I don't get how people keep saying this. A UBI is effectively a tax credit. You fund it with higher nominal rates. These mostly cancel out for working people, netting to zero in the middle. People at the top pay on net so that people at the bottom receive on net.
It's completely sustainable and is effectively just a simplification and improvement of the status quo of having unemployment insurance and a bunch of means-tested benefits for low income people, but without the poverty traps, perverse incentives and excessive bureaucracy.
a) Crunch the numbers, find out how much you need. If you don't have exact, precise numbers and a precise plan on how to get to that number, the idea is worth nothing since you don't even have a starting point to analyze viability. People who have run the numbers tend to realize how inviable it is. Those who don't, also think you can just endlessly print money or just tax people more until you get to the happy number. Which leads to b)
b) Observe the real world, see what happens when you "just increase tax rate". You'll find that very often when you increase taxes you actually end up collecting less, as more people decide to illegally dodge taxes or simply close up shop.
Given a country's economic output, laws, culture and a thousand other factors, there's a hidden function that determines the maximum tax rate you can employ where anything more than that is counter-productive with both short-term and long-term results, the latter often including reputational damage that can be nigh impossible to repair, soft-capping your economy far below what it could've been. See: Laffer Curve, and the shining example that is Argentina.
> Crunch the numbers, find out how much you need. If you don't have exact, precise numbers and a precise plan on how to get to that number, the idea is worth nothing since you don't even have a starting point to analyze viability.
For a $12,000 UBI that would yield a flat tax rate of ~22%.
In real life it's more complicated than that, but not so much more complicated that the number is going to be off by an order of magnitude. It's completely viable. People are already paying nominal rates that high.
> Observe the real world, see what happens when you "just increase tax rate". You'll find that very often when you increase taxes you actually end up collecting less, as more people decide to illegally dodge taxes or simply close up shop.
The primary causes of this are that higher taxes give people less money to spend which hurts the economy and that higher marginal rates deter working.
A UBI is a transfer payment, so on net nobody has any less money to spend and in practice people with less money would have slightly more and those people are more likely to spend it. So this factor goes in favor of economic growth.
Meanwhile half the point of the UBI is to get rid of the crazy marginal rate cliffs created by means-tested benefits programs. The status quo deters work more than a UBI would, e.g. you lose unemployment if you take a job. Terrible incentives that would go away.
Higher marginal rates also reduce marginal outsourcing of labor. At a 40% combined federal and state rate, in order to pay a tradesperson $150 to come do some minor repair task at my house, I have to go out and earn an extra $250 to get that repair job done as compared to doing it myself.
Make the combined marginal rate 60% and now I have to go earn $375 in order to have $150 extra to pay for the labor for that repair. For the equivalent of $375 in wages for a service call, there's a lot of things I'll bother to learn how to tackle myself.
Marginal rates are weird because you can compare your marginal rate against every decision, but at that point, you aren't comparing every dollar earned to every dollar spend, so effective rates seem to be more useful (marginal would be useful if I was considering working more, I think). Anyways, as someone with a high effective tax rate, I'm totally fine only keeping 60% (or keeping 40% if we added another 20), if in return we all got UBI.
Again, a UBI will in many cases reduce marginal rates, because no more means testing. Right now if you want to hire a maid to clean your house, you have to overcome the loss of government benefits to them from taking on more work hours.
Meanwhile at the top the difference would be less than an increase from 40% to 60% because the UBI is replacing all of these other programs which would no longer have to be funded, or could be made strict alternatives to the UBI which would make the UBI less expensive.
People whose marginal tax rates would be reduced by the implementation of a UBI are probably not hiring maids either before or after the implementation of UBI.
To get the maid to show up, you have to cause their bank balance to increase by at least $10, after taxes. If the government is taking 80% of what you pay them away in food, housing and education assistance, you have to pay $50 to get them their $10. Get their real marginal rate down to 40% and you can pay $20 while they enjoy a surplus of $2.
> For a $12,000 UBI that would yield a flat tax rate of ~22%.
