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Study: a universal basic income would grow the economy (Vox)

Piecake

Member
A universal basic income could make the US economy trillions of dollars larger, permanently, according to a new study by the left-leaning Roosevelt Institute.

Basic income, a proposal in which every American would be given a basic stipend from the government no strings attached, is often brought up as a potential solution to widespread automation reducing demand for labor in the future. But in the meantime, its critics typically allege that it is far too expensive to be practical, or else that it would spur millions of Americans to drop out of the labor force, wrecking the economy and depriving the government of a tax base for funding the plan.

The Roosevelt study, written by Roosevelt research director Marshall Steinbaum, Michalis Nikiforos at Bard College's Levy Institute, and Gennaro Zezza at the University of Cassino and Southern Lazio in Italy, comes to a dramatically different conclusion. And it does so using some notably rosy assumptions about the effects of large-scale increases to government spending, taxes, and deficits, assumptions that other analysts would dispute vociferously.

Their paper analyzes three different models for a universal basic income:

  • A full universal basic income, in which every adult gets $1,000 a month ($12,000 a year)
  • A partial basic income, in which every adult gets $500 a month ($6,000 a year)
  • A child allowance, in which every child gets $250 a month ($3,000 a year)
They find that enacting any of these policies by growing the federal debt — that is, without raising taxes to pay for it — would substantially grow the economy. The effect fades away within eight years, but GDP is left permanently higher. The big, $12,000 per year per adult policy, they find, would permanently grow the economy by 12.56 to 13.10 percent — or about $2.5 trillion come 2025. It would also, they find, increase the percentage of Americans with jobs by about 2 percent, and expand the labor force to the tune of 4.5 to 4.7 million people.

They also model the impact of the plan if it's paid for with taxes. That amounts to large-scale income redistribution, which, the authors argue, would stimulate the economy, because lower-income people are likelier to spend their money in the near-term than rich people are. Thus, they find that a full $12,000 a year per adult basic income, paid for with progressive income taxes, would grow the economy by about 2.62 percent ($515 billion) and expand the labor force by about 1.1 million people.

These are extremely contentious estimates, borne of controversial assumptions about the way the economy works and the effects that a basic income would have on it. Many, if not most, economic modelers would come to very different conclusions: that a basic income discourages work, that raising taxes to pay for it could have profound negative economic impacts, and that not paying for it and exploding the deficit is a recipe for fiscal and economic ruin.

But the authors argue that the economic model they're using, run by the Bard College Levy Economics Institute, uses more realistic assumptions than alternative models, and is particularly well-suited for predicting a UBI’s impact.

If nothing else, the paper should provoke other analysts with less rosy models to come up with their own predictions of what a large-scale basic income would do.

https://www.vox.com/policy-and-poli...ic-income-roosevelt-institute-economic-growth

Study:

http://rooseveltinstitute.org/modeling-macroeconomic-effects-ubi/
 

Pagusas

Elden Member
This really seems like trying to predict a weather system, too many variables to ever say "it will do this or that".

regardless though, if every single person gets $1000, I'm all for it, so long as the tax rate doesnt go insane.
 

kirblar

Member
This really seems like trying to predict a weather system, too many variables to ever say "it will do this or that".
Our economy is built around consumer services. Permanently increasing the base spending capacity of all consumers is a good thing.
 
People need to keep in mind that this is one study that makes a certain set of assumptions that the article even notes are very contentious and not supported by the majority of economists. You can find a study to support just about any conclusion if you look hard enough
 

JCHandsom

Member
Sooner or later automation is going to irrevocably change everything, and I'm glad to hear that one of the proposed solutions is looking good so far.
 

jimmypython

Member
I view it as a short-term relief to the rapid raise of automation.

the long-term is to overhaul education system: program offered, free college education etc.
 

Begbie

Member
$12,000 x 300,000,000 people (approx) = 3.6 trillion dollars a year.. so where would that money come from?
 

