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Table of Contents

What Is Universal Basic Income?

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DEFINITION

Universal basic income is a proposed government-guaranteed payment that each citizen receives. Its purpose is to ensure all people have the means to purchase necessities and improve their quality of life.

Universal basic income is a government-sponsored income program that pays all citizens a specific amount. Many countries, states, and cities are experimenting with this social program to find out how it will affect the lives of the people it's given to, as well as how to implement the programs and pay for them.

Learn more about universal basic income, how it could work, and how much it might cost.

Definition and Examples of Universal Basic Income

A universal basic income is a government-sponsored program where every citizen or eligible resident would receive a flat monthly payment. The idea behind this type of government benefit is to reduce the financial stress faced by a country's residents, which would allow them to focus on education, improving their job skills, or dealing with personal matters while having enough income to meet basic living requirements.

Because these programs are either experimental or being developed, there are no criteria for who exactly receives the income. Some proponents believe that all citizens should get it regardless of what they make, while others believe that only those below a specific income should receive it. Some believe that a government-sponsored income is not necessary or fair to all people.

  • Acronym: UBI

Universal Basic Income is different than Guaranteed Basic Income (GBI). GBI provides income to specific groups based on financial needs, whereas UBI is given to everyone.

How Universal Basic Income Works

The core idea behind a universal basic income is to use government tax revenues to create programs that pay all people within that government's jurisdiction. A state or federal government would divert a certain amount of tax revenues to this program and disperse the funds to the residents.

For example, economists Kalle Moene and Debraj Ray propose a payment system tied to a country’s economic output. They suggest that 10% to 12% of GDP could go directly to universal income payments. This setup would cause payments to rise or fall in relation to economic output.

Another method proposed by economist Milton Friedman in 1962 was a negative income tax. However, Friedman's idea aligns more with GBI, in which only specific people would receive the benefit. In his idea, those below an established income level would receive a tax credit. It would be paid for with the taxes collected from families earning above a specific level.

What Is UBI Designed For?

A universal basic income would provide everyone with a level of income to ensure they could meet basic needs such as food, housing, and clothing while giving them additional support if they needed it during challenging times—such as during the COVID-19 pandemic.

Many people lost income because their employers scaled down operations to follow mandated safety protocols. As a result, unemployment soared, and the federal government stepped in and added to unemployment benefits to help those in financial distress. It has been argued that a UBI might have reduced the need for the government to supplement people's incomes with unemployment insurance during events like a pandemic.

Some believe that a UBI would negate the need for unemployment insurance or social programs like the Supplemental Nutrition Assistance Program (SNAP), federal housing assistance, or Temporary Assistance for Needy Families(TANF).

How Much Would UBI Cost the U.S.?

In May 2022, there were 164 million Americans in the labor force. A GBI of $12,000 per year ($1000 per month) for each person in the labor force would cost $1.968 trillion per year. Many supporters argue that UBI would not need to be an addition to current welfare spending; a basic income would allow the government to cut redundant programs and reduce associated bureaucratic costs.

A UBI would cost even more—with more than 300 million Americans, $12,000 per year would cost more than $3.6 trillion per year.

Difficulties Facing UBI

Passing a plan robust enough to make a real impact would be difficult in the U.S. Over half of Americans oppose universal basic income. Many would only support it if tech companies paid for it through increased taxes. Even raising the U.S. minimum wage has been difficult, even though 67% of Americans favor increasing it to $15 per hour.

Proponents of universal basic income vary widely in their views of how to fund and execute the program. For example, some plans call for a tax increase on the wealthy, while others say corporations should be taxed.

Guaranteed Income History in the US

There have been several attempts at getting UBI off the ground in the U.S. For example, in 1968, President Johnson's administration launched a test of the negative income tax in New Jersey. It found that welfare recipients received a higher payment from that program than they did from the standard income tax. A higher-paying program was tested in Seattle and Denver. Results of both studies did find a reduced incentive to work.

Today, the earned income tax credit is a form of guaranteed income. It provides a percentage tax credit for every dollar of earned income up to a maximum credit. Since the credit increases along with income, it promotes the incentive to work. But as the income reaches a maximum level, the tax credit phases out and decreases.

Critics argue the earned income credit creates a disincentive to earn more, which is also an argument made against universal basic income.

In 2019, Stockton, California began a two-year GBI pilot program. It gave $500 a month to 125 local families. Among other results, the experiment found that GBI allowed many recipients to find full-time employment, put food on the table for many, and reduced income volatility in some lower-income households.

Pros and Cons of Universal Basic Income

Pros
  • Workers could wait for better jobs or better wages

  • Freedom for people to return to school or stay home to care for a relative

  • May help remove the "poverty trap" from traditional welfare programs

Cons
  • Free income may not incentivize people to get jobs

  • Could perpetuate falling labor force participation rate

  • Money for the comfortable

Pros Explained

  • Workers could wait for better situations: An unconditional basic income would enable workers to wait for a better job or better wages.
  • Freedom for people to return to school or stay home to care for a relative: More financial stability means workers could take time to go back to school. If they needed to take time to care for family, they would feel less pressure to work if a relative needed care.
  • May help remove the "poverty trap" from traditional welfare programs: Many existing welfare programs are criticized for keeping people below the poverty line. Often, if welfare recipients make too much, they lose their benefits even if their income is still unequal to the cost of living. A basic income could serve as a supportive springboard rather than a chain to the welfare system.

Cons Explained

  • Free income may not incentivize people to get jobs: Oren Cass, a senior fellow at the Manhattan Institute, says UBI would make work seem optional. Many recipients might prefer to live on the free income and would not acquire work skills or a good resume.
  • Could perpetuate falling labor force participation rate: Some people may choose to only accept the payments without working to from ever getting a good job in a competitive environment, thus reducing an already-falling labor force participation rate.
  • Money for the comfortable: Universal income means everyone, no matter much wealth they have or how much they make.

Key Takeaways

  • A universal basic income provides everyone with a minimum basic wage, whether employed or otherwise.
  • UBI is intended to address poverty, job losses, work transitional periods, or other income gaps.  
  • Many countries, states, and cities are experimenting with pilot programs to measure the effectiveness of a universal basic income.

Article Sources

  1. Trinity College. "The Benefits of Guaranteed Basic Income: Lessons from Advocates."

  2. Apollon Research Magazine. "Ensures Economic Improvements: ‘Give a Fixed Share of the National Income to Everyone’."

  3. Milton Friedman and Rose D. Friedman. "Capitalism and Freedom," Page 194. University of Chicago Press, 2002.

  4. U.S. Department of Labor. "U.S. Department of Labor Publishes Guidance on Federal Pandemic Unemployment Compensation."

  5. The University of North Carolina at Chapel Hill. "The Pros and Cons of Universal Basic Income."

  6. FRED Economic Data | St. Louis Fed. "Civilian Labor Force Level."

  7. Gallup. "Universal Basic Income Favored in Canada, U.K. but Not in U.S.."

  8. Pew Research Center. "Two-thirds of Americans Favor Raising Federal Minimum Wage to $15 an Hour."

  9. U.S Bureau of Labor Statistics, "The Negative Income Tax: Would It Discourage Work?" Page 24.

  10. Internal Revenue Service. “Who Qualifies for the Earned Income Tax Credit (EITC)."

  11. Stockton Economic Empowerment Demonstration. "Preliminary Analysis: SEED's First Year," Page 1.

  12. Econometrics Laboratory University of California, Berkeley. "Universal Basic Income in the U.S. and Advanced Countries," Page 4-5.

  13. Manhattan Institute. "Why a Universal Basic Income Is a Terrible Idea."