Free Money: A Primer on Universal Basic Income

Stockton, California recently became the first U.S. city to guarantee to some of its citizens a minimum basic income. This pilot program will run for 18 months and give selected families $500 a month with no strings attached. As the latest basic income program to catch headlines, Stockton has helped fuel the conversation about whether we should institute a universal basic income (UBI) at a national level, and if so what it should look like.

Broadly speaking, a UBI system would involve paying lump sums of cash from the government to all or most citizens of a given jurisdiction. How a UBI is set up and paid for would have broader implications for how it would affect current welfare programs, who it helps, and ultimately whether it is worth implementing at all.

Simply giving everyone a check each month would go a long way to reduce administrative and bureaucratic burdens. Certainly, there would be some need for maintenance and tweaks to the system as we went along. But overall it would be much quicker and easier to administer than our current patchwork system of overlapping programs with varying requirements. For conservatives, this shrinks the size of government bureaucracy and cuts administrative costs for welfare. For liberals, this addresses many of the discrimination problems endemic to current welfare programs.

Today, our various programs tend to discriminate against those who do not have an income and against minority communities. The Earned Income Tax Credit (EITC) is no use if you do not actually earn an income. Many other programs require certification or means-testing that can be difficult to obtain for some. It is near impossible to claim disability if you cannot afford the doctor’s visit to be certified as disabled. This discrimination in favor of the working poor tends to have a multiplying effect on those who are either unemployed or otherwise unable to work.

Current welfare systems have also been built upon systems of racial and gender bias that reinforce and promote negative stereotypes. The 1996 Personal Responsibility and Work Opportunity Act (PRWORA) signed by President Clinton has been criticized for being motivated by racist stereotypes and for pushing mothers off of welfare and into oft-abusive working situations. Instituting a universal welfare system would remove some of the racial bias and would begin to reward women (and men) for the currently unpaid work that goes on in the home.

Beyond parenthood, a universal income would also incentivize more time being spent on personally and socially beneficial activities that may not always have direct easy to quantify financial benefits. At its best, a UBI would give people more free time to pursue their hobbies, aiding in their physical and psychological well-being while promoting social activities and volunteering.

Furthermore, cash advances to all households get at our very idea of humanity and decency and would help children who desperately need assistance. The U.S. is the wealthiest country in the history of the world but our child poverty rate ranks alongside Latvia and Romania. Partially, this derives from the high economic inequality in the U.S. America has a Gini Coefficient of 45.0, meaning we are even less equal than Burundi, Iran, Zimbabwe, Turkmenistan, Senegal, Laos, and some 110+ other nations.

Experiments around the world with targeted cash welfare systems have seen terrific results. In New York City, Mayor Bloomberg’s Family Rewards Program gave an average of $8,674 a year to low-income families and saw positive results on hunger and child education. In Manitoba, Canada, cash benefits as low as $64 per month to pregnant women saw advances in problems like low-birth-weight and the number of preterm babies. Even in countries with universal healthcare, the expense of getting to the doctor and possibly missing work is too high a cost for some families.

For young people, a universal basic income would help pad their finances. Some 54% of Millennial women live paycheck-to-paycheck, and nearly two-thirds of all Millennials think they will never be able to accumulate the $1 million nest egg most retirees target. Given the transience of work for young people, the ability to know they are getting some sort of financial assistance will encourage economic mobility and innovation. For older people, a UBI will assist those losing jobs to automation. This is largely what has spurred enthusiasm for UBI amongst Silicon Valley types.

Arguably, introducing a UBI will give workers more bargaining power, particularly in minimum wage jobs with worse conditions. If workers have a living wage to fall back on — even if it is not sufficient to maintain their lifestyle — then workers will no longer be able to take such advantage of those who rely on their paychecks for the utmost basics of their survival. However, Marx himself critiqued a contemporary English experiment with basic income out of fear that the new income floor could act as a ceiling. Employers may not be incentivized to pay good wages if basic sustenance is no longer an issue.

Another hope for UBI is that if applied to absolutely everyone it will lessen the stigma on those receiving government aid. This requires a slightly rosy view of classism, as many seem to condescend more on the basis of the undeserving versus deserving poor instead of merely who receives government aid. Many critics of UBI flip this argument and suggest that the rich are the undeserving ones in this system, as they do not need the money and the cost of giving them checks is not worth the benefit of reducing stigmas.

