What Is Universal Basic Income?

Depending on whom you ask, providing all Americans with a guaranteed universal basic income could erase inequality and spur entrepreneurship or it could be a recipe for economic disaster.

Proposals around a universal basic income, commonly called UBI, have been promoted as far back as 1795 in the writings of Thomas Paine. Recently, in the wake of the COVID-19 pandemic and its high unemployment, the idea of a guaranteed income has gained more attention and become more appealing to some.

Those who support UBI say it’s an easy way to distribute aid to vulnerable populations. Others worry such a system would be costly and discourage workers from finding jobs. Opinions vary, but cities across the country are already experimenting with guaranteed income programs and reportedly finding success.

What Is UBI?

The concept of UBI is simple. “It’s free money with no strings attached,” explains Aaron James, a professor of philosophy at the University of California Irvine and co-author of the book “Money From Nothing.” In other words, it is money distributed by the government to everyone, regardless of their income or need.

One of the early UBI proposals came from Paine, an advocate for American independence who may be best known for publishing the pamphlet “Common Sense” in 1776. Two decades later, he published another pamphlet, entitled “Agrarian Justice,” suggesting European leaders create a national fund. From this fund, Paine recommended giving every person 15 pounds sterling once they reached the age of 21 and then 10 pounds each year after age 50.

While Paine was looking for a way to compensate people who had no land, modern UBI proposals are generally focused on alleviating poverty and providing economic security. They are often envisioned as a simple replacement or supplement to current forms of public assistance such as the Supplemental Nutrition Assistance Program, commonly known as food stamps.

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Guaranteed Income: A Twist on UBI

A pure UBI system provides cash to everyone, regardless of their means or economic situation. Slightly different are guaranteed income programs which provide assistance to targeted populations.

“We believe in guaranteed income to close inequalities,” says Sukhi Samra, director of Mayors for a Guaranteed Income, a coalition of more than 70 mayors who are advancing guaranteed income initiatives in their communities. Part of the organization’s mission is to use guaranteed income to advance the twin goals of economic justice and racial justice.

More than two dozen pilot programs have been planned or launched with the support of Mayors for a Guaranteed Income, but they aren’t the only ones experimenting with the concept. The City of Chelsea in Massachusetts, for instance, recently wrapped up its Chelsea Eats program, which provided approximately 2,000 households with $200 to$400 a month that could be used however participants wished.

[Read: Where Do I Fall in the American Economic Class System?]

Advocates Say UBI Is Efficient and Effective

A key benefit of a UBI system is its simplicity. “It’s an immediate solution to income poverty,” according to James. It also eliminates red tape that may make it difficult for some households to access other help. “A lot of people don’t have the time and energy to navigate the bureaucracy,” he says.

That isn’t just a benefit for recipients, either. UBI systems eliminate the need for the government to spend time and money reviewing applications and monitoring benefits. It also ensures no one falls through the cracks, and it removes the stigma of receiving public assistance.

Beyond that, providing a UBI may boost entrepreneurship as people feel comfortable starting a business or switching jobs. “The pandemic was a bit of a national experiment,” says Charles Clark, a professor of economics at the Tobin College of Business at St. John’s University in New York City.

There is nothing definitively tying government stimulus benefits to the so-called Great Resignation — which notably started after payments ended. However, some speculate the extra cash could have provided the financial cushion needed for workers to consider changing jobs, retiring earlier or dropping out of the workforce to care for children or other loved ones.

Some Worry About Cost, Discouraging Work

However, others have concerns that UBI could negatively impact the workforce. “I understand fully the sentiment behind promotion of UBI, yet I also think that there are many unintended consequences that would be realized,” says Peter C. Earle, an economist with the American Institute for Economic Research.

Earle points to the vast differences in the cost of living across the country. Depending on the size of a payment, UBI could allow people in some parts of the country to live comfortably without working. That may lead firms to migrate from low-cost regions to high-cost areas to find labor. Doing so could increase costs — and prices — for everyone.

An influx of cash into the economy could also drive inflation up, although there could be a way to solve that problem, James says. He suggests a central bank could be used to provide accounts for UBI payments. To control inflation, the bank could raise interest rates to discourage spending and encourage saving or, if needed, even freeze account balances temporarily to eliminate spending. James argues this would simply be a more effective way to do what the Federal Reserve already tries to do indirectly.