Pagusas

Elden Member
People need to keep in mind that this is one study that makes a certain set of assumptions that the article even notes are very contentious and not supported by the majority of economists. You can find a study to support just about any conclusion if you look hard enough

How do you keep inflation in check? I can imagine people using that $1000 to increase their living condition, suddenly a flood of people want to move to nicer apartments, those apartments all skyrocket their cost and suddenly that $1000 doesnt go anywhere near as far as it did before they started giving it to everyone. Same thing can play out across all consumer industries. Cars, TV's, Food, School supplies. How do you handle it, or are we assuming these things will not happen?
 

Mr.Mike

Member
gdp_equ.gif


Increasing government expenditure on anything without raising taxes would increase GDP.
 
I view it as a short-term relief to the rapid raise of automation.

the long-term is to overhaul education system: program offered, free college education etc.

I don't mean to come off as antagonistic but I would actually think logically the reverse makes more sense.

Education overhaul would be a short term solution [Next 20 - 30 years]

Universal Income would be the long term solution [Next 50 - 300 years]

Automation will only get better and better with more jobs being automated away making the requirements to land a job that can support you harder and harder with more stringent requirements including higher and higher education requirements. 100 years from now, programmers themselves might be automated out. I don't really see how higher education would solve that when you're talking about needing jobs for billions of people.
 
I'm supportive of more studies to get to that point, but I have grave concerns on how it would work in actuality.

$750 to my kids every month alone would have a massive impact on our family. What's the long term result to debt, credit, salaries, etc.
 
How do you keep inflation in check? I can imagine people using that $1000 to increase their living condition, suddenly a flood of people want to move to nicer apartments, those apartments all skyrocket their cost and suddenly that $1000 doesnt go anywhere near as far as it did before they started giving it to everyone. Same thing can play out across all consumer industries. Cars, TV's, Food, School supplies. How do you handle it, or are we assuming these things will not happen?

That's why a UBI system would have to come paired with an increase in taxation. You can't flood the economy with cash everywhere and expect prices to be stable.

That said our economy needs more inflation right now, but not quite as much as an extra 12k in everyone's pockets would bring.
 

typist

Member
It's a nice idea and could even be quite successful. But a flat payment to everyone wouldn't serve everyone equally due to differences in the cost of living. In my opinion a better solution would be a program to produce a lot of very affordable homes. Like, sheds with mattresses and blankets, just a place to stay warm and safe. Install some public wifi in the shed camps and put some public toilets/showers/kitchens there too and bingo, nobody lives in luxury but nobody has to live in abject poverty either. I would probably live in such an area just to save money, better than always having to pay rent
 
$12,000 x 300,000,000 people (approx) = 3.6 trillion dollars a year.. so where would that money come from?

The OP makes mention that the government would go into debt over it rather than raise taxes. I think what they were trying to imply is that if the government borrows to cover for it, it would get it back and more due to the economic growth that would happen so it's worth going into debt over.

How do you keep inflation in check? I can imagine people using that $1000 to increase their living condition, suddenly a flood of people want to move to nicer apartments, those apartments all skyrocket their cost and suddenly that $1000 doesnt go anywhere near as far as it did before they started giving it to everyone. Same thing can play out across all consumer industries. Cars, TV's, Food, School supplies. How do you handle it, or are we assuming these things will not happen?

Besides how do we pay for it, this is also one of the points I've always wondered about.
 

Elandyll

Banned
Nope.

I am very progressive, but every time I read about a UBI, no strings attached, I just wonder what the researchers/ proponent are smoking.

A no strings attached deprecating income in between jobs (which many European countries already have), sure.
A UBI conditionned on a utility job, or better, going to a training for high demand jobs or tuitions for career jobs? Sure.

But funeling working people's money through taxes towards non working, non tax paying people is a recipe for disaster. So would paying for it via debt.

The only way would be to over tax ultra high income, but we all know that will only encourage tax evasion.

We should aim at improving education, and educating the jobless/ disenfranchised better at a much lower cost, instead of trying to come up with a way of keeping the unskilled and unwilling to work home with an income equal to poverty limit.

Free college, not paid unemployment, is where the fight is.
 

