Should America provide a universal basic income?

Zack Sigel


Zack Sigel

Zack Sigel

Managing Editor

Zack Sigel is a managing editor at Policygenius who oversees our mortgages, taxes, loans, banking, and investing verticals.

Published May 11, 2018|7 min read

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In January, Oxfam International, the anti-poverty nonprofit, released a harrowing report. According to its study of global inequality, not only did 82% of all wealth generated in the world go to the top 1% of the richest people in 2017, but the bottom 50% of wage-earners effectively received nothing at all.

We're more productive than ever thanks to advances in technology and increasing globalization, but the people who do the work increasingly can't afford the products they make.

In the U.S., it was once possible to put yourself through college and buy a house on an entry-level salary. That’s become increasingly less likely. In May 2016, the Federal Reserve found nearly half of all Americans didn’t have $400 to pay for an emergency expense. Just to rent an apartment these days has become prohibitively expensive. Although wages have modestly increased in every state since the Great Recession, they have not kept track with the price of housing. You now need to make several times the minimum wage to afford a two-bedroom apartment and still have enough to left over to build a savings.

The needle doesn’t seem to be moving anytime soon. Around the time that Oxfam released its report, Jeff Bezos, the CEO of Amazon, made nearly $10 billion in a single week. His net worth is now estimated to be $131 billion, and he intends to shoot his earnings into space. Meanwhile, his employees earn a median salary of just $28,000 per yer.

One idea that could address income inequality is to enact a universal basic income. Universal basic income, or UBI, contrary to popular belief, is not simply money for doing nothing. Just as most food-stamps recipients have jobs, the U.S. government could pay workers a guaranteed income to supplement their private income and achieve a better standard of living. Universal basic income has support from the entire political spectrum. It holds appeal for both socialists and capitalists. In 2016, paraphrasing the author of “Les Miserables,” Jacobin, a left-leaning magazine, called it “an idea whose time has come.”

What is universal basic income?

Universal basic income is the idea that our tax dollars should go toward reducing income inequality. We already provide a basic benefits system to the poor, including health care through Medicare and Medicaid, basic tuition grants for college, access to nutritional food and housing assistance. But because those programs only provide benefits at the point of use, they do little to reduce the systemic disparity in wealth. Universal basic income gives people a small financial cushion.

“Universal” means every adult citizen gets a payment, regardless of employment status, ability to work or health. “Basic” means guaranteed income is meant to support only the minimum of living expenses: enough to keep a roof over your head and pay their bills. A UBI wouldn’t allow Americans to max out their 401(k) accounts, but it would help the 15.6 million Americans who have low or very low food security keep food on the table.

Proposals for payment differ, but they range from $12,000 per year to $28,000 per year. In Alaska, which has a UBI system funded almost entirely by oil revenues, each adult receives an annual payout of $1,600. The payment is a dividend from the state’s $64.6 billion Alaska Permanent Fund.

Universal basic income is popular in left-wing circles because it allows one to survive and even thrive, regardless of his or her economic resources, in a democratic society moving increasingly toward automation. That makes workers less reliant on the generosity (or lack thereof) of their employers. As James King notes at the People’s Policy Project, the Alaskan UBI project has allowed the majority of recipients to save more money and pay off debt.

Martin Luther King Jr., through his Poor People’s Campaign, also proposed a more robust benefits system, which included both a federal job guarantee and a basic income guarantee.

But UBI is also popular among business leaders. As tech titans like Mark Zuckerberg and Elon Musk begin to rely more and more on algorithms and machines to build their products, they’ve had less of a need to hire people or incentive to pay them well. A federal UBI would allow big business to make as much money as it wants while passing off the burden of meeting employees’ basic needs to the government. More conservative proposals even insist on UBI replacing all other government benefits.

Universal basic income in practice

Universal basic income experiments have been attempted in several locations, including Canada, Finland and the Netherlands. A new study is underway in Oakland, California, funded by the Silicon Valley seed accelerator Y Combinator. It would give 3,000 people either $50 or $1,000 per month in no-strings-attached money and test its effects on their quality of life.

The results of the Finland study, which recently concluded, are not due until 2019 or 2020, but it has already come under fire for not being a truly universal guaranteed income. Because it only included unemployed people, it only replaced benefits they already earned with a monthly payment.

James Surowiecki, writing in The New Yorker, explains that there are more modest benefits to a basic income. “By providing an income cushion,” he writes, “it would increase workers’ bargaining power, potentially driving up wages. It would make it easier for people to take risks with their job choices, and to invest in education.” Surowiecki gives the example of a basic-income experiment in New Jersey that increased high schoolers’ graduation rates by 25%.

As Chris Weller put it in Business Insider, “Basic income doesn't cap the amount of wealth people can amass; it only installs a financial floor, not a ceiling.”

Can America afford a UBI?

In one sense, we already provide a guaranteed income – to the rich. In a study on the distribution of income in the U.S., the economists Thomas Piketty, Emmanuel Saez and Gabriel Zucman write that “About 70% of national income is labor income” – net income generated from selling a product – “and 30% is capital income.” As Matt Bruenig, founder and president of the People’s Policy Project, explains, that 30% is money earned for doing nothing other than already having money, “in the form of interest, rents, and dividends.”

“One in ten dollars of income produced in this country is paid out to the richest 1% without them having to work for it,” Bruenig writes. He proposes a system in which the state owns as much of that capital as it can and pays it out to citizens as a basic income. If the U.S. “owned just half of the capital, the dividend would be equal to 15 percent of the average income in the country,” he writes.

But it’s currently politically untenable to ask the wealthy to give up their guaranteed income. Another form UBI could take is a budget item in the vein of other socialized benefits programs like Medicare and Social Security, in which the wealthy are taxed at higher rates than the less-wealthy and the revenue is redistributed. A UBI skeptic in Jacobin estimates that a UBI program in the U.S. may cost “6.5 percent of GDP (gross domestic product), or nearly twice the share of GDP that the US currently spends on its military” but have only a minor effect on poverty rates.

The National Review, a conservative publication, believes a UBI is too expensive because it would cut into benefits the working class already enjoy. “If the benefit is small enough to be funded by eliminating the existing safety net,” Oren Cass writes, “it is too small to permit the existing safety net’s elimination.”

As such, there has never been a UBI experiment on the scale of what’s needed to reduce systemic income inequality. That may be, as Aaron Bastani warned in the London Review of Books, because “As machines are capable of producing more things more efficiently than ever before, an ever growing number of people will prove incapable of buying them.”

But that may equally be an argument for a more robust UBI program than one that only costs 6.5% of GDP. In 2009, the U.S. loaned, spent or guaranteed $12.8 trillion to bail out big banks after the Great Recession, essentially paying banks to keep them in business. The longer wages remain low, and the sooner jobs become replaced with tireless robots who don’t need health insurance, the closer we edge to a crisis in which productivity is chugging along but consumption has all but dried up. In another sense, we can’t afford not to try a guaranteed income program. No wonder so many of the 1% are calling for it: If they get their way, we may all need a bailout.