Yes. And that is absolutely monstrously huge. You just doubled the US tax rate!
Sure, you could cut spending elsewhere, or whatever, but once you do a program that is on the scale of literally doubling the US tax rate, you are definitely at a point where the costs of the program are very high, and likely unviable.
The total tax burden in the US (federal, state, local; income, sales, property) is closer to 50%, and most to all of the 22% would be in replacement of existing programs.
(Half the funding for many of the existing programs don't even show up in the federal budget, even though they're federal programs, because the feds condition the program on the state government providing matching funds, but the state's taxpayers don't get any refund of their federal taxes if the state doesn't implement the program. So the states are coerced into funding inefficient programs, and those would go away.)
> most to all of the 22% would be in replacement of existing programs
I think people are reasonably skeptical of this part. I've never seen someone show me the math around how all those programs would be rendered redundant by a UBI. Before getting to the political problem of dismantling benefits, some of which pay out more than $12,000 a year and have a vocal, sympathetic minority willing to fight for them.
>I think people are reasonably skeptical of this part
I think that understates it: some enormous fraction (like 45%) of federal government spending is for retirees (Social Security, Medicare and government funded pension) who represent only about 15% of the population.
It's actually pretty easy to solve, because it long-term replaces social security.
Social security has a dumb design if it's supposed to be a safety net. It pays out in proportion to how much money you made. That's not a safety net. If someone who made $20,000/year when they were working can survive on a given amount of money, someone who made $80,000/year when they were working can survive on the same amount. If they want more they can use the extra money they made to buy an annuity. And that's why social security costs so much -- it pays out more to people who, by and large, need it less.
Now, you're not going to pass a repeal of social security. The people currently receiving significantly more from it than they would from a UBI would revolt.
So you do this. You give people an election between a UBI for life or social security after retirement. Current 65 year olds are all going to pick social security. Current 18 year olds are going to pick the UBI, because the net present value is higher. That means social security long-term goes away.
In the short term, social security has a trust fund. It gets spent down to make up the difference between what existing retirees would get from the UBI and what they'll be getting from social security. In the long term, when all of the younger people who chose the UBI over social security reach retirement age, the high cost of social security goes away because nobody wanted it.
>Social security has a dumb design if it's supposed to be a safety net. It pays out in proportion to how much money you made.
Well, sort of. There're two bend points where the proportions go down fairly sharply (90%-32%-15%). It's extremely progressive from that point of view: those with lower average lifetime earnings get a much higher proportion of income replaced than do those with higher lifetime earnings.
Median annual Social Security benefits for 2020 are about $15K, vs. mean of about $18K., for example.
>So you do this. You give people an election between a UBI for life or social security after retirement. Current 65 year olds are all going to pick social security. Current 18 year olds are going to pick the UBI, because the net present value is higher. That means social security long-term goes away.
It makes a big difference where you set the level for UBI, and which entitlements programs you claim it replaces. Without knowing the specifics of the proposal, you can't get good numbers.
But it sounds like you're saying UBI will replace Social Security. Let's assume UBI pays $12K per year to every adult, which is less generous than a lot of numbers I've heard. This means it would replace about two-thirds of the average Social Security benefit.
Based on U.S. life expectancies, that UBI number and average Social Security benefits, I think that puts the break-even point for lifetime UBI to equal lifetime Social Security about 56 or 57. So let's say that everyone 57 or over stays in Social Security.
>In the short term, social security has a trust fund. It gets spent down to make up the difference between what existing retirees would get from the UBI and what they'll be getting from social security.
Social Security's "trust fund" was about $2.8tn at the end of 2020. That's 2.61 years of payments. The idea that Social Security is, in some sense, pre-funded by payroll taxes is completely false. It is effectively a pay-as-you-go system with a small buffer.
Under the assumptions above, you will exhaust the trust fund in less than 8 years, which is a problem as life expectancy at 65 in the U.S. is almost 20 years. So you now either have to stop funding the gap between UBI and Social Security (politically impossible) or raise more taxes.