Ernest

Banned
Yeah, a million dollars spread out to, say, a thousand people, would be all be spent and be spent quickly, buying goods and services, helping out the economy, rather than that million dollars going to just one or two people, who would more likely just sit on most of it.
 

Mr.Mike

Member
So the Levy model used in the basic income paper, building off this research, assumes that demand is well below where it could be. That helps explain why big, unfunded increases in spending, like a basic income not funded by taxes, could be stimulative. Many economists would agree that in, say, 2009, when unemployment is surging and the economy's in recession, it makes sense to do big deficit spending to get demand up again. The Levy model is arguing that a demand shortfall is still a problem, and similar measures would thus be effective in 2017 just as they were in 2009.

Plenty of other models would come to different conclusions. The Penn Wharton Budget Model, a widely used economic forecasting model used by politically unaligned groups like the Tax Policy Center, tends to project that policies that increase the deficit dramatically will have significant economic downsides. For instance, when the Tax Policy Center looked at Donald Trump's likely tax plan, it used the Penn Wharton model and found that over two decades the tax plan would reduce GDP by 4 percent, mostly because the increased deficit would lead to a surge in interest rates on government debt, and then on small business loans, mortgages, and credit cards as well.

The Roosevelt-Levy model, by contrast, finds that any negative effect due to the deficit would be swamped by the positive economic impacts of increased demand.

The Roosevelt-Levy model also makes two other significant assumptions:

A basic income does not discourage work at all
Households don't respond to changes in their tax burden


These are both contentious, but reflective of Roosevelt's broader view of how the economy works. University of Pennsylvania economist Ioana Marinescu recently conducted a wide-ranging review of the literature on unconditional cash programs for Roosevelt, focusing on programs in the US and Canada. She examined experiments in the 1970s and '80s that evaluated ”negative income taxes" (NITs, essentially basic incomes that phase out as you earn more), Alaska's Permanent Fund (which taxes oil extraction and returns the money directly to every man, woman, and child through an annual check), and a dividend the Eastern Band of Cherokees issued to members of the tribe from casino revenues.

All of these cases find reductions in work that are, at most, modest. In the Cherokee case (where members got about $4,000 to $6,000 a year) there was no effect on work; in the Alaska case, where checks are generally $800 to $2,000 per person (so up to $8,000 for a family of four), there's a small increase in the share of people working part time, but no overall effect on the share of the population working. Indeed, the part-time work boost could come from people entering the workforce anew. The negative income tax experiments are more complicated. Most of the studies found no statistically significant reduction in work; only one, the Seattle/Denver experiment, found a reduction, and it saw the employment rate fall by 4 percentage points

In any case, Marinescu concluded that the effects on work are small but minimal. ”Our fear that people will quit their jobs en masse if provided with cash for free is false and misguided," Marinescu writes.

The new Roosevelt paper cites Marinescu's finding as support for its assumption that there'd be no decline in work. But even if there's a modest decline in work — or a socially salutary decline, due to new mothers taking more leave or kids staying in school longer or people choosing to retire earlier because they want to — that could have significant economic effects, which the model will not pick up.

The assumption of no household response to changes in taxes is also sure to be contentious. It cuts two ways. On the one hand, most conservative/libertarian leaning economists would argue that taxes, especially corporate and investment taxes and high individual income tax rates, have a tremendous impact on business decisions and individual decisions about work. This is the whole idea behind supply-side economics as practiced by the Reagan, Bush, and most recently Brownback administration in Kansas: that lowering taxes on economic activity will lead to more of it, which grows the economy. Correspondingly, enacting big tax increases to pay for a basic income would be predicted to hurt the economy.

The right-leaning Tax Foundation, for instance, has an economic model that predicts huge positive impacts from cutting taxes on corporations and high-income individuals, and significant negative impacts from raising them. For instance, the Tax Foundation found that the House Republican plan to cut individual and business taxes would lead to a 9.1 percent boost in GDP and a 7.7 percent boost in wages, and that Bernie Sanders's tax plan would cut GDP by 9.5 percent and would lower the average American's income by nearly 13 percent.

