Have you ever wished you could afford to quit your job? 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.
Public figures like American politicians and tech billionaires would like to help you achieve those dreams. They’re discussing a radical new type of government benefit program called universal basic income (UBI), which would give every single American adult a payment each month with no strings attached. But can it really work in the United States?
UBI Proposals in America
The idea behind universal basic income is simple. The government sends a payment to everyone in a given group — for instance, every American adult — with no strings attached. These payments can take the place of existing government benefits, such as Social Security, or be an add-on to them.
An idea closely related to universal basic income is negative income tax, or NIT. This plan creates a set of new tax brackets for people with incomes below a certain level. Instead of paying taxes, people in these brackets get money back from the government.
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 to live on.
In the United States, UBI and NIT have attracted attention across the political spectrum. Both conservative political thinkers like Charles Murray and liberals like 2020 Democratic presidential candidate Andrew Yang have published books on the subject.
In recent years, interest in this idea has surged across many parts of society. For example:
- According to CNBC’s Make It, Google searches on the topic multiplied 50-fold between 2015 and 2019.
- During his 2020 presidential campaign, Yang proposed a large-scale UBI program called the Freedom Dividend, which would pay $1,000 per month to every U.S. citizen over 18.
- Billionaire businesspeople, including Elon Musk, Mark Zuckerberg, and Richard Branson, have suggested the U.S. will need a basic income program in the future.
- Several politicians on the left, including Bernie Sanders and Alexandria Ocasio-Cortez, have expressed support for UBI as a concept.
- In December 2020, Business Insider reported that then-President-elect Joe Biden had spoken with Yang’s nonprofit, Humanity Forward, about the possibility of making regular cash transfers to all Americans as part of a coronavirus relief program.
There’s already one UBI program in the U.S., but it’s a very limited one. In 1982, Alaska started the Alaska Permanent Fund, which gives all residents a yearly dividend from the state’s oil revenues. In 2020, this payment came to $992. That’s enough to provide some help with the bills, but it’s not really a minimum income.
With nearly 80% of Americans today living paycheck to paycheck, the idea of a free monthly bonus has new appeal. The question is whether such a program can really work in America. There are many reasons UBI could have substantial positive impacts on society as a whole. But equally powerful arguments suggest it would be harmful, inefficient, or at 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 live comfortably. That way, people still have an incentive to work for more money. In good times, the monthly check gives them a little extra cash to spend on luxuries or save for a rainy day. In hard times, it ensures no one has to starve on the streets.
According to proponents, the concept has some clear advantages. It’s a simple way to fight poverty — far less complicated than the vast array of social programs we have in America today. It can also reduce financial stress and improve health for cash-strapped families.
On top of that, UBI can protect workers against the shocks of a changing economy. Some people argue that it could even provide a boost to the economy as a whole if done right. And there’s plenty of evidence to back these ideas up.
1. It Combats Poverty
The most basic argument in favor of universal basic income 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 undoubtedly shown the ability to reduce poverty in other countries. The very first basic income program, the Berkshire Bread Act of 1795, drastically reduced infant mortality among the poor in rural England.
More recently, trial programs around the world — including one by the nonprofit GiveDirectly in rural Kenya, one by SEWA Bharat in India, and one by Innovations for Poverty Action in Uganda — have found that cash payments greatly improved people’s standards of living. Recipients ate better, had better health, and invested in new resources that helped them work and earn more.
Of course, all these UBI recipients were much worse off to start 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.
- Nixon-Era U.S. In the late 1960s and early 1970s, the Nixon administration conducted NIT trials in communities across the U.S. Although initial results looked disappointing, an analysis of the program years later found that it actually helped recipients a lot. Their household assets grew, and their children were better nourished and stayed in school longer.
- Present-Day U.S. A 2016 paper from the Institute of Social and Economic Research at the University of Alaska Anchorage calculated that the small dividends from the Alaska Permanent Fund had a real impact on state poverty rates. Without them, about 25% more people would have fallen below the poverty threshold between 2011 and 2015.
- 1970s Canada. In the 1970s, Canada conducted a pilot program called Mincome (a portmanteau of “minimum income”) in Manitoba. In a 2011 paper published in the journal Canadian Public Policy, economist Evelyn Forget found that the program improved participants’ physical and mental health and increased the chances teens would stay in school through grade 12.
