[zozbot234]

It turns out that a theoretically optimal non-linear taxation schedule features a UBI plus varying marginal tax rates (i.e. continuous tax brackets) that start out quite high (but sub-100%) in the UBI-clawback range (to manage the UBI break-even point while still offering a high subsidy to the very lowest earners) become very low for low-to-middle income earners and rise gradually for middle- and high-income earners. That's quite redistributive in intent, but the tax brackets themselves are neither "progressive" nor "regressive". Nevertheless, middle- and high-income earners do face moderately progressive rates.

[AnthonyMouse]

That seems like a lot of added complexity just to make sure the lower middle class gets screwed out of receiving the UBI.

[zozbot234]

They benefit from greatly lowered tax rates on their earned income (this is also a 'carrot' for the UBI net-receivers themselves, at least at the higher end), and high growth because you don't need to 'soak' higher-earning folks, who only pay moderately progressive rates. The alternative either has the lowest earning folks getting screwed out of receiving a meaningful subsidy (which is really bad) or pushes the break-even point way too high, which is not really what you want either and is the main criticism of UBI from a practical POV.

[AnthonyMouse]

> They benefit from greatly lowered tax rates on their earned income

Lowered marginal tax rates. Raising the marginal rates on the lowest earners is raising the effective rates on the lower middle class. That they don't get anything is essentially the purpose of your proposal.

> and high growth because you don't need to 'soak' higher-earning folks, who only pay moderately progressive rates.

But did you actually have to do that? Having the lowest marginal rates be in the middle is pretty expensive because it's also lowering the effective rate on everyone above them, or at best is just balancing out having the highest rates at the bottom. It seems like you're trying to increase the amount of the UBI while making sure the extra money comes from the middle rather than the top. Having approximately the top half (50% of the population) pay so that the second quartile (25% of the population) can get ~half the UBI instead of none both doesn't seem like a bad thing and doesn't seem like it would cost them that much rate-wise because it's a 2:1 population ratio and they they have a higher per capita base to apply the rate to.

And having the highest rates at the bottom is pretty bad incentive-wise.

> or pushes the break-even point way too high

What's the problem with the break-even point being somewhere around the middle? The people only slightly below that aren't getting a large subsidy, they're just not getting literally zero.

Meanwhile the amount of "well I didn't make that much money because I had half of it paid to my kid" marginal rate arbitrage you're reintroducing is large.

[zozbot234]

> Raising the marginal rates on the lowest earners is raising the effective rates on the lower middle class.

Those are just clawback rates. The lower middle class don't need UBI in order to pay for the necessities of life, and most UBI proposals don't expect them to be net recipients, any more than they'd be net recipients of current welfare.

> it's also lowering the effective rate on everyone above them

That's balanced by the gradual progressivity of tax rates on upper-middle incomes.

> while making sure the extra money comes from the middle rather than the top

The low rates for the lower-middle class are actually ensuring the exact opposite of that claim. The upper incomes are the source for the bulk of income redistribution in the usual optimal system as it comes out of these analyses; they just don't face prohibitive rates.

> And having the highest rates at the bottom is pretty bad incentive-wise.

It's the opposite. The bottom clawback rates apply to a smaller part of the population, that can escape them simply by earning more than the UBI breakeven point. Meanwhile the high rates there help make the whole tax schedule sustainable. It may be a counterintuitive point but it's confirmed by rigorous, automated analysis.

> marginal rate arbitrage you're reintroducing is large

The most likely response is not necessarily arbitrage, it might just be earning enough that you start paying low marginal rates after the UBI is clawed back.

[jltsiren]

> The bottom clawback rates apply to a smaller part of the population, that can escape them simply by earning more than the UBI breakeven point.

That's not true. One of the issues any serious UBI proposal needs to face are the increasing demands of the labor market. A couple of generations ago, there were still plenty of opportunities for people who had little to offer beyond a pair of hands and some work ethic. Today not so much.

The bottom end of the labor market consists of a nontrivial number of people who are not productive enough to earn a living wage. But there are still societal benefits from having them work for living, instead of being passive welfare recipients or turning to crime. To make that happen, even a low wage should increase the net income significantly above UBI.

[AnthonyMouse]

> The lower middle class don't need UBI in order to pay for the necessities of life, and most UBI proposals don't expect them to be net recipients, any more than they'd be net recipients of current welfare.

The premise of them receiving it isn't so they can buy corn, it's so they can save up a down payment on a house or have enough savings that if their car breaks down they're not completely screwed. They're supposed to get the money.

> That's balanced by the gradual progressivity of tax rates on upper-middle incomes.

That's not balancing it, it's further exacerbating it. You then have the upper middle class paying less than the full marginal rate, along with everyone above them for that part of their income range.

> The low rates for the lower-middle class are actually ensuring the exact opposite of that claim.

I feel like this is still confusing effective rates with marginal rates.