On the other hand, some left-leaning economists have argued that raising taxes on high earners has positive effects on household behavior. Berkeley's Emmanuel Saez, Piketty, and Harvard economist Stefanie Stantcheva have argued that very high marginal tax rates (the top rate on wages was 91 percent for most of the 1950s) discourage the rich from making very large salaries. In particular, it prevented them from bargaining with their employers to divert money from shareholders or lower-ranked staffers into higher executive compensation.

Think of it this way. In 2017, the top federal income tax rate is 39.6 percent. So if a CEO convinces his company to raise his pay from $5 million to $6 million, he'll get to keep $604,000 of that raise (I'm ignoring state and payroll taxes for the sake of simplicity). That's a really healthy after-tax raise, so that CEO has a very big incentive to lobby for pay hikes like that. But in 1955, the top federal income tax rate was 91 percent. So that same pay raise would only net him $90,000. Not nothing, but a way, way smaller windfall. So back then, executives had less reason to try to fight to earn more, which kept down inequality.

The Roosevelt paper predicts that the super-negative Tax Foundation story, where big tax increases translate into economic calamity, would not come to pass, nor would the rosy Saez/Piketty/Stantcheva story, in which big tax increases translate into a quite big reduction in inequality, which in turn could alleviate secular stagnation by putting more money in the hands of the middle-class to spend.

From the same Vox article

The child allowance is already done elsewhere.

Some of them are relatively modest in cost. A $3,000 per child per year child allowance is well in line with what other rich countries do; Canada gives family with children under 6 about US$5,000 a year, and families with older children about US$4,250 (the benefit phases out for the rich). That plan would be totally affordable for the US with relatively small tax increases, especially if we replaced other income support programs for children. A group of influential US poverty experts have recently recommended a $3,000 to $3,600 a year child benefit, and the Child Tax Credit Improvement Act from Congress member Rosa DeLauro, legislation backed by Nancy Pelosi and John Lewis, would create a new $3,600 fully refundable tax credit for kids under 6. This is well within the American political mainstream, and it could cut child poverty by a quarter, a third, or even in half.

$12,000 a year would be very radical

But a $12,000 a year per adult basic income is another matter. The Roosevelt paper finds that paying for it would require increasing household tax revenue by 120 percent — a more than doubling. To do that, it assumes that all but the poorest 40 percent pay more in taxes. The middle quintile (households with an income between $48,300 and $85,600, per the Tax Policy Center) would see their average tax rate go from 14 percent to 25 percent; the top one percent would see its average tax rate go from 32.9 percent to 67.9 percent.
 
Money is an imaginary social construct we use to assign value to things. The value of more people being able to fully explore their potential without being chained to the ground by debt is enormous. As long as price levels are stable (i.e. controlled inflation) national debt should not be something we concern ourselves with that much.
 

Yoritomo

Member
You can discuss this with people of any political ideology if you switch the words around a bit.

Call it a negative income tax when talking with people who are traditionally conservative.

Read up specifically on Milton Friedman's arguments for a negative income tax and use those argument to ease your conservative family and others onto the idea of essentially an income floor that no one will fall below.
 

Rentahamster

Rodent Whores
Interesting study, but I really want to see some trials take place to gather hard data and see different versions of UBI implemented in real world scenarios.

$12,000 x 300,000,000 people (approx) = 3.6 trillion dollars a year.. so where would that money come from?

First of all, you could exclude the children as well as non-citizens, which would bring the total number of people down.

Second of all, if UBI is implemented as a welfare replacement, then that would cut about $200 billion on welfare spending which could be spent instead on UBI.

https://www.washingtonpost.com/news...e-dont-spend-1-trillion-on-welfare-each-year/

There's also the $900 billion we spend on social security, which we won't need anymore.

https://www.google.com/search?q=social+security+spending+usa&oq=social+security+spending+usa

Theoretically, we also may or may want to cut or pare back medicade, which costs about $350 billion.

http://www.npr.org/sections/health-...-death-medicaid-affects-the-lives-of-millions

The rest can be made up with either raising taxes on the rich/corporations, or adding to the federal debt, or a combination of stuff.
 