How much would it all cost?

The total gross cost of a $1,000 per month basic income program in the United States would likely be around $3.8 trillion dollars annually. This is just the annual amount of money each person receives ($12,000) and multiplying by the total population of the U.S. If this were the true cost it would make UBI a fiscally impossible idea, as that is the same size as the entire U.S. budget in 2015. However, the 3.8 trillion number misunderstands the difference between gross and net cost.

The net cost has been calculated to be some $539 billion per year. This figure takes into account net contributors and net beneficiaries of a UBI scheme. A common analogy is a room with 15 people where we want to give everyone $2 each. If we raise the required $30 gross amount in $3 increments from the 10 richest people, then we give everyone in the room $2 a piece, the net cost has only been $10, not $30. This is because each of those net contributors (the 10 rich people in this scenario) only end up actually giving a net $1 each to the poorer group. This is similar to how all universal redistribution policies, such as roads and schools, are funded in a progressive tax system.

Spending $539 billion dollars on anything is a very substantial expense. To put that in perspective, that almost equals all U.S. military spending combined, or is more than half of all Medicare and Medicaid spending. There have been many suggested ways of paying for this overhaul of welfare. Chief amongst them is levying new taxes and diverting spending away from older welfare programs. Current tax rates could be raised on estates, corporations, or individual income. Alternatively, entirely new taxes could be created such as a value-added-tax (VAT) which most countries have, or taxes on carbon and other forms of pollution.

As a means of streamlining the American welfare system, it would ideally replace the need for many other streams of government spending on the social safety net. Tax breaks, which represent more than all discretionary spending in the government’s budget, could likely be reeled in to make up much of the $539 billion needed. Additionally, mandatory spending on unemployment and social security payments could in part be re-routed towards the new universal income system.

Critics of a UBI have articulated that this amount of money may be better spent through more targeted programs. This argument is underpinned by paternalism, however well-intentioned, suggesting the net beneficiaries may not use the money correctly. This is the case made in favor of specific programs like SNAP (food stamps), but the obvious downside is that it only furthers stigmas and treats people like irresponsible children. A response to that can be found in Alaska, where Republicans sold a universal income type plan by asserting that citizens would be able to spend the money better than the government.

Alaska’s Permanent Fund distributes the state’s oil royalties to its citizens with no questions asked, and the amount typically ranges in the $1,022 to $2,072 range per person per year. This is significantly less than the dollar amounts proposed nationally, but it provides an example as to how to model a universal income plan. Other conservative-leaning proposals involve erasing most or all welfare and replacing them with a universal income. This is the less generous plan supported by Charles Murray, whose interest seems more about doing away with the welfare state than improving it.

Alternatively, we could look to 1975, when the U.S. began forms of negative income tax like the EITC that actually give money to those earning below a certain threshold. Republicans and Democrats alike have proposed expansions of the EITC, and a recent plan by Senator Sherrod Brown and Representative Ro Khanna would raise the incomes of as many as 47 million households. This would not be a universal plan per se but would address concerns of spending money needlessly on the rich.

Cory Booker, a prospective 2020 presidential candidate, has proposed a bill that would give money to children annually from their birth until they are 18 based on their family income. This plan would place the money into designated accounts managed by the Treasury Department, to be used once the child reaches mature age, on certain specified expenses like college tuition or a down payment on a house. His initial proposals predict as much as $46,215 in savings for the poorest children by the time they are 18, whereas the wealthiest of kids will only see the initial $1,000 put in at birth plus whatever interest accumulated over the ensuing 18 years.

Other Democratic hopefuls are joining in with UBI-lite plans of their own. Senator Bernie Sanders has Medicare-for-All and free public college tuition. Kamala Harris just proposed a cash-transfer system that would give as much as $3,000 per year to lower income households. The Center on Budget and Policy Priorities has calculated that Harris’ plan could lift 9 million people, a third of whom would be children, out of poverty. Improving that many lives make basic income programs worth discussing even if it does not seem politically feasible today. Though, it should be noted that polling has found the aforementioned $1,000/month plan more popular than the Affordable Care Act was when it was originally passed in 2009. With the 2020 Presidential campaign about to gear up, Democratic Primary candidates are certain to float numerous proposals for basic income programs, but which of these ideas wins out remains to be seen.

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