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The Cost of Basic Income: Back-of-the-Envelope Calculations

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  • Widerquist Karl

    (Georgetown University School of Foreign Service in Qatar, Doha, Qatar)

Abstract

This article shows how the cost of Universal Basic Income (UBI) is often misunderstood and greatly exaggerated. It then presents simple, “back-of-the-envelope” estimates of the net cost of a UBI set at about the official poverty line: $12,000 per adult and $6,000 per child with a 50 % “marginal tax rate.” These back-of-the-envelope calculations present a greatly simplified UBI scheme meant not as a practical proposal but as a method to obtain a ballpark estimate of the cost of UBI in isolation. Even with simplifying assumptions, these figures are several times more accurate than many common but exaggerated estimates. Key findings of this study include the following. The net cost — the real cost — of this UBI scheme is $539 billion per year: about one-sixth its often-mentioned but not-very-meaningful gross cost of about $3.415 trillion. The net cost of this UBI scheme is less than 25 % of the cost of current U.S. entitlement spending, less than 15 % of overall federal spending, and about 2.95 % of Gross Domestic Product (GDP). The average net beneficiary is a family of about two people making about $27,000 per year in market income. The family’s net benefit from the UBI would be nearly $9,000, raising their income to almost $36,000.

Suggested Citation

  • Widerquist Karl, 2017. "The Cost of Basic Income: Back-of-the-Envelope Calculations," Basic Income Studies, De Gruyter, vol. 12(2), pages 1-13, December.
    • Handle: RePEc:bpj:bistud:v:12:y:2017:i:2:p:13:n:4
    DOI: 10.1515/bis-2017-0016
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    References listed on IDEAS

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    1. Richard Pereira, 2017. "The Cost of Universal Basic Income: Public Savings and Programme Redundancy Exceed Cost," Exploring the Basic Income Guarantee, in: Richard Pereira (ed.), Financing Basic Income, chapter 2, pages 9-45, Palgrave Macmillan.
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    3. repec:cbo:report:513613 is not listed on IDEAS
    4. L. Randall Wray, 1998. "Understanding Modern Money," Books, Edward Elgar Publishing, number 1668.
    5. repec:cbo:report:513611 is not listed on IDEAS
    6. Congressional Budget Office, 2016. "The Distribution of Household Income and Federal Taxes, 2013," Reports 51361, Congressional Budget Office.
    7. Evelyn L. Forget, 2011. "The Town with No Poverty: The Health Effects of a Canadian Guaranteed Annual Income Field Experiment," Canadian Public Policy, University of Toronto Press, vol. 37(3), pages 283-305, September.
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    Cited by:

    1. Gan Wee Chung, 2019. "How Much Does Basic Income Cost? Modelling Basic Income as Universal Life Annuity," Basic Income Studies, De Gruyter, vol. 14(2), pages 1-10, December.
    2. Dogan, Berna & Tekgüç, Hasan & Yeldan, A. Erinç, 2022. "Towards A Green Income Support Policy: Investigating Social and Fiscal Alternatives for Turkey," Conference papers 333496, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    3. André Cieplinski & Simone D'Alessandro & Chandni Dwarkasing & Pietro Guarnieri, 2022. "Narrowing women’s time and income gaps: an assessment of the synergies between working time reduction and universal income schemes," Working Papers 250, Department of Economics, SOAS University of London, UK, revised Apr 2022.
    4. E. Klein & E. Fouksman, 2022. "Reparations as a Rightful Share: From Universalism to Redress in Distributive Justice," Development and Change, International Institute of Social Studies, vol. 53(1), pages 31-57, January.
    5. Fouksman, E. & Klein, E., 2019. "Radical transformation or technological intervention? Two paths for universal basic income," World Development, Elsevier, vol. 122(C), pages 492-500.
    6. David Colander, 2019. "How Much will a Universal Basic Income Plan Cost?," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 45(2), pages 321-326, April.
    7. Cieplinski, André & D'Alessandro, Simone & Dwarkasing, Chandni & Guarnieri, Pietro, 2023. "Narrowing women’s time and income gaps: An assessment of the synergies between working time reduction and universal income schemes," World Development, Elsevier, vol. 167(C).
    8. Malmaeus Mikael & Alfredsson Eva & Birnbaum Simon, 2020. "Basic Income and Social Sustainability in Post-Growth Economies," Basic Income Studies, De Gruyter, vol. 15(1), pages 1-27, June.
    9. Ghatak, Maitreesh & Jaravel, Xavier, 2020. "Is funding a large universal basic income feasible? A quantitative analysis of UBI with endogenous labour supply," LSE Research Online Documents on Economics 108533, London School of Economics and Political Science, LSE Library.
    10. Riedl Drew, 2020. "Financing Universal Basic Income: Eliminating Poverty and Bolstering the Middle Class While Addressing Inequality, Economic Rents, and Climate Change," Basic Income Studies, De Gruyter, vol. 15(2), pages 1-34, December.

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