A recent article in Gizmodo does an excellent job of explaining my position on the net cost of UBI
A recent article in Gizmodo does (among other things) a great job of explaining my position on the real cost of UBI. Lucas Ropek’s article, Is a Universal Basic Income System Even Possible? (which appeared Gizmodo on July 24, 2024), doesn’t side with me or the UBI opponents he discusses, but it does a great job explain our positions. Here are some relevant excerpts
Under the subheading, “How much would UBI cost?”, Ropek states the position of two people who focus on the concept of gross cost:
“There are over 300 million Americans today,” Robert Greenstein, a visiting fellow at the Brookings Institute and the founder of the left-leaning Center on Budget and Policy Priorities, wrote in 2019. “Suppose UBI provided everyone with $10,000 a year. That would cost more than $3 trillion a year—and $30 trillion to $40 trillion over ten years.”
In a 2019 policy memo written for the Aspen Institute, economist Melissa Kearney similarly claimed that “enacting a UBI that pays $10,000 to every US adult would distribute about $2.5 trillion in benefits each year” or “roughly 75%” of the U.S. government’s 2018 revenues.
Ropek then writes, “Sean Kline … says that many UBI critics may be over-inflating (or, at the very least, misrepresenting) the real cost of a basic income system,” which leads to Ropek’s explanation of my position. Ropek writes:
Karl Widerquist, an economist with Georgetown University, has also suggested that the real cost of a UBI system would only be a fraction of what critics claim it would. In an article arguing his case, Widerquist says that most projections for UBI’s cost conflate the net cost of such a program with the total amount of money that would be exchanged as a result of the system.
That is, according to Widerquist, the $2-3 trillion projections are just bad math. These simplistic calculations involve multiplying the number of people in America (roughly 330 million) by the average UBI output (approximately $10-12k). While they accurately assess the amount of money that would be involved in such a system, they aren’t accounting for the fact that most of that money will be exchanged via the tax system (many people will pay into it, but they will also get that money back, effectively nullifying the need to generate “new” revenue), meaning that the total amount of new revenue that the government actually needs to generate is only about $539 billion, or roughly 3 percent of GDP. That new revenue, according to Widerquist, could mostly be generated by taxing America’s richest families and would help pay for basic income for some 99 million people, or roughly a third of the U.S. population.
When looked at this way, Widerquist says that a national UBI system would be a relatively small part of federal spending. “The net cost of this UBI scheme is less than 25% of the cost of current U.S. entitlement spending, less than 15% of overall federal spending, and about 2.95% of Gross Domestic Product (GDP),” his 2015 article claims. “The average net beneficiary is a family of about two people making about $27,000 per year in market income.”
If that’s the cost, how do we pay for it (or what taxes might we used to counteract the inflationary pressure it would create)? Who would financially benefit? And who would financially contribute? Ropek again lets me explain my position largely in my own words without taking sides on the issue:
There’s no getting around it: a basic income system would be funded by new taxes. The critical question is: What kind of taxes? And for who? There are many different ideas about where the money could come from. Sam Altman has suggested that a massive new UBI system should be funded using taxes on all U.S. land holdings, as well as a national tax on the assets of the nation’s largest companies. Others have suggested that taxes on inheritances could yield enough revenue to fund it. Widerquist suggests a tiered system of new taxes that would largely source revenue from America’s richest families. While taxes on everybody in the U.S. would likely go up, much of the tens of billions of dollars needed to support the new system would come from our nation’s top 1 percent earners.
“My most preferred plan is a net benefit to 70% of people,” said Widerquist in an email. “That’s 234 million people. We can reasonably say that half of them benefit ‘a lot’—that’s about 117 million people. We could then say that about as many people are net beneficiaries who benefit only ‘a little.’ Again the two groups together are 70% of people,” he said.
“Another 20%, the people in the top 30% of the income distribution but not in the top 10% would pay only a little more in taxes. That’s another 47 million people.”
“The top 10% could pay significantly more. That’s only 23 million people. If we did it the way I most would like to do it, we would concentrate the new taxes on the top 1%—about 2.35 million people. And even if we increase their taxes so much that they paid the enter cost of UBI and more, they’d be better off than the 1% in the 1970s—because inequality has increased that much.”
If we follow Widerquist’s vision, a national UBI system would look very much like the kind of classic anti-poverty program introduced during previous decades by presidents like FDR and LBJ. It would transfer the bulk of that previously mentioned $539 billion from America’s richest families to some 43 million people who currently live at or below the poverty line, including 14.5 million children, he says. Thus the overwhelming tax burden from the program would fall on the top 1 percent of Americans, but the overwhelming benefit would go to people at the bottom of the economic system.
Those in the upper middle of the economy wouldn’t see much of a benefit but they also wouldn’t see any loss, either. Households above a certain income threshold would largely break even, meaning that the UBI that they received and the taxes they paid would effectively cancel each other out. But they would enjoy the same reassuring security that there’s a bit of backstop in the case of a disaster.
Ropek then gives similar attention several UBI critics including people who think UBI (however inherently good or bad it may be) is politically unrealistic and people who prefer Universal Basic Services. He doesn’t endorse any position, but he let’s me get in the last word, closing with the following paragraph:
If there is one thing that both critics and proponents of UBI agree on, it’s that income inequality has forced society to a point where something has to be done. “Over the last fifty years, automation, artificial intelligence, the computer revolution—all of this has contributed to the doubling of our economic capacity as a nation,” said Widerquist. “However, most of the gains have gone to the top 1 percent. The rest of us—if you look at teachers, doctors, truck drivers—most people are no better off and, in many cases, are worse off, than a person with an equivalent job was fifty years ago.”
You can find Ropek’s article at this link:
Is a Universal Basic Income System Even Possible? By Lucas Ropek, Gizmodo, July 24, 2024