In the last post, I found $450 billion in the state and federal budgets to pay for a modest Basic Income Guarantee (BIG) benefit. Who would qualify to receive these funds? BIG is usually conceived as a benefit that goes to all adults, with the hefty BIG bill paid through taxes on the affluent. But to balance the books, this would require those in higher income brackets to give any BIG they received back to the government in the form of taxes. This seems wasteful – why would the government give money to a group of taxpayers only to take back the entire amount from the same taxpayers?
At first I'd thought I'd address this problem by giving the BIG only to the poor and near-poor. But then it just becomes another means-tested program. Part of the attraction of BIG is that it doesn't require jumping through bureaucratic hoops to receive. The check just comes. On a regular basis. No long lines and endless waiting.
Then again, the middle-class and affluent are not those a BIG is intended to help. The point of BIG is to provide a basic income for low-income people without making them sing and dance for it. No having to prove they are the truly deserving – that they’re unable to work or looking really hard for a job. The immediate benefits include the security of an income guarantee, less destitution, less being on the brink of destitution, less gaming of the system, lower administrative costs, and a smaller, less complicated bureaucracy. I’ll discuss other benefits later.
So it looks like a BIG would have to be sent to all adults not otherwise receiving a similar benefit, like Social Security, government pensions, or Veterans disability benefits. Then a lot of the money sent out would be returned to the government in the form of taxes paid by the middle class and above. Ideally, this can mostly be done electronically to reduce administrative costs.
As mentioned before, BIG would have to be designed in such a way that it would not create a huge disincentive to work. You don’t want to shrink the pool of tax payers, at least not by a lot. Ultimately, it would be the taxpayers who pay for BIG, not to mention all those other things governments do. And you don’t want the tax base too narrowly focused on the affluent, because the income of the rich is more volatile than that of other income classes. A stable BIG needs a stable source of funding, which means a pretty broad tax base. The 1% can’t pay for everything.
So BIG has to be generous enough to be meaningful but not so generous that a significant chunk of the population is tempted to sleep in and forget about the whole job thing. Where might that sweet spot be?
Who needs 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). 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.
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.
I’m thinking $700 a month ($8400/year) per qualifying adult. That’s enough to really help with core expenses but not enough to live on without working at least part-time (except, perhaps, for very frugal singles not living in San Francisco who don’t mind having a bunch of roommates – and more power to them). And remember: other means-tested benefits are still available, like food stamps, housing assistance, childcare assistance, and healthcare. So BIG will not be the only source of assistance with living expenses.
Unfortunately, given a $450 billion budget, a BIG of $700/month would pay for just 53 million people – fewer people than there are in the bottom two income quintiles. But that’s ok – because the BIG should get smaller as income increases, where it is more likely to be a wage supplement than the main source of income.
Adults in households belonging to the first quintile (maximum $20,000/year) are barely getting by. It would make sense for them to receive the full BIG allotment of $700/month. Second quintile adults living in households earning $20-$40,000 would taxed on the BIG, averaging $350/month in additional taxes (minimally taxed at the lower end of the income range and reaching $700/month in taxes at the top end). Combining the first and second quintiles, qualifying adults would receive, on average, a net BIG of $525 a month.
That would be 72 million people receiving a net BIG benefit averaging $525 per month, costing the feds and state governments about $453 billion a year. Close enough to my budget of $450 billion to meet the doability test.
So it looks like there’s enough money to move around funds in the existing state/federal budgets to implement a modest BIG along the lines described. The incremental decreases of BIG within the 2nd income quintile will be sufficiently small to be unlikely to disincentivize work or ambition.
Pretty good so far. Of course, things will go wrong. There will be unforeseen and unintended consequences. I imagine the BIG program will need to be tweaked a lot as it is rolled out. BIG legislation will need to include self-corrective mechanisms that are automatically triggered when problems arise, without requiring politicians to hazard the wrath of the voters, to keep the BIG within certain budget and policy parameters (e.g., if the economy tanks, or labor market participation drops precipitously). It won’t be perfect. It won’t eliminate all suffering. But it sure will be better than what we have now.