U.S. Basic Income Could Pay $38,690

Taxpayers will save $92 billion overall. Four-person households with two children will automatically, unconditionally receive $38,690.

Photo by Keith Cooper / Flickr.

From a philosophical standpoint, a universal basic income could act as a vaccine for poverty. From a quantitative view, it can save us a huge amount of money.

Quantitative Analysis of an American Basic Income

I performed a simple set of calculations to see the impact of a universal basic income on Americans, and the numbers are promising. As of 2015, there were 321 million people residing in the United States, 76% of whom were adults over 18. If the approximately 13 million undocumented immigrants are subtracted, that leaves 308 million legal residents.

U.S. spending on social security, unemployment, and labor in FY 2015 was $1.3 trillion. If this spending is redirected toward a basic income for all legal residents, every person would receive $4,220 annually. Since a child often lives under an adult’s roof and requires less spending than an adult to achieve the same quality of life, assume that a child’s UBI allotment should be 45% of the adult allotment, an arbitrary number based on practical considerations. With this provision, the adult basic income rises to $4,870 — not quite enough to live on comfortably.

However, if we now include state spending on welfare and unemployment, the numbers go up. States spent $1.7 trillion in FY 2013, 31% of which was allocated to welfare. Using this as a proxy for FY 2015 spending, states spent $527 billion on welfare. If states are encouraged to redirect this spending to a state-level basic income, that would add an average of $1,970 to the adult basic income, which would then total $6,840 per adult.

Finally, we must adjust for the net rise in income for taxpaying households, and the choice between UBI and no basic income becomes obvious. For instance, take the median American income earner as an example. If we theoretically wanted the median American take-home income to be unaffected by the UBI transition, we would need to levy a new UBI tax in an amount that equals the UBI disbursements. This “conceptual halfway point” would result in a rise in taxes that exactly equals the basic income provided. In order for the transition to make sense to most working Americans, however, we must receive some sort of true savings for ourselves rather than just having money shuffled around by the government. Let’s assume that these savings should translate to 5% of the new UBI tax, which distributes proportionally to savings among all taxpayer groups to reward everyone for taking the time to upgrade America’s operating system.

To recap where we’re at, we have welfare and unemployment spending of $1,300B and $527B at the federal and state levels, combining to $1.83 trillion in spending redirected to basic income, which is essentially a universal rebate. This increases non-welfare-receiving adults’ income by $6,840 each. Considering the 5% net target reduction in taxes from the conceptual halfway point and looking at the math from a national perspective we get: (100%-5%)*$1,830,000 = 308(0.76β + 0.24*0.45β), where β is the subsequent addition to adult basic income. Given the 5% target, β is $6,500, and the average adult basic income comes out to $13,340 annually. For a family of four with two children, the household basic income would be $38,690. These amounts would, of course, vary by state due to differences in cost of living and state-by-state opinions on basic income. Considering the dual impact of the UBI tax and the UBI, the average net rise in income for every legal resident would be 5% of $1.83T divided by the legal adult population. Overall, net taxes by federal and state governments would be reduced by $92 billion, equating to $391 in average annual savings per adult.

According to 2014 Census data, an annual income of $13,340 would exceed income received by approximately 90% of impoverished people in the bottom decile of Americans. There’s no doubt that people survive on less than that today. To keep both major political parties happy, the transition to basic income could easily be paired with the abolition of a minimum wage for logical reasons. For a family of four, a household income of $38,690 is entirely reasonable in a growing city like Raleigh, North Carolina, especially if neither adult is commuting to work.

As we discussed mathematically, middle-class Americans would see net income rise, and unemployed Americans would have a simpler safety net. In addition to a rise in total income for working Americans, there would be significant qualitative benefits.

  • Basic income would eliminate inverse incentives that reduce people’s pay as they enter or re-enter the workforce.
  • Barring other legislative changes, which are much needed, health spending would stay intact and poor families would not lose Medicaid.
  • People would not have to take the time and effort to register for unemployment benefits and other welfare benefits after company layoffs. Bureaucracy, paperwork, and the stress that comes with them would be taken away. People could direct their energy toward training themselves for new work, finding new work, and building small businesses.
  • With a safety net underneath, people would feel more comfortable taking entrepreneurial risks that ultimately grow the economy.
  • More working people would buy homes since they know they would be able to pay their mortgage even if they temporarily lose a job.

Given these facts, American basic income is a no-brainer.