The complexities of a universal basic income

“Universal basic income” was for a long time an obscure term bandied about in economics circles. That’s 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.

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 tribe’s 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, I’ve 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. I’ve 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 everybody’s eligible, regardless of needs. Most of our social safety net is conditioned in some way. You won’t 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 wouldn’t consider the Alaska Permanent Fund to be basic income, because it’s not that large.

And “income” means it’s cash rather than some other form of benefit. Loosely, people are using “UBI” to talk about cash benefits that aren’t conditioned on work.

I don’t think there are any examples of programs that are truly universal and basic income in the United States.

Finland’s basic income trial was targeted at unemployed workers, so was not universal. And Kenya’s 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.

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. We’ve 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. There’s the perspective that we need to do more.

The second group includes more conservative, policy-interested individuals who don’t like the patchwork nature of our current social safety net. They think it’s inefficient and creates disincentives to work — that we’d 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 they’re being touted as UBI pilots, but they’re really not. In Stockton, they’re income-conditioned. It’s 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. They’re not truly universal.

But an important aspect of these pilot programs is that even if your income goes up, the amount of benefit doesn’t change. So there is that insurance aspect of knowing it’s there, which could be important.

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 doesn’t marginalize those who are receiving the benefit, the way it could for food stamps. But to study that, you need to have a program that’s universal, and none of these pilots are that way.

Let’s 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. It’s 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 people’s 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 isn’t 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. It’s 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 they’re 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 don’t have children, particularly those who aren’t elderly or disabled. Those programs work very well, but we should make them available to all who are income-eligible.

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 he’s 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 that’s 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 is whether 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.