Stockton extends its monthly $500 UBI payment experiment
citylab.com
citylab.com
The issues with UBI only arise when it's done at scale. For example let's say you give every US citizen over 18 a monthly UBI check for $1000. What's stopping prices from rising accordingly? How will the ~$3T yearly UBI bill be paid for?
The question of how is this paid for is my biggest issue with UBI. If someone can give a reasonable answer that doesn't require national price fixing, taxing tech companies on their data, or some version of reshuffling the current budget around, I'll happily change my mind. Until then, for me, UBI is nothing more than an economists wet dream.
If we've moved beyond that to worrying about what happens at scale, that's progress.
This study is based solely on what the participants claim they spend money on. It's a core principle of the study that the money is "no strings attached". That makes it useless as an actual study, IMO.
Without a more comprehensive study of the budgets of people before and after, the idea that the money won't be spent well is a fair argument.
Different people have different wants and needs. Would you consider toys for children "spent well"? What about a netflix subscription? What if that netflix subscription gives the kids something to do while Mom goes to school? What about a babysitter, so parents can go out and feel human for once? What about a framed picture of a relative that just passed away?
Improving financial literacy is a vital and often under-discussed component of successful UBI programs. I think it's crucially important we make programs explaining banking, savings, etc available (and maybe even required!) as part of UBI programs. These are absolutely necessary to give people the financial fundamentals they need to survive in a world that doesn't care enough about them to teach it effectively, if at all, in public schools.
But if you're insisting on evaluating the success of UBI experiments based on what the recipients spend money on, instead of how it affects their quality of life and/or their financial trajectory... then you're completely missing the point of UBI.
All of those are good examples of money well spent, or at least fairly well spent.
Bad examples would be things like drugs, alcohol, prostitutes, gambling, car/truck modifications, dirt bikes, ATVs, pornography, guns, etc.
That's what people are concerned about, not photographs of your dead grandma.
guns tend to have an amazing return on investment. Every time a gun law passes, my buddy's gun collection goes up in value.
But to be more serious. I hadn't really thought about it before, but the majority things in your list, while often considered trashy in american culture, all tend to have the potential to have big negative externalities. This could end up being a real problem for things like UBI. As an economist, I have some pretty severe reservations about UBI mostly at a meta level regarding unavoidable inflationary pressures that may all but negate the value of an UBI. But it could end up being even worse than I imagine if an UBI ends up flooding neighborhoods with an excess of high negative externality goods and services.
Still, I've heard good things about the effects of direct cash transfers in very poor regions. They seem to be no more destructive than, say, giving cattle, while having lower overhead so more of the wealth is transferred. I understand much of the money ends up going towards things that more money conscious people might considered wasteful, but many indicators suggest there's still a general life improvement for those who receive the cash, even if the effects may be short lived. So I'm a little open minded about the concept in general.
If 99 people don’t buy drugs, and 1 person does, is the system a failure?
Just like the examples you're giving me- 12 dirt bikes? That's obviously a ridiculous proposition. So is only 1 out of 99 using that money to buy drugs- a much larger percentage of our population than that partakes. Using stupid examples like that doesn't persuade anybody that Americans are mostly financially responsible.
UBI should incentivise other income and would still be available even to the wealthy. Some of the extra will go to industriousness, some will go to frivolousness, but would we expect anything different from general economic prosperity? I guess we need to find a control group that gets more money on their own?
You have to understand that you need to sell UBI to America. It will never be implemented unless you can convince the tax paying populous that it will be "good", for some definition of "good". With taglines like that, you are making ubi less and less desirable for most people.
More guns, more violence by a smaller group, thus easier to the police. More prostitution by a smaller group, thus driving prices up which allows an easier escape. More human trafficking, why? This is hardly a side-job. Do you mean an increased immigration?
You don't see what they spent it on, but they have found a way to spend these funds to improve their situation.
The issue is "are the recipients spending the money well"? Are they saving, and using the money to advance themselves, and budgeting? Or is it all going to "waste" and doing nothing productive?
Even just spending it on better food, better clothes, or going to the movies is spending it well. It's UBI, intended to be used as a tool to put a floor on standard of living, not a scholarship or a 401k match.
> Why would you target productivity over quality of life?
I'm not sure that I do that, but the general public absolutely will. The taxpaying public will absolutely not tolerate a UBI that just funnels money into drug cartels, etc. You need to show that the UBI is useful or helpful somehow, not just that it makes people happy.
Spain got something close [3] (but not exactly UBI) recently. I would not be surprised to see this trend continue, either voluntarily or because nation states exhaust all other options.
[1] https://www.pewresearch.org/fact-tank/2017/03/20/a-wider-par...
[2] https://www.google.com/search?q=direct+cash+transfers+povert...
[3] https://news.ycombinator.com/item?id=23351708 (HN: Spain approves national minimum income scheme)
If i get 2k a month and spend it on drugs, you don't see quality of life improve.
It is being spent well because they are keeping a roof over their heads and themselves fed and not worrying about where thhe next meal comes from.
To quote from the article: "Data show that since the pandemic started, food spending by SEED recipients increased nearly 25% over the monthly average. In March, it accounted for 46.5% of spending the researchers were able to track using prepaid debit cards"
My fear is that true UBI will create a giant section of the population whose sole purpose is to consume food/water/utilities and create meaningless art, music, babies, etc. which raises questions about what our purpose in the universe is.
What they consume is culture, culture has a price tag, and the most sought-after culture is the most expensive.[1]
I'm sure UBI will change marginal spending behaviors. The question is by how much. I doubt it would change spending habits so much that civilization collapses, but even if it would some evidence of that effect would be captured by studies attempting to capture more boring marginal effects.
[1] Including the culture of non-consumerism, which uncoincidentally is conspicuously favored by the elite and wealthy.
Prices for different basic necessities will rise, but not enough to counteract the value of the UBI itself. The exact amount depends on the particular price elasticities of the good in question. Everyday food is likely to be relatively minimally impacted, while low-income housing would be much moreso. In broad strokes, you'd see prices rise (to different extents) on goods low-income people disproportionately purchase, but not enough to consume the majority of the UBI grant. This isn't a particularly difficult thing to predict.
