% tax instead. Not bad.
That said, and I'm surprised by this, cheaper UBIs would be very cheap. We could implement a $500 a month UBI with a fairly negligible tax rate. It would not be enough to live on, but it would help and it would be extremely affordable.
Even without cutting any spending at all, it could be done with a 12.1% tax rate. I mean, it's surprisingly affordable.
A larger UBI ($15,000/$5000 a year)
But let's say we wanted to go in the other direction. What would a larger UBI look like? Well a still fairly sustainable but slightly larger UBI would be around $15,000 a year. This is slightly more than the $13,200 I'm for, but it's not that much more. When I supported $12,000 a year I considered $15,000 to be the highest amount I would deem worth looking at. But is it? let's find out.
This UBI would be $3.666 to implement for adults, more than my entire UBI plan at just ~10% less money. Yikes. With the childrens' benefit, which remains largely unchanged due to my normal inclination to limit it to 1/3 of the adult benefit, it would cost an additional $353 billion. This brings the total UBI to just over $4 trillion, at $4.019 trillion.
With the $635 billion in spending cuts, that brings it down to $3.384 trillion.
Social security could be cut by 32%, yielding $370 billion and bringing it down to $3.014 trillion.
That said you would need a 22.7% flat tax to accomplish it. A bit higher, but still arguably doable. This is 15.8% higher (3.1% points), for a benefit that's 12% higher. We can clearly see diminishing rates of return as we increase the UBI.
Doable, but a hard sell.
An even larger UBI ($20,000/$7000 a year)
You know, I hear a lot from some leftist anti UBI people that they would support UBI if it was higher. Much higher. Like $2-3k a month higher. While I'll cover those in a second, I do feel like a $20,000 a year UBI is the next logical step between $15,000 and $24,000. And here, we'll likely start seeing why UBI amounts this high are a fantasy.
First of all, it would cost $4.888 trillion to fund this UBI for adults, and $494 billion for children. That's $5.382 trillion.
With the $635 in spending cuts it brings us down to $4.747 trillion.
Social security would be reduced by 43%. It would bring in $497 billion. So we're down to $4.25 trillion to fund a UBI.
This would require a 34.3% flat tax to fund. The benefits would be 52% higher than they are now roughly, but the taxes would be 75% higher (14.7% points).
I mean, could this be done? Well, it would be a much larger disincentive to work than roughly 20% with a 1/3 lower UBI would be. And the top 1% would be paying like 67% of their income, which is akin to the levels France had that allegedly incurred capital flight under Hollande. I mean, I really want to keep tax rates even for top earners under 50-55% if possible. With my own UBI plan, they would be 53%, which aligns with the 52% laffer curve peak mentioned in the article. A slightly higher $15,000 UBI would bring it up to 56%, which would be doable, but that's about all I would support. You get well into the 60s like this and I don't think that's sustainable. I mean, even if we implemented all of my additional hypothetical taxes like the wealth tax, land value tax, etc., the rich would still face 60% tax rates here. Maybe in a post work world where people who work get $100k a year jobs as standard (adjusted for inflation) and redistributing 34% of their income makes sense and is somehow sustainable mostly, but in our current economy? I can't support that. That said, to answer the question of the article, I would say the maximum sustainable UBI amount is likely around $15,000 a year, and I'd likely argue an optimal amount is between $12-15,000 a year.
But let's go further into discussing the fantasy UBI amounts I see some Bernie bros and socialists trying to purity test me and people like Yang on sometimes.
$2000 a month ($24,000/$8000 a year)
This is the common rallying cry of the Sanders supporter in the midst of the pandemic. That everyone should get $2,000 a month until the pandemic is over. I mean sure that makes sense for the pandemic maybe, but what if we had that all the time?
Well it would cost $5.866 trillion for adults and $564 billion for children, meaning a $6.43 trillion price tag. Yikes.
