Have you ever thought about what you’d do if you didn’t have to work for a living?
Maybe you’d take the opportunity to start that small business you’ve always dreamed about. Maybe you’d go back to school and get a college degree or go to graduate school. Or maybe you’d keep working, but at a different job where you’d earn less and enjoy the work much more.
Some U.S. politicians, tech billionaires, and other public figures would like to help you achieve those dreams. They’re discussing a radical new type of government benefit program: giving every single American adult a payment each month with no strings attached. This plan is called universal basic income (UBI), and it’s attracting a lot of attention, both positive and negative.
What Is Universal Basic Income?
In a nutshell, universal basic income is any payment made to every person in a particular group – for example, adult U.S. citizens – without any other requirements attached. However, within this definition, there’s room for many different variations.
For example, UBI could pay a fixed amount to every individual or every household. The payments could be monthly or yearly. And, perhaps most significantly, UBI could be an add-on to existing government benefits, such as Social Security and unemployment, or a replacement for them. These details would make a vast difference in the cost of UBI and the impact it would have.
Many news stories about UBI compare it to another type of national income program, called negative income tax (NIT). NIT works like income tax in reverse: If your income is below a certain level, you receive money on tax day instead of paying it. Economist Milton Friedman proposed this idea in his 1962 book “Capitalism and Freedom.” Under his NIT plan, the less money you make, the more you receive from NIT, with people with no income at all getting the maximum benefit.
Both UBI and NIT would provide a guaranteed minimum income for all Americans. The main argument in favor of both plans is the same: They’re an effective and efficient way to fight poverty and improve people’s lives. Their biggest advantage is their simplicity. Currently, the government provides dozens of types of benefits through different programs, such as subsidized housing, home heating aid, and SNAP (food stamps). With UBI or NIT, the government simply sends one check to each person and lets them spend the money however they see fit.
The crucial difference between the two plans is who they’d benefit. UBI would make equal payments to everyone regardless of income, while NIT would only give those with the lowest incomes enough extra money to survive on. In fact, the U.S. already has a minimal form of NIT in the Earned Income Tax Credit (EITC). However, this credit isn’t available to everybody, and it doesn’t provide nearly enough income to live on.
History of Universal Basic Income
The first recorded attempt at any form of UBI or NIT began in the English village of Speenhamland in 1795. Soaring grain prices were driving poverty up in England at the time, and the parish authorities responsible for providing aid to the poor were swamped.
So local authorities took a new approach: They simply paid every man in the town enough money each week to bring his income up to a subsistence level. The amount depended on the number of people in his family and the current price of bread. This program, known as the Speenhamland system or the Berkshire Bread Act, soon spread throughout most of England and Wales. Although it succeeded in feeding the poor, policy wonks criticized it harshly.
Economist Thomas Malthus argued that the soaring population in rural areas indicated the system encouraged couples to have children before they earned enough to support them. Economist David Ricardo argued that the system would discourage work, causing food production to fall and making poverty even worse. And an 1834 commission argued that the system kept people in poverty by allowing employers to pay their workers less than a living wage, knowing that the parish would make up the difference.
These criticisms influenced later UBI and NIT proposals in the 20th century. For instance, when President Richard Nixon proposed a Family Assistance Plan in 1969 to create “a floor under incomes” for poor families, he made a point of including a work requirement so that no one could claim the plan encouraged idleness. He also began a series of experiments in different communities across the country to test the effects of NIT on the population.
Around the same time, the Canadian government was also conducting experiments with a program it called MINCOME, short for “minimum income.” In the small town of Dauphin, Manitoba, poor residents received the equivalent of about $15,000 in today’s U.S. dollars for a family of four. This payment took the place of all other welfare benefits.
Unfortunately, the initial results of U.S. NIT experiments weren’t promising, and the MINCOME experiment petered out before anyone had a chance to write a final report. However, more recent analyses of these trials suggest they had mostly positive results. A 2011 paper on MINCOME by economist Evelyn Forget concludes that in Dauphin, residents’ health improved, kids stayed in school longer, and employment remained mostly unchanged. In a 1987 summary of the U.S. experiments, Alice Munnell of the Federal Reserve Bank of Boston found that participants reduced their work hours only slightly. They did not spend significantly more on luxury goods, and they kept their kids in school longer.
UBI Experiments Around the World
In the 21st century, the concept of universal basic income has begun to attract more widespread interest. New experiments with UBI have occurred all over the world.
From 2011 through 2013, the nonprofit GiveDirectly ran a trial of cash payouts in rural Kenya. It tested both lump-sum and monthly payments of different sizes.
People who received either type of payment accumulated more assets, earned more money from other sources, and had better mental health than those who did not. Domestic violence decreased. Those who received lump sums invested in assets, such as livestock, and improved roofs; those who got monthly payments invested in nutrition.