> How will the ~$3T yearly UBI bill be paid for?
This is the much more significant issue. I'm not sure why you discount shuffling the current budget around: because of e.g. Social Security, you already have a funding stream for most seniors' UBI. Beyond that, you'd need an broad array of steep taxes (compared to today) to pay for it. 24% of current US GDP goes toward taxation. Bump it by ~15% which brings us to the level of hellholes like Germany, Belgium, and Denmark and you get >2 trillion dollars.
The exact basket of taxes used matters, but would undoubtedly be the result of a complicated political negotiation. It's fair to reserve judgment until you get the actual set of revenue streams, but obviously whatever I tell you here is meaningless until you get to the sausage making of real-life federal legislation.
(Also the ways its done now has its own share of terrible value destroying externalities, ie: the welfare cliff)
I have quite a few acquaintances who simply didn’t get into relationships or have children because they are not sure of their ability to provide the minimum level of care they think they should.
Proponents of UBI say "everyone will receive $X per month". When people ask "how will this be paid for?", the answer is always "changes to tax schedules, savings on social programs", but this tells us nothing without details.
The base argument is that any government that issues its own currency can never default, so it can incur large deficit spending that creates a surplus in the private economy.
The difficulty is whether that surplus is put to produce growth which would offset the inflation that conjuring money creates. If everyone sits at home doing nothing, you bet inflation will happen. If it's used as a cushion, perhaps not.
[1] http://www.igmchicago.org/surveys/modern-monetary-theory/
Also, I should add--I do not think UBI is a wise path.
I just want to state for clarity's sake that I don't espouse the policies of MMT theorists. It's just a framework that appears to have some analytical merit. For example, despite the roaring deficits, why has demand for treasuries not decreased? Why did QE and high government spending not cause inflation? Why do surpluses tend to trigger recessions?
Why would people sitting at home doing nothing be detrimental to growth? Growth doesn't necessarily require masses of people to do more work; it can be achieved through productivity gains, e.g. improvements in tooling, and research + development.
> https://medium.com/basic-income/wouldnt-unconditional-basic-...
> basic income is not the idea of printing $3 trillion new dollars every year and dropping it on everyone from helicopters.
> The money for a basic income guarantee would be already existing money circulated through the economic system. It would not be new money, just money shifted from one location to another. This means that the value of each dollar has not changed. The dollar itself has only changed hands.
> Rising rent is a particularly worrisome fear for many when first introduced to the idea of basic income. However, two very important things in particular need to be understood when it comes to housing.
> There are five times more vacant homes than homeless people in the United States today. This represents a large unused supply that need only be made available. The reason many people are not living in these homes is because they were at one time but couldn’t afford to keep them. Basic income rectifies this and puts people back in homes.
> Technology represents a major factor in future housing prices, especially a future where everyone has a basic income. Everyone will receive a monthly check to afford rent, and will want to spend as little of it as possible on rent. Meanwhile, owners will want to compete for this money with other owners.
This sort of disingenuous statistic makes it very difficult to take the rest seriously. Just like there is frictional and non-frictional unemployment, there is frictional and non-frictional home vacancy.
Suppose I sell my house and move out the week before the buyer moves in. The house is vacant, right? But it is not vacant in a way that is useful for housing the unhoused. The house will be occupied again in a week, and an it needs to be cleaned before the new owners take possession.
The same thing happens for apartments: Old tenant moves out, landlord cleans up the place and puts it back on the market. It's technically vacant for a period of time while the apartment is cleaned and repaired, but (again) not in a way that is useful for providing shelter to people who are without homes.
> This represents a large unused supply that need only be made available.
This "frictional" vacancy actually makes up the vast majority of vacant homes. It can't be usefully repurposed as a permanent or semi-permanent place for people to live. The other problem is that the geographic distribution of "actually-vacant" homes may not match the geographic distribution of people who need homes, and asking people to move is a live wire in an discussion about homelessness.
Circling back to the broader point about inflation: You haven't addressed it in any credible way. In particular, even if it were true that there is a vast, untapped supply of housing, I see no reason that landlords won't increase rent by approximately the monthly amount of UBI. After all, they're happy with whatever the real vacancy rate is today, and everyone would have the means to pay an additional $UBI_MONTHLY per month.
Why would landlords suddenly change their tune and leave money on the table?
Short answer: supply & demand
Long answer: if the supply of a thing isn't constrained (either naturally or artificially), then prices will rise in the near term, but will settle back down in the long term as production catches up with demand. This is why giving poor people food stamps (which is just food money) doesn't necessarily increase the price of food.
This mostly only breaks down in housing, for which there is a true supply scarcity — but even that ceases to be true in a regime with proper zoning reform. Even in regions without zoning reform, you now have people that have cash to move to cheaper neighborhoods — or even cities.
> How will the ~$3T yearly UBI bill be paid for?
Either progressive taxation, a VAT, or some combination thereof. I can try and give you a theoretical tax breakdown using real numbers.
In 2018, the household income quintiles were as follows[1]:
Lowest quintile mean: $13,775
Second quintile mean: $37,923
Third quintile mean: $63,572
Fourth quintile mean: $101,570
Highest quintile mean: $233,895
There were about 159M employed persons in the US in the most recent high[2], about 50% of the US population. We want our UBI to cover everybody.
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
Unemployed #2: 0
Unemployed #3: 0
Unemployed #4: 0
Unemployed #5: 0
Lowest: $8,000
Second: $12,000
Third: $18,000
Fourth: $33,000
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 net tax rate approx 36%. If you run this breakdown across all quintiles:
Unemployed #1-5: $0 - $0 + 18,000 == $18,000
Lowest: $13,775 - $8,000 + $18,000 == $23,775 (effective tax -73%)
Second: $37,923 - $12,000 + $18,000 == $43,923 (effective tax -16%)
Third: $63,572 - $18,000 + $18,000 == $63,572 (effective tax 0%)
Fourth: $101,570 - $33,000 + $18,000 == $86,570 (effective tax 15%)
Highest: $233,895 - $103,000 + $18,000 == $148,895 (effective tax 36%)
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), Medicare (which is an in-kind donation that the UBI can be used to pay for), Medicaid (ditto), EITC/CTC (basically already a BI), and food stamps (ditto).
