Accessible Unlicensed Requires Authentication Published by De Gruyter December 7, 2017

The Cost of Basic Income: Back-of-the-Envelope Calculations

Karl Widerquist
From the journal Basic Income Studies

Abstract

This article shows how the cost of Universal Basic Income (UBI) is often misunderstood and greatly exaggerated. It then presents simple, “back-of-the-envelope” estimates of the net cost of a UBI set at about the official poverty line: $12,000 per adult and $6,000 per child with a 50 % “marginal tax rate.” These back-of-the-envelope calculations present a greatly simplified UBI scheme meant not as a practical proposal but as a method to obtain a ballpark estimate of the cost of UBI in isolation. Even with simplifying assumptions, these figures are several times more accurate than many common but exaggerated estimates. Key findings of this study include the following. The net cost — the real cost — of this UBI scheme is $539 billion per year: about one-sixth its often-mentioned but not-very-meaningful gross cost of about $3.415 trillion. The net cost of this UBI scheme is 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). The average net beneficiary is a family of about two people making about $27,000 per year in market income. The family’s net benefit from the UBI would be nearly $9,000, raising their income to almost $36,000.

References

Bergmann, B. R. (2004). A swedish-style welfare state or basic income: Which should have priority?. Politics and Society, 32(1), 107–118.10.1177/0032329203261101Search in Google Scholar

Congressional Budget Office. The distribution of household income and federal taxes, 2013. Washington, DC: Congressional Budget Office 2016.Search in Google Scholar

Dinan, K. A. (2009). Budgeting for basic needs: A struggle for working families. New York, NY: National Center for Children in Poverty, Columbia University.Search in Google Scholar

Forget, E. L. (2011). The town with no poverty: The health effects of a Canadian guaranteed annual income field experiment. Canadian Public Policy, 37(3), 283–305.10.3138/cpp.37.3.283Search in Google Scholar

Greenstein, R. (2017). Universal basic income may sound attractive but, if it occurred, would likelier increase poverty than reduce it. Policy Futures, 1–5.Search in Google Scholar

Pereira, R. (2017). The cost of universal basic income: public savings and programme redundancy exceed cost. In R. Pereira (Ed.), Financing basic income (pp. 9–45). New York, NY: Palgrave Macmillan.Search in Google Scholar

Proctor, B. D., Semega, J. L., & Kollar, M. A. (2016). Report number: P60-256: Income and poverty in the United States: 2015. In U.S. Census Bureau (Ed.). Washington, DC: U.S. Census Bureau.Search in Google Scholar

Social Security Administration. Monthly statistical snapshot, December 2015. Washington, DC: Social Security Administration 2016.Search in Google Scholar

Social Security Administration. (2017). The Social Security Administration. Washington, DC: Social Security Administrative Expenses.Search in Google Scholar

Tcherneva, P. (2017). At issue: Should the United States adopt a Universal Basic Income?. Congressional Quarterly Researcher, 27(31), 741.Search in Google Scholar

Tcherneva, P. R. (2006). Chartalism and the tax-driven approach to money. In P. Arestis & M. C. Sawyer (Ed.), A handbook of alternative monetary economics (pp. 69–86). Cheltenham, UK: Edward Elgar Publishing.Search in Google Scholar

U.S. Census Bureau. Table 540. Government transfer payments to individuals by type: 1990 to 2009. Excel. Washington, DC: The Census Bureau 2011.Search in Google Scholar

U.S. Census Bureau. Hinc-01. Selected characteristics of households, by total money income in 2015. Excel. Wasington, DC: U.S. Census Bureau 2016a.Search in Google Scholar

U.S. Census Bureau. Poverty thresholds for 2015 by size of family and number of related children under 18 years. Washington, DC: U.S. Census Burea 2016b.Search in Google Scholar

U.S. Census Bureau. Table Hinc-06. income distribution to $250,000 or more for households: 2015. Excel. Washington, DC: U.S. Census Bureau 2016c.Search in Google Scholar

U.S. Census Bureau. (2016). Quick facts.Search in Google Scholar

Wilkinson, R. G., & Pickett, K. (2009). The spirit level: Why more equal societies almost always do better. London: Allen Lane.Search in Google Scholar

Wray, L. R. (1998). Understanding modern money: The key to full employment and price stability. Cheltenham, UK: Edward Elgar.Search in Google Scholar

Supplemental Material

The online version of this article offers supplementary material (https://doi.org/10.1515/bis-2017-0016).

Published Online: 2017-12-7

© 2017 Walter de Gruyter GmbH, Berlin/Boston