- Present-Day Canada. From 2017 through 2018, the province of Ontario conducted a basic income trial in three towns. An analysis of the experiment by the Basic Income Canada Network showed that recipients increased their savings, decreased their debt, and improved their physical, mental, and social health.
- Finland. Around the same time, a trial in Finland awarded a monthly stipend of 560 euros (about US$638) to 2,000 randomly selected unemployed people. The results of the study show that the recipients were much better off than nonrecipients — financially, physically, and mentally.
2. It Reduces Red Tape
Of course, UBI isn’t the only way to provide aid to the poor. Right now, the U.S. has hundreds of benefits programs run by the federal government and state governments. These include subsidized housing programs, home heating aid, health care programs like Medicaid, and the Supplemental Nutrition Assistance Program (SNAP, the new name for food stamps).
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 eligibility limits. They can require proof of income, age, location, family size, and employment. Many benefits are unavailable to the unemployed.
With all 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, or 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. Economist Milton Friedman made this point in a 1968 TV interview. As he put it, the current system forces applicants to jump through lots of bureaucratic hoops to receive lots of different benefits. By contrast, an NIT plan 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 low-income people who receive benefits like SNAP as lazy, dishonest, or morally weak. However, these views generally don’t apply only to aid that’s available to everyone, such as tax breaks or Social Security.
Because of that, 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 qualified 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 published 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” 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.
President Richard Nixon made a similar point in proposing a guaranteed income plan, known as the Family Assistance Plan, in 1969. In his words, the current welfare system “robs recipients of dignity.”
Universal basic income 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.
One way around this would be to craft a program that provides income only to people below certain income limits. That could be done through NIT or by phasing out payments for high earners. However, it wouldn’t be a truly universal basic income program, so it might not eliminate stigma completely.
4. It Could Reduce Inequality
In addition to reducing poverty, some argue that universal basic income could fight 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 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 instead of having time to code, he said, he “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 impact it.
The only modern UBI program to affect a large group of people is the Alaska Permanent Fund. A 2018 analysis by career information and job search site Zippia shows that Alaska has lower levels of income inequality than any other U.S. state. Moreover, according to calculations from Bloomberg CityLab, Alaska is one of only four U.S. states where inequality has not risen by at least 10% since 1979.
5. It Protects & Empowers Workers
One reason so many people are talking about universal basic income right now is the fear of automation replacing jobs or reducing wages.
In a 2016 interview with CNBC Make It, 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 cites this concern in his Freedom Dividend proposal, referencing predictions that “a third of all working Americans will lose their job to automation in the next 12 years.” And Sam Altman, president of the venture capital company Y Combinator, funded a UBI experiment to see if it could smooth over the disruption he believes technology will bring to the economy over the next few decades.
Some experts argue there’s little reason to believe new technology will create widespread unemployment. For instance, investor and tech pioneer Marc Andreessen told Recode in 2017 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” or “lump of labor fallacy”: the erroneous idea that there are only so many jobs to go around, and 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 this view is flawed. Investor Albert Wenger writes that even if you assume automation creates new jobs in the long term, it still puts many 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. As economist Paul Krugman notes in his New York Times column, 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. With more economic security, 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 job to survive, they have more power to bargain with employers for higher wages or better benefits. If they don’t get what they want, they could simply walk off the job and live on their UBI. 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 universal basic income appears in a 2017 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 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 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. 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 wasn’t in a recession in 2017, it still suffered from low consumer demand. In other words, Americans weren’t buying enough stuff. Thus, giving people — especially low-income people — more money would 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 significant increase in deficit spending would drive up interest rates, hurting American consumers and businesses.
Arguments Against Universal Basic Income
The most common argument against universal basic income is that it gives money to the wrong people. Liberals say it puts extra income in the hands of millionaires who don’t need it. By contrast, conservatives say that it hands money to drug addicts and criminals who won’t use it responsibly. But there are many other less glaring objections.
1. It Discourages Productive Work
Ever since the days of the Berkshire Bread Act, critics have argued that a guaranteed income 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. But the evidence doesn’t seem to support that fear.