In addition to job and inflationary concerns, Earle thinks it’s inevitable that UBI would become a political football as people jockey to adjust payments for factors such as a person’s income or an area’s cost of living. “More jobs and stable prices would do everything that UBI seeks to, without the risks,” Earle says.

There is also the question of why the government should provide payments to those with enough wealth to support themselves. However, according to Clark, universal payments eliminate the possibility of a “poverty trap” in which people may find they actually lose money if they work more and become ineligible for benefits. “You never want to have a disincentive to work,” Clark says.

UBI vs. Negative Income Tax

While UBI and guaranteed income programs are currently garnering the most attention, negative income tax is another method proposed to help alleviate poverty in the country. Introduced in 1962 by Milton Friedman, a professor at the University of Chicago, this method called for the federal government to pay out cash, through the income tax system, to those in lower income brackets.

“In some sense, we already have a form of it,” James says, referring to the refundable earned income tax credit. This credit provides cash back to income eligible households even if they don’t owe any tax.

By making negative tax payments, it was believed the government could reach more people than current assistance programs, reduce expenses and complexity, and eliminate the disincentive to work posed by a high tax rate. There were a number of experiments involving negative income tax in the 1960s and 1970s, most notably in New Jersey.

However, the concept never took hold beyond the EITC, with some arguing it was an inefficient way for the government to distribute funds. That may be one reason why UBI proposals are so attractive to some people: They eliminate much of the bureaucracy associated with administering a negative income tax.

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UBI and Guaranteed Income in Action

Currently, no country offers all its residents UBI, but there are examples of the concept in action. Alaska has long distributed checks each year to its residents from a fund created with oil revenues. In Brazil, the city of Marica has been making regular payments to 42,000 of its residents since 2013. And in Ireland, parents receive 140 euros per month for each child younger than age 16.

After the COVID-19 pandemic drove up unemployment and job insecurity in 2020, some have renewed calls for a nationwide UBI, and guaranteed income pilot programs have popped up across the country.

In Chelsea, the initial results on spending from the Chelsea Eats program have been promising. “There’s a lot of compelling information about the impact this money had not just on the families who received it, but also on the local economy,” says Josh Block, communications director for the Shah Family Foundation, which provided support for the initiative.

The program’s spending report from May 2021 showed nearly three-quarters of the money distributed by Chelsea Eats was spent at stores selling primarily food, and a third was spent at a local Chelsea supermarket chain. Retail purchases accounted for about 20% of spending, and only 0.4% of money was spent in liquor stores and smoke shops.

By and large, the money stayed local, too. The spending report found that nearly 56% of money was spent in Chelsea, and 25% went to businesses in neighboring towns. “It shows that when you give people money and trust them to spend it on what they need, it’s a highly effective approach,” Block says.

The results of Chelsea Eats are in line with the spending patterns that came out of one of Mayors for a Guaranteed Income’s earliest pilot programs in Stockton, California. There, roughly 40% of money was spent on food, 25% on sales and merchandise, 10% on automotive needs and 10% on utilities. “Folks are overwhelmingly spending money on basic necessities,” according to Samra.

The Stockton pilot program also found that those receiving financial assistance were twice as likely to transition to full-time work as those who did not receive regular cash payments. “It really rebuts the criticism that if you give people money they will stop working,” Samra says.

Only women with small children tend to work less when provided guaranteed income, according to Clark, who has studied UBI initiatives globally. Still, he doesn’t see a national UBI or guaranteed income program being launched in the U.S. anytime soon. “It’s hard to do that in the United States because we have so much animosity,” Clark says. “Anything that targets low-income populations becomes racialized pretty quickly.”

A goal of Mayors for a Guaranteed Income, however, is to run pilot programs that will build evidence to change the narrative around the value of regular cash payments to families. Time will tell if they will be met with success.

More from U.S. News

Where Do I Fall in the American Economic Class System?

Ways to Build a Passive Income Stream

What It Really Means to Tax the Rich

What Is Universal Basic Income? originally appeared on usnews.com

Update 03/01/22: This story was published at an earlier date and has been updated with new information.

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