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.
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.
[1] https://www.taxpolicycenter.org/statistics/household-income-...
[2] https://tradingeconomics.com/united-states/employed-persons
The argument is similar for other forms of welfare. A single mom getting housing benefits plus food stamps plus Medicaid isn't likely to trade her much higher value benefits for a smaller lump sum. At best you might give her the choice between the two.
Ultimately, most of the expense you are proposing would have to come from new taxes that are in addition to the current Federal budget.
My point is that you can compute the per capita benefit for each, and include that in the basic income. In FY2019, Medicare cost the Federal government $645 billion. In 2018, there were 59,869,402 Medicare enrollees, which works out to about $11,000 per year per person. Medicare is, therefore, an in-kind donation of $11,000 per year. You can either give people this money directly, or you can just deduct $11,000 from the yearly UBI and have it pay out $7,000 per year instead.
While the elderly do indeed really like Social Security, it would probably be better for everybody for the elderly to accept less welfare so that everyone else can also receive some of the basic income. Households above the age of 55 hold 75% of American wealth, in part because most old people are rich: they've saved up money over their entire working lifetime. While there are senior citizens that are poor, the UBI would in theory be more than enough to meet their needs.
Medicare likewise operates the same way, except it's government-run and non-profit. The government could, in theory, run the exact same insurance service, and collect monthly premiums to pay for it. The UBI could include in it the amount necessary to afford the Medicare monthly premium for everybody.
As you have noticed in your example, most of that money gets eaten up by healthcare costs leaving very little on which to live ($7k), so essentially are you suggesting that most people should no longer retire?
You seem to be making the argument that $18,000 is not enough, and that we actually need a UBI of $29,000, or in our fictional US-demographics-proportionally-scaled-down-to-10 person nation, $290,000 total.
Okay sure, it would involve higher taxes for sure, but here's what that might look like:
Unemployed #1-5: 0
Lowest: $10,000
Second: $27,000
Third: $37,000
Fourth: $44,000
Highest: $172,000
Total revenue: $290,000
Unemployed #1-5: $0 - $0 + 29,000 == $29,000
Lowest: $13,775 - $10,000 + $29,000 == $32,775 (effective tax -137%)
Second: $37,923 - $27,000 + $29,000 == $39,923 (effective tax -5%)
Third: $63,572 - $37,000 + $29,000 == $50,572 (effective tax 12.5%)
Fourth: $101,570 - $44,000 + $29,000 == $86,570 (effective tax 15%)
Highest: $233,895 - $172,000 + $29,000 == $90,895 (effective tax 61%)
Now, a top marginal tax rate of 61% is the kind that you see in Sweden, Finland, Japan, Quebec Canada, or Denmark. But on the other hand, keep in mind that under these conditions, you are now able to completely swap out many of the Federal government's existing programs, per your constraint. Also keep in mind that I've completely ignored the payroll tax, which brings in 35% of the Federal government's revenue.
The fundamental point is that you can play with different levels of progressivity and generosity and be able to fund a UBI at varying levels. It's very similar to how we go about funding universal welfare states in general, where the government directly provides goods & services that need to be paid for by taxation anyway.
You are not describing a marginal tax rate though. You're describing an effective tax rate, as you acknowledge immediately above.
In Japan, the top marginal rate of income tax is about 55% on taxable income over ¥40M (say $370K). Let's see how the marginal tax rate between the fourth and fifth quartiles in your example compares with that, and also look at Japan's effective tax rate around the same income levels as your highest quintile.
Your fourth quintile household takes home $86,570 on an income of $101,570. With an incremental income of $132,415 above that, your highest quintile household takes home only $4,325 more. The marginal rate of taxation is therefore 96.7%
Someone with an salary of $250K in Japan (call it ¥27.2M) gets a standard earned income deduction of ¥2.2M plus a personal exemption of about ¥400K. The taxable income is about ¥24.6M.
National income tax will be about ¥7M. Local income tax will be about ¥2.5M. Take-home pay will be about ¥17.7M and the effective tax rate approximately 35%.
Doesn't change the argument, the point of the exercise is to show the absolute worst case. This math assumes:
1) 0 overlap with existing programs, which is extraordinarily unlikely. A transfer of $29,000 to a recipient of EITC/CTC and Medicaid is a pretty stupid waste of money. We would either reduce the UBI required (thereby reducing the taxes to the level I laid out in my top-most comment), or we would do away with many of the welfare programs that we already pay taxes for.
2) preservation of existing level of transfer payments to a demographic that is, on average, the richest
3) 0 other taxes. My math assumes an imaginary world in which we do not levy payroll taxes, which account for 35% of the current Federal revenue. That is a world which does not exist, and hence the income tax wouldn't have to be this high.
4) 0 distinction between adults and children — I.e should a family of 4 receive $29,000*4 == $116,000? Absolutely not, this is a comically generous UBI.
The point is that you can take the framework and play with different levels of generosity and different levels of progressivity in the tax brackets. The fundamental basis for the system doesn't change.
Second of all, what I described is the absolute worst case increase in income tax because it assumes:
1) 0 overlap with existing programs, which is extraordinarily unlikely. A transfer of $29,000 to a recipient of EITC/CTC and Medicaid is a pretty stupid waste of money. We would either reduce the UBI required (thereby reducing the taxes to the level I laid out in my top-most comment), or we would do away with many of the welfare programs that we already pay taxes for.
2) 0 other taxes. My math assumes an imaginary world in which we do not levy payroll taxes, which account for 35% of the current Federal revenue. That is a world which does not exist, and hence the income tax wouldn't have to be this high.
