Who needs the Basic income Guarantee (BIG) the most? Poor or near-poor people, which I’ll define as qualifying adults in the bottom two household income quintiles. That would be about 72 million people. Although BIG would be sent to adults in all income quintiles, those in the top three quintiles would receive no net BIG after taxes, so in my calculations I will ignore them. Here’s where the 72 million figure came from: there are about 24 million US households in each income quintile. Each household has an average of 1.5 adults, not counting adults who receive Social Security, public sector pensions or veterans’ benefits (who would not receive BIG in my proposal). That adds up to about 36 million individuals per quintile, times 2 equals 72 million. Admittedly, the figuring is rough – but good enough for the purpose at hand. [Note: Social Security Retirement would eventually be replaced by BIG but that would be a complicated and lengthy transition, so for the purpose of a BIG that could be feasible within the next 20 years, I’m leaving SSR alone].
The upper household income limit for the first quintile is about $20,000 a year. For the second quintile, it is about $40,000. What would be a reasonable amount of money to send to these folks? Enough to move them away from the brink of destitution but not so much to discourage work.
In the last post, I found $545 billion in federal and state budgets to pay for BIG, all by transferring existing funds. While most adults would receive a monthly BIG, most would also pay the entire BIG amount back in taxes – from the middle income quintile and up. I’m thinking people would have the option to have the government set aside their BIG payments – perhaps in interest-bearing accounts – to pay back in taxes or as a way to save for major expenditures.
Let’s say 5% of the BIG budget goes to overhead expenses, including dealing with fraud. That leaves about $515 billion, which would be $600 per person for the 72 million in the bottom 2 quintiles.
However, starting with the second quintile, there would be an incremental increase in taxes on the BIG as other sources of income increase, so that the net BIG for individuals in the second quintile, on average, would be about $300 a month (more at the lower end vanishing to nothing at the upper end of the quintile). The idea is to make the tax increase sufficiently incremental that it doesn't create any disincentive to make more money through other sources of income, mainly work. This would release about $257 billion to increase the net BIG for the bottom two quintiles. I'm not going to calculate exactly how much, because it's really complicated and we'd get lost in the numbers. (Remember that since everyone in the middle and higher quintiles essentially pay back their entire BIG in taxes, I’m not counting them in these calculations).
However, in order to proceed, I'm estimating that with the partial tax payback from the second quintile, everyone in the bottom quintile would actually get a net BIG of $800 a month and the average net BIG for the second quintile would go up to $400/month. Also, for the bottom quintile, almost all would also qualify for food stamps (SNAP) for themselves and/or their children. Average SNAP benefits are worth about $150/month per person, so a combined BIG+SNAP would be worth about $950 a month per adult for the bottom 20%ile of the population.
Enough to take the edge off but not enough to discourage work for those who can work. In addition, there would continue to be government programs to help children – and, less generously since they’re already getting a BIG, the homeless and disabled. All without raising taxes from their current levels.
Sounds good to me.