Universal Basic Income is Probably Not the Future of Welfare

If for no other reason, universal basic income — that is, the idea to replace the current means-tested welfare system with regular, unconditional cash payments to every citizen — is remarkable for the eclectic support it receives. The coalition for universal basic income (UBI) includes libertarians, progressives, a growing chorus of Luddites, and others still who believe a scarcity-free world is just around the corner. Based on its popularity and the growing concerns of coming economic upheaval and inequality, it’s tempting to believe the centuries-old idea is a policy whose time has finally come.

Personally, I’m not sold. There are several obstacles to establishing a meaningful universal basic income that would, in my mind, be nearly impossible to overcome as things stand now.

For one, the numbers are pretty tough to reconcile.

According to 2017 federal guidelines, the poverty level for a single-person household is about $12,000 per year. Let’s assume we’re intent on paying each American $1,000 per month in order to bring them to that level of income.

Distributing that much money to all 320 million Americans would cost $3.84 trillion, approximately the entire 2015 federal budget and far greater than the $3.18 trillion of tax revenue the federal government collected in the same year. Even if we immediately eliminated all other entitlement payments, as libertarians tend to imagine, such a program would still require the federal government to increase its income by $1.3 trillion to resist increasing the debt any further.

Speaking of eliminating those entitlement programs, hopes of doing so are probably far-fetched without a massive increase in taxation. A $1,000 monthly payment to every American — which again, would consume the entire federal budget — would require a lot of people currently benefiting from government transfers to take a painful cut. For example, the average monthly social security check is a little over $1,300. Are we really going to create a program that cuts benefits for the poor and spends a lot of money on the middle class and affluent?

In spite of the overwhelming total cost of such a program, its per capita impact would be pretty small, since all the cash would be disbursed over a much greater population than current entitlements. For this reason, its merit as an anti-poverty program would be questionable at best.

Yes, you can fiddle with the disbursement amounts and exclude segments of the population — dropping minors from the dole would reduce the cost to around $2.96 trillion — to make the numbers work a little better, but the more you do that the less universal and basic it becomes, and the more it starts to look like a modest supplement to our existing welfare programs.

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Universal basic income’s problems go beyond the budget. If a UBI was somehow passed (which would likely require our notoriously tax-averse nation to OK trillions of additional dollars of government spending), it would set us up for a slew of contentious policy battles in the future.

Entitlement reform, already a major preoccupation for many, would become a more pressing concern in the event that a UBI of any significant size were implemented. Mandatory spending would increase as more people draw benefits for more years and continue to live longer. Like the entitlements it may or may not replace, universal basic income would probably be extremely difficult to reform in the future.

Then there’s the matter of immigration. If you think reaching consensus on immigration policy is difficult in the age of President Trump, imagine how it would look once we began offering each American a guaranteed income large enough to offer them an alternative to paid work. Bloomberg columnist Megan McArdle estimates that establishing a such a program would require the United States to “shut down immigration, or at least immigration from lower-skilled countries,” thereby leading to an increase in global poverty.

There’s also the social aspect to consider. I don’t want to get into it too much because everybody’s view of what makes people tick is different. But it seems to me that collecting money from the government doesn’t make people especially happy or fulfilled.

The point is, part of what makes universal basic income appear realistic is the political coalition backing it. But libertarians, progressives, and the rest of the groups superficially united behind this idea have very different opinions about how it would operate and very different motivations for its implementation. When you press the issue and really think through the consequences, the united front for universal basic income begins to crack.

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Don’t get me wrong; there’s plenty about universal basic income that appeals to this author’s libertarian sensibilities. I think there’s a strong argument for reforming the welfare system in a way that renders it more similar to a basic income scheme, namely replacing in-kind payments and some subsidies with direct cash transfers. Doing so would, as advocates of UBI claim, promote the utility of the money transferred and reduce government paternalism, both goals which I find laudable.

I should also note that not all UBI programs are created equal. Universal basic income has become something of a catch-all term used to describe policies that are quite different from each other. The negative income tax plan Sam Bowman describes on the Adam Smith Institute’s website is much more realistic and well-thought-out than a system that gives a flat amount to each citizen. That it is neither unconditional nor given equally are its two greatest strengths.

However, the issues of cost and dispersion, both consequences of UBI’s defining characteristics, seem to me insurmountable. Unless the United States becomes dramatically wealthier, I don’t see us being able to afford to pay any significant amount of money to all or most people. We would need to replace a huge amount of human labor with automation before this plan can start to look even a little realistic. Even if that does happen, and I’m not sure that it will anytime soon, I think there are better things we could do with the money.

This article originally appeared on Merion West.

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3 thoughts on “Universal Basic Income is Probably Not the Future of Welfare

  1. Great post. The only way to fund a UBI for all citizens would be to print the money, and that will lead to massive inflation.

    Wage subsidies (with no minimum wage) are a far better way to reduce income inequality. People need economic incentives to work, not to be idle.

    The ultimate socialist dream is one group of people producing while the rest consume without doing productive work.

    Like

    1. Thanks for reading.

      That’s pretty much where I’m at re: wage subsidies and dismantling the minimum wage (or more realistically keeping it where it is). We can definitely come up with enough surplus to support low-wage earners.

      I think UBI fans underestimate the amount of productivity it would take to perpetuate such a system and don’t consider how the incentives necessary to keep that level of production in place would be undermined by the (ironically) high marginal tax rates created by a progressively-funded UBI.

      Having said that, we’ll have to see what the future holds.

      Liked by 1 person

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