Imagine what a 97% tax rate would mean in practice. In order to earn $30 for an hour of your time you now need to charge your customer $1000. As far as I'm concerned 97% is close enough to 100% as to be almost indistinguishable in terms of the economic outcomes.
I'm also not including any other non-income sources of taxes that are already levied. I'm also assuming that there is 0 overlap between a UBI and existing taxes required to run the federal government. Both of those are false.
> you're also handwaving away the effects of a 97% tax rate. Tax rates would have to increase even more just to counteract the fall in government revenues from enacting such high tax rates as every high earner starts figuring out how to structure their income to avoid such taxes or just gives up earning extra income altogether.
> Imagine what a 97% tax rate would mean in practice. Someone offers you $100 to do a half an hour of work. Now you're now making $3 for your efforts. In order to earn $30 for an hour of your time you now need to charge your customer $1000.
There's no hand-waving, this kind of marginal tax rate is not unprecedented. Post-WW2, the marginal tax rate was 90%. As long as the progressive tax brackets maintain an increase in net income, we at least wouldn't have a disincentive to work more, which is an important characteristic to maintain. If you think 97% is too high of a marginal tax rate, you can make the income tax more flat (more akin to EU states today), and achieve similar outcomes.
And again, this is the worst case, because it assumes that there is 0 revenue from other existing sources (which I did not include), and that we would somehow have a generous Medicaid, Medicare, EITC, CTC, Food Stamps, SNAP, and Social Security on top of a UBI, which doesn't make sense. And also assumes that the UBI indiscriminately applies to everyone, including children. A $29,000 per person UBI would mean that a family of 4 would receive $116,000, which is an unreasonably generous UBI.
I've taken a preposterously generous system with a singular source of tax revenue, and shown that you would get to levels of income taxation that existed post-WW2 to fund that.
> Short answer: supply & demand
This seems to run counter to the idea of inflation. Could we not apply your same argument to all goods and services? And if so why have prices consistently risen for all of human history?
I think the real answer is that NOTHING will stop prices from rising accordingly - however the purchasing-power of the average person will still increase due to in-elasticity of demand for the basic goods and services with respect to income. For example, the average American who gets $1200/mo for free would not think to spend that entire $1200 on milk, rice, vegetables and other necessities for his or her family. They would likely save some of it, and maybe spend it on luxury items or use it to help pay for a new car, new watch, etc. This means that to the bottom 50% who is struggling the cost of the necessities of life don't rise by $1200 - they maybe rise by $600 or even $800 - so its a difference of $400 of purchasing-power per-month for those people. And $400/month is actually a huge deal for people in that income group. Also, this doesn't even account for the increased wages resulting from increased consumer-spending.
I realize this logic is add-hoc so someone please tell me if/where I am wrong.
Um, yes? But for most goods and services, prices have decreased relative to inflation. The only exceptions to this are housing, college education, and healthcare — but those are policy problems. The price of most goods and services have not only decreased relative to inflation, they have also increased in quality.
White bread, cost per pound (inflation adjusted)[1]:
1977: $0.405
2019: $1.333
Incr: 229.1%
Median personal income (inflation adjusted), age 25-34[2]:
1977: $9,336
2017: $35,455
Incr: 279.8%
So rather than being 6x as expensive(!), bread is now ~15% cheaper relative to income.
Let’s do another one. Roundtrip flight on American Airlines Flight #1 (NY to LA)
1969
Cost: $304.50 (including tax)[3]
Avg wage: $3.31/hour
Hours to buy: 92
2020
Flight: $500-600
Avg wage: $23.87/hour
Hours to buy: 21-25 (!)
Another one:
In 1997, it took 1,768 hours of work at the median wage to purchase a Dodge Caravan. In 2018, it took just 1,396 hours of work, and the quality of the Dodge Caravan has also increased in that time!
[1] https://www.ers.usda.gov/webdocs/publications/41035/15334_ae...
[2] https://data.bls.gov/timeseries/APU0000702111
[3] https://www.timetableimages.com/ttimages/aa/aa67/aa67-02.jpg
> In 1997, it took 1,768 hours of work at the median wage to purchase a Dodge Caravan. In 2018, it took just 1,396 hours of work, and the quality of the Dodge Caravan has also increased in that time!
Interesting!
Ditto cars, appliances, clothes, etc.
Businesses that just raise their prices would be leaving money on the table: namely the poor people that were outside of their total addressable market. Whereas before those folks would never have been able to provide revenue, with more cash in their pockets, they are now potential consumers. Increasing prices just maintains the same TAM for no real reason — you can make more revenue by serving the newly minted consumers.
First of all, your income numbers are household incomes, not an individual number. A significant number of your 'unemployed' are actually children, carers/homemakers, who belong to those households. Other unemployed are e.g. retirees who often times do not have a zero income.
You're indicating an effective tax rate based on the idea that the tax only pays for the UBI. Don't you have to tax more than that to, e.g., run the rest of government?
Social Security costs about $1tn per year. Medicare costs about $600bn per year, which is about the same amount as Medicaid. Means-tested cash and cash-like programs (EITC, food stamps, SNAP, school lunches) are perhaps another $300bn.
Canceling those programs would fund most of your UBI but would be represent an amazing transfer away from the poorest/oldest, which I suppose was not really your intent.
Funding any portion of UBI through a VAT is also regressive: less well-off households spend a significantly larger proportion of their incomes.
That doesn't really change much, it just halves the payment amount from 18,000 to 9,000. As I closed out, we can play with different levels of progressivity and generosity, but the idea is the same — my math was just the starting point. You can increase the amounts that the top 2 quintiles pay, you can increase the amount that the middle quintile pays (which is how most EU states fund their programs). This also doesn't even touch payroll tax revenues, which comprise about 35% of Federal revenues.
Also, "Unemployed #1-5" includes children, the disabled, and seniors. In that 10-person nation, 2 were probably children, 2 were probably retired seniors, and 1 was probably prime-working-age disabled. They are accounted for in the above math.
