[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.

[elindbe2]

But you're not including any other taxes required to run the federal government and you're also handwaving away the effects of a 97% tax rate. Tax rates would have to increase even more just to counteract the fall in government revenues from enacting such high tax rates as every high earner starts figuring out how to structure their income to avoid such taxes or just gives up earning extra income altogether.

Imagine what a 97% tax rate would mean in practice. In order to earn $30 for an hour of your time you now need to charge your customer $1000. As far as I'm concerned 97% is close enough to 100% as to be almost indistinguishable in terms of the economic outcomes.

[bhupy]

> But you're not including any other taxes required to run the federal government

I'm also not including any other non-income sources of taxes that are already levied. I'm also assuming that there is 0 overlap between a UBI and existing taxes required to run the federal government. Both of those are false.

> you're also handwaving away the effects of a 97% tax rate. Tax rates would have to increase even more just to counteract the fall in government revenues from enacting such high tax rates as every high earner starts figuring out how to structure their income to avoid such taxes or just gives up earning extra income altogether.

> Imagine what a 97% tax rate would mean in practice. Someone offers you $100 to do a half an hour of work. Now you're now making $3 for your efforts. In order to earn $30 for an hour of your time you now need to charge your customer $1000.

There's no hand-waving, this kind of marginal tax rate is not unprecedented. Post-WW2, the marginal tax rate was 90%. As long as the progressive tax brackets maintain an increase in net income, we at least wouldn't have a disincentive to work more, which is an important characteristic to maintain. If you think 97% is too high of a marginal tax rate, you can make the income tax more flat (more akin to EU states today), and achieve similar outcomes.

And again, this is the worst case, because it assumes that there is 0 revenue from other existing sources (which I did not include), and that we would somehow have a generous Medicaid, Medicare, EITC, CTC, Food Stamps, SNAP, and Social Security on top of a UBI, which doesn't make sense. And also assumes that the UBI indiscriminately applies to everyone, including children. A $29,000 per person UBI would mean that a family of 4 would receive $116,000, which is an unreasonably generous UBI.

I've taken a preposterously generous system with a singular source of tax revenue, and shown that you would get to levels of income taxation that existed post-WW2 to fund that.