What Is Universal Basic Income?

Universal Basic Income Explained

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Universal basic income (UBI) is a government-guaranteed payment that each citizen receives. It is also called a citizen’s income, guaranteed minimum income, or basic income.

The intention behind the payment is to provide enough to cover the basic cost of living and establish a sense of financial security for everyone. The concept is also seen as a way to offset job losses caused by technology. Learn more about how it works, its pros and cons, and what it might look like in the U.S.

Definition and Examples of Universal Basic Income

Universal basic income is a program where every citizen receives a flat monthly payment, regardless of whether they're working and earning an income.

Different programs outline who exactly receives the income—some state that all citizens would get it regardless of what they make, while other programs may only give it to those who fall below the poverty line. One proposal would pay just those left jobless due to robotics, a plan that 48% of Americans support.

  • Alternate names: Citizen’s income, guaranteed minimum income, or basic income
  • Acronym: UBI

In 1967, Martin Luther King Jr. argued that a guaranteed income would directly abolish poverty.

How Universal Basic Income Works

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

Economist Milton Friedman proposed a negative income tax. The poor would receive a tax credit if their income fell below a minimum level. It would be equivalent to the tax payment for the families earning above the minimum level. 

In 2018, Facebook co-founder Chris Hughes outlined his plan in his book "Fair Shot." He argued that U.S. workers, students, and caregivers making $50,000 or less a year should receive a guaranteed income of $500 a month.

“Cash is the best thing you can do to improve health outcomes, education outcomes and lift people out of poverty,” Hughes has said in interviews. His guaranteed income plan is financed by taxes on the top 1%. It would work through a modernization of the earned income tax credit.

Sir Richard Branson said a guaranteed income is inevitable because automation has fundamentally changed the structure of the U.S. economy. Similarly, Elon Musk said robotics will take away most people’s jobs, so a universal income is the only solution.

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

  • Simple, straightforward financial assistance that minimizes bureaucracy

  • Lower administrative costs than with traditional welfare

  • More money for young families

  • Economic stability during recessions

Cons
  • Could trigger inflation

  • No increased standard of living in the long run

  • Reduced program wouldn't make real difference

  • Free income may not incentivize people to get jobs

  • Could perpetuate falling labor force participation rate

  • Many oppose giving money to the unemployed

Pros Explained

  • Workers could wait for better situations: An unconditional basic income would enable workers to wait for a better job or negotiate better wages.
  • Freedom for people to return to school or stay home to care for a relative: Workers could improve their marketability by going back to school. They would feel less pressure to keep a job if they needed to take time to care for a relative.
  • May help remove the "poverty trap" from traditional welfare programs: Many existing welfare programs are criticized for keeping people below the poverty line. Oftentimes, if welfare recipients make too much, they lose food stamps, free medical care, and housing vouchers, 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.
  • Simple, straightforward financial assistance that minimizes bureaucracy: Current welfare programs are also complicated for administrators and recipients. A universal income would replace housing vouchers, food stamps, and other programs.
  • Lower administrative costs than with traditional welfare: The simplicity of the program means it would also cost governments less. Cash payments that went to everyone would eliminate costly income-verification paperwork.
  • More money for young families: Some countries are concerned about falling birth rates. A guaranteed income would give young couples the confidence they need to start a family.
  • Economic stability during recessions: From a macro-economic viewpoint, it would give society a much-needed ballast during a recession.

Cons Explained

  • Could trigger inflation: If everyone suddenly received a basic income, it could create inflation. Most would immediately seek to spend the extra cash, driving up demand and, eventually, raising prices.
  • No increased standard of living in the long run: Higher prices would soon make the basics unaffordable to those at the bottom of the income pyramid. In the long run, a guaranteed income would not raise their standard of living.
  • Reduced program wouldn't make a real difference: A guaranteed income that’s enough to eliminate poverty would be too expensive. That makes a truly effective program a difficult investment.
  • Free income may not incentivize people to get jobs: Oren Cass, a senior fellow at the Manhattan Institute, says it 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: This cycle could prevent some from ever getting a good job in a competitive environment, thus reducing an already-falling labor force participation rate.
  • Many oppose giving money to the unemployed: This "no strings attached" income is difficult for some people to support. They fear that it incentivizes people to stay unemployed and live only off of welfare.

Studies of areas that have implemented some form of UBI have found that it does not impact overall labor force participation rate, and may in some cases increase employment.

How Much Would UBI Cost the U.S.?

In 2012, there were 163 million Americans in the labor force. It would have cost $2.04 trillion to pay each of them $12,490 (the poverty level for one person in 2019) for that year. Some of that cost would be curbed by cutting redundant welfare programs and other forms of consolidation, but it would still likely add to the national deficit.

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

Guaranteed Income History in the US

In fact, there have been a number of attempts at getting UBI off the ground in the U.S. 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 that creates a disincentive to earn more, which is what could happen with universal basic income, too.

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

Which Countries Have Universal Basic Income?

There are many cities, states, and countries that are experimenting with a universal basic income. Here are a few of the major ones.

United States

Several states in the U.S. are experimenting with different forms of UBI.

  • Alaska has had a guaranteed income program since 1982. The Alaska Permanent Fund paid each resident an average of $992 in 2020, all out of oil revenues.
  • In 2017, the Hawaii state legislature passed a bill declaring that everyone is entitled to basic financial security. It directed the government to develop a solution, which may include a guaranteed income.
  • In Oakland, California, the seed accelerator Y Combinator began a five-year study in 2019 in which it pays 100 families between $1,000 and $2,000 a month.
  • In 2019, Stockton, California, began a two-year pilot program. It gave $500 a month to 125 local families.
  • Chicago has also considered a pilot program in which 1,000 low-income families would receive $1,000 a month.

Canada

Canada recently ran a three-year universal income program. It gave 4,000 Ontario residents living in poverty 17,000 Canadian dollars a year or CA$24,000 per couple. The government forecasted it would cost CA$50 million annually.

Finland

In 2017, Finland gave 2,000 unemployed people 560 euros a month for two years, even if they found work.

The recipients said it reduced stress and gave them more incentive to find a good job or start their own business. However, the Finnish government found that they did not have higher incomes or more workdays than the control group.

Kenya

In 2011, GiveDirectly Inc. began distributing cash to poor households in Kenya via mobile phones.

A study of 63 Kenyan villages found that nine transfers of $45 a month improved local consumption and well-being.

It increased consumption of food, medicine, education, and social events without increasing alcohol and tobacco use. The households were also able to increase investments in livestock, furniture, and home improvements.

Scotland

Scotland committed 250,000 pounds to four pilot areas from 2018-2020. Different basic income levels were provided for different sets of citizens. Results were published in 2020, and the group behind the initiative has pushed for a broader pilot program.

Taiwan

The group UBI Taiwan has been advocating for a universal basic income in Taiwan for several years. Under its proposal, the government would pay 5,000 New Taiwan dollars to every citizen age 20 and younger, and $NT$10,000 to every citizen over 20. To fund this, the group proposes expanded taxes on items like pollution, luxury goods, carbon, and property.

Key Takeaways

  • A universal basic income provides everyone with a minimum basic wage, whether they are employed or otherwise.
  • It was proposed to address poverty as well as job losses stemming from technological innovation.  
  • Many countries, states, and cities are experimenting with pilot programs.