In the May 23, 2017 edition of Basic Income News, Karl Widerquist laments the tendency of some basic income commentators to overstate the cost of a basic income. The typical methodology used to generate these overestimates is as follows:
As Widerquist points out, the reason this is an overestimate is that it fails to consider the fact that even though everyone would receive the amount referred to in b above, not everyone would be net beneficiaries of this amount.
Suppose the amount referred to in b were $10,000, meaning that under a basic income scheme, everyone would receive $10,000 per year. But in every basic income proposal Ive seen, although the basic income wouldnt officially be taxed, all other income would be. This means that at some income level, there would be those whod owe at least $10,000 in their annual tax bill. Since the amount theyd owe in taxes would be at least as large as the $10,000 basic income, they would no longer be net beneficiaries. Their basic income would, in effect, have been taxed back from them. Under a basic income scheme, there would also be those whod be net beneficiaries of a basic income but not of the full $10,000 amount. All of this might be easier to see if we did a bit of math.
Again, assume that our basic income comes out to $10,000 per year per person. Suppose all other income is taxed at a marginal rate of 25%. The use of one rate is to keep things relatively simple. Here is the key equation for the basic income system being described in this paragraph:
Net Income = $10,000 + (1 .25) * Other Income
Now lets play with this equation a bit. Suppose someone had no other income. Wed then end up multiplying $0 by (1 .25) which would give us $0. And $0 + $10,000 would mean this person would end up with a net income of $10,000. That is, theyd be a net recipient of the full basic income benefit level.
Now consider someone with other income of $30,000. Multiplying $30,000 by (1 .25), we end up with $22,500. Once we add this to the $10,000 basic income, theyd end up with a net income of $32,500. Lets look more closely at whats happened here. The person made $30,000 in other income. If they didnt have to pay taxes, wed have (1 0), which is just 1, instead of (1 .25). So theyd keep all $30,000 plus the $10,000 basic income for a net income of $40,000.
Looked at this way, we see that the tax on other income is effectively a tax on the basic income as well. That is, the fact that the person with $30,000 in other income only ends up with a net income $32,500 instead of $40,000 means that $7,500 of their basic income has been taxed back to the government.
Next, lets take a look at what happens to someone with other income of $40,000.
Wed have to multiply (1 .25) times $40,000, ending up with $30,000. And $30,000 + $10,000 is a net income of $40,000. If this person paid no taxes on other income, wed add their $40,000 in other income to the $10,000 basic income for a net income of $50,000. With taxation, their actual net income is $10,000 less than $50,000. That is, weve taxed back all $10,000 of their basic income. So this person would no longer be a net recipient of the basic income.
Finally, suppose someone had other income of $100,000. Wed end up multiplying (1 .25) by $100,000, which comes out to $75,000. Since $75,000 plus $10,000 is $85,000, this persons net income would be $85,000. Now if they didnt have to pay taxes, they end up with a net income of $100,000 plus $10,000 or $110,000. But with taxes, their income is only $85,000. We see that not only has their $10,000 basic income been taxed away, so theyre no longer a net recipient of a basic income, but theyre paying enough in taxes to help finance someone elses basic income, someone with much lower other income than they have.
If we think carefully about these examples, we see whats wrong with some cost estimates of a basic income: they assume the tax rate in the equation above is 0%. But as I said above, every basic income proposal Ive seen, assumes that all other income would be taxed at some positive marginal tax rate. This means, of course, that our net income equation will include a term where some positive marginal tax rate will be subtracted from 1. We used a 25% rate for illustration, but really any positive rate will do. This is because any positive marginal tax rate on other income, although not officially a tax on the basic income, is effectively a tax on basic income. And this means some people wont be net recipients of the benefit. Understanding this point is key to arriving at better estimates of the cost of a basic income guarantee.
Michael Lewis has written 6 articles.
