Op-Ed; Opinion

Sizing a ‘Universal Minimum Income’

Written by: Rahul Basu

A Universal Basic Income (UBI) is a periodic cash payment unconditionally delivered to all on an individual basis, without mean-test or work requirement. A Universal Minimum Income (UMI) would be a UBI set at a level to ensure everyone has at least a minimum income sufficient to keep body and soul together. This would engender personal freedom. If we add to this public health & education, and other targeted benefits for the disabled for example, it would be a wonderful situation. What would it take?

The math is simple. If we have to pay out a UBI at X% of average income, then it will cost at least the same X% of GDP. The proportionality is clear.

Population x Average income =             Total income of country (GDP)
Population x UBI of X% of Average income =             X% of total income of country

We must first establish what should be the target level of Minimum Income. A simplistic definition would be to take a percentage of average income. The idea here is that if on average citizens are earning a certain amount, then a percentage of that average could represent the poverty line. Let’s assume we set the poverty line at 60% of the average income, and target a UMI at that level.

In practical terms, the US average family income in 2015 was $92,673. A UBI of 10% would be $9,267 per family, clearly not sufficient to create personal freedom. Similarly in India, per capita income in 2016 was Rs. 93,231. A UBI at 10% would be a meager Rs. 9,323.

It could be argued that, if average income is calculated by simply dividing GDP by total population, growing inequality and robotisation will distort that average by sequestering income in the hands of the very rich, swelling the perceived average income by increasing GDP while the actual income of an average citizen remains much lower. In order to deal with this issue, the Organisation for Economic Co-operation and Development (OECD) defines relative poverty for developed nations as 60% of the median income level. To calculate the median, we first list every person in ascending order of income. We then find the midpoint, and the income associated with it. Finally, we calculate 60% of this income to work out the relative poverty level.

The US median family income in 2015 was $70,697, or 76% of the average income of $92,673. The relative poverty line is 60% of the median income or $42,418. This works out to 45.8% of GDP (60% * 76%). It is still completely utopian to imagine the US could pay out nearly half its GDP as a UBI.

Suppose we use the World Bank definition of extreme poverty, $1.90 per day. By simple multiplication, for the US to provide a UMI at this level would require $57 per person each month. Not quite enough to survive on, but it would still cost the US government $221bn each year (pop of 318.9 million). In the Indian context, the World Bank’s poverty line is Rs. 28.71 (at PPP exchange rate of 15.11). A UMI would pay out Rs. 10,478 per person per year, for a total of Rs. 13,119 billion a year. This is more than 10% of India’s GDP, and is 61% of India’s entire 2017 Union Budget of Rs. 21,470 billion.

The essential proportionality of a UBI as a percentage of per capita income, requiring the same percentage of GDP to finance it, creates the dilemma facing UMI. If we wish to achieve a minimum income level, then targeting seems unavoidable. We may decide to keep  goal of universality (everyone receives UBI) while giving up the goal of minimum income (the amount is enough to live on). Even then, it is clear that for any meaningful level of UBI, there needs to be substantive discussion of the financing source. Even a UBI of 1% of per capita income, a small amount for most individuals, would require 1% of GDP to finance, a very significant amount for any government. A UBI of 10% of GDP would likely require an entirely new financing mechanism.

In view of this simple mathematical challenge, the Basic Income movement would be well advised to pay closer attention to the funding mechanism. The success of UBI depends on the practical and political feasibility of the funding mechanism. And if such a mechanism is found, we would still have to explain why universality is preferable to targeting. It is likely that the only successful UBIs will be those where universality is a logical, political or legal necessity. This has been the case with the two most significant examples of UBI, Alaska’s Permanent Fund Dividend and Iran’s UBI in lieu of fuel subsidies.

 

About the author: Rahul Basu is a member of the Goenchi Mati Movement, which asks for minerals to be treated as a shared inheritance. Mining is the sale of the family gold. For fair mining, there must be zero loss mining, saving all mineral money in a permanent fund, and distribute the real income only as Citizens’ Dividend.