Evidence About UBI & Work
Experiments with universal basic income 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 significantly more than their peers who got nothing, but they certainly didn’t work less.
A few experiments found that UBI recipients reduced their work hours somewhat, but mostly in ways that helped society. For instance, in the Mincome experiment, most of the decline in work hours came from people taking more time off after having a baby and from boys staying in school longer before starting work. The American NIT experiments had similar results.
Some economists say these findings aren’t reliable because all these UBI experiments lasted only a limited time. A 2016 Economist editorial 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.
A longer-term UBI study that GiveDirectly is currently running in Kenya will provide some evidence about whether UBI reduces employment over the long haul. However, there’s already one piece of evidence that suggests it doesn’t.
In 2018, the National Bureau of Economic Research published a paper on the Alaska Permanent Fund’s effects. It found that over the past 35 years, the fund’s annual dividend has had no effect on full-time employment in Alaska. Part-time employment has actually increased slightly.
The Current Welfare System & Work
There’s another flaw in the argument that universal basic income would reduce employment: For some people, the current welfare system already discourages work.
For example, according to the Social Security Administration, close to 10 million Americans are currently on disability benefits. About 8 million more receive Supplemental Security Income (SSI). These people aren’t allowed to earn more than a certain amount of money from work, or they lose their benefits — not just in part, but entirely.
According to a 2013 story from NPR, many people on disability or SSI can do some kind of work. However, 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 these people would be free to work as much as their conditions allow without losing their current income. Rather than discouraging work, UBI would be the thing that makes it possible.
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.
For instance, work can give people a sense of accomplishment. It also provides them with valuable social connections and support. Economists who make this case include Erik Brynjolfsson of MIT in a Freakonomics interview, Lawrence Summers of Harvard, and Nobel laureate Joseph Stiglitz in a CNBC Make It interview.
The Economist’s editors believe that replacing work with UBI would drive people into “alienated idleness.” If people no longer need to work to survive, they will leave the workforce and lose the sense of purpose that a job provides. Although this has not happened in UBI experiments such as Mincome, the editors claim people would drift away from paid work over the long term.
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 feel “engaged” at work. Clearly, people who hate their jobs don’t get much benefit from them beyond the paycheck. UBI could allow them to 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” they get from them. Workers also said they feel in control at work and valued by their co-workers. That indicates that most American workers get significant mental, emotional, and social benefits from their job.
But when it comes to financial benefits, 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 nonmaterial 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. Economist Forget points out in Freakonomics that wealthy “gentlemen of leisure” made many of the great scientific and cultural breakthroughs of the 18th and 19th centuries. 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.
But UBI experiments to date don’t support this view. In Kenya, India, and Uganda, the people who received cash 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 negative income tax than a divorced or separated mother would get from welfare, couples would have more incentive to stay together.
A 1977 study of the NIT program 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. This finding led Sen. 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 the 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 published in the American Journal of Sociology concluded that the NIT did not impact divorce rates at all.
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 nonparticipants. And a 2011 paper published in Population Research and Policy Review found that the EITC had no impact on divorce rates.
5. It Could Reduce Wages
Supporters of universal basic income hope that giving everyone a minimum income will reduce poverty and inequality. However, some opponents believe that UBI could actually make these problems worse.
Critics claim that if UBI gives workers enough money to live on, employers will be able to get away with paying them less than a living wage. 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, proponents 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 unrewarding 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. However, even if there is a risk that UBI could depress wages, the government could counter this effect by raising the minimum wage.
6. It’s Inefficient
Opponents also claim that universal basic income is an inefficient way to help people in need. Current social welfare programs direct aid to the people with the lowest incomes, those who need it most. By contrast, a true UBI program (one that is really universal with no income limits) 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 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 pay more than the poorest Americans receive in benefits today. But that would cost even more 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 everyone at least $15,000.
7. It Could Trigger Inflation
While some opponents say universal basic income could depress wages, others argue the opposite. They say UBI will encourage more people to quit their jobs, creating a “tighter” labor market with more available jobs, which would drive up wages.