There are a lot of trials for UBI ongoing right now. The research literature on what does and doesn't work will be available fairly soon.
 

Rentahamster

Rodent Whores
You can discuss this with people of any political ideology if you switch the words around a bit.

Call it a negative income tax when talking with people who are traditionally conservative.

Read up specifically on Milton Friedman's arguments for a negative income tax and use those argument to ease your conservative family and others onto the idea of essentially an income floor that no one will fall below.

Anecdotally speaking, I was able to warm up conservatives to the idea as a way to reduce the welfare state and remove the disincentive to work that comes when on welfare. Also mention how Alaska has something sorta similar, and Palin was totally fine with it. If they're the Jesus loving type of conservative, an appeal to helping the poor sometimes works if they actually practice what Jesus preached. Also drop in lines about increasing freedom and whatnot.
 

Piecake

Member
The assumption that households don't change behavior based on their tax burden seems completely absurd to me

I think it makes sense in terms of universal income.

I honestly don't get why UBI is considered a negative income tax because your benefits don't go away or phase out once you hit a certain income threshold. Everyone just gets money. Plus, like the article notes, there has actually been studies done on real life examples.

I mean, you won't run into a situation like this with UBI

In a recent opinion column on Phil Mickelson's tax comments, I pointed out that some of the working poor face marginal tax rates "approaching 90% as they lose benefits attempting to better themselves."

Readers were incredulous, asking how it could be that in a nation with a top federal income tax rate of 39.6% on individuals making more than $400,000 a year, anyone could face a 90% rate.

It is true. Marginal tax rates, especially for those below the top rate brackets, are chaotic, confusing, and all over the map.

Last year, a study from the Congressional Budget Office shows how a single parent making $18,000 now faces a marginal tax rate of 88% in 2013, down from 95% in 2012. The CBO report is 45 pages long, with complex details. Adding in all the taxes along with a host of other things that have strange acronyms like SNAP and TANF, and the result is that it is possible to face marginal tax rates approaching 90%.

What does this mean? It means that, like Mickelson, these individuals will not gain all that much from working additional hours.

http://www.cnn.com/2013/02/08/opinion/mccaffery-marginal-tax-rates/index.html

Sure, some people might be lazy and work a bit less, but right it simply doesnt make economic sense for some poor people to work. Poor people would have more incentive to work under a UBI system than what we currently have.
 

kirblar

Member
I think it makes sense in terms of universal income.

I honestly don't get why UBI is considered a negative income tax because your benefits don't go away or phase out once you hit a certain income threshold. Everyone just gets money. Plus, like the article notes, there has actually been studies done on real life examples.

I mean, you won't run into a situation like this with UBI



http://www.cnn.com/2013/02/08/opinion/mccaffery-marginal-tax-rates/index.html

Sure, some people might be lazy and work a bit less, but right it simply doesnt make economic sense for some poor people to work. Poor people would have more incentive to work under a UBI system than what we currently have.
I've seen this in action with someone I know. Single parent, couple of kids, but there's a strong disincentive to moving past a certain income level until their kids are out of college due to potential loss of benefits.
 

ibyea

Banned
I would change one thing, which is give enough money to top off the poverty level in whatever place they live in. Meaning the money goes towards to poor, instead of everyone. So it's cheaper for the budget and the money goes to the people who need it.
 

Sulik2

Member
UBI only works if you also fix the gigantic health care problem in the USA. UBI + Universal Healthcare and retiring all other social service programs are whats needed. I'm curious if there are any major studies that have talked about the impacts of combining those two?
 

Piecake

Member
It feels kind of dishonest to refer to that effect as a "marginal tax rate"

If Jane makes $10,000, the government mails her a check for $4,000. Over a certain range, Jane keeps that money. But as she starts earning more than approximately $18,000, Jane begins to lose the $4,000, at a roughly 20% rate. Add that to payroll taxes (7.65%), the regular income tax (15%, at that range), and Jane is in a rate bracket over 40%, and we are just getting started -- other federal, state and local programs and taxes pile on to the same effect.

