A Little Math Shows That A Universal Basic Income Is Completely, Totally, Impossible
A Modest UBI Would Cost More Than 3 Times The Entire Amount Now Collected From Income Taxes
By David Grace (www.DavidGraceAuthor.com)
The Universal Basic Income
Supporters of the Universal Basic Income (also known as a Guaranteed Minimum Income) continue to push the idea that regardless of income or wealth every adult should get a taxpayer-funded check of somewhere between one and two thousand dollars every month.
Reasons Given For A UBI
Why? The backers’ reasons are:
- To give the individual the freedom to do what he/she wants,
- The security of income even if the person can’t find a job, and
- To give people a guaranteed basic standard of living.
If you’re looking to have a basic standard of living then you’re going to need a net income of around $25,000/year or more.
If you’re looking at the UBI as a supplement to low-wage jobs or other forms of public assistance then maybe the amount could only be $12,000 but you would only give it to the people on the bottom, not everyone.
But the UBI proponents don’t want to just supplement the income of the people on the bottom. They want everyone to get a check regardless of how much other money they have.
So, with the UBI numbers being touted at between $12,000 and $25,000 per year let’s go with $18,000/year or $1,500/month.
Let’s Do The Math
There are about 242,000,000 adults living the United States.
$18,000/year UBI X 242,000,000 people = $4,356,000,000,000 that’s $4.356 TRILLION Dollars per year.
The total amount collected by the federal government from the income tax is about $1.5 Trillion Dollars per year. Since we would still have to run the rest of the government in addition to paying the UBI, the cost of the UBI plus the other government expenses we currently have would be about Six TRILLION Dollars.
Quadruple The Income Tax (???)
Or, put another way, you would need to quadruple the income tax revenue from $1.5 Trillion to about $6 Trillion to fund this modest UBI that would only provide the recipients with about 70% of the amount they would earn from having a living-wage job paying $15/hour ($31,000/year gross and a take-home pay of about $25,600/year).
But wait, the income-tax brackets run from 10% to 39.6% so if you quadrupled the income tax the new brackets would be 40% to 160%. Of course, that’s absolutely, totally, completely impossible.
Get The Money From Corporate Taxes?
Can you get the extra $4.5 Trillion Dollars from Corporate taxes? No, those are about $343 billion/year, less than 10% of the cost of the UBI alone. Because of loopholes, on average, corporations actually pay about 17% of their profits in taxes.
So if you increased corporate taxes to 100% of profits (!!!) you would still only reach about one-third the cost of the UBI alone. And, of course, at that tax rate companies would go out of business and there there would be no taxes collected at all.
So, let’s review: We’re supposed to quadruple federal income taxes so that the government can write checks to everyone for $1,500/month which is only 70% of what people would earn if they had a living wage job, and the reason to do this is would be to supposedly give everyone a higher standard of living?
Does make the slightest amount of sense?
How Much Would it Cost To Give A UBI Only To Poor People?
Even though the UBI proponents say that the money should go to everyone, even millionaires, even billionaires, what if we dismissed that idea as completely, thoroughly crazy and just decided to give the UBI only to the bottom 40% of the population?
For a detailed discussion of other UBI distribution schemes see my post:
A Guaranteed Minimum Income Is The Wrong Answer To The Right Question
Massive Boundary Effects
Of course, giving that money to those near the top of the bottom 40% bracket would result in many of them ending up with more money than those near the bottom of the next 20% income bracket who didn’t get any UBI money.
Of course, those people near the bottom boundary of the next 20% income bracket would immediately stop working or reduce their employment so that they too would qualify for the free money because the free money plus their new, lower income would total more than they would have received by earning a little more and not qualifying for the UBI at all.
Very shortly the number of people qualifying for the free money would soar and you would have an income gap or hole between the people receiving the UBI and the people earning so much that they would lose money by cutting back to the qualifying level and taking the UBI — an income dead zone where no one would allow themselves to earn that amount because it would get them less net money than they would get from earning less and qualifying for the UBI.
But, Let’s Ignore This Problem And Give Them A UBI Anyway
But, let’s ignore all these unpleasant facts. Let’s just wish them away and stick with giving $18,000/year to everyone in the bottom 40% of the country instead to everyone in the country.
How would those the numbers work out?
The Cost For A UBI Only To The Bottom 40%
242,000,000 adults X 40% = 96,800,000 adults. Let’s say 100,000,000 people get the checks.
100,000,000 X $18,000 = $1.8 Trillion Dollars. So, $1.8 Trillion for UBI plus $1.5 Trillion we still need from the income tax to run the country = $3.3 Trillion Dollars/$1.5 Trillion Dollars current income tax collections = 220% increase in the income tax.
So, the plan is that everyone’s income tax would more than double so that we could give everyone in the bottom 40% of the country some free money but the amount we give them would be only about 70% of the amount that they would need to actually live on.
Really?
How Popular Do You Think This Scheme Will Be?
And, just for a moment, ask yourself: How do you think the upper 60% of the country is going to react when you increase their taxes by 220% so that the 40% at the bottom of the population can get free money for not working?
Take a guess.
Not Only Financially Impossible, A UBI Is Completely, Totally Unnecessary
If the goal is giving people
- A basic, decent standard of living
- Financial security
- The ability to contribute to society
then the far more effective, simpler, practical and 87 times cheaper way to do MORE than the UBI would do is to guarantee everyone who wants to work a living-wage job.
