Some order of magnitude estimates on Universal Basic Income

Ok, so I’ve advocated with some of my friends for a Universal Basic Income (UBI). The basic idea is this, if you are an adult citizen of the US, you get a social security number, and you register a bank account, and you get a monthly direct deposit pre-tax from the government. A flat amount that everyone receives just for being a citizen. The goal here is to simplify vastly the requirements to provide a basic social safety net as well as eliminating the complexity of programs like the progressive income tax with millions of specialty deductions etc.

The UBI eliminates the fear of being without income on the very short term (days, weeks, months), and lets people take risks, be entrepreneurial, take care of families, weather bad events better, etc. It also takes care of pretty much everything that a progressive tax rate structure is supposed to do (help poorer people who spend a lot of their income on basic necessities). So once a UBI is in place, you can VASTLY simplify the administration of an income tax, and you can eliminate all sorts of specialized subsidies that current require a lot of administrative overhead (checking that people qualify, running housing projects, providing specialty healthcare programs etc).

The UBI doesn’t work for the mentally ill, so they will continue to need specialty help in addition, but for everyone else, it’s a very efficient way to do what we’re currently doing in very inefficient ways.

But, this isn’t a post about the merits, it’s a post about order of magnitude estimates for the quantities of money involved.

According to Google there are $$3.2 \times 10^8$$ people in the US.

The federal Budget is currently about $$3.7 \times 10^{12}$$ dollars, with about $$0.63 \times 10^{12}$$ in defence, the rest in various social services and interest on debt.

Let’s take as an order of magnitude estimate of a good choice for UBI as the 2015 federal poverty guidelines. That’s about $$12\times 10^3$$ per year, or about $1k / mo.

So, if we just started shipping out cash to everyone at the rate of 12k/yr how big is that as a fraction of the federal after-defense budget?

\[ 12\times 10^3 \times 3.2\times 10^8 / ((3.7-0.6) \times 10^{12}) \approx 1.2\]

So, to first order, the entire non-defense budget is about the same as the amount of money you’d need to spend on a UBI. But the UBI can replace a *lot* of other government programs. Social security, medicare, housing and human services, a big majority of what we’re spending this budget on is basically doing an inefficient job of helping people.

I don’t advocate gutting all of the government programs and replacing them with a UBI, but I imagine I could easily get on board with gutting 60 or 70% of them and replacing with a UBI.

Besides reducing the overhead of government, you’d need to increase revenue. The UBI would drive sales, and a flat federal sales tax would be a very simple way to take care of this extra need for income. A sales tax would be also a consumption based tax, which has good economic consequences (it encourages saving and investing vs income taxes which discourage earning and encourage consumption!)

So, our order of magnitude estimates show, this is a feasible plan. It’s not something that would be easy to transition to in a blink, but it could be done a lot easier than setting up a universal medicare system for example. A UBI accomplishes things that both the liberal and conservative groups in politics wants: helping people, while being efficient, and encouraging growth and entrepreneurialism. It’s an idea whose time has come:

(see this WaPo article on how a UBI like thing helped native american populations for some empirical information)