Some order of magnitude estimates on Universal Basic Income

2015 October 16
by Daniel Lakeland

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)

2 Responses leave one →
  1. Craig Clarke permalink
    October 19, 2015

    Hiya - thank you for this. can you confirm that its $37,000 / 3.2 =$ 11,500 that the US govt spends on for every single US citizen? is that about right? Reason i ask is I find it easy to explain to people UBI when I explain how much money govt spends in a way people can fathom. By explaining it in terms of how much they spend in terms of numbers of citizens they can get their heads round just how much govt already spend. Thanks

    • Daniel Lakeland
      October 19, 2015

      According to the sources I site above (wikipedia mainly) 3.7x10^12 dollars/yr in the budget, and 3.2x10^8 people, so 37000/3.2 dollars/person, yes rounded to 2 sig figs it's about 12k/person/yr. That includes the defense budget as well as the rest of the budget. If you just look at non-defense spending, it's closer to 31000/3.2 ~ 10k

      Not to mention the state and county level spending which probably adds a few thousand.

      I suspect I could easily go through the budget and find $8k/person/yr that could just be eliminated in favor of UBI instead with a net better result for society just through efficiency (allocating the resources to what matters to individuals, instead of spending it on programs where administrators do what they think they should be doing, and spend a lot of effort making sure they follow rules and regulations).

      For example, according to the Wiki article:
      Education and Training Employment and Social Services: $100 B
      Health: $451 B
      Medicare: $519 B
      Income Security: $542 B
      Social Security: $857 B
      Vets Benefits: $151 B

      Total: 2.6 x 10^12 or 26000/3.2 = $8k / person /yr

      You could argue that some things, like mental health care, science research, statistics and census, etc should remain as they serve specific purposes that the UBI wouldn't replace, but certainly the above things could be replaced by a UBI, perhaps together with a somewhat expanded UBI for Veterans.

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