Forget Raising the Minimum Wage, Bernie: We Need a Universal Basic Income
How the U.S. can afford a UBI — the economic “Go Big or Go Home” policy supported by both the Left and the Right.
WARNING — I have since changed my view on UBI and I believe it is better to support people working for higher wages and fewer hours. I support a four-day work week, strong unions, and a $20/hour minimum wage. We can create millions of high-paying, local jobs with Medicare for All, Childcare for All, and a Green New Deal.
Bernie Sanders is a vocal proponent of raising the federal minimum wage, but instead he should be supporting a Universal Basic Income (UBI). A UBI raises wages and it is a “Go Big or Go Home” entitlement reform that will fire up Bernie’s progressive base and appeals to fiscally conservative independents and even many conservatives who want entitlement reform.
How Universal Basic Income Raises Wages
Typically an employee needs an employer more than the employer needs an employee, so employers can bargain for paying lower wages and giving fewer benefits. However, if that employee is assured a Universal Basic Income, then the bargaining balances out and employees will hold out longer and achieve better wages and benefits. The UBI raise all wages but especially the lowest wages since those wages will have to “compete” with the UBI. Consider this: would the 2.7M food prep workers or 3.3M cashiers in the country continue to work 40+ hours a week to make on average $18,000 a year if they were assured half of that by not working at all? Nope, those wages would have to raise to compete with the UBI.
Can The U.S. Afford a UBI? YES!
Finland is considering simplifying their entitlements systems to a $800/month UBI. How could we do implement the same in the US?
Giving all 330M Americans $800 per month would cost $3.16T or roughly 90% the entire federal budget and about 2x the $1.6T we currently spend on welfare programs. That would be impossible to pay for! But this is a red herring. In reality, a UBI is such an efficient form of welfare, we could implement it in the US without raising taxes. Let’s look at how.
16 and Up
If we retained child welfare programs (free schooling, healthcare, childcare etc) and then restricted the universal income to people over 16, that shaves off the benefits of ~50M people or $480B. An American UBI that gives the 280M people over 16 $800 per month would cost ~$2.7T.
A UBI has no means testing since its universal and given to everyone, however middle and upper class people do not need extra income from a UBI. If your salary is more than $100K a year, your social security payroll taxes should go up so you essentially pay back your UBI. Practically speaking, this removes the 20% of households that make more than $100K a year from the cost UBI. Meaning the real number of UBI beneficiaries is only 194M people and would cost $1.86T.
State “Knock On” UBIs
A federal UBI will increase wages, increase the purchase of basic consumer goods, and eliminate most of desperate poverty, all of which will make and save money for state and local governments. In a way, a federal UBI is a permanent stimulus package for state governments. Therefore it makes sense that states could be expected to add on a small “knock on” state level UBI, and thereby lower the federal burden. The federal government could therefore provide a $700 per month UBI and the states each could offer an optional knock on benefit of ~$100 per month adding up to a total equivalent to Finland’s $800. That saves another $336B from the federal cost, bringing the cost down to $1.53T.
Elderly UBI Credit
But wait — current social security beneficiaries need to continue to receive their current benefits of $1300 per month. That means that there is an additional $500 per month per elderly person that the federal government would have to continue to pay through an “Elderly UBI Credit”. 41M people would qualify for this UBI credit totaling a cost of $246B.
Taking all this into account an American Universal Basic Income would cost a grand total of $1.77T — that is only $90B more than the $1.6T we pay for welfare programs that a UBI would replace!
So Here’s How We Implement an American UBI
We put the Social Security Administration (SSA) in charge of an American UBI since they are already so good at giving out a basic income for the elderly. The current expenditure of the SSA for social security and disability is $1.36T. Add to that the budgets of all federal entitlements that a UBI would replace: Food Stamps ($74B), student loans ($70B), direct housing support ($50B), and the Earned Income Tax Credit program ($65B). All this adds up to $1.61T. Without raising any effective tax rates or laying a finger on Medicare or Medicaid or veterans’ benefits we’ve already gotten to 94% the goal of a $700 per month federal UBI. Remarkably the last $90B will actually shake out from the widened tax base the UBI would cause. Remember that upward pressure on wages from the UBI? Higher wages means net higher income tax and payroll tax revenue. It is hard to estimate these gains, but even a tiny increase in the lowest wages would raise much more than the $90B shortfall.
Bernie Should to Drop Minimum Wage for UBI
A UBI would raise the lowest wages, just like raising the minimum wage, but it would also do so much more. A UBI represents dramatic and effective entitlement reform that both Democrats and Republicans can support. A Universal Basic Income is a leaner, cheaper, more efficient way to provide a basic social safety net for every citizen. A UBI replaces the other less efficient and more bureaucratic entitlement programs without touching or changing programs that work like veteran’s benefits, Medicare, or Medicaid. The UBI also promises to give rise to a wave of governmental savings, societal benefits, and in general economic prosperity.
I ask any supporter of raising the minimum wage to consider shifting their gears to support a Universal Basic Income instead. I especially reach out to the Bernie Sanders campaign to come out strongly in favor of a Universal Basic Income.
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