> You're indicating an effective tax rate based on the idea that the tax only pays for the UBI. Don't you have to tax more than that to, e.g., run the rest of government?
That was never the implication? Per this specific tax distribution, at worst you would increase the tax on the top quintile by 37%. And that's at worst, because there are definitely parts of the existing government that can be replaced by the UBI.
> Social Security costs about $1tn per year. Medicare costs about $600bn per year, which is about the same amount as Medicaid. Means-tested cash and cash-like programs (EITC, food stamps, SNAP, school lunches) are perhaps another $300bn.
Yes, none of this changes the above math, which we built up from first principles. Again, starting from those numbers, you can play with varying levels of progressivity and varying levels of generosity.
> Canceling those programs would fund most of your UBI but would be represent an amazing transfer away from the poorest/oldest, which I suppose was not really your intent.
EITC, food stamps, SNAP, and school lunches are indeed important for the poorest among us, but the implicit argument is that a lump sum non-means-tested amount per-person is superior to all of those.
Medicare and Social Security on the other hand are already a form of transfer to the richest. Individuals above the age of 55 account for 75% of wealth in America. Put simply, old people are rich. For two-thirds of seniors, Social Security has detached from the program’s original mission — to eradicate senior poverty — and is now the world’s most expensive upgrade from Carnival to Royal Caribbean[1].
Yes, there exists old people that are poor, but targeting social programs strictly on the basis of age is an extremely inefficient method of distributing welfare, especially since most old people are rich.
> Funding any portion of UBI through a VAT is also regressive: less well-off households spend a significantly larger proportion of their incomes.
I don't disagree with you here, but it's just another proposal for how to fund a UBI, per OP's request. What I showed you is that it is definitely within the realm of possibility to fund a UBI off of progressive income/capital gains tax alone.
No, you'd increase the tax burden by 37% of their gross income, which is a totally different thing.
Your highest quintile household earning ~$235K per year: if they lived in NYC they'd be paying already about $72K per year in taxes (between Federal/state/local income tax and FICA, assuming it's a married couple).
Your proposal takes an additional $85K per year away from them. It therefore increases their taxes by 118%.
EDIT: also, I just noticed the quintiles in your example don't even sum correctly. You're distributing $180K but only taxing $174K.
That's my mistake, typo due to overly quick math. It's too late for me to edit the comment, but the missing $6K needs to be distributed across the quintiles. This doesn't fundamentally change the math at all, and hence does not invalidate the argument at all.
> No, you'd increase the tax burden by 37% of their gross income, which is a totally different thing.
> Your proposal takes an additional $85K per year away from them. It therefore increases their taxes by 118%.
You're saying that it (a little more than) doubles their taxes. I never claimed otherwise, I meant that the percentage would increase by 37%, at most — which would in effect double their effective tax rate.
I want to do the math just to give your argument a fair shot. In FY2019, the total outlays of the US Federal government was $4.45 trillion. Per capita, that's $13,500.
Let's assume that there's literally 0 overlap between a UBI and all existing programs — extraordinarily unlikely, but I'll play your game — and we wanted to maintain an $18,000 UBI. That's essentially a $32,000 in benefits (I'm throwing in an extra $500 just to make my argument that much harder).
Let's go back to our fictional nation, where there are 10 people that are distributed exactly like they would be in the US today. We'd need $320,000 across 10 people.
Unemployed #1-5: 0
Lowest: $13,000
Second: $30,000
Third: $40,000
Fourth: $59,000
Highest: $178,000
Total revenue: $320,000 (this time I double checked!)
Now, because, in this scenario, $13,500 is not actually cash money, but is going towards existing Federal outlays, the net pocketed amount isn't actually $32,000 — it is actually $18,500.
Unemployed #1-5: $0 - $0 + $18,500 == $18,500
Lowest: $13,775 - $13,000 + $18,500 == $19,275 (effective tax -39%)
Second: $37,923 - $30,000 + $18,500 == $26,423 (effective tax 30%)
Third: $63,572 - $40,000 + $18,500 == $42,072 (effective tax 34%)
Fourth: $101,570 - $59,000 + $18,500 == $61,070 (effective tax 40%)
Highest: $233,895 - $178,000 + $18,500 == $74,395 (effective tax 68%)
These tax rates are Scandinavia-level rates. The middle class taxes are also high, but that's also true in most EU countries. These are also approaching FDR level marginal tax rates.
All that being said, these high taxes assume that there is literally 0 overlap between a UBI and over half of the existing Federal welfare expenditure — extraordinarily unlikely. This also totally ignores payroll tax revenue, which is about 35% of total revenue. And this is assuming 0 VAT, which most of the developed world has in some capacity. It also assumes that we want to continue to provide targeted welfare for a sub-section of society that is, on average, among the richest (old people). It also assumes that we want to pay equal UBI to everyone of all ages, rather than providing half the UBI per child, or some such percentage — I.e. should a family of 4 receive $74,000 per year? I think not. This is the most generous UBI. Like I said, we can play with different levels of progressivity and generosity of the system itself — but the general idea is the same.
The above math should show that a net increase in effective tax rate to 68% is the absolute worst case increase in income tax, assuming 0 overlap and 0 alternative taxation (both very unlikely), and assuming a comically generous UBI. At the very least, it should also show that it is within the realm of possibility to fund a UBI through progressive taxation.
There are a lot of reasons why people (myself included) think that UBI would be better than the welfare system we currently have, which is (AFAIK) like what you describe. Google around.
My favorite reasons to expect UBI would work "better" are: 1) drastically simplifies the government's part of the system, 2) works within the existing economic system, and 3) empowers people to make their own decisions about their own lives, needs, and wants.
By giving the money directly to people, they get to spend it how they want. By definition, they are extracting the most value possible from that UBI. If you instead give them goods + services through a government agency, you also have to pay all the bureaucrats and you are limiting the choices the recipients now have.
But the government's part of the system is absolutely insignificant.