The same organization is now running a longer-term UBI trial, started in 2016 and set to continue until 2028, in which 20,000 recipients across 197 villages will receive the equivalent of $22 per month. According to The New Yorker, these payments have already transformed at least one village, bringing better roads, improved sanitation, electricity, and new businesses.
From 2012 through 2013, the organization SEWA Bharat conducted a study of basic income in Madhya Pradesh. Researchers gave residents of one village a basic income for one year, then compared them with residents of a neighboring village who got nothing.
They found that the villagers who received a basic income used the money to invest in new livestock and home upgrades, such as modern toilets, running water, and cleaner cooking fuels that produce less indoor air pollution. They worked more, earned more, saved more money, ate better, drank less alcohol, and improved their overall health. And their children — especially girls — were more likely to stay in school. Many of these positive effects lasted five years after the cash transfers ended.
From 2017 through 2018, the government of Finland gave 2,000 randomly selected unemployed people a monthly stipend of 560 euros (about $638). They were allowed to collect this money even if they later found a job. The government then compared these people to a control group of 5,000 unemployed people who did not receive a stipend.
The preliminary results of this study show that the payments had no significant effect on employment or income, either positive or negative. However, they had a major effect on well-being. Compared with the control group, members of the test group had better health, less stress, more confidence in their future, and more trust in politicians.
The government of Ontario, Canada, conducted a trial of basic income around the same time as Finland did. More than 4,000 randomly selected low-income people in three Ontario communities received tax credits of up to $16,989 per year (about $13,000) for a single person or $24,027 per year (about $18,000) for a couple. This benefit dropped by $0.50 for every dollar they earned.
The test was supposed to run for three years, but the government cut it short after two years due to its high cost. However, a report on the trial by the Basic Income Canada Network (BICN) found that recipients spent the money in useful ways: increasing savings, paying down debt, going back to school, getting dental work done, putting money into job searches, and improving their diets. They also experienced benefits such as lower stress, better social connections, and better job performance. Unfortunately, most of these benefits disappeared once the program ended.
Two trials of UBI are just getting started in California. In 2019, the city of Stockton launched a program called the Stockton Economic Empowerment Demonstration, or SEED. It plans to provide 125 randomly selected residents with a guaranteed income of $500 per month, raised from private donations, for 18 months. An initial report on the project is due in 2020, and a live “community dashboard” will share data about the project in real time starting in fall 2019.
Meanwhile, in Oakland, tech firm Y Combinator Research is preparing to conduct a UBI test involving 1,000 randomly selected people with below-average incomes across two states. These individuals will each receive $1,000 per month for three years. The firm plans to conduct regular surveys to see how the added income affects recipients’ finances, behavior, health, and time use.
Uganda & Liberia
Other experiments involved giving people in developing countries one-time cash payments. In 2007, the groups AVSI Uganda and Innovations for Poverty Action gave 1,800 poor Ugandan women cash grants of $150 each, along with business skills training. These women doubled their earnings within a year. In another part of the country, one-time donations of about $382 to young people resulted in more job training, investment in capital, and large earnings increases.
Similarly, in 2010, researchers made unconditional $200 payments to drug addicts and criminals in Liberia. They found that the recipients worked more, earned more, and committed fewer crimes, though these improvements did not last over the long term.
UBI Proposals in America
In the wake of successful UBI experiments around the world, the concept is gaining some ground in the United States. Books on the subject have been published by both conservative political thinkers such as Charles Murray and liberals such as Democratic presidential candidate Andrew Yang. Billionaire businesspeople, including Elon Musk, Mark Zuckerberg, and Sir Richard Branson, have all suggested that the U.S. will need a UBI program in the future. And CNBC reports that Google searches on the topic have multiplied 50-fold since 2015.
Several politicians on the left, including Bernie Sanders and Alexandria Ocasio-Cortez, have expressed support for UBI as a concept. Yang has gone so far as to offer a concrete proposal for a large-scale UBI program, which he calls the “Freedom Dividend.” His plan would pay $1,000 per month to every U.S. citizen over 18, with no conditions.
There is already one UBI program in the United States. In 1982, the state of Alaska started the Alaska Permanent Fund, which gives all residents a yearly dividend from the state’s oil revenues. The amount varies from year to year, but it came to $1,600 in 2018. That’s enough to provide some help with the bills, but it’s much less ambitious than Yang’s proposal.
With nearly 80% of Americans today living paycheck to paycheck, the idea of a monthly bonus with no strings attached has new appeal. The question is whether such a program can really work in America. There are many powerful arguments to show that UBI could have strong positive impacts on society as a whole. But equally powerful arguments suggest it would be harmful, inefficient, or at the very least, impractical.
Arguments for Universal Basic Income
The basic idea behind most UBI programs is that they should pay just enough for people to survive on, but not enough for them to live comfortably. That way, people still have an incentive to work for more money. In good times, the monthly check would give them a little extra cash to spend on luxuries or save for a rainy day; in hard times, it would ensure that no one has to starve on the streets.
