Funding the UBI: 28% flat tax

2017 February 20
by Daniel Lakeland

Lots of people who are skeptical of the concept of UBI have concerns about how to fund it. So, I did a little calculation with the American Community Survey Microdata. Here's what I got for 2014 and 2015:

YearAvgIncomeAvgInvestIncomeAvgPeopleAvgAdultsAvgChildrenAvgSeniors
2014$55963$35892.401.810.270.328
2015$58138$38802.391.810.240.34

Some more important numbers:

  • GDP/capita is around $57400 /yr/person these days
  • Population is about 325,000,000 people
  • The US Budget is $3.9 Trillion, or $12,000 per capita or 21% of GDP
  • The US Tax Revenue from direct taxes is $2.6 Trillion, or $8000 per capita.
  • The Tax Revenue from other sources is $606 Billion or $1865 per capita.
  • The Budget Deficit is $1.3 Trillion or $4000/capita

So, how could we create a UBI that was more or less equivalent to the situation we have today in terms of the accounting? (Not, in reality, in terms of the Economics and incentives, and resulting changes to work hours and employment etc obviously, but if we held those things constant and just changed how the programs worked, what would the accounting look like?).

We'll use the following variables:

U_a, U_s, U_c, U_{d1},U_{d2},N_a,N_s,N_c,p_{d1},p_{d2},GDPC,B,D, I_e, I_i,Pop

We have the following equation to keep the per capita deficit D constant

D N= U_a N_a (1-p_{d1}-p_{d2}) + U_{d1}N_a p_{d1} + U_{d2}N_a p_{d2} + U_s N_s + U_c N_c + 0.08 GDPC N - t (I_e+I_i) - T_oN

In this equation D is the deficit per capita, N is the average household size, Na is the number of adults, pd1 is the fraction of adults with "level 1" disability, and pd2 is with "level 2" disability (these are just stand-ins for the fact that some people need much more support), Ns is number of seniors, Nc is number of children, GDPC is the per capita GDP with 0.08 being the current fraction of GDP spent on discretionary spending, t is the flat tax rate on income, Ie is the earned income, Ii is the investment income, and To is the other tax revenue per capita. N is the household number of people N= N_a+N_s+N_c.

Let's plug in some reasonable values

  • U_a for a standard adult let's put $500/mo as a "tax refund" or basic guaranteed income.
  • U_s is $16000/yr which is more or less what we're already paying in SS
  • U_c is $250/mo reflecting a cost of feeding a child and buying some very basic things.
  • U_{d1} for people with partial disability is $1500/mo reflecting the fact that they can work somewhat, with pd1 ~ 0.05
  • U_{d2} is for people with serious issues, such as rapid cycling bipolar or multiple sclerosis or whatever, with pd2 ~ 0.05. We put $2500/mo reflecting a basic stable living situation which is cheaper ultimately than having very sick people in and out of the ER.
  • I_e the earned income we put as $57000 per household
  • I_i we put at $3600/household

Plugging these numbers and solving for t the required tax rate I get t = 28%.

My Maxima computer algebra code:

Defeqn:Defecit *Nhh = Ua*Na*(1-pd1-pd2) + Na*(Ud1*pd1 + Ud2*pd2) +Us*Ns+Uc*Nc+Discrpct*GDPC*Nhh - t*(Ie+Ii)-To*Nhh;

Numeqn:subst([Nhh=Na+Ns+Nc,Na=1.8,Ns=0.33,Nc=0.25,pd1=0.05,pd2=0.05,Us=22000,Ud1=1500*12,Ud2=2500*12,Ua=500*12,Uc=250*12,Discrpct=0.08,GDPC=57400,Ie=57000,Ii=3600,Defecit=4000,To=1865],Defeqn);
float(solve(Numeqn,t));

You can run this as maxima code here:

So, with a 28% flat tax we can give every adult in the US $500/mo feed every child, take care of every senior citizen, take care of a disabled population totaling 10% of the full population, avoid all poverty traps, buy all the military and research and census and whatnot, eliminate all but the 1040ez form, have no poverty traps, eliminate high marginal tax rates on second earners in dual income households, and have the same deficit as we have currently.

I think that's an absolute STEAL.

NOTE: you might argue that we need an additional $6000/yr for seniors to cover some kind of medicare insurance, even when you do that you get a tax rate of 31% still way better than what we've got.

One Response leave one →
  1. Daniel Lakeland
    February 21, 2017

    Please take a look at my math. I want to be right, so if I made a mistake somewhere in all that, I'd love to hear about it in the comments and will fix it right away.

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