Make the combined marginal rate 60% and now I have to go earn $375 in order to have $150 extra to pay for the labor for that repair. For the equivalent of $375 in wages for a service call, there's a lot of things I'll bother to learn how to tackle myself.
Meanwhile at the top the difference would be less than an increase from 40% to 60% because the UBI is replacing all of these other programs which would no longer have to be funded, or could be made strict alternatives to the UBI which would make the UBI less expensive.
To get the maid to show up, you have to cause their bank balance to increase by at least $10, after taxes. If the government is taking 80% of what you pay them away in food, housing and education assistance, you have to pay $50 to get them their $10. Get their real marginal rate down to 40% and you can pay $20 while they enjoy a surplus of $2.
Yes. And that is absolutely monstrously huge. You just doubled the US tax rate!
Sure, you could cut spending elsewhere, or whatever, but once you do a program that is on the scale of literally doubling the US tax rate, you are definitely at a point where the costs of the program are very high, and likely unviable.
(Half the funding for many of the existing programs don't even show up in the federal budget, even though they're federal programs, because the feds condition the program on the state government providing matching funds, but the state's taxpayers don't get any refund of their federal taxes if the state doesn't implement the program. So the states are coerced into funding inefficient programs, and those would go away.)
I think people are reasonably skeptical of this part. I've never seen someone show me the math around how all those programs would be rendered redundant by a UBI. Before getting to the political problem of dismantling benefits, some of which pay out more than $12,000 a year and have a vocal, sympathetic minority willing to fight for them.
I think that understates it: some enormous fraction (like 45%) of federal government spending is for retirees (Social Security, Medicare and government funded pension) who represent only about 15% of the population.
That's the unsquareable circle for UBI.
Social security has a dumb design if it's supposed to be a safety net. It pays out in proportion to how much money you made. That's not a safety net. If someone who made $20,000/year when they were working can survive on a given amount of money, someone who made $80,000/year when they were working can survive on the same amount. If they want more they can use the extra money they made to buy an annuity. And that's why social security costs so much -- it pays out more to people who, by and large, need it less.
Now, you're not going to pass a repeal of social security. The people currently receiving significantly more from it than they would from a UBI would revolt.
So you do this. You give people an election between a UBI for life or social security after retirement. Current 65 year olds are all going to pick social security. Current 18 year olds are going to pick the UBI, because the net present value is higher. That means social security long-term goes away.
In the short term, social security has a trust fund. It gets spent down to make up the difference between what existing retirees would get from the UBI and what they'll be getting from social security. In the long term, when all of the younger people who chose the UBI over social security reach retirement age, the high cost of social security goes away because nobody wanted it.
Well, sort of. There're two bend points where the proportions go down fairly sharply (90%-32%-15%). It's extremely progressive from that point of view: those with lower average lifetime earnings get a much higher proportion of income replaced than do those with higher lifetime earnings.
Median annual Social Security benefits for 2020 are about $15K, vs. mean of about $18K., for example.
>So you do this. You give people an election between a UBI for life or social security after retirement. Current 65 year olds are all going to pick social security. Current 18 year olds are going to pick the UBI, because the net present value is higher. That means social security long-term goes away.
It makes a big difference where you set the level for UBI, and which entitlements programs you claim it replaces. Without knowing the specifics of the proposal, you can't get good numbers.
But it sounds like you're saying UBI will replace Social Security. Let's assume UBI pays $12K per year to every adult, which is less generous than a lot of numbers I've heard. This means it would replace about two-thirds of the average Social Security benefit.
Based on U.S. life expectancies, that UBI number and average Social Security benefits, I think that puts the break-even point for lifetime UBI to equal lifetime Social Security about 56 or 57. So let's say that everyone 57 or over stays in Social Security.
>In the short term, social security has a trust fund. It gets spent down to make up the difference between what existing retirees would get from the UBI and what they'll be getting from social security.
Social Security's "trust fund" was about $2.8tn at the end of 2020. That's 2.61 years of payments. The idea that Social Security is, in some sense, pre-funded by payroll taxes is completely false. It is effectively a pay-as-you-go system with a small buffer.
Under the assumptions above, you will exhaust the trust fund in less than 8 years, which is a problem as life expectancy at 65 in the U.S. is almost 20 years. So you now either have to stop funding the gap between UBI and Social Security (politically impossible) or raise more taxes.
Over to the UBI then. Social Security brings in taxes of just over $1.06tn year year. Let's just call it $1.1tn. By the way, non-benefit costs for Social Security are only about 0.05% of the program cost, so there's very limited opportunity to make gains by streamlining administration as is often claimed for UBI.
US population is about 330m. Take out the child population (about 19%; they aren't getting UBI) and the over-65 population (about 16%; they're retired and are getting Social Security). So you now have 215m people who will receive UBI.
Your $1.1tn of payroll taxes funds only about $5,100 of the $12,000 that's supposed to be paid in UBI. Payroll taxes would have to increase by 2.35x to cover the cost of the UBI, and that's before you plug the Social Security gap.
Making UBI less generous encourages more people to stay in Social Security which means your funding gap gets wider.
The best way to handle this is to give people a one-time election of whether they want the UBI. If they want the UBI, they're disqualified from all of these other programs, for life.
Then nearly everyone picks the UBI. The person receiving $500 from other programs certainly does, so does the person receiving $10,000, probably even the person receiving $12,500 because they get to avoid doing the paperwork every year for all the other programs.
You're left with the negligible percentage of people who actually receive non-trivially more than $12,000 under other programs, representing a minority of the existing funding. This could also be assisted by dropping some of the less sympathetic programs immediately and further reducing the number of people on the other side of the $12,000 line. And the percentage shrinks over time, because someone picks the UBI at age 18 and then 10 years later discovers they might have received $16,000 this year from some other set of programs, but they've already made their choice. After a few years the other programs have so few people using them that there is no political will to continue them at all.
And recall that one such program is social security, which is currently funded by a 12.4% tax. That by itself is more than half the way to 22%. And all the existing retirees who choose that over the UBI would then not have to be paid the UBI.
Mean personal income in the US is ~$54,000:
https://fred.stlouisfed.org/series/MAPAINUSA646N
For a $12,000 UBI that would yield a flat tax rate of ~22%.
In real life it's more complicated than that, but not so much more complicated that the number is going to be off by an order of magnitude. It's completely viable. People are already paying nominal rates that high.
> Observe the real world, see what happens when you "just increase tax rate". You'll find that very often when you increase taxes you actually end up collecting less, as more people decide to illegally dodge taxes or simply close up shop.
The primary causes of this are that higher taxes give people less money to spend which hurts the economy and that higher marginal rates deter working.
A UBI is a transfer payment, so on net nobody has any less money to spend and in practice people with less money would have slightly more and those people are more likely to spend it. So this factor goes in favor of economic growth.
Meanwhile half the point of the UBI is to get rid of the crazy marginal rate cliffs created by means-tested benefits programs. The status quo deters work more than a UBI would, e.g. you lose unemployment if you take a job. Terrible incentives that would go away.