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Net incomes under a Basic Income system

In the May 23, 2017 edition of Basic Income News, Karl Widerquist laments the tendency of some basic income commentators to overstate the cost of a basic income. The typical methodology used to generate these overestimates is as follows:

  1. Obtain the population of the jurisdiction which will implement a basic income
  2. Obtain the amount of the basic income provided to each person in that jurisdiction
  3. Multiply the number in “a” by the number in “b”
  4. The product referred to in “c” is the cost of a basic income

As Widerquist points out, the reason this is an overestimate is that it fails to consider the fact that even though everyone would receive the amount referred to in “b” above, not everyone would be net beneficiaries of this amount.

Suppose the amount referred to in “b” were $10,000, meaning that under a basic income scheme, everyone would receive $10,000 per year. But in every basic income proposal I’ve seen, although the basic income wouldn’t officially be taxed, all other income would be. This means that at some income level, there would be those who’d owe at least $10,000 in their annual tax bill. Since the amount they’d owe in taxes would be at least as large as the $10,000 basic income, they would no longer be net beneficiaries. Their basic income would, in effect, have been taxed back from them. Under a basic income scheme, there would also be those who’d be net beneficiaries of a basic income but not of the full $10,000 amount. All of this might be easier to see if we did a bit of math.

Again, assume that our basic income comes out to $10,000 per year per person. Suppose all other income is taxed at a marginal rate of 25%. The use of one rate is to keep things relatively simple. Here is the key equation for the basic income system being described in this paragraph:

Net Income = $10,000 + (1 – .25) * Other Income

Now let’s play with this equation a bit. Suppose someone had no other income. We’d then end up multiplying $0 by (1 – .25) which would give us $0. And $0 + $10,000 would mean this person would end up with a net income of $10,000. That is, they’d be a net recipient of the full basic income benefit level.

Now consider someone with other income of $30,000. Multiplying $30,000 by (1 – .25), we end up with $22,500. Once we add this to the $10,000 basic income, they’d end up with a net income of $32,500. Let’s look more closely at what’s happened here. The person made $30,000 in other income. If they didn’t have to pay taxes, we’d have (1 – 0), which is just 1, instead of (1 – .25). So they’d keep all $30,000 plus the $10,000 basic income for a net income of $40,000.

Looked at this way, we see that the tax on other income is effectively a tax on the basic income as well. That is, the fact that the person with $30,000 in other income only ends up with a net income $32,500 instead of $40,000 means that $7,500 of their basic income has been taxed back to the government.

Next, let’s take a look at what happens to someone with other income of $40,000.

We’d have to multiply (1 – .25) times $40,000, ending up with $30,000. And $30,000 + $10,000 is a net income of $40,000. If this person paid no taxes on other income, we’d add their $40,000 in other income to the $10,000 basic income for a net income of $50,000. With taxation, their actual net income is $10,000 less than $50,000. That is, we’ve taxed back all $10,000 of their basic income. So this person would no longer be a net recipient of the basic income.

Finally, suppose someone had other income of $100,000. We’d end up multiplying (1 – .25) by $100,000, which comes out to $75,000. Since $75,000 plus $10,000 is $85,000, this person’s net income would be $85,000. Now if they didn’t have to pay taxes, they end up with a net income of $100,000 plus $10,000 or $110,000. But with taxes, their income is only $85,000. We see that not only has their $10,000 basic income been taxed away, so they’re no longer a net recipient of a basic income, but they’re paying enough in taxes to help finance someone else’s basic income, someone with much lower other income than they have.

If we think carefully about these examples, we see what’s wrong with some cost estimates of a basic income: they assume the tax rate in the equation above is 0%. But as I said above, every basic income proposal I’ve seen, assumes that all other income would be taxed at some positive marginal tax rate. This means, of course, that our net income equation will include a term where some positive marginal tax rate will be subtracted from 1. We used a 25% rate for illustration, but really any positive rate will do. This is because any positive marginal tax rate on other income, although not officially a tax on the basic income, is effectively a tax on basic income. And this means some people won’t be net recipients of the benefit. Understanding this point is key to arriving at better estimates of the cost of a basic income guarantee.

