What Might a Basic Income Look Like?


It’s a term that has been thrown around for decades but the idea of a universal basic income (UBI) has garnered a lot of attention recently. The rise of the automation industry, an increasing concentration of wealth where it already exists, and the increase in per-capita debt in the U.S. could all lead to the implementation of some sort of UBI.

What that UBI program would look like is something that many armchair economists and experts have discussed and disagreed on for a long time. Measures range from a negative income tax all the way to an extreme redistribution of wealth that would realistically never happen.

In short, any plan would have to placate three groups:

  • Those currently in the workforce
  • Those who have retired from the workforce
  • Those who hold a significant amount of wealth

People who are not in the workforce, but would like to be, would likely be happy with about any plan.

Making (Enough) People Happy

Any UBI plan in the U.S. with a legitimate chance of becoming a reality would likely absorb revenues linked to Social Security. Obviously, this creates a major problem for keeping those who have retired from the workforce happy and who also have strong voting turnout numbers. One way to solve this is to allow those currently receiving Social Security retirement benefits to keep them as-is and to receive a smaller monthly UBI payment. Those receiving small Social Security payouts would receive a larger UBI payment than other retirees, but not as large as a typical 40 year old who is still in the workforce. Politely speaking, the number of those receiving what they were entitled to under Social Security AND some UBI benefits will never be higher than it is one day one of the program. Within a couple of decades, the number of people benefiting from both their full SS benefits and UBI will be negligible.

The group of people who would have regularly qualified for Social Security benefits in the 7-8 years proceeding the implementation of the UBI plan could be given partial benefits on a sliding scale, if they retire at their SS retirement age. Anybody more than 8 years away from retirement would be on UBI only.

These three examples are based on an $800/month UBI and $1500/month SS benefits:

  • 70 y/o retiree – Gets $1500/month from Social Security before UBI goes into effect, receives $1800/month after UBI goes into effect.
  • 63 y/o who plans to retire in 6 years – Receives $800/month UBI until retirement, gets $1700/month after retirement.
  • 30 y/o – Receives $800/month UBI for the rest of their life (adjusted for inflation).

Those numbers likely make both retirees and those who haven’t retired yet happy. You still need to get the wealthiest subset of the population to at least not be unhappy with a plan that will see their taxes go up.

Paying for UBI

For FY 2015, the Federal government budgeted about $882 billion going towards Social Security. Assuming about 220 million adult citizens, just as a pure baseline, the monthly UBI payout would be about $334, which might be great for 19 year olds but would likely cause millions of retirees who rely on social security now to become destitute.

Just as with Social Security now, we can make UBI benefits taxable if they are not the only source of income for an individual. Taking 10% off the top for those 67 and younger, dropping it to 5% off once you turn 68 and 0% off if it’s your only source of income after age 68. Speaking in generalities, this would effectively make the government responsible for an $800/month UBI but only having to pay an average of $730/month.

Still about $400/month short, or around $1.08 trillion that the government would need to come up with.

From there, a series of small tax increases should come up with the rest:

  • 3.5% National sales tax – Assuming ~124 million households with an average of $25,000 worth of purchases that are taxable. – $110 billion
  • .25/.5/.75% Property tax levy – Figures representing owner-occupied residential/non-owner occupied residential/commercial properties would raise a substantial amount of money. Homeowners who live in a $300,000 home would expect to see their property taxes go up by about $750 annually. – $250 billion
  • 4% Payroll tax levy – $40 billion
  • 2% Personal income tax levy (Social Security cap removed) – $110 billion
  • .275% Stock sales tax, collected at sale – $120 billion
  • 5% reduction in Defense and Discretionary spending – $60 billion
  • Draw down of state welfare programs with money going towards UBI budget – $250 billion

That makes a $750/monthly stated UBI possible but can be a giant bureaucratic headache.

Alternatively, a 15% VAT would raise around $1.1 trillion itself, negating the need for any of the above taxes and reductions and still giving us an $800/monthly stated UBI.

The tax burden would mostly fall on consumers, who might see prices rise around 20% for many goods and services. A household with two adults would be bringing in $17,280 in UBI after taxes, meaning they would have to spend around $100,000 on consumer goods a year (or about $274 a day) before they go from overall benefiting to breaking even. This doesn’t take into account the rising value of any real estate or investments due to everyone having more money to spend.

A Trillion Dollar Redistribution

With about half of the UBI budget already in the economy, the other trillion dollars could mean big things for service providers and manufacturers.

The $800/month has to go somewhere, some people will use it all for daily living expenses, some will save it, others will invest it. Many people with debt now will have a viable way of getting out of debt.

Credit scores will likely increase (you can check your current credit score and report in 3 minutes at Credit Sesame to see how UBI would affect you) and consumers will be able to repay loans easier. This could free up credit leading to a possible construction boom to counteract rising real estate prices.

 



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