Does One Check Fit All? Debating Universal Basic Income
Former presidential candidate Andrew Yang speaks to supporters in Des Moines, Iowa. Yang’s signature campaign initiative, a “freedom dividend” for every adult American, has ignited renewed debate about the merits of Universal Basic Income. Photo by Gage Skidmore.
With the nation buzzing about new coronavirus stimulus payments—set to provide $1200 for every adult American—Daniel Kang and Oliver Niu discuss the potential impact of giving Americans universal direct payments as a long-term welfare strategy.
A UBI might not be the answer we’re looking for
Daniel Kang
In 1967, a massive oil field—North America’s largest at the time—was discovered at Prudhoe Bay in Alaska. Alaska’s state government began raking in hundreds of millions of dollars in revenue, and state lawmakers pledged this money to a “Permanent Fund Dividend” program: a universal payment system where all state citizens would receive monthly checks with no questions asked. Alaska had created the United States’ first universal basic income program.
Now, with former presidential candidate Andrew Yang’s signature “Freedom Dividend” proposal making waves and the prospect of direct payments from the federal government to offset the financial impact of the COVID-19 pandemic, UBI is freshly imprinted onto the national consciousness. For many, UBI has started to inspire national hope for a solution to the United States’ welfare woes. But make no mistake: The reality of UBI lies not in its utopian vision but instead in the harmful trade-offs it makes for those it seeks to protect.
The foremost problem with UBI is its cost. In 2016, political scientists Charles Murray and Andy Stern estimated the cost of a national basic income program to range between $1.8 to $2.8 trillion annually. In comparison, the federal government spent $910 billion on Social Security programs in 2016. Unless Americans stumble upon a GDP-dwarfing reservoir of oil, members of Congress will be hard-pressed to justify a massive uptick in spending without trimming off some fat.
Meanwhile, a Republican-controlled federal government could use UBI appropriations as an excuse to dismantle existing entitlement programs. Dating back to the Clinton Administration’s welfare reforms in the 1990s, Republicans in Congress have been notorious for their attempts to cut benefits and put up barriers for Americans attempting to access social services. In the quest to find money for a UBI, it would be all too easy for this same group of lawmakers to attack all the federal entitlement programs upon which millions of Americans depend.
Existing federal entitlement programs are tried and tested, and they produce positive results. For example, the Supplemental Nutrition Assistance Program, which supplements household food budgets, brought 3.4 million people out of poverty in 2017. These programs certainly have flaws; some, including SNAP, have been criticized for inadequacies across varied regions. But a recent Stony Brook University study modeled versions of a U.S. economy transitioning from transfer programs to a UBI, finding that non-college educated households would experience welfare losses ranging between 7.7 and 10.9 percent. Other studies find similarly bleak outcomes. In a post-UBI America, functioning but flawed aid programs such as SNAP are nonexistent and people are left with decreased purchasing power.
There would likely be another downside to the implementation of a UBI program: new taxes. Such an unprecedented federal spending increase would likely be financed by tax revenue, including in Andrew Yang’s plan, which proposes financing the program through a new value added tax (VAT). A VAT is a type of consumption tax applied at each stage of the supply chain, raising the price of the final good for consumers. While low-income households would be the first to benefit from UBI payments, they would also be the first to bear the burden of a VAT since low-income households delegate greater shares of their incomes to consumption than higher income households (which save at higher rates for demographic-related reasons). The effect on purchasing power washes out for the most vulnerable and needy Americans. The majority of UBI plans are also vague when it comes to supporting an increase in consumption tax, income tax, taxes on the middle class, or taxes on the upper class.
Regardless, a UBI program will always be shaped by swinging partisan political dynamics, because welfare and tax policy are political problems, not simply economic ones. Alaska shows how, even after guaranteeing financing, a UBI remains vulnerable to mere shuffles of political office. Former Governor Bill Walker slashed the “Permanent Fund Dividend” amount in 2016 from $2,072 to $1,022, while his successor Mike Dunleavy increased the dividend to $1,606 in 2019. Appropriations for a federal UBI program would be forever at the whim of a gridlocked and polarized Congress, whose makeup changes every two years—if the program even managed to pass in the first place.
Ultimately, it is easier for advocates of fiscal restraint to slash a universal check within one program than it would be to cripple an entire network of social services. For this reason, a single-program UBI would be significantly less stable than the diverse array of programs used today. Even if UBI payments were to bring some tangible benefits to the average worker, the considerable risks involved in its implementation could leave millions of Americans dependent on a politically unstable and therefore insufficient payment program.
Yet assume these practical challenges have already been solved. Proponents of UBI paint a dreamy fantasy in which workers leverage greater bargaining power, receive higher wages without worrying about job security, and lead more dignified lives as a result. However, this notion of greater bargaining power falsely assumes that UBI payments will provide a safety net sturdy enough to meet the needs of those workers who do end up losing their jobs.