- P.E.I. groups say basic Income should not replace addictions, other supports - The Journal Pioneer - January 27th, 2020
- 5 Psychological Forces That Turn People into Political Hacks | Aaron Pomerantz - Foundation for Economic Education - January 13th, 2020
- WAYNE YOUNG: Island voices must be heard - The Guardian - December 15th, 2019
- The Guardian view on Finlands new PM: a different type of leadership - The Guardian - December 15th, 2019
- Basic Income as 40 Acres and a Mule - Basic Income News - October 16th, 2019
- 'Most Americans Don't Want To Work for the Federal Government' Says Andrew Yang, Trashing Federal Jobs Guarantee - Reason - October 16th, 2019
- Democratic debate highlights: best and most substantive answers of the night - Vox.com - October 16th, 2019
- Sanders: 'Damn right we will' have a job for every American | TheHill - The Hill - October 16th, 2019
- Assembly Elections 2019: Why is the Congress evasive about NYAY scheme this poll season? - Moneycontrol.com - October 16th, 2019
- Letter to the Editor: Universal basic income is inevitable as we head toward a fully automated society - The Post - October 16th, 2019
- Democrats focus on some Midwestern issues at Westerville debate, a departure from past three forums - cleveland.com - October 16th, 2019
- New book reviews the Namibian Basic Income pilot - Basic Income News - October 1st, 2019
- Quick notes from Basic Income Guarantee Panel - falicon.com - January 28th, 2019
- 'Hartz reforms': how a benefits shakeup changed Germany ... - January 28th, 2019
- Basic income could end food insecurity - Upstream - January 3rd, 2019
- Basic Income Canada Network - November 17th, 2018
- Basic Income Guarantee - Your Right to Economic Security ... - November 8th, 2018
- The Ethics and Economics of the Basic Income Guarantee ... - September 18th, 2018
- Is a Basic Income Guarantee the Right Choice for Ontario? - June 27th, 2018
- Basic Income Now | It's time for dignity for all - March 17th, 2018
- 'Me too' and the basic income guarantee | Basic Income News - February 6th, 2018
- Food shopping at dollar stores | Brantford Expositor - Brantford Expositor - August 24th, 2017
- How Cities Can Rebuild the Social Safety Net - CityLab - August 24th, 2017
- After lifting minimum wage, NDP government prepares to consult public about reducing poverty - Straight.com - August 16th, 2017
- Universal Basic Infrastructure to help decrease India's poverty - Economic Times - August 14th, 2017
- New Zealand Fabians host Basic Income panel - Basic Income News - August 13th, 2017
- Hashtag Trending Battery-free phone, Apple's China backlash - IT World Canada - August 10th, 2017
- Universal basic income proponent to speak in Boise - Idaho Press-Tribune - August 7th, 2017
- Let's talk about a supplemental income - The Hindu - August 7th, 2017
- Is a Well-Paying Job the next Entitlement Program? - Big Think (blog) - August 5th, 2017
- DON PRIDMORE: Be careful what you wish for... - The Guardian - August 1st, 2017
- EDITORIAL: Island needs dollars, not data, to cope with poverty - The Guardian - July 29th, 2017
- Renfrew County dietitian recognized by board of health for provincial award - www.insideottawavalley.com/ - July 27th, 2017
- More Calgarians struggle to feed their families over the summer months - CBC.ca - July 26th, 2017
- NEW ORLEANS, LA, US: Local basic income group begins to hold monthly meetings - Basic Income News - July 25th, 2017
- Value in using tax system for basic income: Report - The Sudbury Star - July 21st, 2017
- Does Basic Income Solve Anything? Grasp the Arguments for and ... - Futurism - July 21st, 2017
- NDP leadership candidate visits Guelph (8 photos) - GuelphToday - July 18th, 2017
- UBI is just a bedtime story Elon Musk tells himself to help the super-wealthy sleep - Quartz - July 14th, 2017
- Basic Income Guarantee program moving forward for 2000 Lindsay residents - Kawartha Media Group - July 8th, 2017
- Should all Americans receive a guaranteed income? - KHOU - June 24th, 2017
- Should all Americans receive a guaranteed income? - 9NEWS.com - June 21st, 2017
- Should all Americans receive a guaranteed income? - KPNX 12 News TV - June 21st, 2017
- Should all Americans receive a guaranteed income? - First Coast News - June 20th, 2017
- Study of Iran's basic income shows it did not harm employment - Basic Income News - June 7th, 2017
- Basic income plan doable: Northern study - The Sudbury Star - June 6th, 2017
- About That Universal Basic Income Idea - FITSNews - June 6th, 2017
- Universal basic income: guarantee pay as way to improve quality of life - WatertownDailyTimes.com - June 6th, 2017
- Letters: Guaranteed income guarantees sloth - The Province - June 6th, 2017
- Basic-income guarantee is way to end poverty - Times Colonist - March 11th, 2017
- Basic Income in Argentine News - Basic Income News - March 10th, 2017
- Industry body bats for universal basic income for women - Times of India - March 8th, 2017
- A guaranteed income isn't the solution to widespread unemployment - Acton Institute (blog) - March 1st, 2017
- Australia Needs A Universal Basic Income, And We Should Start ... - Huffington Post Australia - February 24th, 2017
- VIDEO: Basic Income presentation at Meeting of the Minds Summit - Basic Income News - February 22nd, 2017
- Ben Wray: Why both the right to work and the right not to work can set us free - CommonSpace - February 20th, 2017
- Expert: We Can Have Universal Basic Income and Jobs - Futurism - Futurism - February 18th, 2017
- World Economic Forum blog: Canada's basic income experiment will it work? - Basic Income News - February 16th, 2017
- Guaranteed basic income proposed. - Bayshore Broadcasting News Centre - February 15th, 2017
- Left-Wing America Steps Up Calls For Free Money, Jobs Guarantee - Daily Caller - February 10th, 2017
- OPINION: Human rights, basic needs - The Guardian - February 10th, 2017
- Ebay founder backs universal basic income test with $500000 pledge - Mashable - February 9th, 2017
- A response to 'The dangers of a basic income' - Basic Income News - February 7th, 2017
- CANADA: Over 10000 people have signed to support Basic Income - Basic Income News - February 7th, 2017
- Basic income is superior to the job guarantee - Basic Income News - February 7th, 2017
- Basic Income as All-inclusive Democratic Subsidy - Basic Income News - February 7th, 2017
- Income inequality in the United States - Wikipedia - January 5th, 2017