The concept has some clear advantages. It’s a simple way to fight poverty and far less complicated than the many programs we have in America today. It can also reduce financial stress and improve health for cash-strapped families and protect workers against the shocks of a changing economy. And some people argue that, if done right, it could even provide a boost to the economy as a whole. Here’s how.
1. It Combats Poverty
The most basic argument in favor of UBI is that it has the power to eliminate poverty in the U.S. instantly and completely. If you give everybody enough money to survive, then by definition, no one will live below a subsistence level.
UBI has certainly shown the ability to reduce poverty in other countries. The UBI programs in Kenya and India, and the cash grants in Liberia and Uganda, substantially improved people’s standards of living. The recipients ate better, had better health, and invested in new resources that helped them work and earn more. Even way back in Speenhamland, the Berkshire Bread Act drastically reduced infant mortality.
Of course, all of these UBI recipients were much worse off to start with than most Americans. In the U.S., even the poorest of the poor generally have access to indoor plumbing and free schools. However, trials have also shown that UBI and its close cousin, NIT, can improve the lives of low-income people even in wealthier nations.
- The U.S. Munnell’s paper on the NIT experiments across the U.S. showed that the recipients’ household assets grew. Their children were less likely to suffer from malnutrition and stayed in school longer. A 2016 paper from the Institute of Social and Economic Research at the University of Alaska Anchorage calculated that the dividends from the Alaska Permanent Fund, as small as they were, had a noticeable effect on state poverty rates. Without them, about 25% more people would have fallen below the poverty threshold between 2011 and 2015.
- Canada. Forget’s paper on MINCOME showed that UBI in Canada also increased the chances that teens would stay in school through grade 12. It significantly improved health as well. Recipients made fewer visits to doctors, especially for mental health, and were 8.5% less likely than nonrecipients to require a hospital stay. And BICN found that the more recent experiment in Ontario helped recipients increase their savings, decrease their debt, and improve their physical, mental, and social health.
- Finland. The recipients of the 560-euro stipend in Finland were much better off than nonrecipients -— financially, physically, and mentally. They were significantly more likely to say they were either “living comfortably” or “doing OK” financially. They were also more likely to describe their health as “good” or “very good,” and they reported lower stress levels.
2. It Reduces Red Tape
Of course, UBI isn’t the only way to provide aid to the poor. Right now, there are hundreds of benefits programs in the U.S. run by federal and state governments that provide assistance in one form or another.
But getting aid through these programs can be quite an undertaking. The mere fact that there are so many different programs makes it hard for people to find the benefits they need. On top of that, each program has strict limits on what kind of aid it can provide and who can qualify for it. These can require proof of income, age, location, family size, and employment. Many benefits aren’t available to the unemployed.
With all of these requirements, just figuring out which programs you can use, applying for them all, and collecting the money can be a job in itself. And once you manage to get your benefits, the government often places limits on how you can spend the money. For instance, the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) provides food aid to new mothers and mothers-to-be. But recipients can only use it for specific foods the government has deemed best for meeting their nutritional needs.
In these ways, our current benefits system places a high burden on recipients. This was part of Friedman’s argument in favor of his NIT scheme. As he explained in a 1968 TV interview, the current system forces applicants to jump through lots of bureaucratic hoops to receive a monthly allowance for food, another for rent, and so on. His system would help them by simply “giving them money, which is what they need.”
Red tape isn’t just inconvenient for recipients; it’s also costly. A 2012 analysis by the Center on Budget and Policy Priorities (CBPP) shows that up to 10% of all federal aid spending goes toward administrative costs. A UBI program with no requirements would mean much less paperwork, allowing nearly all the money collected to go directly to recipients.
3. It Reduces Stigma
Another problem with the current benefits system is that there’s a certain social stigma attached to taking government “handouts.” Many Americans think of people who receive government aid as lazy, dishonest, unambitious, and morally weak. However, these views generally apply only to aid that’s specifically for low-income people, such as Medicaid or SNAP, rather than aid available to anyone, such as tax breaks or Social Security.
Because of this, many people who could qualify for benefits never apply. Some feel ashamed of having to accept aid, and others worry about facing hostile treatment from aid workers who see them as unworthy.
For instance, the CBPP reports that in 2016, about 18% of Americans had incomes low enough to qualify for SNAP benefits, but only about 14% of Americans took part in the program. A 2016 study from the University of New Hampshire shows that fewer than half of all families eligible for WIC benefits receive them. And a 2004 paper in the Journal of Policy Analysis and Management found that stigma substantially reduced people’s use of both welfare and Medicaid benefits, even when their financial need was high.
Even when the stigma isn’t enough to deter people from taking benefits, it can still be harmful. For instance, psychologist Keith Payne writes in his book “The Broken Ladder: How Inequality Affects the Way We Live, Think, and Die” about the time he realized the free lunches he’d been getting at school were a benefit his classmates didn’t have. He became embarrassed about his appearance and almost stopped talking in school altogether. President Nixon made a similar point in proposing his Family Assistance Plan, saying that the current welfare system “robs recipients of dignity.”
