Re: Going BIG — Elevating Universal Basic Income to the Mainstream
Hi Jim! Thanks for reading and responding in such depth! This is my first Medium article, and it means a lot to me that someone read it seriously.
So, I’ll do my best to respond to your comments here. I don’t claim to have all the answers, as I’m fairly new to the game in terms of basic income, but I think you make very fair points, and I think we can perhaps work some of them out.
To immediately raise every American above the poverty line, we could provide a dividend of $12,000 per year to every adult and $4,000 per year to every child. That’s a bit under $3.25 trillion, which is certainly a huge number, but it’s not a direct expense. Think of it this way: the US GDP is approximately $18 trillion. If a simple across-the-board tax increase was levied on every American to raise that full amount for the dividend, a flat tax plopped down on top of our progressive system, that would mean about an extra 18% in taxes we’d each pay.
Why do the UBI proponents always want to throw GDP numbers into these discussions?
Total Federal Tax Revenue for FY2015 was $3.2 Trillion. It is projected to be $3.6 Trillion for FY2017.
In order to fund your $3.25 trillion program, you would need to double the current total Federal tax revenue.
And while your 18% number is interesting, what meaning does it actually have to application? 45% of households pay no Federal Income taxes right now. It is highly unlikely that any new tax would apply to them either. And that 18% number you use would have to be the effective tax applied, not the marginal rate.
I’ll start by pointing out that this was always meant to be ballpark math to show the general viability of UBI in its scope, and so my intent throughout was to show, conservatively, that we very much have the ability to fund it, and it’s only a matter of political will to do so.
With regards to using GDP versus total tax revenue, it seems a bit like potato potahto to me, just different ways of expressing the exact same idea. If our GDP is $18T, then a universal flat tax of 18% would indeed raise in the vicinity of $3.25T in extra taxes, no? Perhaps that does indeed double the amount of tax revenue collected, but:
- It doesn’t seem like thinking about it from a standpoint of GDP versus federal tax revenue really changes the argument or the concept. If an 18% flat tax would double tax revenue, then I would suppose that means that, on average, Americans pay about 18% in federal taxes. Perhaps your inclination to view it and present it as a doubling of the tax revenue is because that sounds more daunting in general, but it seems important to note that it’s not an expenditure in the classical sense. It’s not tax revenue to be spent on a missile defense program or infrastructure or healthcare or education. It’s direct cash back into the bank accounts of Americans.
- This example was intended to be an extremely simplistic model for how to pay for UBI, and not my recommendation. So yes, under this example, the idea was to tax every single person an extra 18% on all of their income, a flat tax just unceremoniously slapped on top of our current progressive system. That would mean that even people with no income other than their American Dividend would still pay 18% on any income they have outside of the dividend (which is still zero). Someone who earns $10K above and beyond their dividend would be taxed $1,800 and their net income for the year would be $20,200. Arguably, that’s a bit silly to do, but it makes the case nonetheless. Under that model, it would still be beneficial to that same vast majority of Americans. I do imagine, as you do, that we wouldn’t actually want to tax the lower income brackets this way, and we would likely just adjust our current progressive taxation system appropriately, on a sliding scale, so as to shift a bit more of the tax increase upwards to the wealthier and leave the poorest untaxed.
(Note: Some UBI proponents actually do suggest a flat tax model very much like this, I think as sort of an olive branch to those already against the idea of progressive taxes. I’d certainly be more than ok with it as an incredible improvement over what we currently have.)
That may sound like a lot, but since every taxpayer would also be receiving an extra $12,000 in income, then everyone making under $66,000 would come out ahead to some degree. At the $66K breakeven point, an individual would be paying $12K in extra taxes to receive the $12K in dividends.
This is a misleading statement. The $66K break even point would be for anyone who files as single with no dependents and no other deductions or credits and has taxable income of $66K, not earnings. To get taxable income of $66K, that same person would have a minimum of $76,350 in adjusted gross income.
Where the break even point goes from there is anyone’s guess. That would depend on what other changes were made to the existing income tax system. If no other changes were made, it could be double that $76K once you start accounting for married couples with multiple children, child care deductions, mortgage interest deductions, 401k/IRA contributions, medical expenses, etc…
Needless to say, the number of net beneficiaries under a UBI as you’ve described it would be much larger than the 75% you mentioned. It would be a minimum of 81%.
Thank you for this. It seems to strengthen my argument. Again, I had no intention to mislead, and my objective here was to show that the concept holds water under conservative parameters (by conservative, I don’t mean on the rightward end of the political spectrum, but rather that all the errors and uncertainty in my very simplistic model represent a worst-case scenario). When I was a stress analysis for Lockheed Martin, assessing complex missile components to see if they would break, it wasn’t always necessary to determine the exact stresses that would be felt under the rough conditions of launch, flight, etc. If I could instead show that a simpler but weaker version of the part were strong enough to withstand the loads and meet safety margins, then by default the actual part would be strong enough, and I wouldn’t have to spend an extra month painstakingly modeling tiny, intricate, weird divots and curves and shapes on my computer. In this way, I managed to be quite productive (although some of those parts were designed so close to the margins that sometimes I did have to go through that process, and that’s around when the solid modeling nightmares began intruding on my once peaceful sleep). If you’re showing me here that my analysis ignored additional benefits under our current systems, and that I neglected to mention how much better it would be for families (a couple with two kids would receive $32K, and so their break-even family income would be more in the ballpark of $178K), and that I low-balled my estimates on how many people would benefit and by how much, I say thanks for the extra analysis work!
