How large should the basic income be?22 Jan 2014
As the saying goes, if you ask ten basic income supporters to tell you how much money citizens should receive every month, you'll get twelve answers. I think there are two factors at work here. First, no one is quite sure what level of popular support a basic income proposal would receive -- particularly if it were accompanied by steep revenue increases. Second, it's difficult to pin down precisely what kind of lifestyle the basic income should accommodate. Obviously, we're not going to be giving everyone an expense account at the Four Seasons. But we don't want people to have to eat dog food, either.
These two factors are closely related. Many basic income supporters hand-wave away the revenue issue, claiming that we fund a basic income entirely by eliminating existing government welfare programs. But that only works if the resulting payout will be large enough for low-income people to buy the goods and services that used to be subsidized.
Luckily, the Alliance for a Just Society has produced a report that calculates a "living wage" for households of various sizes throughout the country. Their report gives us a great starting point for figuring out what a living wage could feasibly replace.
The report includes eight categories of expenses. Let's consider each one in turn.
There are currently about 313.9 million people in the US, including approximately 238.6 million adults and 75.3 million children under 18. Of those people, about 63.2 million people (including 61.9 million adults and 1.3 million children) currently receive some form of Social Security benefits, while 10.4 million people (virtually all adults) are currently unemployed. For the 73.6 million people currently receiving cash benefits, we can assume that their benefits would be reduced by the same amount as the basic income. That leaves 240.3 million people (166.3 adults, 74 million children) whose basic income still needs to be paid for.
For food numbers, the report looks to the USDA's "Low Cost Food Plan". The cost of food ranges from $122/month for a toddler to $198/month for an adult. For now, we'll estimate food at $200/month per person for all ages, or $2400/year. Using our population estimate of 240.3 million, that gets us a total annual cost of $576.7 billion. We can subtract out the cost of the federal food and nutrition assistance program ($131.4 billion), leaving us with a deficit of $445.3 billion.
Housing and Utilities
Housing is tricky. For one, the housing market is heavily distorted. Landlords wield a good deal of monopoly power; it's questionable whether the government should raise a pile of money just to give most of it to the few people lucky enough to own land. For another, housing costs vary widely from region to region. The report's estimates of the cost of housing ranges from less than $600 (Maine) to almost $1,300 (New York City).
At least for now, it seems likely that "in-kind" assistance (such as subsidized public housing) would be a more effective anti-poverty measure than cash. Therefore, I will not include the cost of housing in the basic income amount, nor will I include the savings from eliminating federal housing assistance programs.
The report calculates the cost of transportation using the IRS "Standard Mileage Rates", and the USDOT National Household Travel Survey. For a single employed adult, it estimates the cost of transportation at $595/month.
For the purpose of a basic income, there are three big problems with this estimate.
The first is that the IRS standard mileage rate assumes that drivers are operating a relatively new car. It's highly unlikely that a 1996 Honda Civic costs 56 cents per mile to operate, even when you take into account fixed costs.
The second, of course, is that location matters. Someone who lives in New York City probably isn't driving at all; a 30-day unlimited MetroCard only costs $112. Conversely, a person who lives in the exurbs may have a 100-mile round-trip commute, which (using the $0.56/mile figure) would cost them over $1,200/month.
Unlike food, which costs the same everywhere, it's not possible to come up with a single figure that accurately captures the cost of transportation for all Americans. Therefore, as with housing, I will exclude transportation from the rest of my analysis. Likewise, I will assume that existing transportation anti-poverty measures, such as discounted transit passes, will continue to exist.
Health care is another instance where it's clear that in-kind assistance is more useful than cash. A national single-payer health care program would free all Americans from the need to worry about how to pay for their health care. Until we reach that goal, the combination of Medicaid, Medicare, and ACA subsidies will continue to provide an acceptable solution for lower-income people. Therefore, I will exclude health care from the rest of my analysis.
Children are expensive. They are also optional. A major political risk of a basic income proposal that includes children is that opponents will paint a picture of a world where "welfare queens" have children for the sole purpose of getting more money from the government. While I think the scenario is bogus, I think the risk of political backlash is not. Therefore, as a starting point, I think it's reasonable to exclude the cost of child care from the basic income.
This is not to say that children will be neglected; they will still receive a basic income (payable to their guardians) that covers the cost of their food and other household needs.
Household, clothing, and personal items
The report estimates the cost of sundries at 18% of the previous costs (including some that were excluded from my analysis), yielding a figure of about $400 for an adult, or $100 for a child.
Based on the population numbers above, the cost of this payment would be $887 billion. I am not aware of any existing federal programs that could be eliminated as a result of introducing this payment.
Savings and taxes
Since the basic income is issued by the government, it will be tax-free. And since it should continue forever (unlike a job), we can assume that recipients will spend the entire payment, rather than needing to save a portion.
We've managed to pare down the basic income quite a bit. Instead of solving all problems for all people, it will only provide enough money to cover the cost of food, clothing, and other personal/household items. What these items have in common is that their costs are roughly the same across the country, and that private enterprise can do a better job of providing them than the government can. This makes them particularly well suited for a national cash assistance program.
The size of the resulting benefit is relatively small: about $600/month ($7,200/year) for an adult, or $300/month ($3,600/year) for a child. However, even this modest program will require an additional $1,332.3 billion per year in revenue. It also takes a $531.4 billion annual bite out of the existing budgets for welfare and pensions.
Would it be possible to raise some additional money by lowering benefits for Social Security (or other programs)? Possibly. But in the short term, this seems like an unlikely strategy for success. Social Security benefit levels are set based on income, so that it resembles a traditional private pension. Similarly, unemployment benefits pay out a percentage of the recipient's former income. For people who are currently unemployed or retired, or who will be soon, a sudden and drastic cut in their benefits would be catastrophic. Perhaps it would be more fair if everyone received the same Social Security benefits, but it would take at least 20 years to phase in such a system.
A more realistic funding source would be an income or payroll tax. Either tax has the benefit of being somewhat cancelled out by the basic income itself. A payroll tax is less progressive, but probably an easier sell politically. (People who dislike capital income tax increases tend to vote in very high margins, and raising any tax rate above 50% is bound to draw opposition.) Eliminating the wage cap on the Social Security tax, and increasing the Social Security tax rate (for both employers and employees) from 6.2% to 15.2%, would bring in the necessary amount of money.
If we assume that employers will pass on the entire tax increase to employees, then the "break-even" point for a single adult with no children is $40,000. Anyone earning less than this amount will receive more money from the basic income than they will pay in additional taxes. (The actual inflection point could be as high as $80,000, or anywhere in between, depending on how much of the tax bill employers pick up.) For a household with two adults and two children, the break-even point is $120,000.
So there you have it. For the cost of an 18% income tax, we could create a national program that would ensure that all Americans could always afford food, clothing, and other life essentials. It wouldn't cover housing and transportation, but it's a start, and it certainly seems better than what we have now.