[bhupy]

> What's stopping prices from rising accordingly?

Short answer: supply & demand

Long answer: if the supply of a thing isn't constrained (either naturally or artificially), then prices will rise in the near term, but will settle back down in the long term as production catches up with demand. This is why giving poor people food stamps (which is just food money) doesn't necessarily increase the price of food.

This mostly only breaks down in housing, for which there is a true supply scarcity — but even that ceases to be true in a regime with proper zoning reform. Even in regions without zoning reform, you now have people that have cash to move to cheaper neighborhoods — or even cities.

> How will the ~$3T yearly UBI bill be paid for?

Either progressive taxation, a VAT, or some combination thereof. I can try and give you a theoretical tax breakdown using real numbers.

In 2018, the household income quintiles were as follows[1]:

Lowest quintile mean: $13,775

Second quintile mean: $37,923

Third quintile mean: $63,572

Fourth quintile mean: $101,570

Highest quintile mean: $233,895

There were about 159M employed persons in the US in the most recent high[2], about 50% of the US population. We want our UBI to cover everybody.

To make this simple, because quintiles comprise an equally populated group of people, let's imagine that instead of there being ~32M people per quintile, that our nation has 10 people, where 5 people don't work, and each of the remaining 5 falls into one of the quintiles.

If we wanted to define a UBI of $18,000 per person, we need to somehow come up with $18,000 * 10 == $180,000 to distribute to everyone equally.

If we fund this progressively, each individual would have to pay:

Unemployed #1: 0

Unemployed #2: 0

Unemployed #3: 0

Unemployed #4: 0

Unemployed #5: 0

Lowest: $8,000

Second: $12,000

Third: $18,000

Fourth: $33,000

Highest: $103,000

Total revenue: $180,000

Then consider that everyone here is receiving back 18,000 under the UBI. The highest quintile earner’s net take-home is, thus 233,895-103,000+18,000 == $148,895, which effectively renders their net tax rate approx 36%. If you run this breakdown across all quintiles:

Unemployed #1-5: $0 - $0 + 18,000 == $18,000

Lowest: $13,775 - $8,000 + $18,000 == $23,775 (effective tax -73%)

Second: $37,923 - $12,000 + $18,000 == $43,923 (effective tax -16%)

Third: $63,572 - $18,000 + $18,000 == $63,572 (effective tax 0%)

Fourth: $101,570 - $33,000 + $18,000 == $86,570 (effective tax 15%)

Highest: $233,895 - $103,000 + $18,000 == $148,895 (effective tax 36%)

You'll notice that the top 2 pay a tax rate that’s comparable to today’s. We wouldn't necessarily need to increase everyone's taxes by the above amount, because there's some wiggle room in the Federal budget. Examples, we can probably eliminate Social Security (which would just be replaced by the UBI), Medicare (which is an in-kind donation that the UBI can be used to pay for), Medicaid (ditto), EITC/CTC (basically already a BI), and food stamps (ditto).

Also notice that because the lowest quintile still ends up with more than the unemployed person after their taxes, there isn’t a disincentive to work.

We can play with different levels of progressivity and generosity, but the idea is the same. We can scale up from single-person quintiles to million-person quintiles, but the percentages don't change.

[1] https://www.taxpolicycenter.org/statistics/household-income-...

[2] https://tradingeconomics.com/united-states/employed-persons

[elindbe2]

I don't think it's reasonable to think that UBI could replace SS and Medicare, elderly people aren't going to give up those benefits for a significantly smaller lump sum. The average SS payment is already greater than $18k per year, not even including the value of Medicare. At best, you might make people who collect SS and Medicare ineligible for UBI, though that would no longer make it universal and the elderly might also vote en masse to collect both.

The argument is similar for other forms of welfare. A single mom getting housing benefits plus food stamps plus Medicaid isn't likely to trade her much higher value benefits for a smaller lump sum. At best you might give her the choice between the two.

Ultimately, most of the expense you are proposing would have to come from new taxes that are in addition to the current Federal budget.

[bhupy]

> I don't think it's reasonable to think that UBI could replace SS and Medicare, elderly people aren't going to give up those benefits for a significantly smaller lump sum.

My point is that you can compute the per capita benefit for each, and include that in the basic income. In FY2019, Medicare cost the Federal government $645 billion. In 2018, there were 59,869,402 Medicare enrollees, which works out to about $11,000 per year per person. Medicare is, therefore, an in-kind donation of $11,000 per year. You can either give people this money directly, or you can just deduct $11,000 from the yearly UBI and have it pay out $7,000 per year instead.