> empowers people to make their own decisions about their own lives, needs, and wants
I get that. But I also have a neighbor that will spend the cash component of the welfare he gets within the first 10 days of the month. If he got cash only and had to pay rent himself, I'm certain that he wouldn't. Obviously we can't let him be homeless, so the state would jump in and pay his rent. On top of giving him the money to pay his rent. That would obviously be an improvement for him (+700€/month to spend), but I don't see how it would be sustainable.
The easiest data point I could find is that the Executive branch spent $228 Billion in 2010 on government salaries, excluding the military and USPS[1]. That's almost $700 per person per year if you converted it all to a UBI. That's far from insignificant.
> But I also have a neighbor that will spend the cash component of the welfare he gets within the first 10 days of the month. If he got cash only and had to pay rent himself, I'm certain that he wouldn't
I don't see why I am obligated to pay for someone who refuses to take care of himself.
[1]https://www.washingtonpost.com/blogs/federal-eye/post/how-mu...
Right... but introducing UBI won't remove the necessity of the department of energy, or somebody sitting in an embassy in Russia, or the person who orders toilet paper for the Library of Congress.
We'd save money on administrative overhead for the programs that are supposed to be replaced by UBI, but those salaries aren't what's eating the budget.
> I don't see why I am obligated to pay for someone who refuses to take care of himself.
I don't either, but we're a tiny minority. Well, at least in my country we are, in the US it may look somewhat different.
TBH I don't know. How much money is spent determining whether or not someone is eligible for welfare? How much is spent on sourcing vendors and distribution?
> have a neighbor
Ehhhhhh lot of things going on here and lots of ways to look at it. I can think of a bunch of ways to make this work out, but ultimately, it's a Chesterton's fence issue: without understanding why things are the way they are - which you'd only get by engaging with the person - any solution is both likely to fail, and likely to result in disempowerment; contributing both to an immediate failure and, I'd expect, many future failures.
If UBI resolves, to pull a number from no-where, 90% of the issues social workers are needed for, now you've got 10x the social workers to do that engagement with your neighbor.
Probably a lot in absolute terms, but insignificantly little in relative terms, i.e. if you pay somebody (in cash or in rent or vouchers) $1000, you're not adding $1000 on top. Romney claimed as much in 2012 and the numbers don't support it [1]. Money quote: Combined federal and state administrative costs range from 1 percent to 10 percent of total federal- and state-funded program spending.
That's considerable, but it's not going to fund UBI, especially not if there's an expansion beyond those that currently receive money from the programs.
> If UBI resolves, to pull a number from no-where, 90% of the issues social workers are needed for, now you've got 10x the social workers to do that engagement with your neighbor.
True, but we've tried "increase the number of social workers" in Germany, and it didn't help. After all, you can only achieve so much with offered help. If you want change, you may have to force it. It's similar with drug addicts: you absolutely can get them clean, but only if they want to (and want it enough to stick it out, as it's not a fun process even with help and support) or if you force them. Simply building rehab centers alone isn't going to do it.
I'm not a fan of UBI, I believe it will be a terrible thing medium to long-term and will create a permanently unproductive under-class with zero agency that requires constant adult supervision. I do believe in a Universal Right To Work, though. Guarantee them a job, even if it's not a productive one but merely picking up trash, visiting lonely elders or explaining directions to tourists, and pay them in return. It changes the dynamic and you keep a habit of exchanging work for money (and getting out of bed), and it has basically none of the moral hazards of UBI, does not incentivize not-contributing, does not require closing your borders immediately after introducing the policy etc. I'm sure it's hard to work out as well (e.g. you don't want the state to ruin markets etc), but I believe it's a much better approach, and it's also much easier to sell to those that will have to fund it (which, let's not kid ourselves, are never going to be the 1%, the international corporations or those that inherit large sums of money, but the average worker).
[1] https://www.cbpp.org/research/romneys-charge-that-most-feder...
Whether the nation is wealthy enough to sustain that tax load yet is uncertain. Market caps and national wealth values on paper break down when huge amounts of wealth needs to be liquidated to service new taxes. Even so, I think it probably is, with a clean restructuring of our tax brackets, but we have a lot of other debt to service first. Of course, in reality, if this ever gets legislated it will only be adding to the already staggering deficit.
Whether or not the politicians whose voter bases rely on UBI can be trusted to keep the UBI at a reasonable level (i.e. enough to survive in rural areas but not going to cut it if you want to live in west Los Angeles and not have a job), is a more contentious point to me.
I’m a fiscal conservative but I don’t think the inflation caused by UBI will be any worse than the inflation caused by massive deficits due to military spending and other misallocations of resources. In fact UBI might be better, given it’s spent on actual human needs rather than military hardware that is 90% useless in our present world.
But UBI is still stupid. Paying people for not working is a method of producing less, ie making us poorer. I always wonder why the dorks who go around promoting UBI always seem to ignore the earned income credit, which is our best tool to reduce poverty. Why don’t they ever march to massively increase that?
It's sincerely good to see a fiscal conservative acknowledge this. That said, I'll take a contrarian position (to my own beliefs) and question whether that military hardware is really so useless.
> I always wonder why the dorks who go around promoting UBI always seem to ignore the earned income credit, which is our best tool to reduce poverty.
UBI is also intended to deal with the emerging reality of routine jobs being lost to automation, and to increase the leverage of workers who would be able to be choosier in the job they take (a good thing), thus putting upward pressure on wages at the lower end of the income scale.
When there is no job, there is no earned income to take the EITC on.
This isn't to say that all (or even most) workers will be able to adapt to losing their job to automation or what can/should be done to help them.
Not all workers, but for many workers, this is the case. Very few coal miners have been able to retrain as software developers, despite earnest efforts on the part of some organizations in coal country.
They could try to get manual labor work in another industry, but industries to which their skills are readily transferable - like manufacturing and construction - are also automating many of the most menial of jobs. A modern factory employs far fewer workers per unit of output than those of even the recent past.
