Michael Hicks is the George and Frances Ball Distinguished Professor of Economics and the director of the Center for Business and Economic Research at Ball State University. His column appears in Indiana newspapers.
The notion of a universal basic income (UBI) is quite popular these days, and is undergoing pilot tests in a few countries. The idea has created some strange bedfellows as support develops, and there are both practical and philosophical problems with it. Still, I think UBI is a provocative idea that everyone should consider with an open mind. Let me explain.
Universal basic income is a social welfare program, which, at its most basic level, would pay every citizen a basic stipend sufficient to remain above the poverty level. There would be no means testing; everyone would get this amount. The intent is to both eliminate the vast welfare infrastructure and to allow individuals to weather economic uncertainty without lapsing into poverty. To many folks, this sounds ridiculous from a financial standpoint, but it may not be.
The cost of implementing UBI in the United States would be roughly $3.3 trillion, or about what the federal government took home in taxes last year. That would provide every citizen roughly $10,500 per year. A 100 percent tax increase is neither politically or arithmetically possible, but there are plenty of other savings. We spend annually about $2.5 trillion on Medicaid, Medicare, Social Security, SNAP (aka food stamps) and other welfare programs. Veterans healthcare and benefits are another $160 billion and federal anti-poverty education spending is almost $100 billion.
We could make income taxes slightly more progressive, recapturing perhaps 20 percent of the UBI among the richest households, and the program could actually save money. This is an altogether fiscally possible method of keeping everyone above the poverty level, once and for all. However, there are some challenges.
To get to the acceptable level of cost savings means eliminating all other anti-poverty programs. That means no more welfare, food stamps, Medicaid, Medicare or Social Security. Obviously, there would need to be a grandfathering period for those at or near retirement. Doing this means dismantling a huge bureaucracy, who won't go quietly. It also means mandating the use of this money, primarily on health insurance, which would consume much, if not all the UBI. It also means getting rid of lots of popular programs like student loans and grants. No more free school lunches, minimum wage or free telephones. There are huge, boisterous constituencies for these programs who will have to be tamed.
One big benefit would be the slashing of payroll taxes, which account for about 15 percent of earnings for anyone making less than $115,000 per year. This windfall would offset much of the whining from the federal and state bureaucracy. Still, I don't think the finances are the big challenge or benefit to UBI.
The very things that keep people in poverty won't be fixed by UBI, and may arguably be made worse. Nearly everyone who is in poverty for more than five consecutive years (and isn't pursuing a Ph.D.) shares one or more of three characteristics. They have not completed high school, they have borne children as teens or they abuse drugs or other substances. What a UBI might do to these behaviors is uncertain. While I am optimistic that thoughtful modifications, such as lower UBI for minors, might actually keep kids in school and reduce teen pregnancies, this outcome is by no means certain.
The truly poor, especially the profoundly disabled, would need more help than the UBI could provide. So, very narrow exceptions to assistance and private sector charities will be needed. Beyond this, the benefits seem clearer, especially for the working poor. The UBI eliminates the cumbersome, costly and restrictive use of current public assistance. We would all receive it, so the stigma would be eliminated. Recipients can use this resource wisely or not, knowing that the benefit or loss is theirs to experience. Most importantly, the benefits don’t disappear if you take a job. Work simply makes you better off financially instead of triggering the loss of benefits. This is as it should be.
It will take some time for me to finalize my view on UBI, but it is certainly not something to be dismissed out of hand.