 

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22 comments

  • I’m a little confused by this. You are conflating whether everyone is a “net beneficiary” of the basic income with the idea that the cost is “d” above. Clearly, someone like Warren Buffett or Bill Gates will still be paying enormous taxes even if they get a basic income. That is not in dispute.

    However, cost to the government can be thought of the net amount of money that has been paid out, or lesser amounts received. If you see the person earning $30,000, making $22,500 after taxes. WIth the basic income, that person now gets $32,500 after taxes. This increase in amount comes from the $10,000 of basic income. Which means that the government has $10,000 less. The $10,000 it paid out.

    The person with $40,000 of income, and $30,000 of income after tax now ends up with $40,000 after tax. Where does this increase of $10,000 come from? Any who is receiving $10,000 less? Clearly the government.

    Finally, look at the person earning $100,000 of income, and $75,000 after tax. They are clearly earning $85,000 after tax due to the basic income. Clearly, the government will receive $25,000 as tax, but now paying out $10,000 as basic income, for a net reduction of $10,000.

    To look at it from the government’s perspective, in the $30,000 case, it was receiving $7,500 as tax. Now it is paying out $10,000, while still receiving $7,500 as tax, for a net outflow of $2,500. If you compare receiving $7,500 before the basic income to paying out $2,500 after the basic income, the difference is $10,000.

    In every case, the net change for everyone after tax is $10,000. This comes from the government. I don’t see how the government’s cost is less than “a” x “b” = “d”. And the government must either increase taxes somewhere else, or reduce other expenditure.

    • Michael

      Rahul,

      I’m not conflating the cost of a basic income with whether or not everyone is a net beneficiary. This is because the degree to which everyone is a net beneficiary affects the net cost of a basic income. Remember, the point of the article isn’t to say that the basic income cost the government nothing. It’s to say that simply multiplying the basic income grant level by the total population overestimates that cost. Here’s an analogy which might help.

      I’m the parent of three children. Each is entitled to an allowance of $10 per week which I typically give them on Fridays. Early on Friday June 30, I give each kid their $10 allowance. So at this point it looks like the cost of the “weekly allowance program” is $30. This is the gross cost of the program. Yet 10 minutes later I take $2 back from one kid, $5 back from another, and all $10 back from the third. The total amount I’ve taken back from the kids is $17. Since $30-$17 is $13, the net cost of the program is only $13. This is the sense in which $30 is an overestimate of the cost of the program.

      Now what this analysis leaves out and what I left out in the initial post (because I thought it would understood without my having to say it) is that there would be administrative cost to consider. I would incur such cost in my weekly allowance program and so would the government if it implemented a basic income. But in order for the minimum basic income amount multiplied by the overall population not to be an overestimate of the cost of the program, the difference between this amount and the amount when all aren’t net beneficiaries is taken into account must be completely made up by administrative cost. Going back to my weekly allowance benefit example, the only way the $30 wouldn’t be an overestimate of the cost of the program is if it cost me at least $17 to give children money and take some of it back from them. I don’t know of anyone who is claiming this would be the case for the basic income. This may be because so many who discuss this topic don’t make the gross versus net distinction I’ve been making. But that distinction is crucial if you want to estimate the cost of a basic income.

  • The proposal of a Universal Basic Income IS, in my opinion as a London born-and-bred British Citizen with 20 years’ full-time employment behind me, ONE modest step towards the return of DIGNITY to ordinary citizens. IF any of us believe that Humanity has a higher purpose than spending all our time and strength securing food and shelter, then here’s one way forward.. Are the resources available? Ask Gaia , and other knowledgeable types.

  • I don’t understand your logic. If you can say that the “net cost” of basic income is lower, it can also be said that the income tax regime no longer gathers as much tax. I don’t see why we should attribute the netting off to the basic income programme rather than to the income tax in the first place.

