The complexities of a universal basic income – Knowable Magazine

Posted: April 9, 2020 at 6:07 pm

Universal basic income was for a long time an obscure term bandied about in economics circles. Thats no longer the case. The idea, usually involving a monthly cash grant to every person with no strings attached, has entered mainstream discourse.

Former US presidential candidate Andrew Yang made it a main plank of his campaign. Occupy Wall Street activists called for it in their social movement. Some economists and policymakers amid concerns about job insecurity in an age of rapid automation and the widening income gap between rich and poor are seeking big solutions. And the idea has reemerged with the current Covid-19 pandemic that has wiped out the income of many workers practically overnight.

CREDIT: JAMES PROVOST (CC BY-ND)

University of California, Berkeley

Many political leaders support at least expanding current income-assistance programs a much-talked-about idea in the lead-up to the recent Democratic presidential primaries. These existing programs focus on specific groups: people who are underemployed, disadvantaged or have a low income, including those who are elderly, disabled or have children. But a universal basic income would go further. It would remove all conditions on the payments, giving a measure of security without the stigma sometimes associated with current programs.

Writing in the Annual Review of Economics, economists Hilary Hoynes and Jesse Rothstein of the University of California, Berkeley, examine how a universal basic income would play out in the United States, as well as in some other countries, if it were implemented on a national scale. They based their analysis on limited programs with universal basic income attributes, such as the Alaska Permanent Fund and the Eastern Cherokee Native American tribes program, as well as more limited welfare programs already in place in the US.

Hoynes spoke with Knowable Magazine about the challenges and likely impacts, and prospects for more targeted income-assistance programs. This conversation has been edited for length and clarity.

How did you get into research involving a universal basic income?

For most of my career, Ive been studying how government policies and the social safety net affect the economic well-being of low-income families with children in the United States. Ive done a lot of work on cash welfare programs, the Earned Income Tax Credit (EITC), food stamps and other nutrition programs.

How would you define the most common form of universal income (UBI)?

I think the best way is to think about universal, basic and income.

Universal means that everybodys eligible, regardless of needs. Most of our social safety net is conditioned in some way. You wont get food stamps if your income is above 150 percent of the poverty line. You need to have earnings to benefit from the Earned Income Tax Credit. But with the UBI, everyone would get it: Bill Gates, Mark Zuckerberg, single mothers working as cashiers.

Basic implies the benefit is large enough to create some substantial amount of protection. So, for example, we wouldnt consider the Alaska Permanent Fund to be basic income, because its not that large.

And income means its cash rather than some other form of benefit. Loosely, people are using UBI to talk about cash benefits that arent conditioned on work.

I dont think there are any examples of programs that are truly universal and basic income in the United States.

Finlands basic income trial was targeted at unemployed workers, so was not universal. And Kenyas could be universal and basic but is still in the pilot phase, so is not available everywhere. Taking a UBI to scale and making it truly universal requires confronting the costs of a truly universal basic income.

Supporters of former US presidential candidate Andrew Yang march in San Francisco on October 27, 2019. A universal basic income was central to Yangs campaign.

CREDIT: AMARIS WOO PHOTOGRAPHY

What are the main goals of UBI programs?

There are two different groups of people talking about UBI. The first one is people who recognize that our current level of government assistance is inadequate for improving the lives of the most disadvantaged in the US. Weve got stagnating incomes and declining wages for low-skilled workers and increasing costs in many dimensions, and folks are not able to keep up with that. Theres the perspective that we need to do more.

The second group includes more conservative, policy-interested individuals who dont like the patchwork nature of our current social safety net. They think its inefficient and creates disincentives to work that wed be in better shape if we could toss it all away and replace it with something simpler. There are really profound consequences of that idea, thinking about UBI as a replacement of our current system versus a supplement to it.

Critics claim that UBIs create free-riders or people who spend the money on things like alcohol and cigarettes rather than groceries or paying bills. Is there truth to that?

What we know about income assistance in general is that people spend the income in a similar way to how they spend other income they have. The vast majority of it is spent on the big-ticket items for households: housing, transportation, food, clothing and things of that sort.

The available research shows that a UBI leads to no change in work, or at most a very modest reduction in labor supply.

What do you think of UBI pilot programs or proposals, such as in Chicago or Stockton, California?

There are several programs going on, and theyre being touted as UBI pilots, but theyre really not. In Stockton, theyre income-conditioned. Its not like everyone in Stockton is getting this benefit, rich and poor alike. In Chicago, the pilot will be tested on 1,000 low-income residents. Theyre not truly universal.

But an important aspect of these pilot programs is that even if your income goes up, the amount of benefit doesnt change. So there is that insurance aspect of knowing its there, which could be important.

Many universal basic income pilot programs are being tested before implementation on a wider scale, and many proposals have been put forward, including by political scientist Charles Murray of the American Enterprise Institute, a conservative think tank, and Andy Stern, former president of the Service Employees International Union. The Swiss proposal is based on suggestions from supporters of a national referendum and apply to a family with two adults and one child. The figures in the Ontario, Canada, pilot are for a couple. The Y Combinator study is an experiment, by the nonprofit research arm of a Silicon Valley incubator, involving a few dozen families.

