The Valley Torah Scroll

UBI – an Unexpected Antidote to the Nanny State and Bloated Bureaucracy 

This article was written by Schneur Friedman (’21), the Managing Editor of the Op-Eds Section of the Valley Torah Scroll.

If you’ve peered at the Google news tab or browsed the front page of Reddit out of boredom or curiosity over the past year you’ll likely have encountered the term UBI – Universal Basic Income. UBI is the practice whereby every citizen – regardless of income – receives a cash payment every month. UBI has primarily been touted by the Democratic primary candidate Andrew Yang as an addition to the current welfare regime, and although Yang began his race as a relative moderate he has rapidly slid to the left. However, the concept of UBI – if implemented as a replacement to all existing welfare programs – can serve to limit the reach and scope of government by enabling groundbreaking tax reform, reducing the government’s control over individual’s lives whilst bolstering the virtues of the free-market, and relegating the welfare and tax bureaucracies to a small fraction of their current sizes.           

UBI’s implementation would eliminate a key roadblock to tax reforms that would benefit all echelons of American society – chiefly the poor. The United States’ current tax regime centers around the Federal Income Tax (FIT). The FIT is marginal, meaning the higher your income the higher the percentage you pay. This system discourages wealth accumulation to an extent – and thus further job, good, and intellectual production – at the upper levels whilst simultaneously granting those who can afford tax lawyers and similar services an advantage. The FIT is accompanied by payroll taxes -ie. FICA- which in some cases further disincentivize employment. However, there exists a solution that would eliminate both and replace it with a tax free of adverse incentives. The primary alternative to the marginal FIT and FICA of which I speak is a single flat tax in which all taxpayers pay the same percentage regardless of income. A flat tax would greatly simplify the taxpaying process, reduce the size of the IRS drastically, and not discourage productivity. UBI allows for the implementation of a flat tax by eliminating the additional tax burden it would otherwise impose on those with low to middle income. Moreover, the implementation of UBI and a flat tax in tandem would result in result in a net tax rate decrease unprecedented in America’s history. It has been roughly calculated that a flat tax rate of twenty-eight percent would be sufficient to balance the US budget, provide every adult with a thousand dollars per month, and children with about three hundred. Though the gross tax rate – the amount paid to the government – might increase for some, the net tax rate – the amount you paid the government minus the value of benefits received – would drop by a staggering amount. The chart below describes the net rates and the change in them for individuals in each 2019 tax bracket (which wouldn’t exist under a flat tax). The Maximum income in each bracket is assumed in the calculation.

Gross rate (Flat Tax)	Tax Bracket (2019) Single Individual	Net Rate (Flat Tax) after UBI	% change from 2019 Net FIT Rate
28%	Up to $9,700	-95.7 %	-103.35
28%	$9,701 to $39,475	-2%	-17.52
28%	$39,476 to $84,200	13.7 %	-7.99
28%	$84,201 to $160,725	20.5 %	-4.56
28%	$160,726 to $204,100	22.1 %	-4.2
28%	$204,101 to $510,300	25.6 %	-7.37
28%	Over $510,300	≈ 28 %	-5

The primary advantage in the replacement of the present welfare state with UBI lies in the latter’s incentivization of independence, its complimenting of the free-market, and abatement of social issues exasperated by conventional welfare. The current welfare regime consists of in-kind benefits (in the form of goods, vouchers, and services rather than cash) to citizens below a certain income level. Many programs require that recipients regularly report to government offices for check-ups in which they report their assets and are receive in-kind benefits. These factors contribute to recipients having less time to search for employment, less financial responsibility/versatility, and create an institution that is overall less effective at alleviating poverty than UBI. In the words of free-market economists and Nobel-prize winner Milton Friedman:  “The proposal for a negative income tax [essentially the proposal above] is a proposal to help poor people by giving them money, which is what they need, rather than as now, by requiring them to come before a government official to tally all their assets and liabilities and be told that you may spend X dollars on rent, Y dollars on food, etc.” Furthermore, providing benefits to those below a certain income level precipitates a point at which it is more advantageous to remain on welfare than to increase one’s income and lose the benefits. UBI would remove this adverse incentive, artificially eliminating poverty whilst also encouraging natural income growth. One can see why Milton Friedman supported it, as it engenders a more competitive free-market society in allowing workers to better negotiate consensual contracts with employers, pursue additional education, and grow the economy with consumer spending. In addition to myriad economic benefits, UBI wields a colossal social advantage over the established welfare system – it doesn’t discourage marriage among low-income couples, resulting in lower percentages of single parents (primarily mothers), and  decreases generational poverty and crime. The correlation between conventional welfare and single parenthood (chiefly single mothers) is evident when one considers that the percentage of single mother doubled over the decade following the passing of the somewhat ironically named Economic Opportunity Act of 1964. The source of this benefit lies in UBI’s universality. Married couples tend to have higher incomes which would disqualify them from welfare, thus lower-income people are less likely to marry, UBI negates this as it can still be collected regardless of income.     

The Federal government’s replacement of the present welfare regime and the marginal FIT with UBI and a flat tax respectively would allow the government to reduce the population of the bureaucracy (and the money spent maintaining it) by a significant margin. This downsizing would mainly concern the IRS and the swarms of welfare/health agencies which each consist of approximately three percent of Federal employees. The various welfare agencies could be replaced by a single one which performs the relatively simple task of cutting every citizen their monthly payment. With the momentous simplification of Federal taxes, much of the IRS would be rendered unnecessary. Assuming that the reforms only reduced these two bureaucracies by half that would still mean the elimination of three percent of the bureaucracy. With the average salary and benefits of a Federal employee equaling $125,000 that would free up approximately 7.5 billion dollars that can be cut from the budget, used to chip away at the national debt, or reallocated towards the benefit of the American people (ie Nuclear power and carbon-capture technologies). However, this begs the question – what will happen to the unemployed bureaucrats? Some would likely be reemployed in the new UBI agency as it inevitably expands with population growth, others could seek work in agencies that have received additional resources, or – for most – they would enter the private sector which will experience substantial due to lower taxes, higher consumer spending, and in time a larger and more educated workforce.        

Although it may initially appear like a big government policy (I can smell the word socialist on the air) , UBI – when created as a replacement to the welfare and in conjunction with a flat tax- may serve as a method of reorganizing a bloated system into an effective means of eliminating poverty in a matter which strengthens the free-market by creating equality of opportunity.