UBI has the potential to be a form of stigma-free government aid. Because the money would go to all Americans equally, nobody could be considered inferior for needing or accepting it. However, if UBI is only an add-on to existing welfare programs, it won’t eliminate the social stigma attached to other forms of government aid.
4. It Could Reduce Inequality
In addition to reducing poverty, some argue that UBI could fight a problem that affects even more Americans: income inequality. The safety net UBI provides would make it easier for people at the low end of the income scale to make choices that help them get ahead. For example, they could pursue a college degree that would boost their future earnings instead of starting work at a young age.
In Mark Zuckerberg’s 2017 Harvard commencement address, he pointed out that he was only able to start Facebook because of the financial safety net his well-to-do family provided. If he had needed to work to help support his family instead of having time to code, or if he hadn’t had his family’s wealth to fall back on, he said, “I wouldn’t be standing here today.” He argues that a UBI program would give everyone “a cushion to try new things.”
At this time, there’s little evidence either for or against the idea that UBI can help reduce inequality. Income inequality is a large-scale problem, and most UBI experiments have been too limited in scope to have any impact on it.
The only modern UBI program to affect a large group of people is the Alaska Permanent Fund. A 2018 analysis by Zippia shows that Alaska has lower levels of income inequality than any other U.S. state. However, that isn’t conclusive evidence since it doesn’t consider Alaska’s income inequality levels before the Permanent Fund was created. If inequality in the state was already as low then as it is today, then its relatively modest UBI program had nothing to do with it.
5. It Protects & Empowers Workers
One reason so many people are talking about UBI right now is the fear of automation replacing jobs or reducing wages. In a 2016 interview with CNBC, Elon Musk argued that the U.S. would need some form of UBI in the future to support all the workers displaced by new technology. Yang also cites this concern in his Freedom Dividend proposal, claiming that “the smartest people in the world now predict that a third of all working Americans will lose their job to automation in the next 12 years.” And Sam Altman, president of Y Combinator Research, says that this was one of the inspirations behind his company’s planned UBI experiment: to smooth over the “disruption” he believes technology will bring to the economy over the next few decades.
Some experts argue that there’s little reason to believe new technology will create widespread unemployment. For instance, investor and tech pioneer Marc Andreessen points out in a 2017 Recode interview that this “recurring panic” about machines taking away people’s jobs pops up “every 25 or 50 years,” and so far, it has never happened. Some economists call this the “Luddite fallacy”: the idea that when you give jobs to machines, you automatically have fewer jobs for humans. They argue that in the long run, technological progress creates more new jobs than it destroys.
Other economists say argument this view is flawed. Investor Albert Wenger writes that even if you assume automation creates new jobs in the long term, it still puts a lot of people out of work in the short term. And even in the long run, the new jobs created by advancing technology may not pay as well as the old ones that were lost. As economist Paul Krugman notes, most of the new wealth created by the modern, high-tech economy goes to wealthier, more educated workers, while unskilled workers fall behind.
Both Wenger and Krugman conclude that UBI is the best way to help these unskilled or low-skilled workers. It could provide:
- A Safety Net. At the very least, UBI could ensure that people without jobs, or those struggling to live on minimum wage, would have enough income to survive. It could help displaced workers get by while they retrain for the jobs created by advancing technology.
- More Job Choice. Having this safety net to fall back on could free workers from jobs they hate. A worker with a grueling job or an abusive boss would be able to quit without having to worry about how they’ll survive until they find another job.
- More Bargaining Power. If workers no longer have to take any available job to survive, they have more power to bargain with employers for higher wages or better benefits. Workers could simply threaten to walk off the job if they don’t get what they want, knowing they could always rely on their UBI to sustain them. That could give workers back some of the leverage they’ve lost with the decline of labor unions.
- A Chance to Pursue Other Opportunities. UBI could give unskilled workers a chance to quit their low-paying jobs and pursue other opportunities. They could go back to school or invest more time in job hunting, as many workers in the Ontario UBI experiment did. They could also afford to take a risk on a new business venture, such as freelancing, or trade in their jobs for unpaid work, such as volunteering for a good cause or being a stay-at-home parent.
6. It Could Improve the Economy
Perhaps the most surprising argument in favor of UBI comes from a report by the left-leaning Roosevelt Institute. It used an economic model called the Levy model to project how three different UBI plans would affect the economy as a whole: paying $1,000 per month to every adult, $500 per month to every adult, or $250 per month to every child.
The report found that if the government funded any of these UBI programs by adding to the federal debt, the economy would grow dramatically as a result. The most generous program, $1,000 per month to every adult, would expand the economy by about 12.56%, or $2.5 trillion, by the year 2025. It would also add 4.6 million new jobs.
