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Universal Basic Income (UBI) – What It Is and How These Programs Work


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Being poor is a lot of work. You spend 60 hours per week at one or more jobs. You juggle bills every month to cover rent, food, child care, and health care. Sometimes, you can’t pay them all and have to make the painful choice between heating your home and feeding your kids. 

Government aid programs are supposed to help, but they only make life more complicated. It takes hours just to figure out which programs you qualify for and fill out the reams of forms to apply. And that’s just the work you do before the government pays someone else to review it. Any aid you receive is piecemeal — a voucher for Section 8, a check for heating aid, a card for food stamps. And if you ever manage to save some money, you can lose your benefits

Wouldn’t it be better if the government just sent one monthly check to spend on whatever people needed? Some folks are proposing a program to do just that. It’s called universal basic income — and for such a simple idea, it shows a lot of promise.


What Is Universal Basic Income (UBI)?

In a nutshell, universal basic income (UBI) is a regular payment made to everyone, regardless of income.


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The primary purpose of UBI is to relieve poverty. It can either supplement other social welfare programs, such as food assistance and subsidized housing, or take their place. If it replaces them, it can also reduce the bureaucracy necessary to maintain these programs.


How Universal Basic Income Works

The money for a universal basic income comes out of tax revenues. The program can rely on a progressive income tax that taxes the rich at a higher rate. Or it can draw on other types of taxes, such as estate tax or sales tax.

The government divides and distributes it. The payments from a UBI program are:

  • Universal. Payments go to every citizen, not to a specific target population.
  • Equal. Every person in the program gets an equal share of the money.
  • Individual. Payments go to individuals, not households.
  • Periodic. UBI programs make regular payments, not one-time grants.
  • Cash-Based. Paying in cash lets people use the money in any way they choose. 
  • Unconditional. No one has to meet any requirements to receive the money.

Within these limits are variations in how to run a UBI program. For instance, payments can be monthly or yearly. They can go to adults or children. The program can send a fixed amount each year or a percentage of the country’s gross domestic product.

Perhaps most significantly, UBI can be an add-on to other government benefits, such as Social Security, or a replacement for them. These details make a vast difference in both the cost and impact of universal basic income.


UBI vs. Guaranteed Income

Universal basic income, by definition, goes to everyone. That means payments go to people who don’t really need the money. A program like this is simple to run since there’s no need to determine who should receive a payout. But it’s also very costly. 

Guaranteed income is a more targeted approach to fighting poverty. It also provides regular payments with no strings attached, but only to people in need. That ensures no one can fall below a certain income level.

One form of guaranteed income is net negative income tax. It works like income tax in reverse. If your income is below a certain level, you receive money on Tax Day instead of paying it. The less money you earn, the more you get. People with no income at all receive the maximum benefit.

The U.S. experimented with guaranteed income in the late 1960s. It tested a Family Assistance Plan, which eventually evolved into the earned income tax credit we have today. However, as it works now, the credit isn’t a true guaranteed income plan. It’s not available to everybody with a low income, and it doesn’t provide nearly enough to live on.


Countries With Universal Basic Income

There are only a few countries with any sort of basic income program. Moreover, most of these are not true UBI programs. Either they target only part of the population or the amount they pay is too small to live on. 

  • Iran. Iran’s UBI program has replaced its existing subsidies on basic supplies like gasoline and bread with cash transfers equal to 29% of the median household income. According to a 2019 UNICEF report, the program has helped reduce poverty and inequality in Iran and has not reduced the labor supply. 
  • Brazil. Brazil’s Bolsa Familia program gives low-income families a cash payment based on their income. According to a Centre for Public Impact review, this program has helped significantly reduce the poverty rate and hunger. Inequality has declined as well. 
  • United States (Alaska Only). The U.S. has one very limited UBI program. The Alaska Permanent Fund gives all residents a yearly dividend from the state’s oil revenues. The payment for 2021 was $1,114. That’s not really a minimum income, but it’s enough to provide some help with the bills. And a 2016 University of Alaska study found that it kept between 15,000 and 25,000 Alaskans out of poverty each year.
  • Macau. Macau’s Wealth Partaking Scheme makes a yearly payment to every resident in the country. However, similar to Alaska, it only gives residents a fraction of the minimum monthly income per year. 

