How to Fund an American Universal Basic Income (w/o Raising Taxes)

Jan 22, 2016 · 6 min read

A UBI sounds expensive, but an adjusted payroll tax could make it a financial no-brainer for any country, even a poor one.

UBI experiments are popping up all over the world, but the discussion always boils down to dollars and cents — how could any country pay for something that, at first glance, seems so expensive?

A hypothetical American UBI has two parts:

289M Adults — $800 / month — $2,770 B Total

41M Seniors — $1,300 / month — $640 B Total (we already do this part!)

Total Projected UBI Cost — $3,410 B

That represents 95% the entire federal budget and about 2x the 1.6T we spend on all welfare programs and 5x the $640B we currently spend on providing 41M Americans who already receive a UBI in the form of Social Security. That would be impossible to pay for even with Scandinavian levels of taxation!

But, hold on there. There is a smarter way to enact and pay for a UBI. So smart, in fact, that we wouldn’t even have to raise effective tax rates.

Goal: $1,250 Billion
What would the ideal cost of a UBI be? Roughly 1,250 Billion dollars, or about 32% of the federal budget.

Why? Because $1,250 B is roughly how much the federal government currently spends in social programs that a UBI would replace — Social Security and 90% of all non healthcare welfare spending.

So how do we get a universal basic income from $3,414B down to only $1,250 B? Well, if you can believe it, it is actually possible both fiscally and politically. Come along on a budgetary bonanza to see what we’d have to do!

  1. Reduce UBI beneficiaries to only people ages 16 and up
  2. Cost share 1/2 of adult UBI program with states
  3. Adjust payroll tax to means test for UBI
  4. Add income and asset cap means testing to senior UBI (Social Security)

aaaaaand we’re there. Let’s look at each of these more in depth.

16 Years Old and Up
Most UBI plans restrict the Universal Basic Income to people over 16 and retain legacy welfare systems for children such as public education, food stamps, etc. This removes 50M beneficiaries of the simple UBI above, saving about $480 B.

State Plans for UBI
Since the UBI would increase state and local income from sales taxes and reduce costs by eliminating many of the costs of poverty, it would make sense to model the UBI on Medicare and lower the federal amount of UBI and create a state plan to supplement it by contributions by individual states.

The federal government could therefore provide a $400 per month UBI and the states each could offer an optional knock on benefit. Some states would refuse, some would start with a small benefit, maybe only $100 per month. As the benefits of a UBI rose and the costs of poverty fell, states could increase their state plan benefit.

For some people $400 would cover their food and clothing, for others it could cover their rent, for others maybe their tuition to college. It is not a full income, but it would remove the stress of fearing for your survival. And it serves as a base to grow from on both the state and federal sides.

This cuts the cost of a federal UBI roughly in half by about $1,200 B.

Means Testing through Payroll Tax
A UBI by definition is received by everyone. However, the top 20–30% of earners only need a UBI if their circumstances change. By adjusting payroll taxes to raise proportionally on middle to high wage earners these high earners can effectively means test for UBI.

Wait a tick — you said we wouldn’t raise taxes! Adjusting the payroll tax is technically is raising taxes, but it isn’t raising effective tax rates. These upper middle class and wealthy households will still receive their UBI check but they will pay it all back through higher payroll taxes, essentially balancing things back to the same level they are at now. Psychologically they would still feel the support of the UBI, and they would know they would have it even if they left their jobs or their earning power fell, but financially they would be in the same boat they are without the UBI. All the benefits, none of the costs!

This would remove another $344 B of the cost.

Income and Asset Cap Means Testing for Senior UBI
Senior UBI recipients will need to receive a bump up to current social security rates of on average ~$1300 per month. 16% of people over 65 continue to work and would be subject to the same adjusted payroll tax as before the age of 65. After someone stops working, they would receive their full Senior UBI unless they have a large retirement savings, this is called asset cap means testing. In 2013 President Obama suggested those with $3M or more in retirement should forego their social security check unless their circumstances changed.

This would remove another $191 B from the total cost. And that brings us down to just $1,250 B.

Achieving the Goal: $1,250 Billion

We had to cut the federal UBI down to only $400 per month, and monkey with the payroll tax, and add asset cap means testing to the Senior UBI, but we got to a UBI for all without raising effective tax rates. All things considered, that’s pretty amazing!

Costs? What About the Benefits

We’ve been discussing the cost of a UBI, but we’ve almost missed out on the enormous benefits of a UBI.

An initial benefit would be a UBI would widen the tax base, by a lot! The first day of the UBI a large percentage of the 45% of people who pay no federal income tax would likely begin to pay some taxes on the additional $4,800 UBI income they receive. Over a short time, a UBI begins to put an upward pressure on wages and higher wages means net higher income tax and payroll tax revenue at current tax levels. Finally, if we believe that the UBI will go a long way to eliminating poverty, then as people leave poverty and enter the middle class they will also begin paying higher taxes.

Also the cost of a UBI cannot be considered without also considering how the policy would reduce the crippling cost of poverty in our country. Poverty is expensive. Most divorces are caused by finances. Most college drop outs are due to finances. Homelessness and crime cost society a lot to cope with. Personal bankruptcy costs everyone, not just the person who goes bankrupt. If the UBI can reduce even a fraction of these social ills, the social savings will be enormous.

So Here’s How We Implement an American UBI

The Social Security Administration (SSA) is already doing a fine job providing a Basic Income for elderly people in America, let’s let them run a Universal Basic Income.

The current expenditure of the SSA for social security and disability is $1.36T. Add to that the budgets of all federal entitlements that a UBI would replace: Food Stamps ($74B), student loans ($70B), direct housing support ($50B), and the Earned Income Tax Credit program ($65B). All this adds up to $1.61T. While shrinking bureaucracy enormously and without raising any effective tax rates or laying a finger on Medicare or Medicaid or veterans’ benefits we’ve already gotten to 128% the funding goal of $1,250 B.


What About Politics

This model for the UBI has many characteristics that make it politically attractive to conservatives and progressives:

  1. More efficient entitlements and less bureaucracy (+ Conservatives)
  2. Reduces poverty (+ Progressives)
  3. Respects the States and Does not Burden Them (+ Conservatives)
  4. Does not Increase Effective Tax Rates (+ Conservatives)
  5. Leaves Medicare and Medicaid intact (+ Progressives)
  6. Leaves veterans benefits intact (+ Conservatives & Progressives)
  7. Benefits U.S. citizens (over illegal immigrants) (+ Conservatives)
  8. Adds means testing to a Senior UBI (+ Progressives)
  9. Widens the tax base (+ Conservatives)

A Universal Basic Income is a leaner, cheaper, more efficient way to provide a basic social safety net for every citizen. A UBI replaces the other less efficient and more bureaucratic entitlement programs without touching or changing programs that work like veteran’s benefits, Medicare, or Medicaid. The UBI also promises to give rise to a wave of governmental savings, societal benefits, and in general economic prosperity. And it does all of this without raising effective tax rates.

Because of all these reasons, the UBI represents dramatic and effective entitlement reform that both Democrats and Republicans can support.

If you think the UBI is an important issue, then please recommend this article on medium and share on Facebook and Twitter. Thanks!

If you saw any mistakes or problems, feel free to leave a comment or tweet at me @ajbraus.

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Meet Ubi — the Mascot of the American Universal Basic Income

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Educator, Founder, Engineer. Interested in Educational Research, Cities, Economics, Buddhism, Basic Income, and Fiction.

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