    To go to your example, let’s say you are taking back the money from your children because they didn’t complete their chores. So this is the tax for paying for picking up clothes left lying around. Now you were paying $30 of an allowance. You’ve decided to recover $13 for not completing chores. So the net outflow from you to your children is $17? But is this same as saying the allowance is now $17? If so, why pay the $30 and take back the $13? Because they have different reasons attributed to them.

    In the same manner, recovering $10,000 as income tax is different from paying out $10,000 as basic income. Yes, the net impact is zero, but you cannot say the net cost of the basic income is zero, just as you cannot say the income tax recovered is zero. You can say that they net amount paid / received between the government and the person is zero.

  • Wish we could thread the comments.

    Let me look at the economy in your initial example. Before basic income, we have

    Person 1: Earns $30,000, pays tax $7.500, net $22,500
    Person 2; Earns $40,000, pays tax $10,000, net $30,000
    Person 3: Earns $100,000, pays tax $25,000, net $75,000
    Total : Earnings $170,000, tax $42,500, net $127,500
    Government: Tax collected $42,500

    After basic income, we have

    Person 1: Earns $30,000, pays tax $7.500, receives basic income $10,000, net $32,500. Net – earning $2,500
    Person 2; Earns $40,000, pays tax $10,000, receives basic income $10,000, net $40,000. Net – earning $0
    Person 3: Earns $100,000, pays tax $25,000, receives basic income $10,000, net $85,000. Net – earning: -$15,000
    Total : Earnings $170,000, tax $42,500, basic income: $30,000, net $157,500, Net – earning: -$12,500
    Government: Tax collected $42,500, paid basic income $30,000, Net available: $12,500

    If you see, the government has $30,000 less cash than earlier. Now, by your argument, the cost of basic income is only $2,500 (the net amount paid to person 1). To what cause do we attribute the balance reduction in taxes received of $27,500? If not to the introduction of basic income, then what?

    • Michael

      Rahul,

      I’m going to respond to both of your most recent posts. Regarding the first one, I think we should first agree on what we mean by “cost.” Or if we can’t agree on a definition, I’ll tell you what I mean by it so, perhaps, you’ll better understand my logic, as you put it. The “cost” of a basic income, as I’m using the term (ignoring administrative cost for the time being), is the net fiscal impact of basic income spending on the government’s “balance sheet.” Given the kind of tax and spending regime we’ve been talking about, such an impact will result from both government basic income spending, as well as government receipts through taxes. So, assuming I’ve correctly understood you, you’re right that by giving back some amount of tax revenue in the form of some amount of basic income “the income tax regime no longer gathers as much tax.” But that’s precisely the point—the cost of a basic income is a net impact. It’s what the basic income does to the government’s balance sheet, after accounting for the fact that not everyone will be net recipients of the full level ($10,000 is my example) basic income. You can think of this impact as caused by net spending on basic income or by net taxes received due to spending on basic income (which gets to your point about taxes loss because of basic income)—these amount to the same thing because net spending on basic income and net taxes received due to spending on basic income amount mathematically to the same thing.

      Now for your second post. You’re right that in the second scenario I’d say that the the cost of basic income, if by “cost” we mean, as I said above, the net fiscal impact of basic income spending is $2,500. Here’s why. In the first scenario, without considering the fact that not all three members of our small population will be net recipients of basic income, we’d get the cost of basic income by the equation 3x$10,000 = $30,000. Let’s assume that the government is starting with revenue of $100,000. Since $100,000-$30,000 = $70,000 the government would be $30,000 poorer because of spending on the basic income.