While the elderly do indeed really like Social Security, it would probably be better for everybody for the elderly to accept less welfare so that everyone else can also receive some of the basic income. Households above the age of 55 hold 75% of American wealth, in part because most old people are rich: they've saved up money over their entire working lifetime. While there are senior citizens that are poor, the UBI would in theory be more than enough to meet their needs.

[nightski]

One huge problem with your reasoning is that the Medicare costs are equally distributed. As we know, that is very far from the case and your solution of equal cash payments will absolutely not work. That's the entire point of insurance in the first place.

[bhupy]

Medicare is like any other insurance company — there are monthly premiums into an insurance pool. I work in insurance, and I can tell you right now that your Oscar Healths, Aetnas, and United Healthcares all represent the monthly cost to administer some insurance for some pool by that monthly premium. That's THE WHOLE POINT of insurance, that everyone pays the same and the output is unevenly distributed. It's shared actuarial risk.

Medicare likewise operates the same way, except it's government-run and non-profit. The government could, in theory, run the exact same insurance service, and collect monthly premiums to pay for it. The UBI could include in it the amount necessary to afford the Medicare monthly premium for everybody.

[elindbe2]

I'm not quite following you, you still seem to be suggesting that they go from ~$18k avg. SS payment + $11k avg. Medicare payment = ~$29k to an $18k per year payment, a loss of $11k per year on average. Am I missing something? What about people who are entirely dependent on SS+Medicare for their meagre retirement?

As you have noticed in your example, most of that money gets eaten up by healthcare costs leaving very little on which to live ($7k), so essentially are you suggesting that most people should no longer retire?

[bhupy]

I closed out the above math with the following: "We can play with different levels of progressivity and generosity, but the idea is the same."

You seem to be making the argument that $18,000 is not enough, and that we actually need a UBI of $29,000, or in our fictional US-demographics-proportionally-scaled-down-to-10 person nation, $290,000 total.

Okay sure, it would involve higher taxes for sure, but here's what that might look like:

Unemployed #1-5: 0

Lowest: $10,000

Second: $27,000

Third: $37,000

Fourth: $44,000

Highest: $172,000

Total revenue: $290,000

Unemployed #1-5: $0 - $0 + 29,000 == $29,000

Lowest: $13,775 - $10,000 + $29,000 == $32,775 (effective tax -137%)

Second: $37,923 - $27,000 + $29,000 == $39,923 (effective tax -5%)

Third: $63,572 - $37,000 + $29,000 == $50,572 (effective tax 12.5%)

Fourth: $101,570 - $44,000 + $29,000 == $86,570 (effective tax 15%)

Highest: $233,895 - $172,000 + $29,000 == $90,895 (effective tax 61%)

Now, a top marginal tax rate of 61% is the kind that you see in Sweden, Finland, Japan, Quebec Canada, or Denmark. But on the other hand, keep in mind that under these conditions, you are now able to completely swap out many of the Federal government's existing programs, per your constraint. Also keep in mind that I've completely ignored the payroll tax, which brings in 35% of the Federal government's revenue.

The fundamental point is that you can play with different levels of progressivity and generosity and be able to fund a UBI at varying levels. It's very similar to how we go about funding universal welfare states in general, where the government directly provides goods & services that need to be paid for by taxation anyway.

[NovemberWhiskey]

>Now, a top marginal tax rate of 61% is the kind that you see in Sweden, Finland, Japan, Quebec Canada, or Denmark.

You are not describing a marginal tax rate though. You're describing an effective tax rate, as you acknowledge immediately above.

In Japan, the top marginal rate of income tax is about 55% on taxable income over ¥40M (say $370K). Let's see how the marginal tax rate between the fourth and fifth quartiles in your example compares with that, and also look at Japan's effective tax rate around the same income levels as your highest quintile.

Your fourth quintile household takes home $86,570 on an income of $101,570. With an incremental income of $132,415 above that, your highest quintile household takes home only $4,325 more. The marginal rate of taxation is therefore 96.7%

Someone with an salary of $250K in Japan (call it ¥27.2M) gets a standard earned income deduction of ¥2.2M plus a personal exemption of about ¥400K. The taxable income is about ¥24.6M.

National income tax will be about ¥7M. Local income tax will be about ¥2.5M. Take-home pay will be about ¥17.7M and the effective tax rate approximately 35%.

[bhupy]

You're correct, that's my mistake — it is the effective tax rate.

