Matt Yglesias has a new post pushing back against the claim that a Universal Basic Income (UBI) program is too expensive to be practical in the US:
Let's rerun the numbers with a little more precision, though we won't change Greenstein's ballpark estimate of the cost. The federal poverty line for a single adult is $11,880. Each additional member of the household is calculated to require an additional $4,140 to stay above the poverty line. There are 321 million Americans, of whom about 74 million are children. A reasonable UBI might offer:
$10,000 per adult, for $2.47 trillion
$6,000 per child, for another $444 billion
That comes out to a little bit less than Greenstein's $3 trillion and eliminate poverty except for single, childless adults who have no other source of income whatsoever -- a very rare life circumstance.
This is a lot of money, but it's not impossible
There is no doubt that this is a lot of money. It amounts to approximately 16.7 percent of GDP, which would obviously be a huge increase in the size of the federal budget.
At the same time, while this would take federal spending to a level never before seen, it wouldn't bring total US government spending to levels that are internationally unprecedented. Instead, it'd put us about where France and the Scandinavian social democracies are.
That's not economics, that's accounting! The IMF reports the following data for taxes as a share of GDP, and total GDP per person (PPP). I then multiplied to get total tax revenue:
France: .536 X $40,498 = $21,707
Germany: .446 X $46,160 = $20,578
Italy: .482 X $35,095 = $16,916
UK: .354 X $40,163 = $14,218
US: .314 X $54,360 = $17,069
Europe (average of 4) .455 X $40,480 = $18,354
These are the four biggest economies in Western Europe, and fairly representative of the whole region (the smaller economies include both poorer and more affluent places.)
Notice that tax rates in the US are about 31% lower than in Europe, so there is a lot of scope for tax increases in the US. But how much revenue would those higher taxes actually collect---in the long run? This data suggests not very much. We may not be at the peak of the Phillips Laffer curve, but we are in a region where disincentive effects are kicking in. GDP per person in these four countries is about 25.5% lower than in the US (PPP), so they only raise about 7.5% more revenue that we do, despite far higher tax rates.
Also note that, in an accounting sense, GDP per person in Europe is lower than the US mostly because of fewer hours worked per year (although in some individual cases like Italy and the UK, productivity is also lower.) But it's mainly an hours worked problem. And of course fewer hours worked is exactly what you'd expect if you sharply raised tax rates, which are a disincentive to work. Europe taxes labor especially heavily, because that's the only way to raise vast sums without sinking the economy.
[One common mistake is to focus on taxes from an income effect perspective, i.e. being poorer might make you want to work harder. This is wrong, as the tax revenue gets recycled back into the economy, and hence there is no first order income effect---it's all about the substitution effect. It's not so much higher taxes in Europe, it's higher taxes combined with higher transfers that results in fewer hours worked. Exactly what we'd have with a UBI.]
The mistake that progressives make is to see the huge US GDP as a sort of piggy bank from which money can be raised for any policy objectives, without killing the goose that lays the golden eggs. Again, I'm not saying the US has no ability to raise extra revenue; the data above suggests we probably do. But I think it's more realistic to think in terms of an extra 10% of tax revenue, or perhaps 15% if we are lucky, which is barely more than 3% to 4.5% of GDP, not the 16.7% postulated by Yglesias in his "static analysis". If we currently collect a bit under $6 trillion (in 2016), then perhaps we could collect another $600 to $900 billion for everything progressives want to do. (A single payer system, free community college, free day care, guaranteed basic income, more infrastructure, improved education in inner cities, etc., etc.) But no chance of $3 trillion. Looked at for this perspective it's clear that progressivism can never succeed in America. The only question is how badly it will fail. How many of the "unmet needs" will remain forever unmet.
PS. If I had to push back against the argument I just made, I'd claim that it would still be worthwhile to push taxes up to 50% of GDP, despite the hit to GDP. Even though the actual amounts collected would be smaller than planned, the average middle class income would also be proportionately smaller. Thus a UBI could eliminate poverty in a relative sense, although it would still exist in an absolute sense, in terms of the current definition.
I don't even believe this argument, for complex reasons, but I think it's the strongest argument against my critique of Yglesias.
PPS. This analysis is loosely based on an old post by Greg Mankiw, from 2010.