      In the second scenario, once we’ve taken account of the fact that not all members of our population will be net beneficiaries of the full basic income benefit, we see that spending on basic income isn’t $30,000 but $2,500. You’re correct that instead of thinking of this as net spending on basic income, we could think of it as net loss of tax revenue, since this $2,500 will represent money that’s been loss to the government because, due to the basic income, we’ve taken in less in taxes than we would have if we weren’t giving people a basic income. But recall what I said in my first post. A tax on all other income (all, that is, besides the basic income) is the same as a tax on the basic income. So, in your terms, in the second scenario there is a loss of tax revenue because we didn’t fully tax the basic income. That is, someone is still a net beneficiary of a basic income because we haven’t taxed all basic income to $0. But in this second scenario we’ve still taxed the basic income more than we did in the first scenario, where we didn’t tax it at all. This is why the gross cost of a basic income is higher than the net cost which is the only point I’ve been trying to make all along. We see this in the fact that in the second scenario, the government ends up with $100,000 – $2,500 = $97,500, instead of the $70,,000 from the first one. I’m ignoring the third person in scenario two because I want to focus only on the government’s spending on basic income and not the fact that that person is actually taxed more than the basic income amount they received.

      As I’ve considered this exchange we’ve been having, I’ve been thinking that our difference may not be due to misunderstanding about the net versus gross distinction. You my think I’m wrong for suggesting that the net effect of a basic income matters more than its gross effect, which is exactly what I’m suggesting. A physical analogy will help me explain why.

      Suppose I’m the “government” and I have a water “budget” of 100 oz. There’s a 12 oz glass in front of me. I “spend” 8 oz of my budget by pouring 8 oz of water into the glass. So I’m left with 92 oz of water because the gross cost of my water spending program is 8 oz. But after pouring in 8 oz, I quickly pour 6 oz back into my overall water budget increasing it back up to 98 oz. If someone were to ask me the cost of the water spending program, in the sense of which cost matters more to the overall water budget, I’d say 2 oz not 8 oz. I’m applying the same logic to the basic income.

    • Kate McFarland Kate McFarland

      Michael, the water case is disanalogous. If you had not poured the water into the glass, you could not have poured some back into the water “budget”. In contrast, the people in Rahul’s hypothetical economy–and, more importantly, our actual economies–were already paying taxes prior to the enactment of the basic income (and, ex hypothesi, the basic income is not being taxed, unlike the water… as I read the example). The money paid out to basic income depletes government revenue that could be used to provide other public goods and services.

      I don’t want to get mired in this debate myself, but I’ll register that I share Rahul’s confusion over why the net change in government revenue due to the enactment of basic income–to use a long-winded description to distinguish what Rahul’s talking about from what’s being called the “net cost of a basic income”–isn’t what “matters more”.

  • “in every basic income proposal I’ve seen, although the basic income wouldn’t officially be taxed, all other income would be.”

    My basic income proposal:

    Fund basic income entirely on the Fed’s balance sheet, at zero cost to taxpayers. Further, index all incomes to customizable basket-of-goods price rises. If hyperinflation should occur, your real income purchasing power (i.e., expenses/income) does not change. If shortages occur, hold challenges to stimulate individuals to advance knowledge. The more you know, the less you need.

  • Tikor

    We see the difference between the full and actual cost of a basic income distribution from the government’s point of view in the marginal tax rate, compounded by if that income boosts them to a new rate.

    Just one example, with two tax rates and a basic income of 10k.

    Everybody making 10-50k has that income above 10k taxed at 10%, Everybody making 50k plus has that income above 50k taxed at 25%.

    Our example person makes 45k. Before universal basic income, they pay 3500 in taxes (10% on income 10-50k). After basic income they make 55k and pay 5250 in taxes (10% on 40k + 25% on 5k). So the net cost to the government is the amount of basic income given minus the amount of *additional* taxes they pay – in this case 10k-1750=8250.

    In short,implementing a basic income will cost the government *something* in a first approximation for every recipient who has a marginal tax rate less than 100% – which is everyone, but it will not cost the full
    “a*b” sticker shock figure.

    Folding in lower hospitalization rates, lower incarceration rates, higher incomes earned from pursuing the right job instead of whatever is needed to put food on the table, and less people qualifying for current government programs that aid the needy to due having income, etc. could lower the cost yet more, but that is second approximation work.