(Note: regarding families, it’s important to remember that a well-designed system of a UBI would not transfer cash directly to families as a whole, but rather to individuals in the families to do with what they choose. In this way, UBI is also a powerful tool for women’s rights, empowering them (along with everybody else) against financial abuse, enabling them to walk away from an unhealthy relationship without fear of catastrophic failure (hunger and homelessness) for themselves, their children, etc.)
Taxes on the use of resources can chip in quite a bit. Taxes on carbon, pollution, minerals, timber, land value, and other natural resources acknowledge that we all own the land in equal share and would simply require companies profiting from and often damaging our commonly-owned property to repay the costs we bear by permitting them to do so.
We already do this for minerals, timber and land value. People and businesses pay property taxes on land they own. They can also lease Federal or State owned land but they pay a lease/rent fee to do that in lieu of property taxes. They also pay royalties on natural resources they extract from that land.
I’m not an expert on how much we already do this for minerals, timber, and land value, but I’m sure that many economists would argue it’s not fair market value. The ones I’ve interviewed seem to be very much of that mindset. Also, except in Alaska to the extent of my knowledge, a key distinction is that these revenues are not returned to the people as dividends. They go directly into government coffers. Ask an Alaskan. They love their oil dividends.
How much income would increases in this realm actually generate, how much would be lost from businesses that decide to drop out of the game,how much would any additional taxes cost consumers in the form of increased costs for the products made using those natural resources and how much would the additional cost to businesses be offset by lower profits resulting in them paying less in income taxes?
I agree that this is all speculation at this point. Nobody can accurately predict the long term effects of such policies, and anyone who says they can is lying. Just the fact that one can pose these valid questions does not invalidate the concept. The best we can do is try to be conservative in our estimates, progressive in our policy, and adaptable in our interpretation of the results once we implement. Much like raising minimum wage in practice has shown to actually increase business (as restaurant workers become actually able to eat at restaurants, for example), rather than resulting in the job loss we’re always warned about, I (along with many economists) suspect that these policies will have a net effect of boosting the economy on the whole, directly providing all businesses with a brand new sector of society now able to afford to buy their products and services.
And oh man don’t get me started on businesses paying their income taxes. I think we need some form of cooperative international policy to create a standard corporate tax rate that no country can undercut. American companies shouldn’t be able to set up a P.O. box in Ireland, claim it as their headquarters, pay less in taxes, and pay it all to Ireland, for example. One thing I read (or it might have been an economist interview) said that corporations used to represent 30% of our tax revenue, and now they represent 5%, so globalization is a real issue, and policy should be reworked to make sure corporations pay their fair share. This could be another way to fund some of the dividend, by the way, but I didn’t bring it up because I’m not so optimistic it can happen in the very near future.
Also, don’t forget about the financial transactions taxes and the ending of entitlements for the wealthy. Those are huge. The point here is there are many options to choose from, and not all need be selected. That’s why I started with the scenario in which we employ none of these options and just levy a broad flat tax on everyone, because even that would work!
There is to much fuzzy math in all of this.
Can we call it dummy math? Fuzzy math as I understand it is meant to mislead, and is often directly inaccurate, used dishonestly as a political lever. Dummy math is meant to simplify, and is designed to only err in a predictable, conservative sense. It hurts my sense of integrity to attach my analysis to such a term. I’m happy to adjust my analysis in places where it turns out to be inaccurate or fuzzy, once it’s pointed out to me. I don’t think of myself so much as a “proponent” of UBI as an engineer working on solutions to our current dilemmas, and so far this is the best design idea I’ve seen. But like every good design, it’s a process, and it will need a lot of tweaking as the realities in the world, and our understanding of them, change.
I’d also question the morality behind the “we all own the land in equal share” concept. If that’s true, doesn’t everyone in the world have a share of that? If so, how do we justify limiting the benefits earned from that land only being distributed to people within the geo-political confines of the U.S.? And if we all own it then why aren’t we all paying property taxes on it?
Wow. Now you’re really thinking big, dare I say radical. I like it. There are those out there who are supporters of one global government with no borders and universal rights for all human beings. After all, how much more human is an American than someone from China, Germany, or Ethiopia? Shouldn’t we all be afforded human rights and have the opportunity to contribute to and partake in the successes of the human race? I think that will make a whole lot of sense for us some day, and as “radical” as I am becoming (though I somewhat resent the notion that what I see as simply rational is radical), I still think that kind of world is a fair number of steps away. At that time, though, then I do believe it will certainly make sense to extend these dividend rights to all people of Earth. I would even agree and support that dividends pertaining to global externalities (i.e. from taxes on corporations who pollute the air and sea and change the climate), should actually, in fairness, be divided among all humans, because we all feel the costs. We’re cooking Africa with climate change and basically expecting them to suck it up when they can no longer farm their staple crops, even though they’re not meaningfully contributing to the problem. But that seems like a political stretch in the near future to me, too. However, one beauty of UBI is that any country that has such a system in place will be so much easier to give aid to. Haiti has a hurricane? Deposit cash into their dividend fund. Syria has a drought? Deposit cash into their dividend fund. The money goes straight to the people, not the government, and no middle man is needed to manage the transaction and take a cut. Non-profits will really have to fight that much harder to prove their effectiveness, integrity, and worthiness of support once the world catches on to UBI, but they’ll all be getting their dividends, too, so I don’t feel too bad about that. Our old models of paternalistic charity and welfare are due for that change.
In answer to your last question. Why aren’t we all paying taxes off of land? Because we aren’t profiting off of it, from what I can tell. Those who have the property rights are, and the people as a whole are left out of the equation.
Cheers!