Skilling-up to the point where you have value to the new economy isn't as straightforward for many workers as it seems like it should be to many of us already in the new economy.
I'm not suggesting that they are like horses in that they will be sent to the glue factory, but lots of people in that sort of position have seen their quality of life - and that of their communities - suffer a great deal over the decades of deindustrialization.
The personal computer annilated lots of “premium” calculator jobs in accounting. Yet somehow it’s created far better jobs to replace them.
It’s easy to see which jobs would go away because of automation. Yet No one has ever been able to predict the better new jobs that arise with any level of accuracy. Yet that has always happened. Why should that change now?
I'm still on the fence about UBI. But many of the things poor people would buy with this money is: food, clothes, ordinary household supplies, electricity, phone subscription, internet, etc.
Today, many of these things aren't necessarily priced based on supply/demand, at-least I rarely see prices fluctuate. I assume because our hyper-industrialized/semi-automated countries we can easily manufacturer as can be sold.
So instead stuff is priced based on what the _targeted customer segment_ is willing to pay. Hence, prices might not go up just because the customer segment grows in size.
UBI without regulation, or some sort of gradual phasing-in would probably not be sound :D
One could maybe avoid the problem a bit by implementing a tariff on every import that calculates the man-hours put into a product and adds a fee based on how much UBI that would be if it were made by Americans, but that's hideously complex and still wouldn't help companies that want to export their products worldwide. Ultimately markets don't care about the general welfare of the people and are frequently at odds with schemes like this. Unfortunately we don't really have a better solution. Command economies don't work at scale.
Not saying they're willing to extract taxes, as we've seen time and again, but very much able.
I forget what the conjecture is called in economics that UBI would essentially all be captured by rent and housing prices.
I don't have to think about it very long to see how obvious that is.
But you're right that there exists markets (like SF) where this is simply not the case. What happens there? Take your thought one step further: if everyone received $x per month, and rent and housing prices increased by $x, then in that worst case scenario, the TAM doesn't actually change, I.e. if I was able to afford a house today, I would be able to afford a house tomorrow.
If I was unable to afford rent today, I would not be able to afford rent tomorrow however I would now have cash to be able to afford to move to a more affordable market. This seems like a strict win to me.
We will print regardless (See: Japan, Fed, ECB), we're just arguing over which fiat bits end up in which accounts.
https://www.visualcapitalist.com/700-year-decline-of-interes...
https://www.stlouisfed.org/publications/regional-economist/f...
Money doesn't represent anything inherently - it has no meaning other than what the participants in the economy ascribe to it. It's a useful tool to enable trade.
So forget about money in terms of € or £ or $ for a moment. If you want to buy a fancy new TV, someone has to mine some precious materials from the earth, someone has to melt some plastic into a nice shape, someone needs to write some software, yadayada.
How do we get society to mine materials, melt the plastic, and all that, in a way that nicely optimizes happiness, productivity, and investing in the future?
If 'UBI' is the right answer, then we should do this with UBI, and society can then therefore pay for it. Because if the system can productively ensure that the TVs are rolling off of the belt, and today's societies (at least in the west) seem to be economically viable, then there must be an economically viable model, too, for the UBI world. Money is just a tool; adapt the tool to properly do the job that you require of it. Don't adapt the job around the tool.
Let's say you spend a lifetime driving a truck around. a long, storied career of 55 years. Sounds nice and productive, but it feels a bit pointless if someone could have spent ~100k, once, and created a robot whose running costs are maybe €500 a year and could have done your job. better, even.
That trucker could be doing something more productive. Or not - society can support this trucker now, getting paid to drive a truck around. Therefore society can support the same trucker at the same level (minus 500 bucks a year) with the trucker doing nothing whatsoever.
I'm pretty sure that's reality already. Right now it sure feels like society is spending a million or two on that trucker over those 55 years (a salary of €40k a year, benefits and all that, traffic accidents caused by humans on the road, and more - oof, that is easily going to hit a million, no?) - on something that a robot can do for a fraction of that. It's inefficient. How do you pay for UBI? By the gains of optimizing this stuff away.
But the trucker needs a society that doesn't look down upon someone who now has no work at all, and needs a way to still get the psychological benefits that work brings. These things, too, are optimizing moves: Happy people are surely better for the economy, and 'happiness' should be a goal in its own right.
Here's a simple thought: If everybody gets a UBI that is enough for the basics and a little luxury on top of that, then all jobs are themselves a luxury thing. At that point, you can start taxing all income, starting at the very first penny, at 60%. You never risk taxing the population so much they go homeless or have adverse health effects, _IF_ we posit that UBI covers all basics already.
Then, making UBI affordable is a matter of tweaking the 60%. Tweak it to 90% if you have to; people are motivated to work for reasons other than money, and 10% of some number is still more money than people without a job (solely UBI) would get. Taxation, especially in europe, _WAS_ at those levels after the second world war and people just worked, so, any claims that incredibly high income tax levels means nobody would work are [citation needed]. All the research I've seen suggests 60% will more than take care of it, but it's just a number on a dial. You can rotate the dial, society isn't going to break if you crank it up.
Now, how do you _politically_ make this happen? I have no idea. But busting some myths and adding more research to the pile probably helps, no?
The problem with the world isn't distribution of wealth. The problem is NOT enough wealth in the first place. We need to concentrate on addressing that problem.
Also, gov is already such an enormous burden on people in the US. Right now almost 40% of US GDP is gov spending. that means the average person is loosing 4 out of every 10$ their earning. And, that's just the average. I'm sure in coastal areas the burden is much much higher.
> that means the average person is loosing 4 out of every 10$ their earning. And, that's just the average.
Yeah, that's just the average. The median person is paying less, and should be paying even less than that.
It sounds like you're saying that people who depend on food stamps and unemployment will see a smaller benefit under UBI than people who earn enough not to require those benefits.
1000$ a month was chosen because you are supposed to be able to live with that amount. I would expect to be extra allowances for children etc.