That sounds like a good thing for low-income workers, but there’s a catch. Critics argue that rising wages and the influx of extra cash from UBI 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.
As a result, there will be much more money in circulation. Each dollar will be worth far less, and the cost of living will skyrocket. As a result, workers will end up 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 simultaneously, 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 2.5%, 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 Permanent Fund’s yearly payout 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 government canceled the basic income trial in Ontario early due to what it 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. In her memoir “What Happened,” Hillary Clinton reveals that she wanted to propose a UBI plan when she ran for president in 2016. However, her team just “couldn’t make the numbers work.”
A true universal basic income plan would cost the government trillions of dollars each year. In her book “Give People Money” (excerpted on Medium), journalist Annie Lowrey estimates that a $1,000-per-month UBI would cost roughly $3.9 trillion per year. Two economists at the University of California Berkeley say Yang’s Freedom Dividend would cost about $3 trillion.
By comparison, the entire federal budget in 2019 came to $4.4 trillion. Thus, funding a UBI program entirely with income taxes would require the total amount of tax collected to increase by anywhere from 68% to 88%.
As Lowrey points out, that isn’t impossible. It would simply “bring the United States’ tax burden in line with that of the European social democracies.” But it certainly wouldn’t be an easy plan to sell to taxpayers.
UBI proponents have proposed a variety of ways to cover all or part of this cost.
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 proposed some taxes on the wealthy to cover part of the cost of the Freedom Dividend. These included removing the cap on earnings currently subject to Social Security payroll tax, raising the capital gains tax, and creating a new tax on financial transactions.
Yang proposed to fund the Freedom Dividend primarily through a new value-added tax, or VAT, a tax on all goods and services a business produces. Yang claimed a VAT of 10% would raise $800 billion per year.
Speaking with CNBC Make It, 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 would undoubtedly pass the cost of VAT on to consumers. That would raise the cost of living, reducing the benefit of the extra income UBI would provide.
Another idea Yang suggested to help cover the cost of UBI is a carbon tax, 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 hasn’t offered any specifics on how much money this tax could raise.
In her book, Lowrey offers various 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.”
Lowrey argues that the government has financed lots of expensive endeavors by adding to the federal debt, and the economy hasn’t suffered as a result. Examples include the Bush tax cuts and the wars in Afghanistan and Iraq. Thus, 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
Universal basic income 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 providing 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 extremely liberal Democrats. Some conservatives, such as Sens. 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 wants 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 the U.S. will have a universal basic income plan 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 truly universal basic income, which would go to everyone regardless of their other 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.
For one thing, tax credits are largely invisible. You can’t tell who is collecting them without looking at their tax returns. Also, 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 published 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.
Under this plan, a family with no earnings would receive just enough to bring it up to the poverty line. For every dollar earned, the family’s NIT would shrink by $0.50. At twice the poverty line, it would receive nothing.
In a Vox article about the study, the authors estimate that the government could fund such a program with $219 billion in 2007 dollars (about $273 billion in 2020 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 like the EITC, SSI, SNAP, TANF, school lunches, and subsidized housing. So in theory, it would be possible to replace these welfare 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 the highly conservative Nixon and the 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.
In fact, as Lowrey notes in her Slate interview, Republicans have already shown support for one NIT program. The EITC, which is basically a modest NIT, enjoys broad support from the right as well as the left.
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.
Canada and 11 European countries already offer universal child benefits. All these countries have much lower rates of child poverty than the U.S., and these benefits are clearly part of the reason. A 2010 report published by the Foundation for Child Development found that when Britain created its child allowance in 1999, it cut child poverty rates by more than 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 sides of the aisle, but it didn’t make it into that year’s tax reform bill. However, a temporary expansion to the credit made it through Congress in 2021 as part of the second coronavirus relief package. Sen. Cory Booker and other Democrats are now working to make this expansion permanent.
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 Alaska Permanent Fund’s dividends. 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.
Carbon dividend bills in Congress have included the Energy Innovation and Carbon Dividend Act in the House and the Climate Action Rebate Act in the Senate. However, so far, none of these bills has made it out of committee.
A carbon dividend would likely be harder to sell to Republicans than a child allowance. According to a 2020 Pew poll, only 30% 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.
Many 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.