Doesn't change the argument, the point of the exercise is to show the absolute worst case. This math assumes:

1) 0 overlap with existing programs, which is extraordinarily unlikely. A transfer of $29,000 to a recipient of EITC/CTC and Medicaid is a pretty stupid waste of money. We would either reduce the UBI required (thereby reducing the taxes to the level I laid out in my top-most comment), or we would do away with many of the welfare programs that we already pay taxes for.

2) preservation of existing level of transfer payments to a demographic that is, on average, the richest

3) 0 other taxes. My math assumes an imaginary world in which we do not levy payroll taxes, which account for 35% of the current Federal revenue. That is a world which does not exist, and hence the income tax wouldn't have to be this high.

4) 0 distinction between adults and children — I.e should a family of 4 receive $29,000*4 == $116,000? Absolutely not, this is a comically generous UBI.

The point is that you can take the framework and play with different levels of generosity and different levels of progressivity in the tax brackets. The fundamental basis for the system doesn't change.

[elindbe2]

Forgive me, I'm still not understanding. Increasing my income from $101k to $233k would net me $4k after taxes? Isn't that a marginal tax rate of 97%? I have to imagine there would be some kind of economic fallout from that. It would likely cause huge declines in government revenue as people try and hide as much income as possible or high earners move overseas.

[bhupy]

Well first of all, the point is to show that there is never a dis-incentive to earn more, which is how progressive tax brackets are supposed to work. You will always earn more money the higher up the income distribution you go, you will just earn less money net-net than you do today.

Second of all, what I described is the absolute worst case increase in income tax because it assumes:

1) 0 overlap with existing programs, which is extraordinarily unlikely. A transfer of $29,000 to a recipient of EITC/CTC and Medicaid is a pretty stupid waste of money. We would either reduce the UBI required (thereby reducing the taxes to the level I laid out in my top-most comment), or we would do away with many of the welfare programs that we already pay taxes for.

2) 0 other taxes. My math assumes an imaginary world in which we do not levy payroll taxes, which account for 35% of the current Federal revenue. That is a world which does not exist, and hence the income tax wouldn't have to be this high.

[as300]

> > What's stopping prices from rising accordingly?

> Short answer: supply & demand

This seems to run counter to the idea of inflation. Could we not apply your same argument to all goods and services? And if so why have prices consistently risen for all of human history?

I think the real answer is that NOTHING will stop prices from rising accordingly - however the purchasing-power of the average person will still increase due to in-elasticity of demand for the basic goods and services with respect to income. For example, the average American who gets $1200/mo for free would not think to spend that entire $1200 on milk, rice, vegetables and other necessities for his or her family. They would likely save some of it, and maybe spend it on luxury items or use it to help pay for a new car, new watch, etc. This means that to the bottom 50% who is struggling the cost of the necessities of life don't rise by $1200 - they maybe rise by $600 or even $800 - so its a difference of $400 of purchasing-power per-month for those people. And $400/month is actually a huge deal for people in that income group. Also, this doesn't even account for the increased wages resulting from increased consumer-spending.

I realize this logic is add-hoc so someone please tell me if/where I am wrong.

[bhupy]

> Could we not apply your same argument to all goods and services? And if so why have prices consistently risen for all of human history?

Um, yes? But for most goods and services, prices have decreased relative to inflation. The only exceptions to this are housing, college education, and healthcare — but those are policy problems. The price of most goods and services have not only decreased relative to inflation, they have also increased in quality.

White bread, cost per pound (inflation adjusted)[1]:

1977: $0.405

2019: $1.333

Incr: 229.1%

Median personal income (inflation adjusted), age 25-34[2]:

1977: $9,336

2017: $35,455

Incr: 279.8%

So rather than being 6x as expensive(!), bread is now ~15% cheaper relative to income.

Let’s do another one. Roundtrip flight on American Airlines Flight #1 (NY to LA)

1969

Cost: $304.50 (including tax)[3]

Avg wage: $3.31/hour

Hours to buy: 92

2020

Flight: $500-600

Avg wage: $23.87/hour

Hours to buy: 21-25 (!)

Another one:

In 1997, it took 1,768 hours of work at the median wage to purchase a Dodge Caravan. In 2018, it took just 1,396 hours of work, and the quality of the Dodge Caravan has also increased in that time!

[1] https://www.ers.usda.gov/webdocs/publications/41035/15334_ae...