If the government paid for the UBI program by raising taxes, the benefit to the economy would be much less. In fact, according to the basic Levy model, there would be no benefit at all since tax increases would eat up the extra money people gained from UBI. However, when the authors adjusted the model to account for the change in wealth distribution — that is, the fact that UBI would put more money in the hands of lower-income people, who are more likely to spend it — they found that the economy would still see a boost, even with a tax-funded program. Under these circumstances, they predicted, the economy would grow by $515 billion and add about 1.1 million jobs.
These findings are controversial, to say the least. A Vox article about the report notes that the Levy model relies on “notably rosy assumptions” about how taxes, spending, and deficits affect the economy. For instance, it assumes that even though the economy isn’t currently in a recession, it still suffers from low consumer demand. In other words, Americans aren’t buying enough stuff. Thus, giving people — especially low-income people — more money will stimulate the economy.
However, many other economic models suggest that a UBI program funded by debt would hurt the economy, not help it. For instance, according to the Penn Wharton model commonly used by nonpartisan groups, any large increase in deficit spending would drive up interest rates, hurting American consumers and businesses.
Arguments Against Universal Basic Income
The most common argument against UBI is that it gives money to the wrong people. Liberals tend to complain that it puts extra income in the hands of millionaires who don’t need it, while conservatives are more likely to say it does harm by handing over money to drug addicts and criminals who won’t use it responsibly. But there are many other objections that are less glaring.
1. It Discourages Productive Work
Ever since the days of the Speenhamland system, critics have argued that UBI encourages laziness. If you give people money for doing nothing, they argue, they have no incentive to engage in productive work, and the economy suffers as a result.
Evidence About UBI & Work
Experiments with UBI to date don’t offer much evidence to support this viewpoint. In Kenya and India, people who received UBI earned more money, not less. In Finland, the unemployed workers who received UBI didn’t work any more than their peers who got nothing, but they didn’t work less, either.
A few experiments found that UBI recipients reduced their work hours somewhat, but mostly in ways that were helpful to society. For instance, in the Canadian MINCOME experiment, most of the decline in work hours came from women taking more time off after having a baby and from boys staying in school longer before starting full-time work. The American NIT experiments had similar results, with women cutting back their working hours much more than men.
Some economists say these findings aren’t reliable because all these UBI experiments lasted for only a limited time. A 2016 editorial in The Economist argues that with a long-term UBI, “the stigma against leaving the workforce would surely erode,” leading more and more people to quit their jobs.
The ongoing 12-year Kenya UBI study will provide some evidence about whether UBI reduces employment over the long haul. One piece of evidence that suggests it doesn’t is a 2018 paper from the National Bureau of Economic Research on the effects of the Alaska Permanent Fund. It shows that, over the past 35 years, the annual dividend from the fund has had no effect on full-time employment in Alaska, and part-time employment has actually increased slightly.
The Current Welfare System & Work
There’s another flaw in the argument that UBI would reduce employment: For some people, the current welfare system already discourages work. For example, according to the Social Security Administration, over 10 million Americans are currently on disability benefits, and another 8 million receive Supplemental Security Income (SSI). These people aren’t allowed to earn more than a certain amount of money from work, or they’ll lose their benefits — not just in part, but entirely.
According to a 2013 story from National Public Radio, many people on disability or SSI are able to do some kind of work, but their limited skills don’t qualify them for any job they can handle physically. So instead of investing in expensive job training, they go on disability and stay on it for the rest of their lives. If a UBI program took the place of SSI and disability, all of these people would be free to work as much as their conditions allow without losing their current income.
2. It Reduces Self-Worth
Altman argues that even if UBI does discourage some people from working, the economy won’t necessarily suffer as a result. Even if 90% of people use UBI to “go smoke pot and play video games,” he claims, the economy could still come out ahead if the other 10% “go create new products and services and new wealth.”
However, this argument overlooks the fact that the benefits of work aren’t strictly financial. For instance, many economists argue that work adds meaning and purpose to people’s lives in a way that collecting a UBI check can’t. It can give them a sense of accomplishment and provide them with valuable social connections and support. Others make similar arguments, including Erik Brynjolfsson of MIT in Freakonomics, Larry Summers of Harvard, Ian Goldin of Oxford, and Nobel laureate Joseph Stiglitz. The Economist’s editors believe that replacing work with UBI would drive people into “alienated idleness.”
Polls of American workers provide somewhat mixed support for this argument. According to a 2017 Gallup poll, only 30% of U.S. workers and 15% of workers worldwide say they are “engaged” at work — that is, they enjoy what they do. Clearly, people who hate their jobs don’t get much benefit from them other than a paycheck. UBI could give them the opportunity to quit their unsatisfying jobs and pursue something else they’d enjoy more.
However, a 2019 CNBC survey found entirely different results. It showed that about 85% of American workers like their jobs, and the main reason was the “meaning” the get from them. Workers also gave their jobs fairly high marks for autonomy — how much control they have over their work — and how much they feel valued by their coworkers. That indicates that most American workers do get significant mental, emotional, and social benefits from their job.
