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7 years ago @ Ed Dolan's Econ Blog - A Universal Basic Inco... · 1 reply · +1 points

I should finish with a brief little look at the tax implications that I did in one of my papers:

Take, for example, a family of four earning, say, $118,415. Under the current system, if the couple filed jointly and understood which credits and deductions they were entitled to and had the best possible distribution of wealth between earners for payroll tax purposes, they would pay $8,415 in payroll tax and between $0 and $10,408 in income tax depending on what they qualify for. Thus, they would be left with between $99,592 and $110,000 after taxes. Because they are not in poverty and not over 65, they would receive no government benefits.
Under your plan, they would pay the same taxes, but would receive an additional $4,452 per person, for an additional total of $17,808. I assume that it counts as income, so they would pay an additional $4,986 in taxes (though in theory their deductions could eliminate this income, although it’s hard to imagine). Even if it counts as a tax credit and not as income, they would have between $112,414 to $127,808 after taxes. Much better!
Under my plan, they would receive an additional $36,356 (two adults) for a total income of $154,771! A family with that income typically consumes just under $72,871. On every purchase they would pay a 20% tax, so their tax liability would be 20% of $72,871, or $14,574. They also pay a 20% tax on income greater than $100,000, which is a 20% on $54,771 for them, or $10,954. Their tax liability therefore would be a grand total of $25,528. Therefore they would have approximately $129,243 after taxes!
That’s $29,651 more than under the current system (assuming no deductions) IN JUST ONE YEAR. Even if they had total deductions and paid $0 income tax (nice!), they still make $19,243 more in just one year. Even if America woke up and adopted your plan, they make between $1,435 (if they pay no income tax) and $16,829 more in a single year under my plan. And that’s just an upper middle-class family with two children! Fewer children or less income and the benefits are even more stark, my system only falters in single-parent households with multiple children (as mentioned above).
Take the extreme: a single parent with two children earning $10,000 per year (the near-optimal benefits amount under the current system). Under the current system they pay $765 in payroll tax and $0 in income tax, for a post-tax income of $9,235. They then receive approximately $15,000 in benefits (these are coming from eyeballing your chart in part 1, but they give a good rough estimate), for a total income of $24,235 under the current system. Under your system, they would pay the same tax but would receive $13,356 in benefits PLUS Medicaid, worth roughly $6,000, for total benefits of roughly $19,356. So they have $28,591 in cash + benefits under your system after taxes, a $4,356 improvement! Under my system, they have $28,158 in total income. Assuming they spend it all, a reasonable assumption, they pay 20% in sales tax (and nothing in income tax), for a tax liability of $5,632. They receive no benefits beyond the UBI, so their total after-tax income is $22,526. That’s $1,709 less than under the current system and $6,065 less than under your system. But that’s the worst-case scenario.
Notably, if the same family had the same income but added a second parental figure, the numbers are drastically changed. They get an additional Medicaid recipient, for an extra $6,000 in benefits, under the current system. And $4,452 on top of that under your system ($10,452 total). But they receive an additional $18,158 under my system (though they pay 20% tax on it probably). Thus, looking at the grand totals, they ultimately get $6,817 more under my system than under the current system and just $1,991 less under my system than yours. And, again, that’s assuming the optimal situation for both the current system and yours (barring the small percentage of households with more than two children).
Alright, that’s the tax analysis for ya. I would love to hear your thoughts, and again, your three-part series was really fantastic.

7 years ago @ Ed Dolan's Econ Blog - A Universal Basic Inco... · 0 replies · +1 points

9) Invalids
There is a really serious policy issue with invalids or the mentally ill. Does it go to their care-taker? What if their caretaker’s a state? Does it just go to them and, assuming someone has power over their resources, it gets distributed by this person? The latter appealed to me the most. The mentally ill and invalids have people who manage their estates. Give the money to the invalid and it will be handled just like the rest of their resources. This, of course, creates really troubling incentives for abuse. But such is the nature of mental illness and, with a source of income as public as the UBI would be, honest citizens would of course shun abusing the mentally ill for financial gain (I hope!). This is an estranged cousin of the "they shouldn't be out of poverty" argument. Things are more complicated when the mentally ill have resources. They are more open to abuse. It is again the equivalent of saying they shouldn't have those resources. Regardless, it is a really complex issue that a comprehensive explanation of the UBI needs to address.

10) State welfare
The issue of whether to “replace” the welfare state with the UBI is actually really misleading. As you note, every plan replaces the FEDERAL welfare state. But the states account for 25% of all welfare spending! So really the question is whether we eliminate 75% of the welfare state in exchange for $18k to each person. This has done me wonders in assuaging concerns about those individuals who are significantly worse off, such as those receiving SS disability (though they receive less on average than retirees) or those currently in government housing. State welfare funds would simply focus on those people.
Of course, without the federal matching system, many states would reduce their coverage and there could be a “race to the bottom.” However, this would take at least quite a few years, and by then the success or failure of the UBI should be abundantly clear and can inform the next step on state and federal levels.

