Introduction
Universal Basic Income (UBI) is a developing policy of providing a regular, guaranteed payment to all citizens regardless of financial need to replace other need-based social programs that potentially require greater government involvement. This concept of “free money with no strings attached” can be implemented by all levels of government: local, state, and federal. Interest in UBI has grown in recent years due to the fundamental changes to the economy—mainly due to the growth of automation—that threaten to leave many Americans without jobs. A 2019 report by the Brookings Institution found that one-quarter of all U.S. jobs are susceptible to automation. Researchers argue that jobs entailing more routine tasks, such as those in manufacturing, transportation, and office administration, are most vulnerable.
With the COVID-19 pandemic and its effect on unemployment, UBI has gained more attention from the public. After the COVID-19 pandemic drove up unemployment and job insecurity in 2020, some have urged for a nationwide UBI, and pilot programs have been initiated across the country. Those who support UBI say it’s an easy way to distribute aid to vulnerable populations. Others worry that it would be costly and discourage workers from finding jobs. Opinions vary, but UBI has developed into a political debate among policymakers in the United States.
Universal Basic Income in the United States: Federal
On a federal level, Democratic presidential candidate Andrew Yang made UBI a key pillar of his 2020 campaign, which helped bring UBI into the national spotlight. Yang’s plan promised every American adult $1,000 per month from the federal government. According to the nonprofit Tax Foundation, Andrew Yang’s $1,000-a-month Freedom Dividend for every adult would cost $2.8 trillion each year. He proposed funding the program by consolidating welfare programs (food stamps, homelessness services, disability services, etc.) and implementing a Value Added Tax of 10%. Residents who receive benefits from welfare and social programs would be given a choice between their current benefits or $1,000 cash unconditionally.
Universal Basic Income in the United States: State
A form of UBI on a state level is Alaska’s distribution of $1,000-$2,000 checks to its residents each year since 1982 from a fund created with oil revenues, also known as the Alaska Permanent Fund. In 2017, the government distributed a dividend of $1,100 per person including children. For example, a household of six would have received $6,600 in that year. The National Bureau of Economic Research conducted a study to observe the effects of the permanent fund on the state. The study was based on data from the Current Population Survey and a synthetic control. The study focused on tracking two outcomes: the full-time employment to population ratio and the population share working part-time. The results showed that the dividend had no negative effect on full-time employment. For part-time employment, a 1.8 percentage point (17%) increase since the beginning of the program was observed. Overall, the test results suggested that UBI does not significantly decrease aggregate employment.
Universal Basic Income in the United States: Local
A local-level experiment on UBI is the Stockton Economic Empowerment Demonstration (SEED). SEED was the nation’s first mayor-led guaranteed income demonstration launched in February 2019 by former mayor Michael D. Tubbs of Stockon, California. For comparative purposes, Stockton’s median household income of $46,033 is about 40% below that of California as a whole. SEED distributed $500 a month to 125 randomly selected residents for 24 months. From a preliminary analysis of the first year of the program, those who received the monthly dividend were surveyed as healthier, happier, and less anxious than those in a control group not receiving the monthly dividend. At the start of the study period in February 2019, 28% of recipients had full-time employment. A year later, it increased to 40%. By comparison, full-time employment in the control group rose from 32% to 37% after a year. Additionally, the experiment suggested that recipients experienced less income volatility than those who did not receive the guaranteed income, which allowed them to plan for the future with fewer financial burdens.
Arguments for Universal Basic Income
Those who support UBI argue that it is the most efficient method of distributing aid to vulnerable populations. Its simplicity provides immediate aid to income poverty as it eliminates eligibility restrictions that make it difficult for some households to access other need-based services. For the government, UBI systems eliminate the need to spend resources reviewing applications and monitoring benefits. Programs like the Supplemental Nutrition Assistance Program (SNAP) and housing vouchers require 10% of their funding for benefits and services to be spent on state administrative costs. In other words, only 90% of the program expenditures are allocated to distribution. Also, these programs require recipients to invest their time in applying. UBI would likely cost less than 1% in administrative costs and involve little to no burden on recipients.
Some conservatives argue that UBI provides a possible replacement for current social safety nets at a lower cost for those in need. According to political scientist Charles Murray, a guaranteed universal income of $10,000 a year could potentially eliminate need-based programs such as Social Security, Medicare, Medicaid, agricultural subsidies, and corporate welfare. It can remove both the social stigma that accompanies public assistance and the risk of anyone in need falling through the cracks. Furthermore, UBI can provide a boost in entrepreneurship as people would feel more comfortable starting a business. The stipend provides a financial cushion needed for workers who are considering changing jobs, retiring earlier, or quitting the workforce to care for children or other loved ones.
Arguments Against Universal Basic Income
According to the Center for Budget and Policy Priorities, the federal government providing all Americans with a basic $10,000 a year would cost $3 trillion annually. That would be three-quarters of the federal budget and the influx of cash into the economy could also drive up inflation. Paying for it, along with Social Security, Medicare, defense, and infrastructure, would require higher tax rates. Moreover, even substituting these social programs with UBI is not so simple as studies show that the current programs—Social Security, Supplemental Security Income (SSI), Temporary Assistance for Needy Families (TANF), housing assistance, food stamps (SNAP), and the Earned Income Tax Credit (EITC)—have cut the poverty rate across family types. Comparing administrative data from these programs and the 2008-2013 Survey of Income and Programs Participation data, the study found that Social Security cut the poverty rate by a third within the 5 years. All programs except the EITC reduced poverty below 50% of the poverty line. For the elderly, Social Security decreased poverty levels by 75%. If the UBI program was to acquire funding through new taxes, it would most likely leave some people worse off from the reduced income after taxes and transfers. Furthermore, there is a vast difference in the cost of living across the country. Depending on the size of payments, UBI could allow people in some parts of the country to live comfortably without working. The benefit might be more than sufficient in low-cost states such as South Dakota, but it might not be enough in high-cost states such as California and New York.
Outside the United States, Finland carried out a nationwide, randomized control experiment on UBI. The results of the 2017 UBI Program in the country did not meet the expectations set from the beginning. The experiment consisted of giving 2,000 unemployed people a basic income of €560 (approximately $630) per month for two years with the hope that it would motivate them to work. The findings from the first year suggested that individuals who received a basic income were no more likely to find work than those who didn’t. On average, both groups worked nearly 50 days a year and earned around €4,250.
