A Guide to Understanding Universal Basic Income

A Guide to Understanding Universal Basic Income | Up to Us

The pandemic has highlighted the shortcomings of our current welfare system. The government responded by passing stimulus packages, but long-term measures are needed to address the growing inequalities linked to slow wage growth and a labor market that no longer allows people to fulfill their basic needs. Some policymakers believe that a universal basic income is the answer. Let’s take a closer look at the UBI meaning and the pros and cons of distributing a guaranteed living wage.

What Is Universal Basic Income (UBI)?

Universal basic income is a recurring payment that individuals receive from the government. Unlike needs-based welfare programs, a UBI system would distribute the same amount to everyone and wouldn’t require recipients to meet any requirements to qualify.

Defining Characteristics of Universal Basic Income

How do universal living wage programs work? While propositions can differ, there are some common characteristics.

Who Qualifies?

The universal basic income definition presents this solution as an alternative to needs-based programs. With a basic living wage, every adult would receive a monthly payment from the government regardless of their income or employment status. Some propositions include payments for children as well.

Where Does the Money Come From?

In most propositions so far, tax revenues would fund a universal wage. Adopting an unconditional basic income would result in an increase in income tax or a higher value-added tax. However, existing programs have used other funding sources, like revenues from natural resources.

Alaska has the largest and longest-running UBI program in the US.The state uses revenues from oil and mining leases to issue an annual payment of around $1,000 to $2,000 per individual.

There have also been pilot programs in a few US cities. For instance, San Francisco has UBI programs to support artists, families of color and individuals who receive training to become emergency medical technicians.

The city of Oakland recently launched a program that provides a universal stipend for low-income families of color. This universal basic income plan is funded by private donors rather than tax revenues.

There is a growing interest in UBI plans, and several cities are poised to launch similar programs. The Mayors for a Guaranteed Income coalition is an organization that advocates for universal basic income programs and members like Los Angeles and Newark could launch their own UBI efforts soon.

UBI Experiments Outside of the US

There have been a few programs and experiments conducted outside of the US:

Mongolia is the only country with an ongoing UBI program. Citizens are shareholders of a company that manages a coal deposit and issues payments regularly.

Spain is one of the first countries to roll out a nationwide UBI program to help its citizens during COVID-19.Other universal basic income countries in 2021 include South Korea.

GiveDirectly is a non-profit that distributes a UBI to rural villages in Kenya. The program is funded through donations.

UNICEF funded UBI pilot programs in India in 2011. Money was distributed to isolated rural villages.

Finland ran a UBI experiment between 2017 and 2018. During this time, 2,000 unemployed individuals received a UBI instead of traditional unemployment benefits.

Perspectives and Arguments for and Against a Universal Basic Income

There is a growing interest in UBI, and the universal basic income debate reflects important concerns about the limitations of needs-based programs as well as the potential drawbacks of a universal basic income program.

Arguments for Universal Basic Income

There are some strong arguments in favor of a UBI, supported by data regarding stagnating wages and the fact that the experiments conducted on a small scale didn’t impact employment negatively. Here are some reasons why UBI is potentially a good idea:

Welfare programs typically restrict the kind of assistance recipients can get. For instance, they might qualify for food stamps benefits and only be able to purchase groceries with the funds issued.

The truth is that poverty is complex and often tied to multiple factors. Some of these factors are subtle and difficult to address with needs-based programs. By not restricting how recipients can use the funds, a UBI program would adapt to the unique situation of each recipient. For instance, a recipient would be able to use their UBI payment to pay for an internet connection or secure reliable transportation, two important factors for access to education and employment that existing welfare programs overlook.

With the above reason in mind, one can argue that the welfare system demeans recipients by restricting how funds can be used. A UBI could be considered a more humane alternative that treats recipients with more dignity. Besides, letting recipients decide how they want to use the funds could be an important step toward financial responsibility and success.

The current welfare system isn’t cost-effective either. By removing the requirements recipients have to meet, a UBI program would result in a streamlined process with lower administrative costs. Moreover, recipients wouldn’t have to navigate a stressful process that requires them to keep proving that they meet the eligibility requirements.

The job market has changed drastically over the past decade, but unemployment benefits haven’t. While unemployed individuals can receive benefits, there is no protection from issues like slow wage growth, underemployment, unhealthy work environments or a lack of job security.These factors contribute to higher rates of burnout, an issue that affects 84% of millennials.

With the rise of the gig economy and the current wage growth rate of 4.4%, a UBI could create a safety net for many workers who struggle to earn a living wage.

A UBI gives people options. Without this guaranteed income, many households need to have both parents working, and a majority of single parents struggle to support their children.

Having access to a guaranteed living income opens up the possibility of having a parent stay at home to take care of their children or to be a caregiver for an elderly relative. A UBI program has the potential to create stronger family units, an important factor for the wellbeing and success of the next generation.

Data from UBI experiments show that recipients are more likely to seek healthcare. Having access to a guaranteed income could help individuals receive preventative care and take important steps for their health, such as adopting healthier eating habits. These benefits of UBI could result in lower healthcare costs, especially as the population ages, and could support access to healthcare, a crucial factor for recovering from the pandemic.