Suppose you have a 50% marginal rate up to $30,000 in income and then a 5% marginal rate up to $60,000. Alice makes $32,000/year. In this system her effective tax rate is ~47%. By contrast, Bob makes $60,000 and has an effective tax rate of 27.5%. Moreover, between the two of them they have $92k in total income of which the government gets $31600, ~34%. Why would we want Alice to have to pay ~47% instead of ~34% so that Bob, who makes almost twice as much, can pay 27.5% instead of ~34%?

Adding the UBI would lower both effective rates and result in a progressive rate curve, but why would we want to add "progressive" rates that make the system less progressive?

> The upper incomes are the source for the bulk of income redistribution in the usual optimal system as it comes out of these analyses; they just don't face prohibitive rates.

But why would you need prohibitive rates at all?

US GDP is ~$31T with a population of ~340M. To give a $12,000 UBI to every single person would be ~$4T, i.e. 12.9% of GDP, implying that's the uniform marginal tax rate you would need to collect the money. That's assuming the tax is applied uniformly (and applies to corporations as well as individuals etc.), and maybe you want to exempt non-profits from the tax or something, but as a ballpark estimate that's the number and it's not crazy high. Especially when it's a universal transfer payment and the majority of people are just getting most or all of it back immediately.

> The bottom clawback rates apply to a smaller part of the population, that can escape them simply by earning more than the UBI breakeven point.

That's not how that works. If you had a 50% marginal rate up to $30,000 and you're deciding whether to take a $32,000 job or not work, you're only getting $16,900 to put in your pocket from taking that job. Being "out of the clawback range" doesn't stop the majority of the pay from still being in it. And, of course, there are jobs that don't even pay that much, or some people might want to work part time and you're essentially screwing them for not making enough money.

> Meanwhile the high rates there help make the whole tax schedule sustainable. It may be a counterintuitive point but it's confirmed by rigorous, automated analysis.

Why do we need automated analysis to do arithmetic? You can avoid a huge increase in the rate on lower income people with a much smaller increase in a universal rate because the former only applies to a small proportion of total income and the latter applies to all of it.

> The most likely response is not necessarily arbitrage, it might just be earning enough that you start paying low marginal rates after the UBI is clawed back.

As soon as you have non-uniform marginal rates, arbitrage is going to happen. We don't have to speculate here because we currently have non-uniform marginal rates and it's extremely common. Family members in a lower tax bracket get added to the payroll to soak up taxable income at the lower rate.

[zozbot234]

> They're supposed to get the money.

We're talking about the lower middle class, they can sustain themselves by working, essentially by definition. They can get the money (compared to the status quo) - by working, because they'll be paying negligible overall rates on their own earnings as soon as the UBI is fully clawed back. Redistribution (UBI) is costly (being funded by high rates on the higher incomes, that deter them from earning more), so in most practical proposals it is largely limited to those who really are unable (or perhaps unwilling, but in a near-optimal system such 'unwillingness' is most often explained by practical inability) to earn enough for a tolerable life. Giving any part of the middle class a net-UBI only to claw it back with high rates (as it must be at some point in the tax schedule) wouldn't leave them any better off in practice and it would set up pathological anti-work incentives. It's a pretty clear non-starter.

> You then have the upper middle class paying less than the full marginal rate

If you're talking about effective rates being less than marginal rates, that's just inherent to any progressive taxation. There is in fact a strange theoretical result that the very top earner should ultimately be facing a zero marginal rate on their very last dollar of income since any non-zero rate on that "top" level is pure overhead, but of course that's a bit of a curiosity and hard to apply in practice, except maybe as a broad caution against the common idea of levying punitive rates on the very highest incomes. Progressive taxation at the high end is still the practical optimum.

> I feel like this is still confusing effective rates with marginal rates.

I feel like you're disregarding the fact that the high-rates at the bottom are purely UBI-clawback rates; in fact, $30,000 per year seems quite infeasible as a UBI range, so ISTM that you're inadvertently getting the wrong idea entirely about what the system might imply!

[jltsiren]

You should repeat that claim with concrete numbers.

What is the effective marginal tax rate in the UBI-clawback range, including any housing / healthcare / childcare / whatever benefits lost due to income? And what is the minimum hourly net income that would encourage someone with guaranteed basic income to take a job instead of staying at home? With those two numbers, you can calculate an effective minimum wage, below which it would be practically impossible to hire anyone.

[AnthonyMouse]

> And what is the minimum hourly net income that would encourage someone with guaranteed basic income to take a job instead of staying at home? With those two numbers, you can calculate an effective minimum wage, below which it would be practically impossible to hire anyone.

The answer to the first question varies from person to person, and from job to job since some of them are less desirable to do independent of what they pay, which means the threshold in the second question doesn't actually exist. There may be 100 people willing to work a specific job for $X/year but not 1000 people, etc.