Living Wage Jobs For All
What’s a living wage? Today, for an adult it’s probably at least about $15/hour, plus medical insurance.
What would it take to guarantee everyone a living-wage job?
First, we would set $15/hour plus medical insurance as the minimum wage. Most jobs today already meet that minimum. but, many low-level service jobs don’t.
So, yes, a 99 cent burger would probably end up costing $1.39. Who the hell cares? Maybe that $79 Motel 6 room would go up to $94. Who the hell cares?
That’s a lot better than more than doubling everyone’s income taxes in order to give some people only 70% of the amount they would receive from having a living wage job.
But, the libertarians claim that raising the minimum wage reduces employment. I don’t think that’s true. We can have a long discussion some time about why it’s not true. But, for the sake of argument, let’s pretend that it is.
Again, let’s do some numbers.
What’s The Unemployment Rate?
Today we have about a 4.7% unemployment rate and it’s been estimated that there’s about an additional 1% of people who want to work but have given up looking for work. So, let’s increase the “real” unemployment rate by another 1.3% to 6%.
On top of that lets indulge in the fantasy that a higher minimum wage will cost some jobs, so let’s increase this unemployment rate by 50% from 6% to 9% as the result of raising the minimum wage to a living wage. Again, I don’t think any of that is true but let’s do it anyway.
There are now about 124,000,000 employed full time. If we actually have 6% real unemployment then 124,000,000 = 94% of the potential work force so the total work force would be about 132,000,000 people.
How Many People Would Need Subsidized Living-Wage Jobs?
132,000,000 X 9% = about 12,000,000 people who would like to have a living-wage job after we raise the minimum wage but who won’t be able to find one they are qualified to perform.
Who Would Hire These People?
So, we create publicly-funded non-profit corporations that furnish low-cost, low-skilled workers to day-care centers, assisted living providers, street trash and rubbish removal companies, etc.
These non-profits would employ these 12,000,000 low-skilled people at $14.50/hr, fifty-cents per hour less than the private sector’s new minimum wage. This 50-cent gap would encourage people to look for work first in the private sector before taking a job with one of these publicly-funded non-profits.
For a detailed explanation how these non-profits would work see my article:
A Guaranteed Minimum Income Is The Wrong Answer To The Right Question
What Would These Living-Wage Jobs Cost?
So, 12,000,000 people X $14.50/hour X 40 hours/week X 52 weeks = about $362 Billion Dollars. Add some overhead costs and you’re at somewhere around $400 Billion.
So, now we say to everyone who is unemployed: If you can work and you want to work, we will give you a living-wage job. If you need free day care, we’ll provide it. If you need transportation to work, we’ll provide it.
Everyone works. Everyone earns a living wage that includes medical insurance.
Savings From Reductions In Gov’t Assistance Programs
The current cost for federal public assistance, things like food stamps, Section Eight Housing and the like, is over $150 Billion Dollars/year. If all Americans able to work either took one of those living wage jobs or lost those benefits because they chose not to work we might see $100 Billion of that go away.
The federal government spends about $550 Billion Dollars per year on Medicaid. If all employers, including these nonprofits, provided medical insurance we should be able to cut Medicaid spending at least in half for a savings of about $275 Billion Dollars/year.
$400 Billion Dollars to guarantee everyone a living-wage job minus $100 Billion Dollars reduction is federal public assistance costs minus a $275 Billion Dollars reduction in Medicaid equals about $25 Billion Dollars net cost.
The Numbers Are All A Guess
But that’s all such a guess. Heck, it could be zero it could be $100 Billion.
There are administrative costs and employer costs for the nonprofits that might well exceed what I allowed. And, there also could be income received by the non-profits in exchange for providing these workers to retirement homes, cities, etc.
It might not be 12,000,000 people. It might be 6,000,000 or 15,000,000 depending on the state of the economy.
Federal public assistance could go down by more or less than the $100 Billion I guessed in savings. Medicaid could go down or up from the $275 Billion I guessed in savings.
And yes, we would see price increases for certain products. Fast food would cost maybe 25% to 35% more. Some other goods and services sold by low-paying industries would cost 25% to 35% more.
But these are mostly low-cost products in the first place. So what if a Jumbo Jack ends up costing $3 compared to millions of people earning a living wage?
The Cost Is Not Really Very Much Compared To Other Gov’t Programs
The bottom line is that for a net increase in federal spending of maybe somewhere probably under $50 Billion every person who wanted to work could have a living wage job with medical insurance.
Consider that cost in light of the $56 Billion Dollars He-Who-Must-Not-Be-Named wants to add to the military budget and the $67 Billion Dollars he wants to spend on the Mexican Wall.
The Cost Is Tiny Compared To The Cost Of A UBI
Then compare this maybe $50 Billion Dollar expense to the $4.35 TRILLION Dollars (or more!) the UBI people want to spend to achieve far less, i.e. an $18,000/year supplement to everyone compared to $25,000 take home pay ($14.50/hr X 40 hours X 52 weeks minus payroll deductions) that a guaranteed living-wage job would put in the pockets of unemployed or under-employed citizens.
It’s like comparing a Cheerio rolling around the backseat of your car to the Saturday Night Special at Sizzler. It isn’t even in the same universe.
Bottom line: The UBI is totally, completely, entirely a financial impossibility. Talking about it is an exercise in futility equivalent to arguing over how many angels can dance on the head of a pin, and it’s an activity that bears just as much of a relationship to reality.
— David Grace (www.DavidGraceAuthor.com)