[2] https://data.bls.gov/timeseries/APU0000702111

[3] https://www.timetableimages.com/ttimages/aa/aa67/aa67-02.jpg

[as300]

Right - so I think we are in agreement: Prices will rise, but purchasing-power of the average citizen will almost certainly increase (that is what I attempted to show by the poorly-written second paragraph).

> In 1997, it took 1,768 hours of work at the median wage to purchase a Dodge Caravan. In 2018, it took just 1,396 hours of work, and the quality of the Dodge Caravan has also increased in that time!

Interesting!

[bhupy]

I’d add that price rises for bread are less to do with the fact that more people have purchasing power, and more to do with the fact that bread today is of higher quality than bread in the 70s.

Ditto cars, appliances, clothes, etc.

[as300]

I don't think this is the case - I think inflation has caused the cost of producing bread to increase thus leading to higher prices. If anything it seems to me that bread is of lower quality these days - more GMO's and usually mass-produced using factory farming methods.

[IanCal]

This assumes companies will raise their prices, leave a large margin on top and have nobody try to undercut them.

[bhupy]

Yup, that too.

Businesses that just raise their prices would be leaving money on the table: namely the poor people that were outside of their total addressable market. Whereas before those folks would never have been able to provide revenue, with more cash in their pockets, they are now potential consumers. Increasing prices just maintains the same TAM for no real reason — you can make more revenue by serving the newly minted consumers.

[NovemberWhiskey]

I don't even really know where to start with this.

First of all, your income numbers are household incomes, not an individual number. A significant number of your 'unemployed' are actually children, carers/homemakers, who belong to those households. Other unemployed are e.g. retirees who often times do not have a zero income.

You're indicating an effective tax rate based on the idea that the tax only pays for the UBI. Don't you have to tax more than that to, e.g., run the rest of government?

Social Security costs about $1tn per year. Medicare costs about $600bn per year, which is about the same amount as Medicaid. Means-tested cash and cash-like programs (EITC, food stamps, SNAP, school lunches) are perhaps another $300bn.

Canceling those programs would fund most of your UBI but would be represent an amazing transfer away from the poorest/oldest, which I suppose was not really your intent.

Funding any portion of UBI through a VAT is also regressive: less well-off households spend a significantly larger proportion of their incomes.

[bhupy]

> First of all, your income numbers are household incomes, not an individual number. A significant number of your 'unemployed' are actually children, carers/homemakers, who belong to those households. Other unemployed are e.g. retirees who often times do not have a zero income.

That doesn't really change much, it just halves the payment amount from 18,000 to 9,000. As I closed out, we can play with different levels of progressivity and generosity, but the idea is the same — my math was just the starting point. You can increase the amounts that the top 2 quintiles pay, you can increase the amount that the middle quintile pays (which is how most EU states fund their programs). This also doesn't even touch payroll tax revenues, which comprise about 35% of Federal revenues.

Also, "Unemployed #1-5" includes children, the disabled, and seniors. In that 10-person nation, 2 were probably children, 2 were probably retired seniors, and 1 was probably prime-working-age disabled. They are accounted for in the above math.

> You're indicating an effective tax rate based on the idea that the tax only pays for the UBI. Don't you have to tax more than that to, e.g., run the rest of government?

That was never the implication? Per this specific tax distribution, at worst you would increase the tax on the top quintile by 37%. And that's at worst, because there are definitely parts of the existing government that can be replaced by the UBI.

> Social Security costs about $1tn per year. Medicare costs about $600bn per year, which is about the same amount as Medicaid. Means-tested cash and cash-like programs (EITC, food stamps, SNAP, school lunches) are perhaps another $300bn.

Yes, none of this changes the above math, which we built up from first principles. Again, starting from those numbers, you can play with varying levels of progressivity and varying levels of generosity.

> Canceling those programs would fund most of your UBI but would be represent an amazing transfer away from the poorest/oldest, which I suppose was not really your intent.

EITC, food stamps, SNAP, and school lunches are indeed important for the poorest among us, but the implicit argument is that a lump sum non-means-tested amount per-person is superior to all of those.

Medicare and Social Security on the other hand are already a form of transfer to the richest. Individuals above the age of 55 account for 75% of wealth in America. Put simply, old people are rich. For two-thirds of seniors, Social Security has detached from the program’s original mission — to eradicate senior poverty — and is now the world’s most expensive upgrade from Carnival to Royal Caribbean[1].

Yes, there exists old people that are poor, but targeting social programs strictly on the basis of age is an extremely inefficient method of distributing welfare, especially since most old people are rich.

> Funding any portion of UBI through a VAT is also regressive: less well-off households spend a significantly larger proportion of their incomes.

