Chris Freiman's Unpersuasive Case for a UBI
On Bryan Caplan’s substack, Chris Freiman, a philosophy professor at West Virginia University, recently stated his case for a universal basic income (UBI). Not surprisingly, given that he makes arguments, most of which I had already responded to in my article “A Philosophical Economist’s Case against a Government-Guaranteed Basic Income,” Independent Review, v. 19, n. 4, Spring 2015, I was not persuaded.
I’ll hit a few highlights.
Freiman starts by making the correct economic argument that it’s better for someone to get cash than to get a particular good or service that costs the same amount, because the person can always take the cash and buy the bundle that the government wants the person to have. Notice, though, that that’s not an argument for a universal basic income. Instead, it’s an argument for changing existing welfare programs from payment in kind to payment in cash. A universal basic income would be far more expensive.
Or maybe it wouldn’t. What if the government gave everyone $1,000 a year? Clearly, that would be relatively cheap. Equally clearly, no one is advocating that. Unfortunately, Freiman never tells us what he is advocating. It might be $10,000 a year or $12,000 a year or some other number. He doesn’t say.
What about the idea that a UBI is wasteful because it goes to everyone? Freiman deals briefly with that, stating that “we can make a UBI progressive with adjustments on the tax end.” In other words, it is wasteful, but the government can increase taxes to pay for it.
I don’t know if Freiman has any sense of how huge UBI expenditures would be. I pointed out, using 2013 data, that about 206.8 million adult citizens would qualify for the UBI. At $10,000 each, that would bring the total to $2.068 trillion. Assuming that Freiman would get rid of all anti-poverty programs–federal, state, and local–that would have saved $952 billion. Net result: an increase in government spending of over $1.1 trillion annually. He advocates that taxes be increased for a lot of the high-income recipients. He doesn’t specify magnitudes. But I do. In discussing a similar proposal by philosophy professor Matt Zwolinski, I wrote:
How would Zwolinski fund this major increase in federal spending? If his goal were to keep the already bloated half-trillion-dollar federal deficit constant rather than increasing it, he would need to have the federal government increase taxes from their estimated $2.993 trillion to $4.361 trillion, an increase of 45.7 percent.
One of the most well-established facts in the economics literature on government finance is that raising a tax rate by x percent raises the revenue from that tax by less than x percent. The reason for this relationship is that the higher tax rate discourages the activity being taxed, so the tax base on which the tax is levied is smaller than otherwise. So if the federal government were to raise all tax rates by the same percentage to generate the revenue needed, it would have to raise all tax rates by more than 45.7 percent and probably substantially more.
Assume, for simplicity, a 50 percent increase in all tax rates, although the percentage would probably be more. Why more? Assume conservatively that a 45.7 percent increase in tax rates would reduce by only 5 percent the base on which the taxes are levied.Then a 45.7 percent increase in tax rates would increase the federal government’s tax revenues by only 38.4 percent.6 Thus, tax rates would have to be increased by substantially more than 45.7 percent.
That conservatively estimated 50 percent increase in tax rates means that the current Social Security payroll tax (Federal Insurance Contributions Act or FICA tax), instead of its current 6.2 percent each on employer and employee, would be 9.3 percent. The bottom marginal tax rate on individual income, instead of being 10 percent, would be 15 percent. The top marginal tax rate on individual income, instead of being its current 39.6 percent, would instead be 59.4 percent.
I go into a lot of other problems with the UBI in my 2015 article. So you can read it.
In my remaining space, I want to focus on that $1.1 trillion number. We are already in the hurt locker, as my Navy students would have put it, with the current federal budget and the current federal deficit. I’m not sure if Freiman has any idea how much hurt. If we are going to keep federal debt from going much above 100% of GDP and if we are to avoid major tax increases, we need to cut programs. Adding over $1 trillion a year to federal spending would hasten the likely budget catastrophe to this decade rather than the next one. If you want to see some relatively up to date numbers on this, read the transcript of David Beckworth’s March 2023 interview of Manhattan Institute’s budget analyst Brian Riedl. Here’s one excerpt:
Ultimately, the only two choices we have as a country are to address Social Security and Medicare or nearly double middle class taxes. Everything else doesn’t come close to closing the gap. Ultimately, this is what Europe does. Europe finances its large government spending with payroll taxes and value added taxes. You can’t do it all from taxing the rich. In fact, what I calculated was, just to stabilize the debt, not balance the budget, but stabilize the debt at about 95 or 97% of GDP, if you don’t do anything on the spending side, you would have to both raise the payroll tax from 15% to 24%, that’s the combined payroll tax, employer and employee, and do a 20% value added tax.
The UBI, already a bad idea in 2015, is a non-starter today.
The pic above is of Chris Freiman.