11) Limitations
It’s all well and good to say “universal” basic income, but this is probably not going to be the case. Considering the “extremes” leads to some very reasonable limitations that I dwell on a good deal. The biggest one is those who are currently in jail. Sadly, that’s over a million citizens. Should you receive the UBI if you are in jail? No, I said. So I exempted prisoners (I said only prisoners serving sentences longer than a month, but for administrative reasons that could be a higher minimum). You receive the UBI if you are not in jail. Once you’re out, you start receiving it again. Nothing else rose to the level of disqualification in my eyes, but there is a lesser step than disqualification…

11) Garnishing
It makes a full-throated defender of the UBI cringe to hear all this talk of exempting certain groups, temporarily disqualifying them and what have you, but the idea of “garnishing” the UBI has fascinating implications. Surely no one should be garnished from money they are entitled to, but what if they are NOT entitled to that money?
For example, an identity theft steals $10,000 from someone. They are caught and put on probation or in jail, but they plead poverty and are not required to pay reparations. Surely with the UBI in place, they cannot plead poverty anymore! But why, again, are we leaving it to the victims to bring an enforcement action? Why not have an administrative court (*groan*) handle specific cases where the UBI can be directly garnished by the state—the criminal will receive, say, $2500 less for the next four years, and the victims will receive $2500 more.
Or take the example of child support. Some parents dare the other to collect the child support owed them. Why not simply have the administrative court facilitate it through garnishing the UBI? In short, the UBI serves as a revolution in handling small-ish claims for key issues. Heavily regulated, of course (*groan*).

That’s all I can think of in stream of consciousness. To recap though, the plan I had come to was:
-Eliminate the tax code (including corporate income tax but except excise taxes), and eliminate welfare (including Medicaid), Medicare, and Social Security.
-Give every 18+ US resident-citizen (not in jail) 1.5 times the poverty line ($18,178 in 2013) in weekly installments.
-Institute a 20% federal sales tax.
-Institute a 20% federal income tax with a $100,000 standard deduction (and no other deductions) (UBI counts as income).

Federal spending minus eliminated programs (not including UBI): $1.54 trillion
Cost of the UBI ($18,178 * 212 million): $3.85 trillion
Total: $5.39 trillion

20% Sales Tax: $2.71 trillion
20% tax on Income over $100,000: $1.53 trillion
Excise Taxes + Fed Bonds: $262 billion
Deficit: $888 billion (that’s less than the 2012 deficit, but more than 2013/2014, there are ways to cut it, such as by keeping the corporate tax……………..I’d rather the deficit but it’s not my call).

7 years ago @ Ed Dolan's Econ Blog - A Universal Basic Inco... · 1 reply · +3 points

4) Social Security Trust Fund
Another interesting issue is that you, like me, dabble in the forbidden fruit of "middle class welfare," but simply replace the UBI via gradual voluntary phase-out. That was a really intriguing part of the paper, partly because I handled it very differently. There's no "right" answer, and sadly the judge is Congress, but I was not so tolerant of patient change as you.

My proposal instituted UBI immediately for every eligible person, including those receiving Social Security. How, do you ask, can I transfer the money going to SS to the UBI while simultaneously paying for SS? Why, through the Social Security Trust Fund of course! We all know and love that trust fund, which has most certainly definitely absolutely not been spent I swear, and from a rhetorical point of view, it ably reflects the total amount paid in by past generations. Thus individuals continue to "get their money back," a big concern with social security reforms.

Impressively, the trust fund is able to fund SS for over three years. So for that time, SS recipients would receive SS and the UBI for a grand total of...a lot of money (average SS recipient got $15,528 in 2013, my proposal would give an extra $18,178, for a jaw dropping total of $33,706 for the average recipient during this time). This, I reckon, would certainly soften the transition away from Medicare!! JEBUS! I've never wanted to be so old in my life.

5) Taxes
You do a great deal of wonderful analysis on the UBI's effect on marginal income, particularly when considered with the tax code. Probably the best single source out there and probably my favorite part of your series. But I think you shied away from examining (let alone proposing!) some of the ways the UBI could fundamentally change how we do taxes.

The single biggest observation I made in my study of the UBI is that we take a stunning (and shameful) amount of money away from low-income earners. This is done mostly through the payroll tax, a whopping 15.3% of their income, but also through the income tax. It is downright counter-intuitive for the good state to GIVE money to low-income individuals and then for the good state to taketh away from those who actually go earn it. I felt that it was not only intellectually consistent, but morally required (!), for us to eliminate taxation on income for low-income earners.

As such, I eliminated the payroll tax altogether. I then argued that the income tax should only apply to the wealthy, which I defined as earning over $100,000. I then insisted on (and the numbers worked out) a cap of 20% and a flat tax. So I have a 20% tax on income with a $100,000 deduction. The percent can be higher, the deduction can be higher, but that's what I settled on and think most prudent all things (including revenue) considered.

The bulk of tax revenue would then come from a federal sales tax, like in the “Fair Tax” proposal. Only instead of a 30% sales tax with a $2,643 prebate (though it could theoretically get over $9,000 with seven or more kids), my plan is a 20% sales tax with an $18,178 “prebate.”