A UBI is unlikely to provide sufficient financial support, especially given the failure of some UBI proposals to meet bottom-line rent and food expenses. The cost of living in the U.S. grows higher every year, and a UBI would need to keep up to provide a functional safety net. The Economic Policy Institute found that the average cost of living in 2015 was $65,000 a year for a family of two parents and two children. A Yang-style UBI covering $24,000 for the average low-income nuclear family would simply fail to meet this threshold.
There are of course flaws within the patchwork welfare system that exists today. There are shortcomings in expenses coverage. There is often a crushing level of bureaucratic inefficiency. As a part of reform efforts, minimum eligibility requirements for many social programs should be lowered to improve access. More demographic data should be collected on the local level to better meet region-specific needs. Throwing out existing structures instead of improving them could set the country back by years. Betting on an untested, radical, and deceptively simple program could set progress back by decades, and create a reality much worse than the one we live in now.
Daniel Kang is a copy editor at CPR and a first-year with little idea of what he wants to study. You can probably find him frantically catching up on reading in Butler or debating politics with friends in JJ’s.
A simple solution to a complex problem
Oliver Niu
In order to understand why a universal basic income is necessary, we must acknowledge the problems of our current system. Currently, even as taxpayers pour billions into funding the welfare system, 78% of U.S. workers report living paycheck to paycheck, with poverty hovering around 16%.
Such an extreme lack of economic security for millions of Americans stems from two issues inherent to the welfare system. First, most welfare is distributed not by the federal government, but by states, through federal funding in the form of block grants, which don’t place restrictions on how the money is spent. Unfortunately, all too often state governments don’t view welfare as a priority, diverting these funds away from their intended programs.
Second, even in states with well-funded welfare programs, those applying for welfare face months or even years of navigating through a mess of bureaucracy. This red tape especially disadvantages non-English speakers and minority groups. Indeed, a recent study found that social safety net programs lifted 44% of impoverished white people out of poverty, while only doing the same for 35% of poor people of color.
These two barriers result in the inability to access for welfare for millions of people, an effect that has been magnified over time. In 1979, the Temporary Assistance for Needy Families program, targeted at poor families with children, aided an average of 82 out of 100 families with children in poverty. But in 2018, the program only helped 22 out of 100 families, a 60% drop. The issue is not limited to TANF. Today, over a quarter of people living in poverty do not have access to a social safety net.
Giving everyone in the United States a basic income would solve these problems. Insofar as almost all UBI proposals are based on the federal government giving direct payments to every citizen, states that would otherwise reduce welfare funding would be bypassed. Economically, redistributing taxpayer money directly would encourage greater consumption when placed in the hands of low-income people, and a real monetary safety net would incentivize more small business creation. Additionally, a $12,000 UBI, although definitely not a comfortable amount on which to live, would by definition raise most families above the poverty line. Ultimately, any form of UBI provides a marked improvement to a situation in which a quarter of people living in poverty can’t access any financial assistance from their government.
Most criticisms of UBI revolve around the cost of the proposal. Luckily, empirical studies depict a less scary outcome than UBI’s critics are willing to admit, regardless of whether the program was funded through debt or taxes. Under a debt-financed UBI plan, a study by the Roosevelt Institute predicts that the UBI would stimulate the economy to permanently grow by around 13%, more than allowing the U.S. government to pay off the debt initially incurred. In models in which UBI was funded by raising marginal tax rates, the net cost would only be $539 billion, around 3% of the current U.S. GDP and only one-sixth of the oft-mentioned $3.4 trillion cost. Additionally, the Roosevelt study concludes that because lower-income families have a higher propensity for consumption, the redistribution of income in their favor would result in the economy growing by 2.62% and the labor force expanding by 1.1 million people. resulting in higher future government revenue.
A UBI in America would not only have positive effects domestically; millions of Americans seeing their incomes increase would have a monumental ripple effect on the world economy. For a middle class family of four, a UBI plan that provided $12,000 for each adult and $3,000 for each child would generate an additional $30,000 in income. Such a massive increase in disposable income would boost trade, tourism, and consumption, three factors that have pulled millions of people across the globe out of poverty throughout history.
The poverty reduction and economic stimulus caused by a UBI would also lead to positive outcomes for democratic society. A Sociology Quarterly study finds that the stigma associated with receiving welfare makes recipients feel that they are not full members of society. This stigma is implicated in voting patterns, as receiving means-tested welfare is correlated with a 62% decrease in voter turnout, even after controlling for confounding variables like income, an effect not seen with universal programs. The logic behind this effect is simple. When everyone receives the same basic payment, no one feels like a “burden” on society.
While the implementation of a UBI would represent a radical shift in the way the United States treats poverty, our current solution simply leaves far too many people falling through the cracks, causing irreparable psychological and physical damage to a large portion of our population. A UBI is the only solution that ensures no one is left behind.
Oliver Niu is a staff writer at CPR and a first-year in Columbia College studying Economics and Statistics. You can catch him traveling off campus or sipping coffee in Butler Library.