Over to the UBI then. Social Security brings in taxes of just over $1.06tn year year. Let's just call it $1.1tn. By the way, non-benefit costs for Social Security are only about 0.05% of the program cost, so there's very limited opportunity to make gains by streamlining administration as is often claimed for UBI.
US population is about 330m. Take out the child population (about 19%; they aren't getting UBI) and the over-65 population (about 16%; they're retired and are getting Social Security). So you now have 215m people who will receive UBI.
Your $1.1tn of payroll taxes funds only about $5,100 of the $12,000 that's supposed to be paid in UBI. Payroll taxes would have to increase by 2.35x to cover the cost of the UBI, and that's before you plug the Social Security gap.
Making UBI less generous encourages more people to stay in Social Security which means your funding gap gets wider.
> Before getting to the political problem of dismantling benefits, some of which pay out more than $12,000 a year and have a vocal, sympathetic minority willing to fight for them.
The best way to handle this is to give people a one-time election of whether they want the UBI. If they want the UBI, they're disqualified from all of these other programs, for life.
Then nearly everyone picks the UBI. The person receiving $500 from other programs certainly does, so does the person receiving $10,000, probably even the person receiving $12,500 because they get to avoid doing the paperwork every year for all the other programs.
You're left with the negligible percentage of people who actually receive non-trivially more than $12,000 under other programs, representing a minority of the existing funding. This could also be assisted by dropping some of the less sympathetic programs immediately and further reducing the number of people on the other side of the $12,000 line. And the percentage shrinks over time, because someone picks the UBI at age 18 and then 10 years later discovers they might have received $16,000 this year from some other set of programs, but they've already made their choice. After a few years the other programs have so few people using them that there is no political will to continue them at all.
And recall that one such program is social security, which is currently funded by a 12.4% tax. That by itself is more than half the way to 22%. And all the existing retirees who choose that over the UBI would then not have to be paid the UBI.
Perusing the Wikipedia page for the Laffer Curve (https://en.wikipedia.org/wiki/Laffer_curve), it seems that most studies find we could double our current tax rates and still be on the left of the peak (65%-70%). Given that our current federal revenue is appr. $3.5 trillion, it seems we could afford Yang's $2.8 trillion in UBI without issue.
Source for UBI total cost: https://freedom-dividend.com/
note: I ignored his ~$0.9 trillion in predicted savings/economic growth but that would lessen the bill even more.
You can ballpark these numbers just fine. 500/mo UBI for 350 Million recipients is $2.1T per year. US GDP prior the pandemic was ~20T. Expenditures were about 4.4 trillion, revenue was 3.5 trillion (2019 numbers).
500/mo or 1k/mo UBI does require raising taxes and consolidating programs (a polite way of saying cutting). At 500/mo you'd raise the total tax rate (as of GDP), but it'd not be an unreasonable raise (as compared to 2k/mo UBI for all citizens which would need taxes at 40% of US GDP).
To make this simple, because quintiles comprise an equally populated group of people, let's imagine that instead of there being ~32M people per quintile, that our nation has 10 people, where 5 people don't work, and each of the remaining 5 falls into one of the quintiles.
If we wanted to define a UBI of $18,000 per person, we need to somehow come up with $18,000 * 10 == $180,000 to distribute to everyone equally.
If we fund this progressively, each individual would have to pay:
Unemployed #1: 0 (statistically, a child)
Unemployed #2: 0 (statistically, a child)
Unemployed #3: 0 (statistically, a retiree)
Unemployed #4: 0 (statistically, a retiree)
Unemployed #5: 0 (statistically, a disabled person or stay-at-home caretaker)
Lowest: $8,000
Second: $12,000
Third: $21,000
Fourth: $36,000
Highest: $103,000
Total revenue: $180,000
Then consider that everyone here is receiving back 18,000 under the UBI. The highest quintile earner’s net take-home is, thus 233,895-103,000+18,000 == $148,895, which effectively renders their effective tax rate approx 36%. If you run this breakdown across all quintiles:
You'll notice that the top 2 pay a tax rate that’s comparable to today’s. We wouldn't necessarily need to increase everyone's taxes by the above amount, because there's some wiggle room in the Federal budget. Examples: we can probably eliminate Social Security (which would just be replaced by the UBI), EITC/CTC (basically already a BI), and food stamps (ditto). Medicare, which is an in-kind benefit, can either be eliminated, or it can continue to exist but be paid for by the UBI. Ditto Medicaid.
