A Universal Basic Income? Right Debate, Wrong AnswerPosted: June 22, 2016 Filed under: Income and Wealth 1 Comment »
Recently, advocates have revived and extended an old idea: that government should give everyone, regardless of their economic circumstances, a universal basic income (UBI). For instance, each single person would get a government cash payment of, say, $12,000, which is just above the official poverty level of $11,700. The benefit would reduce, or perhaps replace, current government tax and benefit programs aimed at low-income households.
The proposal raises some important questions about how government should help people avoid poverty and more generally support almost all of us who get government benefits of one type or another. While some critics wonder whether such an ambitious idea is affordable, I’m more concerned about whether society would be better off if government used the money to create opportunity for those who are struggling financially.
Progressive supporters of UBI see it as a way to eliminate poverty by redistributing more money from the rich. Those on the right say it could replace costly and administratively inefficient welfare-type programs. Adherents include Andy Stern, former head of the Service Employees International Union, and a growing group of Silicon Valley executives, such as Sam Altman, president of Y Combinator, a venture-capital firm which is funding a pilot program to research UBI in Oakland, CA.
The goals of reducing both poverty and inefficiency are worthy. But we want to be sure we don’t discourage work in an economy already facing unprecedentedly low levels of labor force growth. And while combining and simplifying programs makes sense, it can’t be done in one easy step.
Think about how complex low-income support programs have become since Milton Friedman and my mentor Robert Lampman of the University of Wisconsin first proposed in the 1960s a related idea, a negative income tax (NIT). A half-century ago, there was no federal earned income tax credit (EITC), supplemental security income (SSI), child credit, Head Start, special education, or Section 8 low income housing assistance. Congress was just enacting Medicaid, and national health care spending was less than a third of what it is today as a share of the economy. Supporters of UBI are not clear about what they’d do with these programs, or how they’d address pressures such as medical cost growth. Nor do they say how they’d deal with existing tax subsidies, such as the EITC, and the ways people are taxed indirectly as their eligibility for these benefits is phased out. By choosing the acronym NIT, Friedman and Lampman recognized that phasing out benefits as income rises is effectively a tax rate increase.
If they don’t replace current support programs, in whole or in part, supporters of UBI need to figure out how to pay for the new cash benefit. And critics, such as Bob Greenstein and Eduardo Porter, question whether we could afford such a program.
But in the medium term, a UBI could be funded simply by freezing the cost of current benefit programs and shifting scheduled increases to a cash program. Consider: Today, government at all levels provides about $35,000 annually in direct supports, including tax subsidies, per household. But that amount is due to increase by $10,000 to $15,000 by about 2026 and double within a few decades.
I’d prefer to shift larger shares of our direct support budget into promoting opportunity for work and saving, while promoting human and social capital. Such efforts would emphasize long-term earnings growth, wealth accumulation and upward mobility, whereas the UBI, with its focus on current consumption, would likely increase the inequality of market incomes by discouraging work.
Not that UBI supporters are wrong in stressing the inefficiency of existing programs. The type of efficiency they seek could be pursued in part by bundling programs together in a voucher that could be spent, say, on food, housing, or education—a design my Urban Institute colleague Bob Lerman and I called structured choice.
Despite the flaws of UBI, give its supporters some credit. They recognize both that the existing direct support system is quite flawed and we that do not have to be bound forever to a structure cobbled together over past decades in ways inattentive to current and future needs. There are just better reforms available than the UBI.
This post originally appeared on TaxVox.
UBI can be structured as a cash payment (the usual funding source is the Georgist Land Value Tax), but you can have a separate system for children and adults. To fund a bigger child tax credit (say $1000 per month per child – which is middle class, not poverty – with no phase out) you can use it to offset either the EITC, the child tax exemption, the home mortgage deduction, ending child benefit programs and the property tax deduction. There may be a small tax increase or further borrowing involved, but it would not be much.
For adults, you more than get there with a $15 minimum wage or a training/job seeking program at that minimum wage for those who can’t find a job. This is assuming that most low wage work has a productive product below $15 an hour, which is unlikely for most jobs. Studies that don’t show that workers have that much productivity are likely partisan lies. (UBI purists hate this approach because it forces work or education – they want income with no strings attached).
I favor a UBI over tax subsidies for actual work – because you are having taxpayers supply jobs that are not worth having. The dirty, nasty ones that are so low because employers have such monopsony power – goosed with an ugly amount of racism.
The question of low wage jobs is actually the point of a UBI. Low wage jobs would have to compete with a UBI that feeds both workers and their families. It is there for you if you work or if you don’t. If prices go up, the UBI is adjusted for inflation. Eventually a balance is found – but hopefully the really bad jobs will be worked around or given some dignity. No one picks cotton anymore. The entire southern social system was created to keep low wage workers available so it could be. It’s the same reason immigration restrictions which keep workers from complaining need to be repealed – along with right to work laws.
People will work if you pay them enough, even with a UBI, but they should be able to do it with dignity. Giving low wage workers other options does that. UBI that is less than livable would actually subsidize low wages – so mixing it with a higher minimum is essential.
By the way, the other option is the Social Credit approach. Print money, give it out. Taxes are not required. Another way is to give people capital credit so that they can live on the dividends after the capital loans are paid off. A varient is to direct social insurance taxes to actually buying the stock (unlike ESOPs, which borrow to get it) – and then trust worker owned firms to be more egalitarian – although ESOPs have under-performed their potential in that regard.