There are many “big ideas” being floated to address some of our most pressing problems. One of the ideas that is promoted by political candidates and tech billionaires alike is “universal basic income”. What exactly is universal basic income, and might it really be an idea worth pursuing?
Broadly speaking, universal basic income (UBI) is a government program that guarantees a certain amount of money to every citizen within a given group, with the recipients not being required to pass any test, demonstrate any need or fulfill a work requirement. The income is completely “no strings attached”. While UBI deepens the involvement of government in all citizens’ lives, it is not “socialism”, which is government ownership of the means of production. The concept of UBI has been around since the Renaissance, was revived in the industrial revolution and has had the support of influential leaders from Martin Luther King to Milton Friedman. The growing level of income inequality and the specter of jobs being displaced by new technologies have united progressive candidates and tech giants.
UBI may have plenty of benefits, although it is probably not the panacea its backers proclaim it to be. Some of its major advantages include:
• The “poverty trap”, in which recipients of benefits lose those benefits if they earn too much from working, would be greatly diminished.
• Workers would have more flexibility in finding jobs which fit their skills or could make other choices such as returning to school or caring for a relative without sacrificing income.
• Bureaucracy would be reduced as many existing programs could be eliminated or shrunk and replaced by the simplicity of UBI.
• A base level of income could encourage entrepreneurship and ease the burden of starting a family for young couples by supporting stay-at-home parents.
• The elimination of financial stress could improve both mental and physical health, provide the mobility for people to get out of abusive relationships and reduce domestic violence, child abuse and other sources of conflict.
• The income would make its way through the economy, spurring economic growth and offsetting the cost of the program.
• Recipients in high cost-of-living areas could relocate to areas where the same income goes farther.
• Most of all, UBI is easy to understand and is fair and universal.
Of course, there are also disadvantages, although these are often dismissed by supporters.
• The level of income provided by UBI would not be enough to support a decent standard of living, so other programs may still be needed.
• Recipients would not have as much of an incentive to work hard, improve their skills and reduce the already low labor force participation rate.
• The injection of funds into the economy could spur inflation, reducing the value of the income. Or the opposite could happen, and the economy would not see that much growth generated because the “multiplier effect” of this income would not be as great as private investment.
• Recipients of UBI may not spend it responsibly, so many of our social problems are not eliminated, just reduced, leaving the difficult decision of how then to deal with them.
• UBI would be a huge shift in the ideals of self-reliance and offering a hand up, rather than a handout, to those in need.
• The cost would be prohibitive. A monthly UBI of $1,000 would total around $2.5 trillion annually and even with savings of $1 trillion in current programs the net $1.5 trillion would be added to spending and equates to over 7% of our GDP.
Andrew Yang, philanthropist and current Democratic presidential candidate, offers his proposal on how to pay for UBI. In addition to the savings from streamlining current programs and reducing incarceration, emergency room care and homelessness, Yang would add a value-added tax (VAT) of 10% on all goods and services a business produces. He would raise the balance through higher taxes on high earners, adding a financial transactions tax and using part of a fee on carbon emissions for UBI. Other proponents rely more heavily on the economic and social benefits of UBI and are less precise on exactly how to pay for it, or even whether to pay for it, perhaps increasing the federal deficit.
A “guaranteed income floor” passed the House of Representatives in 1969 but stalled in the Senate because Democrats wanted a higher floor. The earned income tax credit (EITC), enacted in 1975, is a refundable tax credit (meaning the taxpayer receives money from filing taxes rather than simply eliminating his taxes owed) and is intended to boost the income of low-wage workers and especially families with children. For tax year 2019, the maximum EITC ranges from $529 for a single person to as much as $6,557 for a couple with three or more children (and that family can have employment income of around $55,000.) EITC is the third largest social welfare program in the US (after Medicaid and food stamps) and provided payments to 27 million households in in 2010.
There have been a number of pilot UBI programs in the US and around the world, with mixed results, although to be fair it is difficult to really experience the full benefits and shortcomings of UBI in a small test. Each resident of Alaska has received an annual payment from oil revenues since 1982 (ranging from $331 to $2,072) and around ¾ of recipients save the payment for emergencies. Canada is experimenting with 4,000 Ontario residents living in poverty, paying $17,000 CAD annually for an individual and $24,000 CAD for a couple, but recipients can only keep half of the income from any jobs. Finland began a two-year experiment in 2017 with 2,000 people, paying them 560 euros a month even if they found work. Recipients reported that the payments reduced stress and gave them more incentive to find a good job or start a business, but an expansion of the program was scrapped and the government is exploring other social welfare programs instead.
The simplicity and broad potential benefits of universal basic income mean the debate won’t be going away, but until there is more definitive evidence of UBI’s actual performance, strong skepticism will also remain.