I don't disagree with you here, but it's just another proposal for how to fund a UBI, per OP's request. What I showed you is that it is definitely within the realm of possibility to fund a UBI off of progressive income/capital gains tax alone.

[1] https://www.profgalloway.com/iowat-the-fuk

[NovemberWhiskey]

>Per this specific tax distribution, at worst you would increase the tax on the top quintile by 37%. And that's at worst, because there are definitely parts of the existing government that can be replaced by the UBI.

No, you'd increase the tax burden by 37% of their gross income, which is a totally different thing.

Your highest quintile household earning ~$235K per year: if they lived in NYC they'd be paying already about $72K per year in taxes (between Federal/state/local income tax and FICA, assuming it's a married couple).

Your proposal takes an additional $85K per year away from them. It therefore increases their taxes by 118%.

EDIT: also, I just noticed the quintiles in your example don't even sum correctly. You're distributing $180K but only taxing $174K.

[bhupy]

> EDIT: also, I just noticed the quintiles in your example don't even sum correctly. You're distributing $180K but only taxing $174K.

That's my mistake, typo due to overly quick math. It's too late for me to edit the comment, but the missing $6K needs to be distributed across the quintiles. This doesn't fundamentally change the math at all, and hence does not invalidate the argument at all.

> No, you'd increase the tax burden by 37% of their gross income, which is a totally different thing.

> Your proposal takes an additional $85K per year away from them. It therefore increases their taxes by 118%.

You're saying that it (a little more than) doubles their taxes. I never claimed otherwise, I meant that the percentage would increase by 37%, at most — which would in effect double their effective tax rate.

I want to do the math just to give your argument a fair shot. In FY2019, the total outlays of the US Federal government was $4.45 trillion. Per capita, that's $13,500.

Let's assume that there's literally 0 overlap between a UBI and all existing programs — extraordinarily unlikely, but I'll play your game — and we wanted to maintain an $18,000 UBI. That's essentially a $32,000 in benefits (I'm throwing in an extra $500 just to make my argument that much harder).

Let's go back to our fictional nation, where there are 10 people that are distributed exactly like they would be in the US today. We'd need $320,000 across 10 people.

Unemployed #1-5: 0

Lowest: $13,000

Second: $30,000

Third: $40,000

Fourth: $59,000

Highest: $178,000

Total revenue: $320,000 (this time I double checked!)

Now, because, in this scenario, $13,500 is not actually cash money, but is going towards existing Federal outlays, the net pocketed amount isn't actually $32,000 — it is actually $18,500.

Unemployed #1-5: $0 - $0 + $18,500 == $18,500

Lowest: $13,775 - $13,000 + $18,500 == $19,275 (effective tax -39%)

Second: $37,923 - $30,000 + $18,500 == $26,423 (effective tax 30%)

Third: $63,572 - $40,000 + $18,500 == $42,072 (effective tax 34%)

Fourth: $101,570 - $59,000 + $18,500 == $61,070 (effective tax 40%)

Highest: $233,895 - $178,000 + $18,500 == $74,395 (effective tax 68%)

These tax rates are Scandinavia-level rates. The middle class taxes are also high, but that's also true in most EU countries. These are also approaching FDR level marginal tax rates.

All that being said, these high taxes assume that there is literally 0 overlap between a UBI and over half of the existing Federal welfare expenditure — extraordinarily unlikely. This also totally ignores payroll tax revenue, which is about 35% of total revenue. And this is assuming 0 VAT, which most of the developed world has in some capacity. It also assumes that we want to continue to provide targeted welfare for a sub-section of society that is, on average, among the richest (old people). It also assumes that we want to pay equal UBI to everyone of all ages, rather than providing half the UBI per child, or some such percentage — I.e. should a family of 4 receive $74,000 per year? I think not. This is the most generous UBI. Like I said, we can play with different levels of progressivity and generosity of the system itself — but the general idea is the same.

The above math should show that a net increase in effective tax rate to 68% is the absolute worst case increase in income tax, assuming 0 overlap and 0 alternative taxation (both very unlikely), and assuming a comically generous UBI. At the very least, it should also show that it is within the realm of possibility to fund a UBI through progressive taxation.

[teucris]

Such a great breakdown - thanks for this. Will you up an essay or blog post about this so I can link to it and share it? All the articles I’ve read don’t really get down to brass tacks like this.

[bhupy]

I have not, but I've been meaning to start an armchair blog! Perhaps this could be my debut.