With the $635 billion in spending cuts we would bring it down to $5.795 trillion.
And with 52% in social security cuts, we would raise $601 billion in revenue bringing us down to $5.194 trillion.
Funding that with taxes, we're talking a 39.0% tax on all earned income. Once again, this seems like it could happen in a futuristic post scarcity economy but this would crush our current economy. I mean, I don't know how much of a work disincentive this would cause, as most studies seem to focus on roughly the whole $500-1000 a month range of UBI, and at those rates work reduction is mild if it exists at all, but I would estimate it would be much higher at this level. I don't know how much, as this has never been tested, but I can't imagine the effect being good. Again, maybe if we reach a point of having a 20% labor participation rate with $100k+ skilled jobs where there isnt a lot of work deterrence and spreading income around at this level is desirable, but I can't see it happening now.
$3000 a month ($36,000/$12,000 a year)
I've literally been purity tested by hardcore socialist/Bernie bro types to support this amount of UBI. I'm not kidding. They think $3k a month is actually viable. Like they've never done the math. Well let's do the math.
I mean let's cut to the chase, this is a $9.645 trillion UBI plan. That's over half of the economy.
My $635 billion spending cuts is dwarfed by this massive plan, and would only bring it down to $9.010 trillion. It's over 9000 billion!
The good news is we can get rid of 77% of social security at this point. The good that does, it only brings in $890 billion in revenue. Down to $8.12 trillion. Still over half of all earned taxable income.
61.1% to be exact. That's what the tax rate would need to be to fund this massive thing. The rich would be taxed into oblivion, only bringing home 6% of their income. This would be a nice F U to Jeff Bezos if he doesn't flat out flee the country, but that's the point, it would likely be a disaster. I can't imagine anyone working, or the ones who do would face declining benefits to their effort. Like, the work incentive from a financial perspective would be gone. Someone who would otherwise earn $100,000 might only be bringing home around $14,000 a year between the UBI tax and other taxes. That's insane. Maybe this would work if we truly achieved some post work economy, but otherwise, no, this is a fantasy, and I'll show this article to anyone making such ridiculous demands from now on.
That said, what conclusions can we draw from this?
Well, first of all, increasing UBI amounts bring in diminishing returns. a $6,000 a year/$500 a month UBI is extremely affordable with some reasonable spending cuts. It would be cheap, it likely wouldn't have any disincentive on work at all, given you can't realistically live on that amount and the tax rate required for it would only be in the ballpark of 6-8%, but yeah. You can't live on that.
If you're looking for a sustainable UBI you can arguably live on, I'd say the $12,000-$15,000 a year range would likely be ideal. Work incentive will still be very present, and the tax rate, while substantial (ranging from 17-23%), is arguably sustainable. Some would argue it would be hard to live on such an amount alone, but if you live in a family unit or have a roommate it's likely doable. And the amount is arguably low enough to encourage further work in my opinion.
If you want to do better than that, you better start moving toward a post work society. I could potentially see amounts like $20-24,000 a year working if we shift to an economy where fewer jobs exist, and most jobs that do exist are highly paid and potentially highly skilled work. After all, we would want to spread the income around more than we do now, to encourage consumption, no point of an economy if no one is able to buy things due to lack of jobs, and it would be nice if people have a reasonable living standard to live on that changes with the times, but I wouldn't want something like that in this current day and age.
As for the $36,000 a year mark, that's just not sustainable at all and will not be until we are near a true post work economy. Insanely high amounts would likely implode the economy.
That said, as I said, the optimal UBI amount for now is likely around the poverty line. I think that brings about the best tradeoff between livability and sustainability. The higher it gets, the more the negative effects on the economy likely accelerate, and while low UBIs could be done almost effortlessly, you can't live on them well at all and would still essentially be forced to work just like today. I would honestly support any amount up to around $15,000 a year, and I think even a partial UBI would be a worthwhile pursuit if a full one isn't feasible.
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