  • I still don’t understand this.

    You define: The “cost” of a basic income, as I’m using the term (ignoring administrative cost for the time being), is the net fiscal impact of basic income spending on the government’s “balance sheet.” I’m not entirely clear about this definition. In my mind, it would be based on an incremental perspective – what would the finances look like before basic income, and what would finance look like after. The difference to me is the cost from the government’s perspective.. So I’d replace “net” in your definition with “incremental”.

    You say: “A tax on all other income (all, that is, besides the basic income) is the same as a tax on the basic income.” Earlier also you say “That is, the fact that the person with $30,000 in other income only ends up with a net income $32,500 instead of $40,000 means that $7,500 of their basic income has been taxed back to the government.”

    I don’t understand why. Unless the basic income is added to the taxable income base, nothing changes to the tax collected by government. If the basic income isn’t taxable, then it cannot be the tax.

    To consider a different example. Consider a dead beat who receives $10,000 basic income. Suddenly he wins the lottery and receives $100,000. So he pays tax of $25,000, for a net of $10,000 + $100,000 – $25,000. The government receives $25,000 more. Would you say that the net cost of basic income for this individual is now zero because he won the lottery? And the government only taxed him $15,000 (the other $10,000 being the savings on basic income)?

    Going to my second (of 2) posts, where I drew up the hypothetical partial economy, based on your examples. I’m sticking to your example as the numbers are properly laid out.. I hope we’re both assuming no administrative costs and that nothing else in the economy changes. If we stick to that example, we find the government starts with $42,500 of taxes. Then a basic income is implemented, and the government ends up with $30,000 less. Under my definition of cost, it is clearly $30,000. And philosophically, I simply don’t understand how you attribute it differently.

    Your way of attributing benefits vs taxes can be extended to any benefit. If someone receives Medicaid (arbitrary example), the net cost is lower to the extent they pay taxes. If someone receives protection by the army / police, the net cost is lower to the extent they pay taxes. Every benefit would have a lower net cost if the discussion took place like this.

    To go on to your water example, how does the 6 oz get back into the glass? The tax base hasn’t changed (since the basic income isn’t taxable). Unless a new tax has been imposed, 6 oz doesn’t magically get back into the glass.

  • Michael

    Kate,

    First, you’re right that the water analogy is disanalogous. But I suspect all analogies are disanalogous to some extent, in the sense that the cases being compared are never analogous in every respect. What matters is whether they’re analogous in some relevant respect (s). I think these two cases are because the point I’m trying to make is that if an amount is expended (X) and then some of that spending is taken back (Y), the impact on the budget isn’t X but X – Y.

    Second, I do think the difference between Rahul and me, and perhaps you and me, has to do with why net effect matters more than gross effect. My answer has to do with your phrase “depletes government revenue.” I think I see what you mean.

    The government has to put up some money to pay for the basic income and the amount it has to put up is basic income multiplied by the overall population. That gross amount is money it can’t use for other government services—that’s your depletion effect. What I’m saying is that if the government gets some of this money back, because not everyone would be net beneficiaries of the full basic income amount, then we’re not talking about depletion if by “depletion” we mean a full loss of revenue. What we’re talking about, instead, is a timing and cash flow problem. The government because of the gross cost will have to postpone spending on some other things until it can recoup, through taxes, some of the basic income. But these days of electronic transfers of funds (although I’m not an expert on this), I think the government could expend and tax back basic income amounts in such a way that this timing/cash flow problem would be pretty short.

    • In all these examples, you are assuming the government gets some money back. The 6 oz gets back into the glass.

      In this comment, you say: “if an amount is expended (X) AND THEN some of that spending is taken back (Y), the impact on the budget isn’t X but X – Y.”

      “I think the government could expend AND TAX BACK basic income amounts in such a way that this timing/cash flow problem would be pretty short.”

      We started assuming the basic income is tax-free. In that case, there has to be a new tax that will be the mechanism for this tax back to take place. Most BI proposals do not have this countervailing tax. Without this tax, we are arbitrarily redefining some of the existing tax inflows to be “allocated” to the basic income, without any clear basis for doing so.

