Is there any way to sufficiently cover the cost of a UBI?

Question

Note: I'm talking about the cost of a UBI, and the cost only. Not the social benefits, or the political barriers, or all that stuff. Just the cost.

If you've been following American politics for a while, then you've probably heard of Andrew Yang. He wants to give everyone over 18 and under 65 $1000 every month, free and clear, and no questions asked.

However, how do we (or in this case, the government) pay for it ($2.4+ trillion)?

On his site, Andrew Yang suggests the following:

• 500 billion saved from welfare programs (you either chose UBI or current benefits)
• 100 billion saved from healthcare related needs
• 800 billion generated from a VAT
• 600 billion from economic growth

This all adds up to $2 trillion.

500 billion saved from welfare. Okay. Another $800 billion generated from a tax. Okay.

But what about the $100 billion saved from healthcare needs? Is that an actually reason, which studies to back it up?

Also, at what point do we keep some of that money as profit?

So with all of these factors combined - can we fully pay for a UBI?

Answer 1

Since you say that you want to ignore social benefits etc. then answer is trivial. As long as the cost of UBI is not so high that taxes would cross the peak of Laffer curve then answer is always yes, after the peak always no (peak of Laffer curve is a point of maximum possible revenue government can extract from economy through taxation).

On left side of Laffer curve just raise taxes high enough and you can pay for it. On right side the program would be too expensive to pay for it as simply it’s cost would outstrip the maximum resources government can extract from economy. So the candidate can decide to raise VAT taxes higher or to increase federal income tax etc as long as the candidate does not cross that point.

You can also cover any slack by government borrowing - there a maximum sustainable point would be where the growth rate of debt just matches the growth rate of economy. If you consistently borrow more than that you put economy on a path where in the limit debt to GDP goes to infinity- which is not good. If you consistently borrow equal to growth rate or less than that then you are on either stable path or path where Debt to GDP goes to 0 in limit.

I am also not aware of a study that would say that UBI reduces healthcare costs, however my feeling is that the point that candidate was trying to make is that thanks to UBI gov. can reduce some healthcare welfare spending as every person already gets subsidy that can be spend on medical care.

Also there can be no profit. UBI is a transfer of resources from one point in the economy to other. It does not create any profit. You could argue that compared to some other transfer it can create less distortions and less deadweight loss, but I would not call that profit. A profit is a difference between total revenues and total costs of some activity UBI has no revenue side only cost side as it’s a welfare-transfer measure.

However, as always question is if the value of UBI to society outweighs the costs they have to bear for it, but that is ultimately just a value judgement. So thats a problem for moral philosophers to worry about and answer not for economists.

Answer 2

But what about the $100 billion saved from healthcare needs? Is that an actually reason, which studies to back it up?

I'm not sure anyone can answer this for you if you want to ignore social benefits. It's a pretty common conversation-point that healthcare expenditures can be reduced by redirecting public spending toward addressing key determinants of health, such as poverty and homelessness, which are two challenges that a UBI would (presumably) address by definition (note that I am quite aware of the potential for complex general equilibrium impacts of the sudden transition to a UBI context).

The WHO and other global organizations continually publish on this matter in a world context, but it's likely to be just as true for America, as this article suggests: https://jamanetwork.com/journals/jama/fullarticle/2677433