Also notice that because the lowest quintile still ends up with more than the unemployed person after their taxes, there isn’t a disincentive to work.
This math also assumes that we're giving people $1,500 per month, and also assumes that children will receive the same amount as adults — a UBI may only pay $1,000 per month to adults, and $500 per month to children, in which case the effective tax rates would be lower.
This math also assumes there is 0 VAT. This math also ignores payroll taxes, which account for 35% of the current Federal revenue.
We can play with different levels of progressivity and generosity, but the idea is the same. We can scale up from single-person quintiles to million-person quintiles, but the percentages don't change.
China owns about $1.1 Trillion in US debt compared to the $28 Trillion in total debt. Most debt, ~85%, remains owned by Americans.
Also, China has been trying to unwind their US position over time, but it is a difficult task because they have to do something with the US dollars that they get due to the trade imbalance.
Are you sure this is realistic, or would it end up being a net negative for people earning above $20k-$25k? There are a lot of people who are opting out of paid employment, one way or another, under the current model.
The nice thing about a UBI is that it's still progressive even if funded by a flat tax, like VAT, because with the UBI it's still a net transfer to lower income people. How are the people at the top going to avoid VAT? By moving all their customers to a tax haven?
Also, in this context "the top" is anything above the middle. Are lawyers and petroleum engineers going to move to a tax haven?
> Are lawyers and petroleum engineers going to move to a tax haven?
Yes? I'm not a particularly special engineer, and a significant part of my decision to leave California was the income tax. I'm certainly not alone there.
Also bear in mind that "tax haven" is a relative term. Canada can become a tax haven if their taxes are lower than ours. Europe can be a tax haven if their taxes are lower. If my net income in the US (taking into account higher salaries) comes out the same as what I would make in Europe, I'm moving to Europe. I'd much rather have the safety net than UBI.
> The nice thing about a UBI is that it's still progressive even if funded by a flat tax.
I think this takes more thought. I agree that we want a progressive curve, and that UBI-with-a-flat-tax gives us a progressive curve, but I don't think we've established that it gives us the curve we want. Moving from the ideal curve to the (potentially) less than ideal curve for the sake of easier enforcement may still be worth it, and may still produce a system that we'd prefer to the current one, but we have to actually establish that.
UBI-with-a-flat-tax gives a very nice curve, and on top of that you can make it arbitrarily more or less progressive by adjusting the amount of the UBI. A larger UBI with a higher flat tax rate is more progressive.
It's mostly just not that compatible with confiscatory-level taxes on very high income people, but the cause of the trouble there was never really the taxes (once they were paying the same rates as ordinary people). The problem there is regulatory capture and inadequate antitrust enforcement leading to abusive consolidated corporate empires.
It gives a family of curves, and as you say you have a knob you can turn...
I don't have a strong opinion about exactly what shape the curve should have, but I do have a strong opinion that it's probably important and I've noticed a tendency (first in myself!) for UBI proponents to be satisfied having checked the "it's a progressive curve" box without having looked carefully at whether it can produce the particular progressive curve we (more broadly) want.
Edited to add: I suppose if we do find that we need people to be taking home marginally more for the first N dollars earned, we could add a rebate based on reported income. Small fraud ("I reported a little more than I actually made") winds up pretty bounded in the amount it can walk off with; larger fraud ("I invented 500 people who are reporting income") isn't that much bigger a concern than it would already be with a UBI since the maximum rebate is probably much smaller than the stipend that would otherwise be expected. Note that I'm not calling for this, just exploring the space.