  • Etc., etc. I rest my case.

  • Bernard

    I’m with Rahul on this. There is a cost to the government (or wherever the UBI comes from) of $10,000 per person. As he said, the person earning $30k pre-tax earns $22,500 after tax. If that person also receives a tax free $10k UBI, they earn $32,500 after tax. The government is clearly $10k worse off. Not sure how anyone can say that a * b =/= d.

    • Kate McFarland Kate McFarland

      Following the discussions on this topic, I’m beginning to think that those who say that the (net) cost of Basic Income is less than a*b are doing one of two things (or both):
      1. Implicitly treating the BI as a part of a package of policy reforms, along with new taxes (and/or cuts to existing programs), rather than just the BI by itself.
      2. Not really talking about BI (as BIEN defines it) but some other related policy, like a Negative Income Tax.

      Superficially, the net cost of BI (as BIEN defines it) is a*b. It might be argued to be *higher* due to implementation costs, but I too am having a hard seeing how it’d lower–if that’s really what we’re talking about. Now, if we’re talking about a package of policy reforms including *but not limited to* BI–or if we’re talking about an NIT instead of BI–that’s a different matter. Then, yes, net costs could be much lower than a*b. But then it’s disingenuous to call this the “cost of BI”. And it’s uncharitable: most opponents who allegedly “confuse gross and net costs” are thinking about a BI (not an NIT, etc), presumably, because they think it’s what we want them to think about, and assuming that it’s undesirable to significantly raise taxes or cut other programs.

      Personally, I do think that any BI should be part of a package with (substantial) taxation. Because of this, and because I’m personally interested in hypothetical possibilities rather what’s politically feasible in here and now, I’m not worried about–or even interested in–the cost issue (unless we get on to dynamic costs taking account of behavioral changes that may arise following the institution of BI and other reforms; that’s a pretty interesting issue). This is just to point that I’m not wanting to argue that BI is too expensive. But something about these “net costs” arguments are worrisome to me, even if my critiques are not so thoroughly developed as Rahul’s…

      It would be useful, perhaps, to see a worked-out example of how the “net cost” argument addresses the specific argument made by, e.g., the OECD’s recent policy brief or others accused of making the mistake in question.

  • Michael Howard

    Perhaps the confusion in this discussion has to do with how the 25% marginal tax that funds the basic income relates to other taxes people already are paying, and which add to the government’s revenue. Think of the basic income scheme in this discussion as “revenue neutral”. (Apart from a relatively small administrative expense) the government collects the tax, and distributes all the revenue as basic income. There will be net contributors, and net recipients. The main point about cost is that the net cost, the amount that goes to net recipients, is about one sixth of the “gross cost”, “c”.
    If all the government did was provide a basic income, then the whole scheme could be funded with a 25% tax on other income. But since the government also has to continue providing police protection, defense, regulation of various kinds, education, health care, etc., this hypothetical 25% is on top of the other taxes we are already paying for those things. So, the person earning $30k earns $22,500 after the UBI tax, but $32,500 with the UBI, but then after other taxes (say at an additional 10% of $30,000), the net income is $29,500. That’s still better than the $27,000 they would have had before the basic income scheme, so they are still net beneficiaries. And, to Rahul’s point, the government is still getting its $3000 for its other purposes. It has not lost any revenue.

  • Michael

    Kate (and those who feel similarly),

    I don’t mean to be disingenuous or uncharitable. As someone with a social work degree I actually try to be pretty charitable. 🙂 My understanding (but perhaps it’s a misunderstanding) is that the net effects of the basic income example I’ve been discussing and a negative income tax with a 25% reduction rate (how much the maximum negative income tax would be reduced per dollar of other income) are identical (if we ignore administrative cost, as we’ve been doing). Therefore, the net cost of the basic income and the cost of the negative income tax would be identical. This understanding is what grounds my initial post and responses.