When it comes to financial benefits, however, the story doesn’t look quite as good. On average, workers in the CNBC poll gave their jobs only 13 points out of 20 for pay and 11 points out of 20 for advancement opportunities. That seems to suggest that many workers would be more satisfied with their jobs if they didn’t have to rely on them for their only source of income. UBI could make these people more likely to keep their jobs for the non-material benefits they provide, rather than quitting in search of a new job that pays more.
Also, paid work is not the only kind of work that can provide these benefits. Forget points out on Freakonomics that many of the great scientific and cultural breakthroughs of the 18th and 19th centuries were made by wealthy “gentlemen of leisure.” The fact that these people didn’t need to work for a living gave them free time to pursue other interests and make important contributions to society. In the same way, Forget argues, many Americans could likely find meaning in types of work other than a 9-to-5 job.
3. It Encourages Irresponsible Spending
Some people believe that it’s foolish to put more money into people’s hands without first making sure they will spend it responsibly. They argue that instead of putting UBI funds to productive uses, such as education or paying down debt, many people will simply waste the money on drugs, alcohol, or luxury goods.
UBI experiments to date don’t support this view. In Kenya, India, Uganda, and Liberia, the people who received cash consistently invested it in ways that improved their lives and their incomes. Spending on drugs and alcohol did not increase, and crime often decreased. Likewise, in the Nixon-era NIT experiments, families receiving extra income did not spend significantly more on luxury goods.
4. It Could Damage Families
One of the goals of Nixon’s Family Assistance Plan was to keep families together. The idea was that if a married couple could get more money from NIT than a divorced or separated mother would get from welfare, couples would have more incentive to stay together.
A 1977 study of the NIT found that it seemed to have the opposite effect. Based on the data, it appeared that the divorce rate was 40% to 60% higher for couples receiving NIT. It led Daniel Patrick Moynihan, who had been one of the strongest advocates for guaranteed income, to withdraw his support for the idea.
However, later analysis suggests that this original study was flawed. When economist Glen Cain re-crunched the numbers in a 1986 paper, he found that the actual increase in divorce rates was much lower, between 15% and 30%. And a 1990 analysis by Cain and Douglas A. Wissoker in the American Journal of Sociology concluded that the NIT did not impact divorce rates.
Other studies also contradict the idea that UBI and NIT promote divorce. For instance, according to the Basic Income Earth Network, participants in Canada’s MINCOME experiment were less likely to get divorced than non-participants. And a 2011 paper in Population Research and Policy Review found that the EITC had no impact on divorce rates.
5. It Could Reduce Wages
Supporters of UBI hope that giving everyone a basic income will reduce poverty and inequality. However, some opponents believe that UBI could actually make these problems worse.
If UBI gives workers enough money to live on, critics claim, employers will be able to get away with paying them less. It’s already happening to some extent in the gig economy, where many workers accept low wages because they have other sources of income.
However, supporters believe UBI would have the opposite effect. Since workers would have enough income to survive on, they would have much less incentive to keep a job that wasn’t worth their while. That means that non-rewarding jobs, such as cleaning public restrooms, would have to pay much more to attract workers. So far, there haven’t been any studies on a large enough scale to show which view is closer to the truth.
6. It’s Inefficient
Opponents also claim that UBI is an inefficient way to help people in need. Current social welfare programs direct aid to the people with the lowest incomes, who need it most. By contrast, UBI would give money to everyone, rich and poor alike.
If the U.S. took all the money it currently spends on aid programs and divided it up among the entire population, the poorest Americans would receive much less in aid than they do now. It would effectively be taking money from the poor and giving it to the rich and middle class. A UBI program designed this way could easily make poverty and inequality worse rather than better.
UBI could still help struggling Americans if it were an add-on to existing social programs, rather than a replacement for them. However, that would make the program much more expensive, and it wouldn’t erase the stigma associated with receiving government aid.
Alternatively, the U.S. could replace its existing programs with an even more generous UBI that would provide more income than the poorest Americans receive in benefits today. But that would be even more expensive than the first option. Instead of providing, say, $12,000 per year in UBI to everyone plus $15,000 in aid to low-income Americans only, it would need to give at least $15,000 to every single American.
7. It Could Trigger Inflation
While some opponents say UBI could depress wages, others argue the opposite: UBI will encourage more people to quit their jobs, creating a “tighter” labor market with more available jobs. That, in turn, will drive up wages, which sounds like a good thing for low-income workers.
But critics argue that rising wages, together with the influx of extra cash from UBI itself, will trigger inflation on a massive scale. Both UBI and higher wages will put more money into the hands of people farther down the income scale, who are more likely to spend it than save it. There will be much more money in circulation, and each dollar will be worth far less. The rising cost of living will leave workers no better off, or possibly even worse off, than they would have been without UBI.
