Modifying my UBI model according to different variables at play

 So, i did this last year, and I wanted to do it again. Unlike last year, I will probably be a lot more abridged since I have little to say.

Changing the amount

Honestly, I considered two amounts, $15,000 a year, and $15,600. I figured that my model would be hit very hard by the welfare cuts, as well as removing my defense spending cuts, so I just decided to keep it conservative at $15,000. It's a nice flat amount I've been wanting to support for a while any way. Like the new $12k standard. 

Simulating the effects of differing amounts

Based on an eligible adult population of 251,876,508 adults and 71,042,092 children:

$12,000/$4,200 (similar to 2014-2019 numbers)- $3.321 trillion

$13,200/$4,800 (2021 numbers)- $3.666 trillion

$14,400/$5,100 (2022 numbers) - $3.989 trillion

$15,000/$5,400 (2023 numbers) - $4.162 trillion

$15,600/$5,400 (alternative 2023 numbers)- $4.313 trillion

If we were to adjust the taxes for the varying amounts, taking into consideration the $655 billion in spending cuts and the $187 billion for a carbon tax (total of $842 billion), the flat tax scales as follows:

$12,000/$4,200- 14.9% (-5.1%)

$13,200/$4,800- 17.0% (-3.0%)

$14,400/$5,100- 19.0% (-1.0%)

$15,000/$5,400- 20.0%

$15,600/$5,400- 20.9% (+0.9%)

As we can see, the tax rate went up significantly even to match last year's value. This is primarily due to the defense cuts being removed and having significantly less welfare to cut. Last year we had a very good year where I got the tax rate down to 17.5% despite being very aggressive with the amount. If we went by years prior where I got around 18.5% we'd probably be looking at an amount close to $14,000 or so. But that is technically below the poverty line these days. That $14,400 amount is JUST below where it needs to be. I could have gone with it, and it would be a little more affordable, but again, I felt a need to go up to $15,000 and raise it somewhat. The $15,600 figure is above where I'd want the tax to be. 20% is my ceiling. I prefer to keep it down to around 18% if I can get it down that far. But, again, this year counters the very good numbers of last year with the near worst case scenario for funding. That said, my changes mostly work in a more positive direction.

Funding a UBI lite

I also want to explore some other amounts that are more what I consider a "UBI lite". These are a UBI below around 75% of what I consider my target amount. These amounts are not high enough to qualify as a full UBI, and I would not want to cut welfare with these plans as the amount might be too small to compensate for them. As such, these would be smaller grants imposed on top of the existing system, rather than replacing anything. 

$2,500/$900- $694 billion

$5,000/$1,800- $1.387 trillion

$7,500/$2,700- $2.081 trillion

$10,000/$3,600- $2.775 trillion

Assuming we just apply a flat tax to a $16.595 trillion tax base:

$2,500/$900- 4.2%

$5,000/$1,800- 8.4%

$7,500/$2,700- 12.5%

$10,000/$3,600- 16.7%

While lower "partial" UBIs might be attractive, without removing welfare and tax credits, they aren't really worth it. Even a $10,000 one will net a 16.7% tax rate. It's not that that's not feasible, but given we could fund a $13,200/$4800 "full" UBI with my full model at a similar tax rate, is it really worth it?

Again, below the $12,000 mark, I would avoid cutting existing social programs and tax cuts to avoid making anyone worse off than they would be under the existing system. We could significantly reduce taxes if we implemented it the amounts into the full model, but it wouldn't be worth to go the partial UBI route unless we were going for $7500 or less. 

How military spending affects tax rates

Reducing military spending would improve the tax situation somewhat. At $816.7 billion, A 10% reduction in military spending (half of my usual amount) would result in $82 billion in cuts. My normal 20% reduction would amount to around $163 billion in cuts. 

The 10% reduction would bring the tax rate down to 19.5% (-0.5%)

The 20% reduction would being the tax rate down to  19.0% (-1.0%)

So if we stuck to last year's defense cuts, the rate would have gone down one point. Then consider last year's amount being 1 point lower too, so we're talking an 18% tax rate to fund the same UBI as last year with the same defense cuts as last year. This is only 0.5% higher than the 17.5% tax rate of last year.

How the shortfalls with welfare spending affected my cuts

Last year, I had $631 billion in welfare cuts. This year was $366 billion. I kind of expected there to be around $500 billion based on last year's analysis. 

If we had last year's welfare cuts: 18.4% (-1.6%)

If we had my projected cuts for this year: 19.2% (-0.8%)

Combining that with the defense cuts, we'd be down to 17.4% and 18.2% respectively. Combine that with the lower amount and we're down to 16.4% and 17.2% respectively.

And yeah, you can see how these variables messed with my model. As I said, this year is like the worst case scenario for funding my UBI minus my attempt to simulate work disincentive.

Speaking of which:

Simulating a 12.5% work disincentive

If I reduced income by 12.5% to simulate work disincentive (assuming it translates to less pay from work and less productivity, it may or may not), we would be down from $16.595 trillion in taxable income to $14.521 trillion. This means the taxes scale accordingly:

$12,000/$4,200- 17.1% (+2.2%)

$13,200/$4,800- 19.5% (+2.5%)

$14,400/$5,100- 21.7% (+2.7%)

$15,000/$5,400- 22.9% (+2.9%)

$15,600/$5,400- 23.9% (+3.0%)

You can see how the higher the UBI gets, the more dilated the effect on the taxes are. Also, it should probably be noted the work disincentive itself probably would be lower for the lower amounts and higher for the higher amounts. This would make the effect more severe as UBI levels increase.

This is why I'm relatively conservative with my UBI. I do believe the most sustainable UBI is near the poverty line, and that beyond that, the negative effects would be multiplicative in the economy, getting far worse as we add incrementally small amounts above that, while amounts below the poverty line become much easier to manage.

 At this point the $12,000 standard (which used to be equivalent of my $15,000 one today accounting for inflation) is rather dated and quite affordable even under the worst case scenario. Even my 2021 standard isn't bad accounting for these work disincentives. But above $14,000 or so gets trickier. The work disincentive quickly crosses the 20% boundary I set for myself, and even with defense spending It's still above. To be fair, I don't think going a couple points over 20% is the end of the world. But again, I'd prefer to keep things under 20% ideally. We've already looked at things like laffer curve rates on the rich and stuff like that. And also, again, higher amounts with higher tax rates make the work disincentive issue worse and the two kind of feed back into each other. High tax rates and generous UBI will cause higher levels of work disincentive, which will lead to the need for even higher tax rates. While again, amounts below say, $14,000 or so don't seem bad, I am kind of pushing the limits of what a feasible UBI is around the $15,000 mark here. Maybe we should be cutting defense spending a bit after all. 

Conclusion

So yeah, this year's UBI plan was pretty much a near worse case scenario. I didnt cut defense, welfare spending dropped, and I did aim for a rather ambitious although reasonable amount above the poverty line. Without work disincentives, this UBI JUST made it. If we accounted for work disincentives, it may be just a tad too high.

Still, as I like to say, we should implement UBI slowly and if we get negative effects, we should draw it back a bit. Still, currently, drawing it back would be below the poverty line. $15,000 is only 1.03% of the poverty line, whereas last year's $14,400 amount is at 98.7% of the poverty line. Still, even under the worst case scenarios the more deprecated $12,000 and $13,200 standards should be easily feasible. 

All in all, I would aim for $15,000 still, but I do admit it's kind of tight and I'm pushing up against the boundaries of what's feasible.