    I’m not looking, at the moment at how BIEN defines basic income, and also don’t remember how it does so. But even if they do define it as a*b, that doesn’t contradict what I’m saying. The product a*b is the cost of basic income—the gross cost. My only point is that if you want to estimate the cost which I think matters more (and I’ve tried to say why), then you should focus on the net cost. In other words, to use your distinction between a basic income and a negative income tax, to estimate the cost of basic income which really matters, one should think of BI as a negative income tax because, in effect, it is.

    Your parenthetical point about cost, once behavioral effects are taken into account, is well taken. I’ve totally ignored this because I have no idea what those effects might be. And I don’t know if anyone else has a much better handle on this. It’s entirely possible that those effects would be so significant that a basic income would be unsustainable. If so, then those of us who like the idea would have to “go back to the drawing board.”

    • Kate McFarland Kate McFarland

      Michael (and those who feel similarly),

      Thanks for the additional clarification.

      This will hopefully be my last comment here, because I think we’ve finally isolated the main source of disagreement: I am not thinking of BI and NIT as equivalent. On BIEN’s definition, which I adopt in everything I post on this site for the sake of semantic consistency, a “basic income” is “a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.”

      On this definition, it’s true that there are combinations of BI AND tax reforms that are equivalent in their distributional effects to any given NIT. But it’s false to say that an NIT is a type of BI. And also, as you know, there are versions of BI that definitely not equivalent to NIT (e.g. Alaska’s PFD).

      By the way, after reading Philippe and Yannick’s new book, I feel a little more confident that I’m carrying the torch of my forebears at BIEN in insisting on these logical and semantic distinctions. On the other hand, if you’re thinking of “BIG” in the sense that USBIG defined it (and I’d totally understand if that’s what you’ve had in mind all along!), then, yes, I realize that an NIT is a type of a BIG. 🙂

      So this dispute is really, at its core, “merely verbal” — but, as you know, that itself is an issue about which I care deeply (more so than this cost stuff, really). 🙂

      I would’ve been more receptive to Karl’s, your, Scott’s, and whomever else’s articles on this topic if theses had been framed more like, e.g., “An NIT is similar to BI and costs a lot less than the cost typically ascribed to BI” (which then seems obvious and uncontroversial). Then I could would just’ve said, “Yep, sure, checks out.”

      I would hope, by the way, that a BI would have significant effects on behavior–working less, consuming less, etc. That’s why I got in this game to begin with! So I certainly agree that the response to any such hypothesized effects is to keep revisiting the drawing board rather than giving up on the idea.

    • Kate McFarland Kate McFarland

      P.S. I didn’t mean to accuse you or your article specifically of uncharity or disingenuousness (that itself would be decidedly uncharitable!), but I do often feel that–in general–the BI community is plagued with a problem of proponents making straw men of their opponents rather than trying to construct the strongest possible argument on their opponents’ behalf…

    • I see the clear analogy to a NIT. However, even a NIT has to be incremental to existing taxation for it to be the “cost” of the BI.

      Let’s take an example. First, this is an important equivalence. Since population x per capita income = GDP, a BI of x% of per capita income has a gross cost of x% of GDP (assuming admin costs of zero, etc).

      Take the current US tax structure. Let’s say 22% of GDP is collected by taxes and an identical 22% of GDP is spent on various government functions. If a BI has to be implemented of say 10% of per capita income, then the gross cost is 10% of GDP. Now, this can be funded by a flat tax of 10% of GDP, so that the government’s books balance out. Now, if you notice, this flat tax of 10% has to be on top of all other taxes that are out there right now. So the government now has to be collecting 32% of GDP – 22% by the existing taxes, plus 10% through the new flat rate tax, in order to finance its commitments of 22% (existing) and 10% (BI).

      So the net cost example is valid only when there is an incremental tax being collected to finance the BI. Concretely, imagine the political consequences of the government saying we’ll provide a basic income (set at 10% of per capital income) by imposing an additional flat rate tax of 10% on everyone. BTW, the net cost is only 4% of GDP so its not a big deal.