There are two problems with this argument. First, one of the reasons many people are proposing UBI right now is the fear that new machines are about to replace a large number of jobs. If the number of available jobs and the number of available workers decline at the same time, the labor market will be no tighter than it was before.
Second, current inflation rates are quite low by historical standards. According to the Federal Reserve Bank of Minneapolis, inflation rates since 2009 have mostly hovered between 1.5% and 2%, never jumping higher than 3.2%. So if rising incomes drove up inflation to the levels seen in the prosperous 1980s and 1990s, it still wouldn’t be out of control.
So far, there is little evidence to either support or contradict the idea that long-term UBI will lead to inflation. The Alaska Permanent Fund has not triggered inflation in the state. In fact, a chart compiled by UBI advocate Scott Santens shows that the Consumer Price Index is rising at a slower rate in Alaska than in the U.S. as a whole. However, the yearly payout from the Permanent Fund is quite small, so it isn’t likely to move prices as much as a more generous UBI program, such as Yang’s.
8. It’s Too Expensive
The most common and compelling argument against UBI is that it’s simply too expensive. The basic income trial in Ontario was canceled early due to what the government called “an extraordinary cost for Ontario taxpayers,” and that program covered only 4,000 people. For a national program, the costs would be an even bigger hurdle. Hillary Clinton, in her memoir “What Happened,” reveals that she wanted to propose a UBI plan when she ran for president in 2016, but her team “couldn’t make the numbers work.”
A true UBI plan would cost the government trillions of dollars each year. Journalist Annie Lowrey, in her book “Give People Money,” estimates that paying a $1,000-per-month UBI to every U.S. citizen “would mean spending something like an additional $3.9 trillion a year.” Andrew Yang’s proposed Freedom Dividend, which would pay $1,000 per month to citizens over the age of 18, would cost about $3 trillion, according to two economists at the University of California Berkeley.
By comparison, the entire federal budget in 2017 came to $4 trillion. Thus, funding a UBI program entirely with income taxes would require the total amount of tax collected to increase by anywhere from 70% to 98%.
UBI supporters have proposed a variety of ways to cover all or part of this cost. Their suggestions include:
- Replacing Other Aid Programs. Since UBI would reduce the need for other forms of government aid, the government could recoup some of the cost by dropping these other programs. The Berkeley economists calculate the total cost of current government aid programs at $2.34 trillion, enough to pay for most of the Freedom Dividend. However, they also argue that a $1,000-per-month UBI wouldn’t come close to replacing the value of current benefits for senior citizens, including Social Security, Medicare, and Medicaid. Keeping those three aid programs while dropping the others would result in a savings of only $588 billion, leaving more than $2.4 trillion to be paid for with new taxes.
- Taxing the Wealthy. In his book “Fair Shot: Rethinking Inequality and How We Earn,” Facebook co-founder Chris Hughes argues that the fairest way to pay for UBI is to raise taxes on the wealthiest Americans. Hughes claims that taxing those who make over $250,000 per year could raise $290 billion, enough to pay for a modest UBI of $500 per month to low-income working adults. Yang also proposes some taxes on the wealthy to cover part of the cost of the Freedom Dividend. He would eliminate the cap on earnings currently subject to Social Security payroll tax, raise the capital gains tax, and create a new tax on financial transactions.
- Value-Added Tax. Yang proposes to fund the Freedom Dividend mainly through a new value-added tax, or VAT — a tax on all goods and services a business produces. Yang claims a VAT of 10% would raise $800 billion per year. Eric Toder of the Tax Policy Center confirms that such a VAT could raise anywhere from $500 billion to $1 trillion, depending on how broadly it was applied. However, businesses subject to the new VAT would undoubtedly pass the cost along to consumers. That would raise the cost of living for people at all income levels, reducing the benefit of the extra income UBI would provide.
- Carbon Tax. Another way Yang would help cover the cost of UBI is through a carbon tax. This is a tax on the burning of fossil fuels based on their carbon footprint. It would have the added benefit of discouraging fossil fuel use and fighting global warming. However, Yang doesn’t offer any specifics on how much money this tax could raise.
- Deficit Spending. In her book, Lowrey offers a variety of suggestions to fund UBI, including a higher top tax bracket, a VAT, a carbon tax, or a “modest wealth tax,” a tax based on net worth rather than annual income. However, she also questions “whether a UBI needs to be ‘paid for’ at all.” She argues that the government has financed lots of expensive endeavors, such as the Bush tax cuts and the wars in Afghanistan and Iraq, by adding to the federal debt, and the economy hasn’t suffered as a result. She believes that if some portion of the UBI needs to come from deficit spending, it’s no cause for concern.
Chances of Passing Universal Basic Income
UBI isn’t universally popular with Americans, but support for it is growing fast. A 2018 Gallup poll found that nearly half of Americans say they would support a program to provide a minimum income for workers who have lost their jobs to automation. According to CNBC, that number has jumped sharply from the 12% who said they would support UBI 10 years ago.
