The BIG misunderstanding about the cost of Universal Basic Income – Basic Income News

The cost of a Universal Basic Income (UBI) is often greatly exaggerated, because people are tempted to think the cost of UBI is the size of the grant multiplied by the size of the population. You can call that the gross cost of UBI, but its a gross overestimate of the real cost of UBI. It fact, its not a cost in any meaningful sense, because UBI is a tax rebate or a refundable tax credit. That is, UBI is a negative tax. People seldom call UBI a negative tax because that would invite confusion with a similar policy formally named The Negative Income Tax.

But in the more important generic sense, UBI isand must be understood asa negative tax. When you pay the government, thats a tax. When the government pays you (without you having sold something to the government), thats a negative tax. It doesnt cost you anything for the government to give and take a dollar from you at the same time. If you want to know someones total tax burden, you need to subtract the negative taxes they receive from the positive taxes they pay.

Far more than any other policy, UBI involves the government take money from in taxes and gives it back to the very same people as a UBI.

A calculation of real redistributive cost of UBI requires subtracting all of that taking-and-giving-back to focus on the net increase in taxes on contributors (or net cuts in other spending) that will be necessary to support the net benefit to net recipients. The redistributive burden is the only real budgetary cost of UBI.

UBIs net cost issue requires a careful explanation because the issue is almost unique to UBI, extremely important, and sometimes difficult to grasp. The issue occurs because UBI is both universal and in cash. Because it is universal, everyone receives it, even net taxpayers. Because it is in cash, people receive the same thing that they pay. Because it is both universal and in cash, people receive the same thing at the same time that they pay for it.

Most transfer payments go to people who are not at the time also paying taxes to support it. For example, almost no one both pays for and receives Unemployment Insurance, the Earned Income Tax Credit, Temporary Assistance for Needy Families, disability insurance, Medicaid, and so at the same time. The vast majority of people pay for Social Security at one time and receive it at another time. The net issue so important to UBI is negligible or nonexistent for all these policies.

About half of U.S. transfer payments are healthcare related and many of these do involve the same people both paying for and receiving benefits at the same time, but they pay in cash and receive back in something very different: health care. We need to know the cost of converting the cash into that healthcare. So the gross cost of healthcare spending is relevant, although we might be interested in its net redistributive effect as well.

UBI is fundamentally different from all of these policies because for the vast majority of people it works like a tax rebate. You pay taxes in cash and receive back cash at the same time. Suppose you buy something for $100, but you instantaneously receive back a rebate of $50. You do not have to budget for that $100. You have to budget for $50. That $50 is the only real cost to you of this policy. If we want to know the budgetary cost of UBI, we have to net out the enormous extent to which it functions as a rebate. Unlike healthcare spending, the gross cost has no budgetary effects at all. There is a limit to how much healthcare the government can provide you even if you are paying all the taxes for it. You only have so much purchasing power. Only so much of it can be converted into healthcare. But there is no limit to how much cash the government can give you as long as it taxes it right back. The government could give every single American $10 billion in cash without increasing pricesas long as it taxes back that $10 billion as soon as it pays it out. We need to get rid of any attention to this meaningless gross cost and focus on the one cost of UBI that matters: its net cost.

Here are some of the many examples of people mistreating the gross cost of UBI as if it were a real cost:

A google search will produce more articles making this error than I can count.

I recently made some simple estimates of the real cost of UBI in an paper entitled, the Cost of Basic Income: Back-of-the-Envelope Calculations. Its currently under peer-review at an academic journal and available in un-reviewed form on my website. I found that a UBI large enough to eliminate poverty costs on $539 billion per yearless than 16% of its often-mentioned but not-very-meaningful gross cost ($3.415 trillion), less than 25% of the cost of current U.S. entitlement spending, less than 15% of overall federal spending, and about 2.95% of Gross Domestic Product (GDP).

-Cru Coffee House, Beaufort, North Carolina, May 23, 2017

Karl Widerquist has written 878 articles.

Karl Widerquist is an Associate Professor of political philosophy at SFS-Qatar, Georgetown University, specializing in distributive justicethe ethics of who has what. Much of his work involves Universal Basic Income (UBI). He is a co-founder of the U.S. Basic Income Guarantee Network (USBIG). He served as co-chair of the Basic Income Earth Network (BIEN) for 7 years, and now serves as vice-chair. He was the Editor of the USBIG NewsFlash for 15 years and of the BIEN NewsFlash for 4 years. He is a cofounder of BIENs news website, Basic Income News, the main source of just-the-facts reporting on UBI worldwide. He is a cofounder and editor of the journal Basic Income Studies, the only academic journal devoted to research on UBI. Widerquist has published several books and many articles on UBI both in academic journals and in the popular media. He has appeared on or been quoted by many major media outlets, such asNPRs On Point, NPRs Marketplace,PRIs the World,CNBC,Al-Jazeera,538,Vice,Dissent,the New York Times,Forbes,the Financial Times, andthe Atlantic Monthly, which called him a leader of the worldwide basic income movement. Widerquist holds two doctoratesone in Political Theory form Oxford University (2006) and one in Economics from the City University of New York (1996). He has published seven books, including Prehistoric Myths in Modern Political Philosophy (Edinburgh University Press 2017, coauthored by Grant S. McCall) and Independence, Propertylessness, and Basic Income: A Theory of Freedom as the Power to Say No (Palgrave Macmillan 2013). He has published more than a twenty scholarly articles and book chapters. Most Karl Widerquists writing is available on his Selected Works website (works.bepress.com/widerquist/). More information about him is available on his BIEN profile and on Wikipedia. He writes the blog "the Indepentarian" for Basic Income News.

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The BIG misunderstanding about the cost of Universal Basic Income - Basic Income News