  • Thomas Oberhäuser

    I try to give an example how we discuss the funding of a basic income in Germany. We have also several concepts and ideas, how we could finance the program.

    First you have to make some statements about the view on basic income (BI).

    Basic income are the goods!

    And not money. Money is only the equivalent to it. – So the first question is, do we have all these goods people need, to survive. Yes we have. The GDP in Germany is 2.5 billion €.

    Consuming share is 1.8 Billion Euro.

    Now we are calculating 82 Million people and multiply this with, for example, 800 Euro as a basic income for everyone. Children and Youngsters should get only half of this income, but we disregard this for the moment. And multiply this with 12 for 12 month.

    82.000.000 * 800 * 12= 787.200.000.000 Euro

    As you see, when we have a GDP of 2.5 Billion Euro, there is no problem, to give the people the right, to take those goods, they need. And there you have the explanation, why basic income is possible. 🙂

    Another explanation how to finance the BI is this one:

    Most people in the country have a BI. It is included in their today’s income. When you have a working income, or a pension and let’s say basic income is 800 Euro, and you earn 1500 Euro after tax, then your security money “BI” is included in this income.

    When you calculate BI in this way, then more than 90% of all people in Germany have their basic income right now! So it’s not so complicated to finance the rest. What is the rest? All those people, who have not enough money at the moment, poor people, vulnerable people, need more supply of goods, need more money, as they have today. An institute in Germany has calculated that this would be 9% of the basic income amount of money. That is 70.000.000.000 Euro.

    This is a very small sum in relation of the whole. You will find this money in the national budget. And when basic income is a prior aim in national politics, this task will come first.

    And the last point is, negative income tax has nothing to do with basic income, because the aim of basic income is to cut off the connection between work and income. But with a NIT you have it chained up.

    Also important parameters are GDP and public expenditure quota (PEQ). The PEQ in Germany is between 40 and 50% of the GDP. The purpose is, to make basic income part of the unconditional PEQ rather than part of the conditional GDP.

    Thought:
    Yes, it is necessary to produce (condition).
    But you can take your basic supply goods, unconditional.

  • Hans Olsson

    Is it even possible to implement a UBI-system? Of course it is! As Thomas Oberhäuser points out in the previous reply.

    However, the concept “cost” may be more or less irrelevant. Especially if the discussion degenerates to an argument about the definition of “cost”.

    “Cost” for whom? For the government? The government is a middleman. “He” collects taxes from the people and gives it back to the people in the form of UBI. There is no “cost” for the government.

    For the people? Sure, “he” will have to pay higher taxes. But “he” will get everything back in the form of UBI. In my experience “he” is willing to pay higher taxes, IF HE GETS ANYTHING GOOD FOR IT. There is no “cost” for the people.

    But there are “effects”. The “cost” is not a problem, but the “effects” might be. A typically realistic (for approval and survival) UBI-proposal would not need to be a promise of Paradise, but have a large number of smaller positive effects, and a smaller number of negative effects.

    And no effect, not one, could be UBI-self destructive. Unfortunately I have seen quite a few proposals with such effects. For example:

    1. Extra taxation is concentrated just to business and moneytransfers, and in such a scale that it kills business and end moneytransfers.

    2. Receivers of a full UBI include tax-evading criminals, early-retireing lotterywinners/pokerplayers, housewifes/husbands to very rich people, etc., but average income-workers receive nothing or very little.

    To avoid (1.), the tax-base should be as broad as possible. The solution to (2.) is of course to give the full amount to everyone, no matter what. Possibly with the exception of convicted criminals doing time.

    I absolutely reckon the arguments against UBI are not so hard to defeat, but it will nevertheless take some time to convince a majority. And todays powerclusters will no doubt fight agains it.

    Moreover, there should be an app that allowed people to write in their own LÄNGWITCH and immediately get it 100% correctly translated. 20 minutes per word. Do something, Tech-industry!

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