Tuesday, April 20, 2021

Funding a UBI lite (2021)

 You know, yesterday's exercise made me want to look more into detail with making a partial UBI proposal work too. While I still support my $1100/month or $13200/year proposal as my ideal UBI plan, I would like to focus more on implementing a partial basic income too, assuming a full basic income isn't going to be pragmatic. However, being a partial UBI, I want to change a few stipulations about it.

First of all, this basic income will be $500/month or $6000/year. It will only be given to adults, given Biden's child tax credit program made permanent could serve as a partial UBI for children. This amount would be similar to what is given to people in Stockton, CA and other recent partial UBI pilots. It should have minimal work disincentives and not have as large of a tax footprint as a larger UBI would.

This UBI would exist along side welfare, as it is not enough to replace welfare. The same with social security. These programs would work as normal. Heck, I'll make it where I don't cut much spending at all. It would be nice to, but again, I'm talking a cut down, more pragmatic proposal that doesn't rely on major changes elsewhere with the safety net. 

With that said, let's get to it.

How much would this UBI cost?

Well, going off of my full UBI numbers, there would be 244,420,373 eligible adults in the US. At $6000 a year, this would cost $1.467 trillion.

How will we pay for it?

Going back to the "Personal Income and Outlays" chart, I come up with $13.291 trillion in potential taxable income.

This includes:

$9.967 trillion in wages and salaries

$2.868 trillion in investment/dividend income

$0.285 trillion in unemployment benefits

$0.114 trillion in small business income

$0.057 trillion in rental income

+                                               

$13.291 trillion in taxable income

Applying a straight flat tax to fund this, it would be done with a 11% tax rate across all income

Alternative forms of funding (see full UBI funding for details)

If we reduced military spending back to Obama era levels, we could save $156.1 billion, which could reduce the flat tax rate by 1.2% points.

A carbon tax raising $187 billion could reduce the rate by 1.4%.

A 1% land value tax could raise $144.9 billion, which would reduce the rate by 1.1%.

Elizabeth Warren's wealth tax could could raise between $100 billion and $375 billion, potentially reducing the rate by 0.7-2.8%.

These ideas, taken together, could reduce the rate down from 11.0% to 4.5%.

And to go further and break my own rules:

If we cut social security by 13% to account for the benefit this UBI would provide for seniors without ensuring anyone is worse off, we could raise $150 billion, we could reduce the rate by 1.1%.

And if we cut welfare spending in half (given a full UBI eliminates all of it), we could raise an additional $146 billion, reducing the rate by another 1.1%. 

At this point the rate would be down to 2.3%.

How this would affect various income levels (11% tax)

Single adult, no job

UBI: $6,000

Wages: $0

Taxes: $0

Net Income: $6,000

Single adult, minimum wage

UBI: $6,000

Wages: $15,080

Taxes: $1659

Net Income: $19,421 (29% increase in income)

Single adult, median income ($36,000)

UBI: $6,000

Wages: $36,000

Taxes: $3,960

Net Income: $38,040 (6% increase in income)

Single adult,break even point ($54,545)

UBI: $6,000

Wages: $54,545

Taxes: $6000

Net Income: $54,545

 Single adult, $100,000

UBI: $6,000

Wages: $100,000

Taxes: $11,000

Net Income: $95,000 (5% effective tax rate)

Single adult, $250,000

UBI: $6,000

Wages: $250,000

Taxes: $27,500

Net Income: $228,500 (8.6% effective tax rate)

Net effects vs full UBI

This model is significantly less progressive than the full UBI. It helps people in the lower classes a lot less, although welfare might help with that somewhat (who would want those conditional programs under a UBI though?). The break even amount is much lower by this model, at only $54,545 instead of $66,000, meaning people would pay taxes at a lower income level. However, it would have a much lower impact on people, with upper class people paying significantly less of their income toward it. 

All in all, I'm less enthusiastic toward this model with these stipulations. Last night when I designed this using assumptions closer to my older model and cutting aspects of the safety net and the military, I had the tax down to 6-8% or so. Assuming a 7% flat tax, the break even point would be much higher at $85,714. This would make the program a bit more progressive. If we actually implemented all of those taxes above and got it down to 4%, it would be progressive under $150,000. So to be fair the low break even point is due to a burdensomely high tax rate relative to the benefit given. This is equivalent to me funding a poverty line level UBI with a 26-27% tax. We could do it but it would be far more regressive and potentially not be worth it. 

Still, this is intended to be a more simplistic plan with fewer moving parts, so that's what I get. It's not bad...it just could be better by shifting the tax burden off of the flat tax toward the rich with progressive proposals elsewhere. 

Conclusion

Is this plan really worth pursuing? Eh, I have more mixed feelings on it. Without any spending cuts or progressive tax proposals elsewhere it tends to tax average people at a higher rate than I would want it to, while providing a much more meager benefit that one can't live on. Still, it would likely help people at the bottom somewhat and would be beneficial to anyone making up to roughly 1.5x the median income. Let's just say this would not be my ideal UBI, but it's easy enough to implement and flexible enough that we could make it work if we really wanted to. Ideally I would like to reduce military spending and maybe add a carbon tax at the minimum to get that rate down a bit. At 11% the tradeoff is questionable, but at say, 7-8% it would be a much better deal.

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