When the COVID-19 pandemic shut down businesses and sent workers home, the government stepped in with stimulus payments that were intended to keep families afloat financially during an unprecedented time. Those payments are a thing of the past, but some have advocated for the government to continue providing regular financial support to residents, particularly those with lower incomes.
Known as universal basic income or guaranteed income, these proposals have been divisive. 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.
Those who support universal basic income — or 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 is money distributed by the government to everyone, regardless of their income or need.
“The general idea is that we create a floor of income so everyone can meet their basic needs,” says Jamie Hopkins, managing partner of wealth solutions in the Philadelphia office of financial firm Carson Group.
One early UBI proposal came from Thomas 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.
[Read: What It Really Means to Tax the Rich]
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 100 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.
Nearly 50 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, ran a Chelsea Eats program in 2020. That provided approximately 2,000 households with $200 to $400 a month that could be used however participants wished.
Where UBI and Guaranteed Income Programs Are Available
No country currently offers a universal basic income to its residents, although Brazil has come close. The country enacted a law in 2005 to provide a monthly monetary benefit to all citizens — as well as foreigners who have resided in the country for more than five years — regardless of their socioeconomic status. However, the law was never implemented as written.
Ireland also has a form of guaranteed income for parents. It pays a monthly child benefit to parents with children younger than age 16 or age 16 and 17 so long as they are in full-time education or disabled and unable to support themselves. For 2022, the child benefit is €140 per month per child, which equals approximately $137.
In the U.S., Alaska has a form of UBI with its Permanent Fund Dividends. This money is distributed annually to all Alaska residents from the state’s Permanent Fund. The fund was created by a ballot proposal passed in 1976 that mandates at least 25% of the state’s mineral royalties be deposited into it.
Guaranteed income pilot programs in the U.S. have been offered or are planned in dozens of cities, including the following:
— Atlanta, Georgia.
— Ithaca, New York.
— Santa Fe, New Mexico.
— Houston, Texas.
— Oakland, California.
Most programs include several hundred participants who are either chosen through a lottery system or recruited by a partnering agency. Eligibility varies by program, and here are examples of how three have been structured:
The Bridge Project: Run by The Monarch Foundation, this project gives monthly payments of $500-$1,000 to low-income mothers in New York City. The program runs for three years.
Shreveport Guaranteed Income Program: Administered by the City of Shreveport and United Way of Northwest Louisiana, this pilot program provided $660 monthly payments to low-income, single-parent households for one year.
People’s Prosperity Guaranteed Income Pilot: Using public funds, this program gives $500 monthly payments for two years to low-income families in Saint Paul, Minnesota, and also makes $1,000 deposits into children’s college savings accounts.
[Read: Where Do I Fall in the American Economic Class System?]
Advocates Say UBI Is Efficient and Effective
A key benefit of a pure UBI system — which provides cash to everyone regardless of need — is its simplicity. It provides immediate help and eliminates red tape that may make it difficult for some households to access other help.
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.
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, and there is a question of who pays for these programs. “It’s a leveling of wealth to some degree,” Hopkins says. “There is a concern about tax increases and that it feels unfair.”
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, advocates argue that 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.
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.
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.
A form of negative income tax can be seen in today’s refundable earned income tax credit. This credit provides cash back to income eligible households even if they don’t owe any tax.
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.
UBI and Guaranteed Income in Action
With many guaranteed income programs in their infancy, their impact is still unknown, although early results have been promising.
One criticism of giving cash with no strings attached is that it could enable poor spending decisions. However, that doesn’t seem to bear out in the findings for at least one program.
The initial spending report from Chelsea Eats showed nearly three-quarters of the money distributed 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.
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.
In another study, called Baby’s First Years, researchers from six universities provided low-income mothers with unconditional cash payments of $333 or $20 per month. After a year, the infants of mothers receiving the $333 per month showed higher levels of brain activity than those whose mothers received $20 payments.
Time will tell if other pilot programs will result in similar findings, but Hopkins says there is already a long-term, large-scale program demonstrating the benefits of providing predictable income. “Social Security has kept seniors out of poverty since (its inception),” he notes.
Without Social Security benefits, nearly 38% of adults aged 65 and older would have had incomes below the poverty line in 2020, according to an analysis by the Center on Budget and Policy Priorities. With Social Security, only 9% live in poverty, compared to 10.4% for younger adults and 16.1% for children.
As with Social Security, there may be funding challenges to overcome for UBI and guaranteed income programs. But supporters believe that time will show that these initiatives too will help keep people out of poverty and, in turn, benefit communities as a whole.
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What Is Universal Basic Income? originally appeared on usnews.com
Update 10/19/22: This story was published at an earlier date and has been updated with new information.
