That might seem too easy, but I was actually being pessimistic when I suggested the basic income guarantee I’ve sketched might require a 33% flat tax. A lower rate of say, 30%—or maybe even lower—might be enough.

When Congress is debating any budget proposal, it’s traditional for the Congressional Budget Office to produce a rigorous estimate of how the proposal will affect the budget over 10 years. (The CBO is a federal agency tasked with giving Congress nonpartisan analysis of budget and economic issues.) While I’m currently running for US Senate, I don’t yet have a staff of government number-crunchers working for me. Nor do I have access to detailed data on existing government tax and spending.

So I’m going to have to settle for something much simpler: if Congress had passed the proposal above in 2015, would it add to the deficit in 2016? It appears the answer is “no”. The calculations below require some simplifying assumptions, but I’ve tried to always make the least-convenient simplifying assumption from the point of view of arguing a basic income is affordable.

The cost of increasing the minimum Social Security benefit for seniors is small, relative to the increase for people under the age of 65. The CBO has estimated the cost of a more generous proposal than what I described above—$14,640 per recipient per year in 2016—at around 0.2% of GDP per year.[5] Let’s say the cost is $37 billion in 2016.

If no one under the age of 65 received OASDI, then calculating the cost of the new benefits would be a simple matter of multiplying the number of minors in America by $4,140, and multiplying the number of adults by $8,010. America has 324 million people, plus perhaps 8 million living abroad[6] and the most recent estimates indicate 22.9% are minors and 62.2% are adults below 65.[7] So the cost is:

332 million * (22.9% * $4,140 + 62.2% * $8,010) ~= $1968 billion in 2016

I’ve ignored the fact that not everyone living in the US is a citizen, and not all guest workers make enough to qualify for the full benefit. But this simplification works against me, so I won’t worry about it.

I haven’t currently been able to find up-to-date data on survivor’s benefits paid out by OASDI, so I’ll ignore it. As for disability, we’ll assume 7 million people receive disability benefits in excess of $8,010 per year. That will make the proposal about $56 billion cheaper in 2016.

SNAP benefit payouts have been declining as the economy has recovered from the Great Recession. In 2016, total spending on SNAP was a little over $70 billion.[8]

So my current best-guess estimate for the one-year cost of the program in 2016 is $1879 billion. This is probably a slight over-estimate, but only slightly.

Figuring out how to fund the program is complicated by the fact that the current US tax code is very complicated. We’ll start with a very simple model, and then talk about how to account for complications.

Annualized, second-quarter personal income in the US was $15,893.2 billion. Factor out the effect of transfer programs (which we’re overhauling), and that’s $13,930.9 billion.[9]

Estimated federal receipts for 2016 include $1.46 trillion in income taxes and $986 billion in payroll taxes.[10] Half of payroll taxes are paid by employees, so that’s $493 billion in employee-side payroll taxes, or $1953 billion in revenue that we want to replace. Add that to the cost of the new benefits, and we have $3,832 billion the flat tax will need to raise.

So perhaps surprisingly, we only need about a 27.5% flat tax to fund the basic income described, while making the plan deficit-neutral.

But this is only if we get rid of all the credits and deductions in the tax code. There’s one deduction that I do think is a good idea: tax deferred savings accounts like IRAs. I’ve assumed we’re eliminating the distinction between how we tax investment income, and how we tax personal income. Currently, investment income is taxed at a lower rate, which is often justified as a way of incentivizing savings and investment. To compensate, let’s expand tax deferred savings accounts so that all savings are tax deferred. (This is arguably overkill, but I’m trying to make the least-convenient simplifying assumption.) The American savings rate is around 5.7%, so we’re shrinking our tax base to $13,136.8 billion.

The tax code also includes a subsidy for child care. I think this is a good idea. People should be able to be stay at home parents if they want to be, but they also shouldn’t be deterred from pursuing careers by the cost of child care. Let’s assume that under this plan, we’ll subsidize child care to the tune of $50 billion per year.

With these assumptions, our flat tax now needs to be around 29.5%. Even this, though, assumes we’re going to eliminate a number of deductions that, while they make little policy sense, might be politically difficult to get rid of. To be on the safe side, I’ve suggested a flat tax of 33%, based on the assumption that we won’t be able to totally eliminate all popular deductions. But even with a 33% tax rate, most Americans would be winners under this plan.

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Notes

1. I say “mother” because I’m going to describe a problem that disproportionately affects women. However, many men find themselves in the same situation. See: https://nwlc.org/resources/nwlc-analysis-2014-census-poverty-data/

2. http://johnhcochrane.blogspot.com/2012/11/taxes-and-cliffs.html

3. What this will mean depends on your disability. Maybe you never went to college, threw out your back working a blue-collar job, and this is your first opportunity for a sit-down job. Or maybe you have a chronic illness that makes you unable to work one or two days per month, but your friend tells you his boss won’t care.

4. The policy of taxing investment income at a lower rate than earned income is sometimes defended on the grounds of encouraging savings and investment. There’s nothing wrong with trying to encourage investment, but our current approach makes gaming the tax code much too easy. A better approach would be to expand IRA-type savings vehicles.

5. https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51011-SSOptions_OneCol.pdf

6. https://travel.state.gov/content/dam/travel/CA%20Fact%20Sheet%202014.pdf

7. https://www.census.gov/quickfacts/table/PST045215/00

8. https://www.fns.usda.gov/sites/default/files/pd/SNAPsummary.pdf

9. http://www.bea.gov/iTable/iTable.cfm?ReqID=9&step=1#reqid=9&step=3&isuri=1&903=58

10. http://federal-budget.insidegov.com/l/119/2016-Estimate