Arguments Against Universal Income

There are strong arguments against UBI, and refuting them is difficult due to the limited amount of data available. Here’s why some argue that UBI is not the solution:

There is no denying that issuing monthly payments to every adult would be costly. Adopting a UBI could divert funds away from other welfare programs and hurt the people who need these programs the most.

While some small-scale programs use funding from non-profits or natural resources, adopting a nationwide UBI plan in the US would require a significant tax hike. Paying more in taxes could outweigh or limit the benefits of a guaranteed stipend for some.

Issuing the same amount of money for every adult might seem fair at first, but it doesn’t account for the wide range of socio-economic backgrounds that exist in the US. Some individuals who come from a more privileged background don’t need a UBI to live comfortably. By distributing funds equally, a UBI program could take money away from those who need it the most.

Lack of oversight

Giving recipients the responsibility to choose how they spend money has some positive aspects. However, one could also argue that this lack of oversight could become an issue in some cases for those who are the most vulnerable. For instance, this UBI freedom could fuel addictions. Or, parents who receive an additional stipend for their children might decide to spend the money on other things.

There is also the issue of people spending money on wants rather than needs. For example, spending on restaurant takeout and delivery increased by 300% a few days after the first round of stimulus checks were issued. While some individuals used these payments to catch up on bills and pay their rent, others splurged. More than 5% of recipients said they used their first stimulus check to purchase electronics and 2.5% bought recreational goods.

The question of financial independence

Issuing a monthly stipend could create an environment where there is little incentive to save and invest. With the certitude that more money will come next month, people could decide to spend over saving for their retirement.

It’s a dire issue since half of Americans currently don’t have a retirement plan. In a lot of cases, people underestimate how much they will need to retire, especially when it comes to healthcare expenses. A UBI wouldn’t be sufficient to cover these costs, and the lack of incentive to save could result in a greater strain on other welfare programs.

A workforce that can rely on a guaranteed income might not have a strong incentive to work or seek professional development opportunities. While it’s possible that some people would use their UBI to finance their education, other individuals might see the payments as a deterrent to work or acquire new skills. There already is a skills shortage in some industries, and a UBI could worsen the issue.

2021 Momentum: Coronavirus and UBI

The coronavirus caused the economy to grind to a halt for some sectors, highlighting the need for a safety net. The pandemic has increased awareness of the need for a universal basic income, and the government support in the form of stimulus checks could be a first step toward adopting a UBI.

Americans received stimulus checks before COVID-19 though. During the 2008 financial crisis, individuals received up to $600 to stay afloat. The 2008 crisis and the pandemic illustrate situations where a guaranteed living wage would protect the population from economic shocks.

Even though cost is one of the main cons of UBI, one could argue that a guaranteed living wage could protect the government from increased expenses linked to more individuals relying on assistance programs during a crisis. For instance, the modifications made to unemployment benefits during the pandemic might not have been necessary if individuals had access to a UBI instead.

Additionally, the UN sustainable development goals call for adopting a UBI to limit the long-term effects of the pandemic. The UN recognizes the importance of stop-gap measures like stimulus packages, but they currently recommend the adoption of a guaranteed living wage to reduce risks of societal conflicts and jumpstart the economy.

Most discussions about universal basic income pros and cons remain theoretical due to the limited amount of data available. Countries with universal basic income typically implement short-term experiments for a small section of their population. That data isn’t necessarily representative of the behaviors one would see in the US.

However, with three rounds of stimulus checks, there is now data specific to the US population. It will take a while to study the long-term effects of the stimulus packages.

The pandemic may have changed the way people feel about universal basic income programs. A series of two surveys conducted in February and September 2019 found that the percentage of people who are favorable to a UBI program increased by nine percentage points. That was a major change in public opinion even before the pandemic hit in 2020. This number could very well have increased post-pandemic, a change that could sway election results in 2024 if a candidate runs on a platform that includes a UBI program.

Political Support of UBI: Right and left

A presidential candidate who makes promises about a UBI is still a theoretical idea. Outside of Democratic candidate Andrew Yang, there haven’t been any serious propositions to adopt a guaranteed living wage.

Right View of UBI

So far, there haven’t been any Republican representatives who have endorsed UBI. However, Mitt Romney recently introduced the Family Security Act. This legislation would overhaul current child benefits and replace them with a monthly cash payment for families. It’s different from a UBI program since it’s not universal, but it shows that there is a growing awareness on both sides of the aisle that current welfare programs need to change and become more streamlined.

Even though there are few right-wing supporters of the idea, it’s not incompatible with the Republican ideology. Ronald Reagan’s advisor and economist Milton Friedman was one of the most famous right-wing advocates for a negative income tax.

Support for a UBI remains low among Republican voters. While 66% of Democratic voters support this idea, only 22% of Republican voters are in favor of a UBI. However, 41% of Republican voters between the ages of 18 and 34 support this idea, illustrating a generational divide over the issue and a possible shift in opinions as more young people become old enough to vote.

