Current Programs Similar to Basic Income
In the United States we have Social Security which is a cash transfer from the working to the retired (if they are over 65) whose payout is determined by the amount of money you put in your working years. It is funded by a fixed payroll tax payed for evenly by the employee and the employer. It main purpose was to eliminate elderly poverty and it one of the most successful and untouchable social programs the United States has ever seen.
The Earned Income Tax Credit is another cash transfer program that is aimed at the working poor between 25-64 years old. It phases in as you earn income and slowly phases out as you hit certain thresholds. The max benefit, phase-in, and phase-out are determined by your household type and how many children you have. The chart below shows how the benefits phase in and out depending on your situation.
The EITC is cited as one of the best tools we have for lifting the poor out of poverty. However, currently the EITC is almost negligible for single filers with no children and is restricted to those over 25. There is bipartisan support for the expansion of the credit to support more single childless filers, younger filers, and to increase the amount the credit is worth.
How to Implement a Basic Income
As discussed previously even if for academic reasons a pure basic income would provide the most benefits, it will be near impossible to have it pass Congress. So what modifications would preserve its benefits of lifting people out of poverty, giving them more freedom of choice, and improving their local economy with a steady influx of capital, but mitigate its costs, reduce the disincentive to work, and make it more progressive.
Well you could make it cheaper by aiming to make sure a household of 2 wasn’t in poverty instead of making sure a single person is above the poverty line. Also instead of giving a set amount of money per child you could give a set amount per household for any amount of children. That amount would be equal to the amount needed to support a household of 3 with one child minus the basic income from the 2 adults.
Savings from Eliminating or Reducing Social Safety Net Programs and Tax Expenditures
|Social Security||$888 billion|
|Other Safety Net Programs||$312 billion|
|SNAP or food stamps||$82 billion|
|Earned Income Tax Credit (EITC)||$56 billion|
|Supplemental Security Income||$50 billion|
|Housing Benefits and Subsidies||$50 billion|
|Others not listed – $74 billion|
|State Safety Net Programs (conservative estimate)||$65 billion|
|Total Safety Net and Social Security Cost||$1.265 trillion|
|Major Tax Expenditures that can be reduce or eliminated||$573 billion|
|Employer Sponsored Health Insurance||$143 billion|
|Pension Plans incl. 401k and IRA||$109 billion|
|Capital Gains Preferential Rates||$91 billion|
|Mortgage Interest Deduction||$72 billion|
|Child Tax Credit||$58 billion|
|Deduction of State and Local Taxes||$52 billion|
|Exclusion of Capital Gains at Death||$48 billion|
|Total Possible Savings||$1.838 trillion|
|Total Cost of Basic Income||$2.02 trillion|
|Remaining Cost||$182 billion|
By eliminating existing programs and tax breaks the cost of basic income reduces to less than $200 billion which is significantly less than TARP cost ($700 billion) to bailout the banks and automotive industry. Perhaps it is time to bailout the American people from stagnant wages and limited capital?
Funding an extra $200 billion would require Americans to pay about $600 more in taxes a year which could be funded by in a small tax increase or borrowing if you assume that the basic income would encourage growth which would raise the tax base.
This also opens the possibility of a flat tax to replace the current income and payroll tax structure. Having a basic income makes that tax progressive and a flat tax is significantly easier to collect. By taxing total personal and corporate income you could simply the tax code dramatically and have enough revenue for government expenditures. I found even found calculations on how to fund an even more generous basic income by instituting a flat tax (see below).
However, you would need a large enough tax to fund it and the extra burden would most likely be dealt to the upper middle class and the rich would actually pay less unless you charged a surcharge above a certain income, but then it isn’t a flat tax.
Nonetheless, even if a basic income is feasible mathematically a variety of ways, it still remains politically infeasible. Restructuring our social programs and eliminating or reducing tax breaks would take an act of Congress, literally. And with special interests lobbying for the status quo and partisan interest gridlocking Washington enacting sweeping reforms over a variety of laws seems unlikely at best. Also, as I mentioned before giving Americans money for no reason would be a non-starter for the majority of America so enacting these dramatic changes to do exactly that more than likely wouldn’t be feasible. Furthermore, as shown in the flat tax example the rich still get the basic income which makes it regressive after certain points and ensuring taxes are progressive is a stand that many politicians place their hat upon. So what else can be done?