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The views expressed in this Op-Ed piece are solely those of the author and do not necessarily represent the view of Basic Income News or BIEN. BIEN and Basic Income News do not endorse any particular policy, but Basic Income News welcomes discussion from all points of view in its Op-Ed section.

4 comments

  • Why restrict yourself to calculating by countries? Just do it for the whole world!!

  • Steve

    We are all making this way to complicated! It’s really very simple! And would work for any country. Just pick an amount that would offer a reasonable amount of help. But not disincentivize people from still working and just print / create the money. & distribute to each account & back it up with cash.
    Tax, Interest, and debt free… no strings attached. the only requirement would be citizenship.
    Here is my two cents worth… As follows…

    Unconditional Basic Income! And don’t tell me we can’t afford it!
    #2 – Go where the money is! The world bank / Rothschild’s family – Estimated worth 500 Trillion Dollars. And start a more equitable monetary policy & distribution towards “The People” Invest in “The People” long term… A 20 to 40-year plan…everybody gets a slice that will decrease the massive gap of disparity and Income inequality in America! Plus, throw in some (UHC) “universal health care” while you’re at it! ;O) Promoting cures and prevention 1st…
    The FEDERAL RESERVE BANK & MAYBE EVEN THE WORLD BANK. No more bailouts! Buy them out cheap, or just Seize it! Or even if we can work with them… The structural integrity, & credibility must be kept intact! Figure that out and you solve our problem. (SEE LINE #2), THEY ARE THE PROBLEM & maybe part of the SOLUTION! MAKE IT A PUBLICLY OWNED SYSTEM OF THE UNITED STATES OF AMERICA! Create our own money, & Initiate a tax, interest, and debt free (UBI)… “unconditional basic income” … Completely independent, & separate from any / all, other entitlements… No strings attached other than being a US citizen, working or not… (Other countries, could follow). No restrictions. Every man woman & child. Free money for life. They have been screwing you over your whole life, just some of you aren’t aware yet… PAY BACK TIME for us the American public.
    To get the program started… The scale, as follows would be suggested, as to not disincentives work, but allow people a little more security, and opportunity to make better choice in one’s life. 1. The disabled would be eligible for an additional $600. Per month.
    2. Adults would receive $1200. Per month.
    3. Teens $600. Per month.
    4. Youth 12 & under… $300. Per month
    Bottom line… We have got to get more money back to “The People”. Keep the dollar strong, and interest rates low.
    The corporation’s & banks will balk, But they will adapt, and eventually may even thank us, because we will have more money to buy their products…
    The best way to get the economy going again… Is with a QE/stimulus from our own public bank – (UBI) & (UHC) Hence: People will start buying again, & create jobs through new demand. From cars to diapers, houses, investments, savings, debt reduction, or even retirement… & for some even just the bare basic needs. But there will be a surge/boom like the world has ever seen. Similar to a domino/cascade affect… Imagine that for the next 20 to 40 + years…

    • Michael L.

      STEVE,

      If the goal is a UMI as opposed to a UBI (to use the author’s terms), then I don’t agree that this is very simple, at least not in the U.S.. You said here

      “Just pick an amount that would offer a reasonable amount of help.”

      In a nation as large and diverse as the U.S., I suspect what a “reasonable amount of help” is varies by state and perhaps even parts of states. So it would seem that a UMI would have to vary along with such regional variation. So we wouldn’t be talking about one UMI but perhaps at least 50 of them. That sounds pretty complicated to me.

  • Michael

    I agree with you Steve on most of it. The money or wealth to make this happen already exist and as I see it it’s not a ‘handout’ as the rich want to call it but a fair share or a dividend of our common resources which is our birth right. The rich have taken an enormously huge chunk of our common resources much more than they need, talk about handouts. The economy is doing great but only for them and the tab for fixing stuff always goes to the poor and it’s about time we get some in return for doing everything for them.

    I’ll guess you could fix everything on this planet just by taking half of their ill gotten riches, famine, drought, poverty and so on and still give everyone a livable UBI.

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