The Basic Income Guarantee (BIG) is a form of government benefit in which all citizens or legal residents of a country regularly receive an unconditional sum of money. Some libertarians like the BIG, because it would provide a simple alternative to the morass of means-tested government programs that are associated with dependency, gaming the system, and work avoidance. Liberals like the BIG as a way to combat inequality and eliminate poverty. Needless to say, liberal versions of the BIG tend to be much more generous than those suggested by libertarians. I initially opposed the BIG as too expensive and damaging to the economy, putting into play all sorts of incentives and disincentives that would have the effect of reducing labor market participation while imposing an excessive tax burden on the shrinking pool of taxpayers. Crunching the numbers, it just didn’t seem doable. But I’ve come around – at least to a modest BIG that meets two conditions: 1) a BIG shouldn’t cost more than the safety net programs it replaces – therefore, it would not add to the overall burden of taxpayers; and, 2) it should not disincentivize work so much that the tax base shrinks any more than is already projected (due to the aging of the population)
First order of business: how much money would be available for the BIG budget and where would it come from?
Note: The following figures and calculations are approximations only. The point here is to show that some sort of BIG is doable, not to work out the exact costs.
The Basic Income Guarantee (BIG) would be paid through federal and state taxes. Since one of the conditions of this modest BIG is that the overall government tax burden does not increase to fund it, let’s look at where government spending currently stands.
According to the Center on Budget and Policy Priorities, in fiscal year 2014, the federal government spent $3.5 trillion, of which over $3.0 trillion was financed by federal revenues and the remaining financed by borrowing. Here’s the rough breakdown of where that money went:
- 24 percent to Social Security
- 24 percent to 4 health insurance programs -- Medicare, Medicaid, CHIP, and ACA subsidies.
- 18 percent to defense and security-related international activities.
- 11 percent to safety net programs that provide aid to individuals and families facing hardship.
- 7 percent to interest payments on the national debt.
- 8 percent to federal retirees and veterans.
- 3 percent to transportation and infrastructure
- 2 percent to education
- 2 percent to science and medical research
- 1 percent to non-security international
- 2 percent to all other
(Due to rounding, the total is more than 100%).
BIG would be funded through the portion of government budgets devoted to safety net programs (about 11% of the federal budget, with states contributing matching funds). Let’s see if we can cobble together a decent BIG budget through the elimination of the programs that BIG would replace, plus selective reductions in other programs.
BIG would replace many of the big ticket programs, including the Earned Income Tax Credit, Temporary Assistance for Needy Families, Supplemental Security Income, and unemployment compensation. Per Federal Safety Net, TANF, EITC, and SSI cost about $150 billion annually. Move $150 billion to BIG.
In the last decade, the combined federal/state budget for unemployment benefits has ranged from $50-$150 billion a year, depending on the unemployment rate and allowed duration of the benefit. We’ll assume an annual average of $100 billion and move it to the BIG budget.
Most other means-tested safety net programs would stay in place, such as SNAP (food stamps), Pell grants, housing assistance, school lunches, and childcare assistance. However, because BIG counts as income, the budget for some of these other programs will go down if a substantial number of people receive BIG (because they will qualify for lower/fewer benefits due to higher income). I’ll estimate these programs will get about 10% smaller, freeing up another $25 billion for the BIG budget.
In addition, some federal programs would be eliminated to reduce agency overlap and duplication of services, a pervasive problem according to the US Government Accountability Office. Let’s say elimination of these unneeded programs saves $25 billion. Those funds can be applied to BIG.
The states also contribute matching funds to many of the federal welfare programs. A portion of these funds – $150 billion – will go into the BIG budget.
Ok, based on the above, this is what we have to pay for the BIG:
$150b – existing safety net programs that will be replaced by BIG
$25b – budget reductions in some remaining programs
$25b – elimination of redundant programs
$100b – unemployment compensation, to be replaced by BIG
$150b – state matching funds
So we have about $450 billion to pay for a BIG. It’s a start.