Pros & Cons of UBI

In addition to real-life UBI programs, there have been multiple experiments over the last few decades, including experiments in Kenya; Finland; Ontario and Vancouver, Canada; and Stockton, California. In Oakland, California, tech firm Open Research is working on a new trial to run for three years across two U.S. states. Thanks to those experiments, we now know quite a bit about the potential pros and cons of UBI programs

As past experiments show, universal basic income can have major benefits for the people who receive it. More than that, it can help society as a whole. Its benefits include: 

  • Cutting Poverty. In both real life and studies, UBI payments have done a good job of reducing poverty. In the short term, that means a better life for recipients. In the long run, it can also help governments spend less on aid programs. 
  • Reducing Red Tape. Because UBI goes to everyone, no one has to jump through hoops to get payments. That improves access for recipients and reduces work for the government.
  • Ending Poverty Traps. Most social welfare programs offer aid only to people below a certain income. That creates a problem called “the poverty trap.” Low-income people are reluctant to earn more because they’ll lose their benefits. UBI doesn’t have this problem.
  • Protecting Workers. UBI would provide a safety net for workers who lose their jobs. It would help workers leave jobs they hate or bargain with employers for better wages and benefits. They’d also have more freedom to go back to school, stay home with children, or care for a family member.
  • Spurring Entrepreneurship. Having UBI to fall back on would help people who want to start a business

Despite these benefits, UBI hasn’t caught on widely. The primary reason is its high cost. A program that provided $1,000 per month to every adult American citizen would cost over $3 trillion per year. That’s more than half the entire federal budget for 2022.

The government could offset some of this cost by canceling other social welfare programs. However, eliminating them all would still leave many Americans in poverty. They’d get $12,000 per year from UBI, but the U.S. poverty threshold for a single person is over $13,000.

Moreover, while UBI can fight poverty, it’s a costly and inefficient way to do so. Much of the money ends up going to people who don’t really need it. Spending the same amount on payments targeted specifically those with a low-income would cost much less.

Opponents of UBI have also argued that unconditional payments would discourage work or promote reckless spending. However, UBI experiments to date do not support this claim. 


UBI in the United States

In recent years, several political and business leaders in the U.S. have endorsed the idea of universal basic income. In 2020, presidential candidate Andrew Yang proposed a Freedom Dividend of $1,000 per month. He also published a book on the need for UBI in 2018.

Labor leader Andy Stern and Facebook co-founder Chris Hughes have also written books on this topic. Billionaires Elon Musk and Richard Branson have suggested that the U.S. will need some sort of basic income program in the future to replace earnings from jobs lost to automation. Even former President Barack Obama gave a nod to the concept in a 2018 speech.

However, among ordinary Americans, UBI isn’t universally popular. Polls by Gallup in 2019 and Pew Research in 2020 both found that less than half of Americans support this policy. Older Americans and Republicans are particularly likely to oppose it.

This opposition makes it unlikely the U.S. will see a UBI program enacted anytime soon. However, there might be a better chance of getting Democrats and Republicans to agree on a different basic income plan, such as a net negative income tax.

It has many of the same benefits as UBI. It battles poverty, reduces red tape, and eliminates poverty traps. But because it gives cash only to those who need it most, it would cost much less.

A 2015 paper published in the Journal of Poverty (via Vox) explains how the U.S. could eliminate poverty through a net negative income tax plan. The cost would be about $219 billion in 2007 dollars (about $309 billion in 2022 dollars). That’s many times lower than the $3 trillion needed for a true UBI program.

In theory, this program could even pay for itself. The Center on Budget and Policy Priorities calculates that the U.S. currently spends around $360 billion per year on its social safety net, including the earned income tax credit, the child tax credit, Supplemental Security Income, SNAP, school lunches, and housing aid. Replacing these welfare programs with a net negative income tax plan could do more to fight poverty while actually saving the government money. 

This plan is more likely to appeal to Republicans than UBI. Besides combating poverty, it reduces the size of government bureaucracy, something most conservatives dislike. The earned income tax credit, which is basically a modest net negative income tax, already enjoys broad support from the right as well as the left.


Final Word

Americans don’t all agree on universal basic income. Supporters say it’s a valuable tool for fighting poverty and could reduce income inequality. Some even argue that it’s the only way to protect millions of workers who will lose their jobs to automation.

But opponents say giving people free money discourages productive work and lowers their sense of self-worth. They also think it’s a waste to give money to both poor people and rich people who don’t really need it. And most of all, it’s just too costly.

It’s still unclear whether UBI could work in the U.S. Any program to give Americans a guaranteed income would undoubtedly face numerous hurdles, both practical and political. However, given the successes UBI has had in the past and in modern experiments, it’s certainly worth debating.

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Amy Livingston is a freelance writer who can actually answer yes to the question, "And from that you make a living?" She has written about personal finance and shopping strategies for a variety of publications, including ConsumerSearch.com, ShopSmart.com, and the Dollar Stretcher newsletter. She also maintains a personal blog, Ecofrugal Living, on ways to save money and live green at the same time.

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