Replacing Transfer Payments with a Guaranteed Basic Income

A Back of the Envelope Calculation

The universal basic income (UBI) is becoming a popular idea amongst left-wing activists and libertarians alike. It’s considered a solution to growing inequality, declining total jobs, and the lack of aggregate demand in developed nations. But how would we pay for it?

This question is not the right one to ask, but an answer is necessary for the idea to gain any traction. So how much would a UBI cost?

First let’s calculate how much we spend on the social safety net. This is referred to by economists as “transfer payments” and is about 15% of total GDP in the U.S (pdf link, pg. 5).

In 2012 the U.S. GDP was $16.2 trillion, so simple math tells us about $2.43 trillion is spent on transfer payments. That turns into $8,100 per person, or $675 per month.