You might be thinking that losing a benefit is not a tax. That is an understandable sentiment, but Jane will not be comforted by it. Looking just at the EITC, as Jane's earnings go over $18,000, she loses some of the dollars she is earning to "regular" taxes, and the $4,000 she was getting in assistance is disappearing. It's real, green, money that she is losing. This is the net effect that Shaviro was describing: Compare Jane earning $10,000 in the workplace to Jane earning $25,000, and the latter Jane simply has over $2500 fewer dollars to spend.

Its a tax to Jane because she is losing money as her benefits are being phased out or cut off. This is how economists think of taxes, benefits, and negative income taxes, so the author certainly wasn't being dishonest.
 

kirblar

Member
UBI only works if you also fix the gigantic health care problem in the USA. UBI + Universal Healthcare and retiring all other social service programs are whats needed. I'm curious if there are any major studies that have talked about the impacts of combining those two?
In a hypothetical world where we're able to pass UBI, UHC is almost certainly already on the books.
 
In Ontario (Canada), we're doing a real life experiment with this. 5000 will be getting a minimum income that's 75% of the poverty line (around $17000 for a single person), no strings attached. The experiment started the summer of this year.
 

M3d10n

Member
It's a nice idea and could even be quite successful. But a flat payment to everyone wouldn't serve everyone equally due to differences in the cost of living. In my opinion a better solution would be a program to produce a lot of very affordable homes. Like, sheds with mattresses and blankets, just a place to stay warm and safe. Install some public wifi in the shed camps and put some public toilets/showers/kitchens there too and bingo, nobody lives in luxury but nobody has to live in abject poverty either. I would probably live in such an area just to save money, better than always having to pay rent

Those kind of projects tend to degrade into crime-ridden "engineered slums" after some time.
 
D

Deleted member 231381

Unconfirmed Member
I think it makes sense in terms of universal income.

I honestly don't get why UBI is considered a negative income tax because your benefits don't go away or phase out once you hit a certain income threshold. Everyone just gets money. Plus, like the article notes, there has actually been studies done on real life examples.

The UBI is considered an NIT because they are exactly the same policy.

For any given UBI (b), and initial tax rate for all income above the UBI (tb), there is a tax threshhold (hN) and initial tax rate (tN) for an NIT scheme that has exactly the same effect.

Proof:

If (It) is income after tax, and (I) is income before tax, under UBI:

It = I - [I x tb] + b

and under NIT:

It = I - [[I - hN] x tN]

We therefore need to find a solution to:

I - [I x tb] + b = I - [[I - hN] x tN] for all I

Note that if they are equal for all values of I, they must be equal at I = 0. Therefore we can conclude that if there is a solution, it definitely satisfies b = hN x tN (what you get if you let I = 0 in the above equation).

We can substitute this into the above for:

I - [I x tb] + [hN x tN] = I - [[I - hN] x tN]

Rearrange for:

I - [I x tb] + [hN x tN] = I - [I x tN] + [ hN x tN]

Cancel out equivalent terms and you get:

tb = tN

Therefore any UBI scheme has an exact NIT equivalent at tN = tb and hN = b / tb [the only exception is for tb = 0, i.e. a basic income with no income tax at all].

As an example, a NIT with a threshhold of £30,000 and a 50% tax rate has an exact UBI equivalent at a £15,000 basic income and a 50% tax rate. If you have £17,000 income before tax, you finish with £25,500 in both systems. So there is no economic reason to prefer an NIT to a UBI - they do exactly the same thing. The only differences are that a UBI is perhaps moderately easier to administer (you only need to check income when raising tax as opposed to both when raising tax and handing out subsidy, which are typically administered by different institutions) and the NIT is slightly more politically defensible (not "giving money" to rich people).
 

Pepboy

Member
This really seems like trying to predict a weather system, too many variables to ever say "it will do this or that".

regardless though, if every single person gets $1000, I'm all for it, so long as the tax rate doesnt go insane.

Yeah looks like they took prices as fixed. The Economy might grow a lot in nominal terms but probably very little in real terms. Just a different redistribution, a lot of which would be absorbed as higher rent and land prices.
 
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