There is no such thing as "at the expense of the poor" here. Everybody gets it. If you are middle class it comes out directly out of your taxes anyway. It is a minimum income that should help you decide to start a new career or create a small company for example, now that you know that whatever happens you will always get 1000$ a month.
The real problem is how to realize this tax. I think it is probably too hard to actually appraise everything/etc; thus something like a monetary policy might be appropriate. The problem here is that USD is not in a vacuum so side effects might make this impossible.
There is not much that can be learned from an experiment like this. The biggest questions of UBI are not made more answerable by it.
Namely, why wouldn't prices/cost of living/rent rise to eat all the stipend, and how will we pay for it at massive scale?
Virtually no one disputes that an extra $500-1k/month given to a subset of people is a benefit to the people who receive it.
For food and clothes and whatnot there's plenty of competition and those shouldn't rise beyond any mild labor cost increase.
But why does that matter? That's their own business. People will spend it on whatever makes them happiest--that's the whole point.
It doesn't answer the questions that most people have, such as the question in the post you replied to:
"Namely, why wouldn't prices/cost of living/rent rise to eat all the stipend, and how will we pay for it at massive scale?"
Because if people by and large hoard it it has a different impact than if they go spread it around in the local community and keep money flowing throughout the system. It's also good to know if they spend it on luxuries, entertainment, or basic necessities. Do they invest it and does it help them build a better future for their children, or does it just help them pay the bills immediately but doesn't necessarily lift them out of poverty, etc. Otherwise we can't tell if it helps solve the problems people are trying to solve with it (whatever those may be, I am not one of these researchers and am not qualified to speak on the economic specifics, I can just talk to general methodology and what not).
> People will spend it on whatever makes them happiest--that's the whole point.
Just specifically I want to point out the flaw in this reasoning: for a lot of people a $500 night out with their friends might make them happiest, or a new video game system or whatever it is that they like to do, but they may spend it on groceries or to help pay the rent or to invest a little bit instead. Or maybe not. You can't just assume what people will do with it, or what the whole point is, you have to experiment and prove it. Maybe something entirely different that you haven't thought of happens. Again, that's just how science works.
TL;DR this is an important thing to find out. Then we repeat the study in a few communities and see if the results are similar, maybe try it at different wealth levels to compare, etc. this is how science works.
> It doesn't answer the questions that most people have, such as the question in the post you replied to:
There can be more than one question, and more than one answer. Economists are researching this too and have written a lot about it. Just because you have a question, doesn't mean the science has to answer it right away and every single experiment has to be focused on it. There are lots of questions that will have to be answered before this could be tried more widely, these are just two of them.
This experiment is not answering questions that (reasonable, at least) detractors actually have.
Knowing roughly what income brackets spend how much on what is helpful when deciding if this can work and help people, if it's just a waste of money, if it works up to a point but then anything over that point is mostly a waste, etc. this is how science works. See my other longer answer in this thread for slightly more detail.
It would be paid for by wealth tax. UBI is essentially wealth redistribution.
If everyone can sustain higher prices, rent will go up.
Thus taxpayers just funded a windfall for landlords.
Also, please don’t assume you know my beliefs regarding the free market.
Used to live there and this is definitely true. Lots of poverty, poor quality of life.
Today no food, today and tomorrow stomach ache?
UBI, if it is ever realized, will be a scammer's paradise. Every possible method for getting a slice of people's UBIs will be tried. From fake government calls, to identity theft, to greedy landlords, to you name it. And whose UBI will be most vulnerable to these types of attacks? The poor.
As long as people don't get scammed _future_ basic income, I think people will learn over time how to manage money, just like I don't worry about how getting a raise will make me more vulnerable to scammers.
Yes, and no.
Of course there will be some low form of abuse and whatever.. that is just a given with anything in the entire world. It should NOT be a main reason of any form to be against it.
We are trying to help people, so what if it's getting a little bit abused? We as a whole are still better off.
It's like a universal healthcare argument.. people might say "well what if someone from mexico sneaks in and get care for free?? I'm paying for that!" If the worst case is that someone gets health treatment... then it's a pretty silly argument in my book.
Completely unreal example numbers: If the distribution of lower:middle:upper was 2:5:40 and changes to 4:8:25 then that's a big improvement, even though the gap between lower and middle increased from 3 to 4.
I was giving an example where the worst case was still "good" overall.
You are giving an example where the worst case is "bad" overall.. so, duh?
If you're against redistribution in general then that's a different discussion, but at a minimum, in societies with great inequality, even the winners don't win if it all goes the route of the French Revolution.
That's the statement I'd like to see highlighted bold on every UBI proposal, so that everyone knows exactly what it is about.
Isn't it remarkable that at a time of the French Revolution (which one them by the way?) the society was significantly more equal in terms of their income than it is today? Maybe revolutions are caused by other reasons, like the lack of freedom and not being in control of your own life, for example? Especially when more than half of one's productive life is taken away and redistributed by a taxman.
As for economically conservative discussion about redistribution, I think Greg Mankiw had one of the best summaries of the matter in 2013 "Defending the One Percent"
https://scholar.harvard.edu/files/mankiw/files/defending_the...
Ultimately the question of whether to redistribute or not is as normative, just like considering taxes to be inherently immoral. So far societies have enjoyed the former more than the latter, but individuals fall on both sides.
It'll help people move away from unhealthy consumerist habits, and solve environmental problems, double-win
But for bikes in particular, this sounds like a disaster. Not everybody wants a bike, but if it's free, they'll probably take it. But bikes come in all sizes, so we have to stock a lot of them, or just have a 'flexible' bike which isn't well suited for anyone. Meanwhile, it's very hard to sell a bike outside the system, because who would buy a bike that isn't free.
I like the idea of giving people some money, and let them figure out what's important to them. If you trash your free bike, no big deal, it was free. If you trash your bike that you bought with free money, you're going to wish you spent your free money on something else. If you spend your free money on dumb stuff and have to eat topramen for the rest of the month, maybe you'll do better next month (or maybe you'll get really good at making top ramen).