# Cost of UBI

We have to define the term "cost". If the government taxes me $1000 to give me back $1000 the "cost" is still $1000. Just because the government's books match up doesn't mean that "cost" is $0. If the government did nothing but run a 1 trillion per year healthcare program, for example, and also taxed exactly 1 trillion per year, no one would go around claiming that the cost of the healthcare program was $0. The qualitative difference in the nature of spending---targeted cash vs. untargeted cash---cannot serve as a basis for redefining the ordinary notion of "cost", or otherwise one could justly accuse us of simply obfuscating the discussion.

Subtlety however does come about in defining and computing "cost". Because we have two natural possible definitions of the term. Both commonly used, but seldom distinguished.

One possible definition is:

<p><center>
(total taxes after UBI) - (total taxes before UBI)
</center></p>

The other is:

<p><center>
(total spending after UBI) - (total spending before UBI)
</p></center>

These two things are different numbers---in fact, their difference is the before/after difference in the size of the budget deficit. The budget deficit has grown as a result of implementing UBI if and only if the second difference is larger than the first. (And typically the budget deficit will either shrink or grow, rarely staying constant---so yeah these two things are not the same number.)

(For a formal proof of the fact that the difference of the differences above is the difference in the budget deficit, one can just do the math: doing "second difference minus first difference" and rearranging terms, one finds...

<p><center>
((total spending after) - (total taxes after)) - ((total spending before) - (total taxes before))
</p></center>

...which is exactly the difference before and after in the budget deficits, indeed.)

We might in fact refer to the first difference above as the **taxation cost** of the UBI, to the second difference above as the **spending cost** of the UBI, and to the difference of the two as the **deficitary cost**. (Nb: I don't want to use the tempting term *inflationary cost* because inflation is not measured in dollars, but in percents, for one.)

Then, by our definition of "deficitary cost", one has...

<p><center>
(spending cost) - (taxation cost) - (deficitary cost) = 0
</p></center>

...and it is important to realize that this equation embodies a "degree of freedom" in the policymaker's hands. For example, one could set the taxation cost to 0 at the cost of ("at the cost of"... lol) making the deficitary cost high, presuming a "high" spending cost.

Note that the deficitary cost is broadly linked to risks of (increased) inflation, but is not otherwise particularly evil. (At least to MMT-advised people.)

Presuming a deficit-neutral UBI, though, the taxation cost should match the spending cost.

The two nontrivial things to note that are most often overlooked by UBI detractors are:

- spending can be factored as "(UBI spending) + (non-UBI spending)", and the "(non-UBI spending)" can go *dramatically* down when UBI is instored; so the "spending cost" does not reduce to the term "UBI spending" (of "UBI per person times number of people" fame); it is that, *minus* other substantial savings (that one can even easily imagine to be greater than the UBI spending, in many cases!!)
- the total amount of government-earned taxes can be roughly factored as "(size of economy) * (tax rate)"; thus, a change in earned taxes does not actually necessitate a change in the tax rate: earned taxes can increase if "size of economy" increases, as will indeed typically occur under UBI! (because of increased demand but also because of the well-known health, mental health, educational, entrepreneurial benefits, etc) (also more generally: increase in the velocity of money + same total amount of money = larger economy)

So in conclusion: Next time you're asked how much UBI costs, wow them by explaining:

1. the existence of at least two perfectly intuitive, but distinct, possible definitions of "cost"
2. that since UBI doesn't intrinsically give us free rein to run higher deficits, "spending cost" can be more or less expected to drive "taxation cost", so it's most logical to start by taking a look at the "spending cost" of UBI, to a first approximation
3. the nontrivial nature of the "spending cost", since "spending" is the sum of two terms, one of which goes up one of which goes down when UBI is introduced [*after some real estimates to fall back on here would be highly desirable in any real-world debate*]
4. but furthermore, tax rates don't necessarily have to increase in order for the taxation cost to meet the spending cost, since the size of the entire economy is expected to increase under UBI [*here too having knowledge of some real-world estimates would be very welcome*]
5. conclude with "anyone pretending that the cost of running a UBI, as measured by a final tax rate, is reflected by a naïve 'popultation times per-capita amount' multiplication has has most likely not studied the question at all"

Ok. Boom.

(But if you want to deploy this in a debate *you need hard numbers to back yourself up in points 3 and 4*---and more likely than not, a small smörgåsbord of numbers, for different UBI amounts.)