6) How much?
You rightly note that there are many figures that one could come to in deciding the best UBI and you very reasonably just check and see what would happen if we liquidated what we currently have and distributed it. We came to different figures because of what we liquidated and who we distributed to but your approach makes a lot of sense for the kind of paper you wrote.

After I did the same thing as you though, I asked what would I aim for from a policy perspective? I settled on providing 1.5 times the Poverty level (to eliminate poverty and provide for healthcare). The amount given would be tied directly to 1.5 times the US Census Bureau’s “poverty guideline,” automatically updated each year. So in 2013 that would have been $18,178.50 per eligible person.

In a sense the number is arbitrary, but from a rhetorical point it’s absolutely gorgeous. First of all, the poverty rate drops perilously close to 0% (non-citizens and single moms with a lot of kids could still technically be in poverty). So the rhetorical argument is not, “wouldn’t you like money instead of our current welfare state,” it’s “wouldn’t you like to end poverty?”

7) Poor, stupid people
In explaining my ideas to my friends, I’ve had no issue dealing with the “but what if they spend it on alcohol/drugs” issue. The overwhelming implication of what they’re saying is that these people should not be out of poverty. That they can’t handle money, so giving it to them would actually make them or their family worse off. Once framed in that light, which I think is an honest appraisal, people tend to change their tune.

8) Weekly
The real danger, in my approximation, is not that they will spend their money not wisely, but too well! If I give a man $18,000 to make it through the year, people have an overwhelming tendency to blow through it. My solution to that was simple—give it to them weekly. So I gave each individual $349.59 every week (in 2013), simple as that.

7 years ago @ Ed Dolan's Econ Blog - A Universal Basic Inco... · 0 replies · +4 points

Well, I'm late to the game, haha. This is an absolutely fantastic three-part series! Part One in particular really lays things out beautifully.

I've been completely fascinated by "UBI instead" and have done a lot of research and drafting on it for my own therapeutic enjoyment. It was really interesting to see how you came to many of the same conclusions, but some key distinctions as well. I thought I'd lay the ones I noticed out for you in case you're interested.

1) Non-citizens
The first one is a gimme. You reference 316 million "Americans" in part 2 and presumably use this figure in your calculations. But it's political fantasy, even for a UBI paper, to think that the UBI would go to non-citizens. It's a surprisingly hard stat to find, but there are actually 22 million non-citizen residents in the US. So already your eligible population is more accurately 294 million, and your UBI can increase by 7.5% to $4785.

2) Children
You and Valerie really went at it! I took a fundamentally different approach. My eligible person was a US resident-citizen 18 or more years old. I have a dream when four year olds can vote and make contracts and have legal autonomy and have consensual sex (for the record, I did not have a dream to that effect), but tis merely a dream. Children do not enjoy full rights by any stretch, your UBI would be a costly exception to that rule.

The benefit of disregarding children for purposes of the UBI is kind of stunning--there are 75 million US citizens under 18. Discounting them leaves you with "just" 212 million eligible residents (citizen, over 18) as opposed to 316 million or so for you. The result is 35% more UBI for those who get it. Your UBI would be $6,010 instead of $4,452, a big difference.

Of course, there are downsides to excluding children. Families with lots of children lose out, even under Valerie's proposal. But the point of the UBI is not to make sure no one "loses out," but to alleviate poverty for as many people as possible. A system in which children receive identical benefits, even if heavily regulated (*groan*), is fabulous. But it comes at the opportunity cost of more money for single adults and thus more individuals out of poverty. Also, I'm pretty sure the math works out (see below) so that the overwhelming majority of parents are better off.

3) Healthcare
Boy is this a doozy. Healthcare, as you note, is humongous! Not just Medicare and Medicaid, but the employer insurance exemption. You make a fantastic point that the UBI would have to be significantly higher than the poverty line in order to make up for lost government-provided health insurance. But this is only examining one side of the equation! It is the classic question--would you rather $5 or I buy you a beer? Wait...that's not a classic question at all! Everyone wants $5 (social conventions aside). One need only look at the "gift card" industry to be reminded that people like to buy things and "in kind" services (or presents!) are not preferred if of the same value.

Here, we are saying "eliminate the health insurance, gotsta be all straight cash." But it is of the exact same value. The only diminution, which you express concern about, stems from now giving UNIVERSALLY (well almost, see above, haha), instead of to only the OLD and POOR. Otherwise it is exactly same value, but now cash instead of in-kind.

And of course the superiority of universal cash versus targeted in-kind benefits strikes at the fundamental moral underpinnings of the UBI itself! So the very logic that leads to the UBI being awesome, leads to the conclusion that the health insurance schemes currently in place should be included. All that's left after that is paternalistic reasons for in-kind benefits, and I address those below.

Adding Medicare + Medicaid is an extra $4,396! (assuming 212m eligible) Adding that to the $6,010 from above, we're talking a $10,406 UBI! Of course, the honest question is not whether $10,406 is awesome (it is), the question is whether it is better than $6,010 + Medicaid (probably), $6,010 + nothing (definitely), and $6,010 + Medicare (probably not). That's a policy question. I personally would much rather $10,406 and I defer to my reasoning above.