People argue that we should make these programs universal because it creates a sort of shared experience, which means that public support for the program is broader and doesnt marginalize those who are receiving the benefit, the way it could for food stamps. But to study that, you need to have a program thats universal, and none of these pilots are that way.

Lets talk about the Alaskan and Eastern Cherokee programs. Both are universal but the amounts have been modest: about $1,000 to 2,000 annually for Alaskans and usually about $4,000, paid through revenue from casinos, for adult tribe members. Is there evidence that they can reduce poverty or economic inequality?

It is very clear that providing more income to low-income people reduces poverty and reduces inequality. Its not rocket science that when you give people income, their income goes up.

But in a truly universal basic income setting, the vast majority of those resources would not go to reducing poverty; they would go to supplementing an income for those who already have adequate income. So really, the issue comes down to whether UBI is the right tool. It comes down to whether the gains from universality having everybody in the system outweigh the costs associated with having to pay out to everybody in the system.

A UBI program of, say, $1,000 per month per person in America would cost more than the entire social safety net that we have right now, including Medicare, Medicaid, Social Security and all the rest. People have talked about looking at other income sources to finance a UBI, like carbon taxes, financial-sector taxes and things of that sort. But this is a tremendously expensive program.

What do you think of alternatives to UBIs? For example, a negative income tax, in which poorer peoples incomes are supplemented up to a minimum level, or a universal job guarantee, which would provide jobs at non-poverty wages for all workers who want one?

The negative income tax is basically the way most social safety nets are structured. You essentially have some set benefit level that the government provides, that might vary depending on how large your family or household is. And then, as your income increases, the amount of the benefit you get decreases at some rate. The negative income tax is kind of like a UBI that isnt truly universal. The devil is in the details: How high should the payment be, and at what rate is it phased out?

I think, a few years ago, when this conversation started, there were these two different policy ideas. One was the federal jobs guarantee and others were saying we should expand income assistance. The federal jobs guarantee has sort of faded, perhaps partly for political reasons. I think it has to do with labeling a program like that as a big government program.

Safety-net programs like the Earned Income Tax Credit are hidden in the tax code in the same way that tax breaks for corporations are hidden in the tax code. Its profoundly important that something about the hidden nature of these programs creates a broader appeal, against a backdrop of many Americans not trusting government in some way.

Would you say that programs like the Earned Income Tax Credit and food stamps are ineffective or insufficient?

I just served on a National Academy of Sciences panel that produced a report on child poverty in America last year. If you look at that, you see that the top two programs that reduce child poverty in America are the Earned Income Tax Credit and food stamps.

These are extremely effective programs. And theyre income-targeted. We have a set amount of resources targeted at the most needy, at poverty or a bit above poverty. The challenge is, despite them, we have very high rates of poverty in America compared to other countries.

And so the question is, do we need to do more? The answer is yes. The next question is, is UBI the solution to the problem? And I think the answer to that is no.

The Earned Income Tax Credit and food stamps could be expanded. While the tax credit is very generous for families with children, it provides almost nothing for families without children. SNAP [the Supplemental Nutrition Assistance Program] is adequate for families with children but puts a lot of restrictions on those who dont have children, particularly those who arent elderly or disabled. Those programs work very well, but we should make them available to all who are income-eligible.

This chart shows how much the child poverty rate in the US (13 percent) would increase in the absence of each assistance program already in place. The projections indicate that the Earned Income Tax Credit, the Child Tax Credit and SNAP (food stamps) are individual programs that have the biggest impacts in reducing child poverty.

Would you say that expanding the tax credit and SNAP would be more effective than a UBI?

I think what we need is an additional policy to stack on top of those things one that is more unrestricted, cash-based, but still targeted. The child tax credit was expanded in the last tax bill passed in Congress, in 2018. That has a tax credit of $2,000 per child for all families in the US, except a small group. This child tax credit is almost universal: Married couples with children and who have income up to $500,000 a year get this, but it is not fully available for families with the lowest income levels or families without children.

The policy that many have been advocating former presidential candidate Michael Bennet [the Democratic senator from Colorado] has this as part of a bill that hes put forward is taking that child tax credit and making it universal, providing it even to households that have no earnings. That could then be a base thats built on, to be distributed on a monthly basis and to go beyond just people with children.

It seems like UBIs have more widespread support than before. Would you agree?

I share your view on that. As someone who has studied the social safety net for a long time, it makes me optimistic to hear so many people talking about the problems out there and the insufficiency of our current system. To me, that feels very powerful and valuable, because in the end, we need to make policy changes in order to realize any of this. So if this broad conversation translates into action, then that would be very useful.

What are your thoughts on the cash payment proposals that were put forward by US senators to help people during the Covid-19 pandemic? The coronavirus relief package now includes one-time payments of up to $1,200, while other proposals had a recurring schedule for example, monthly payments of up to $2,000, either universally distributed or below some income cap.

I think this is a good idea. The key question iswhether to means-test it(make people eligible if below some income threshold). The positive side of this is that we could concentrate resources on those who need it most and thus we could continue to support them over the months. But any means-testing would mean administrative costs that may slow down the payments. This is what we need to figure out in any UBI scenario but in the current situation, speed of delivery is critical.

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The complexities of a universal basic income - Knowable Magazine

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