However, support for UBI isn’t uniform across the political spectrum. In the Gallup poll, 65% of Democrats expressed support for it, but 72% of Republicans were opposed. Independents were split roughly 50-50.
The same split appears among politicians. So far, the only ones who have come out in favor of UBI are far-left Democrats. Some conservatives, such as Senators Marco Rubio of Florida and Mike Lee of Utah, have argued in favor of streamlining government aid by combining many programs into one. But none of them want to make these benefits universal. Instead, they typically favor making the work requirements for aid recipients stricter than they are now.
NIT vs. UBI
Steadfast Republican opposition makes it unlikely that the U.S. will have a universal basic income plan any time in the foreseeable future. However, it could be possible for Democrats and Republicans to compromise on a negative income tax plan.
NIT has many of the same benefits as UBI, battling poverty while reducing red tape, with fewer of the drawbacks. Unlike UBI, NIT gives extra money to only the people who need it the most. It would do more to fight inequality than a UBI that gives money to everyone regardless of income.
Because NIT wouldn’t go to everyone, it might not reduce stigma as effectively as a true UBI. However, there’s less stigma attached to receiving a tax credit than to collecting a welfare check. As Lowrey notes in an interview with Slate, people are less likely to think of tax perks as “government benefits” than programs such as Temporary Aid to Needy Families (TANF) or food stamps, even if they have the same effect.
NIT would also be much cheaper than UBI. A 2015 article in the Journal of Poverty concluded that the U.S. could eliminate poverty through a negative income tax that paid $0.50 for every dollar by which a family’s earnings fell below 200% of the poverty line. A family with no earnings would receive just enough to bring it up to the poverty line. For every dollar it earned, its NIT would shrink by $0.50 until, at twice the poverty line, it received nothing.
In a Vox article about the study, the authors estimate that the government could fund such a program with $216 billion in 2007 dollars ($216.5 billion in 2019 dollars). Not only is that many times lower than the $3 trillion needed for a true UBI program, but it’s also roughly the same amount the U.S. already spends on aid programs such as the EITC, SSI, SNAP, TANF, school lunches, and subsidized housing. So, in theory, it would be possible to replace current programs with an NIT that would do more to fight poverty without adding a cent to the federal budget.
All these distinctions make NIT much more popular with the right than UBI. In the 1960s, it had the support of far-right Richard Nixon and right-leaning economist Friedman. The NIT’s potential to reduce the size of government bureaucracy, something most conservatives dislike, should give it a similar appeal for Republicans today.
Other Alternatives to UBI
NIT isn’t the only way to get some of the benefits of UBI at a lower cost. Another is a universal child benefit, an annual payment to every family in the U.S. for each child in their household. This benefit would go to every household with children, regardless of income or whether the adults in the family work. There would be no limits on how the family spends the money.
According to a 2018 report in The Russell Sage Foundation Journal of the Social Sciences, Canada and 11 European countries already offer universal child benefits, also known as child allowances or child tax credits. All of these countries have significantly lower rates of child poverty than the U.S., and data clearly shows that these benefits are part of the reason. A 2010 report from Columbia University and the London School of Economics found that when Britain introduced its child allowance in 1999, it cut child poverty rates in half within 10 years.
Many conservative politicians likely to oppose UBI would probably support child allowances based on their proven power to fight child poverty. In fact, the U.S. already has a child tax credit, albeit with income limits, and it’s popular on both sides of the aisle. According to the CBPP, the U.S. first passed this credit in 1997 and expanded it in 2001 “with bipartisan support.” When Rubio and Lee proposed another expansion in 2017, it attracted support from both Democrats and Republicans, though it ultimately didn’t make it into that year’s tax reform bill.
Another possibility is a carbon dividend. A carbon dividend is essentially a carbon tax with all the revenue returned to the citizens through an annual payment, much like the dividends from the Alaska Permanent Fund. This payment would compensate families for the added fuel costs a carbon tax could bring, and it could also become a cash benefit for low-income households.
The DC Climate Coalition has proposed a carbon dividend in the District of Columbia, and a state senator introduced a bill to enact one in California. However, so far, no state has passed one. A carbon dividend would likely be harder to sell to Republicans than a child allowance; a 2018 NBC News poll shows only 15% of Republicans consider global warming an urgent problem.
Providing a universal basic income across the entire United States would be an incredibly ambitious project. It would cost a massive amount of money by any measure, and it would face stiff opposition from across the political spectrum. Republicans would object that it discourages work, damaging the economy and depriving individuals of self-worth. Many Democrats would be concerned about the risk that it could depress wages or redistribute tax dollars away from those who can least afford it.
A less extreme plan, such as a negative income tax or universal child benefit, has a much better chance of passage. These policies could provide many of the same benefits as a universal basic income, such as reduced poverty and streamlined government bureaucracy, at a much more reasonable cost.
Now that you know the facts about universal basic income, do you support it? Why or why not?