Left View of UBI

The idea of a universal basic income received some attention during the 2020 Democratic primaries, thanks to candidate Andrew Yang. Yang’s Freedom Dividend would have distributed $1,000 a month to each adult. Yang is currently running for mayor in New York City, and his campaign includes a cash relief plan for low-income individuals that would be partly funded by tax-exempts landlords.

Since the pandemic, more Democratic representatives have expressed their support of a UBI, including Tulsi Gabbard and Alexandria Ocasio-Cortez.

Main Criticisms of UBI

The main criticisms of UBI reflect the cons mentioned above. The most common criticism of universal basic income is its cost. Providing $10,000 a year for 300 million Americans translates into an annual cost of $3 trillion.

Would increasing taxes be sufficient to cover this cost? The public debt exceeded $28 trillion in 2021, and a UBI program would likely increase this amount, contributing to the acceleration of the deficit that started during the pandemic.

We have to consider that Social Security and Medicare currently represent more than 38% of federal spending. Social Security alone accounts for $1.151 trillion, which is only half of what a UBI plan would cost.

There are other crucial safety net programs that represent 8% of the federal budget. They include the Earned Income Child Tax Credit, SNAP benefits, school meals and others. Plus, Supplemental Poverty Measures kept 37 million people out of poverty in 2018.

An increase in the federal budget by $3 trillion would likely result in some of these programs being cut, which could have devastating effects for the elderly, disabled and children living in poverty.

There is also the question of whether it’s beneficial to provide payments for everyone regardless of their needs. A program that hands out the same guaranteed living wage to everyone doesn’t address inequalities and might not do enough for people who need help the most. While some individuals would use the payments to meet their basic needs, others would end up with extra spending cash. Is it ethical to use taxpayers’ money to make payments to those who don’t really need the money?

Putting more money in people’s pockets could also lead to inflation. This phenomenon would hurt many people because every dollar would be worth less. Inflation could also lead to a drop in the value of labor and discourage people from participating in the workforce.

Does UBI Have an Impact on Employment Behavior?

Does UBI discourage work? The experiment conducted in Finland found that UBI increased wellbeing and employment compared to regular unemployment benefits. However, it was a small-scale experiment, and it’s possible that the behaviors observed in Finland won’t translate to other countries.

Positive Impact on Employment

A guaranteed living wage could have a positive effect on entrepreneurship and professional development. It’s easier to take risks and launch a new business or go after a new job when people have the safety net of a monthly UBI. A UBI program could have the potential to accelerate innovation and result in a job market where work is more meaningful as well.

Additionally, with Baby Boomers retiring, manufacturing and other industries are seeing a shortage in skilled labor. A UBI could support individuals while they seek training and education opportunities to acquire in-demand skills.

A guaranteed living wage could also be an incentive for employers to offer better work conditions. With the safety net of a UBI, it would be much easier for individuals to quit a job and seek another option if their current workplace doesn’t offer a good work-life balance, if the environment is too stressful or if it is unsafe.

Potential Negative Effects on Employment

It’s possible that receiving a monthly guaranteed paycheck would provide little incentive to go after low-paying or entry-level positions. With a monthly stipend meeting their basic needs, workers would see the value of low-paying positions in a different light.

With a higher tax rate in place to cover the cost of a UBI program, one can also wonder whether there would be a strong incentive to work hard and seek growth if it results in paying more taxes. It’s possible that successful business owners would prioritize opportunities in other countries to avoid a higher tax rate.

Differences Between Basic Income and Negative Income Tax

The negative income tax is a potential alternative to UBI. It’s a model where individuals who earn more than a certain threshold pay the difference in taxes. Individuals who earn less than this threshold receive a payment for the difference.

Both models guarantee a basic income, but there are some significant differences between negative income tax vs UBI. With a universal basic income, everyone receives the same amount, and individuals would pay taxes if their UBI puts them above a certain threshold. One can argue that this system isn’t optimal since some people would receive money and then give it back in the form of a tax payment.

With the negative income tax model, individuals who already live comfortably wouldn’t receive UBI payments. This model could reduce the potential negative impact on employment since the amount individuals receive would be reduced as they start earning more through their job. It would still act as a safety net for those who need it the most, but it wouldn’t deter people from seeking professional growth opportunities.

Conclusion

A Universal Basic Income program in the United States would be a costly measure, but distributing equal payments to individuals could have a positive impact on the economy. It could create a much-needed safety net to protect people from wage stagnation, a changing labor market and future crises. While UBI used to be a fringe idea, mentalities have changed during the pandemic and a growing number of US cities are looking into adopting pilot programs.

However, there are some compelling arguments against UBI to consider. Among others, the cost would contribute to the growing federal debt and possibly defund important programs that keep those who need help the most out of poverty.

Indeed, weighing the pros and cons of a universal basic income program remains challenging due to the limited amount of data available, both in the US and globally. Nonetheless, young people across America are getting educated about UBI and making changes at their colleges and universities with Up to Us. Get involved by learning about how you can make a difference in your own community.

Up to Us is a movement of a generation, for a generation. In the last 5 years we have engaged 100,000+ young adults around our nation’s fiscal challenges.