How Basic Income Could Promote Economic Advancement Rather Than Government Dependency

How Basic Income Could Promote Economic Advancement Rather Than Government Dependency

By Wayne Winegarden and Tim Anaya

Last month, Right by the Bay reviewed the findings of a new study touted by former Stockton Mayor Michael Tubbs reportedly showing the success of the city’s universal basic income scheme.

Reviewing the report’s findings, we concluded that there were many serious questions with the analysis, “making any conclusions about the efficacy (or inefficacy) of a UBI impossible to draw.”

The program is catching on. On the heels of Stockton’s news, Oakland Mayor Libby Schaaf announced a privately-funded $500 per month basic income program.  Last week, Los Angeles Mayor Eric Garcetti announced a basic income program to provide $1000 a month to 2000 families – at a $24 million annual cost  – paid for by taxpayer dollars.

One of the traditional tenets of basic income is that it is universal.  But as progressives don’t intend to subsidize the wealthy, the programs promoted by the California mayors aren’t truly universal.  However, if the program is not universal, it is simply another government social safety net program – or “fool’s gold” as Damon Dunn calls it in his recent PRI book, Punting Poverty.

But there is no reason that a basic income should be universal. Making monthly payments from the government universal to all Californians leads to a reductio ad absurdum, where Elon Musk’s taxes are (in part) funding a monthly payment to Sundar Pichai (the CEO of Google), while Sundar Pichai’s taxes are (in part) funding a monthly payment to Elon Musk. Families earning billions, millions or hundreds of thousands of dollars do not need the help.

But that’s not to say that a UBI program couldn’t be designed to empower those in extreme poverty to climb the economic ladder and end dependence on taxpayer assistance.  How could this work?

First, we must consider whether government is devoting sufficient resources to the issue. Tubbs and the California mayors clearly believe that the government is not spending enough – otherwise there is no need to spend more.

This is simply not true when you consider that the federal government spent nearly $904 billion on Medicaid, unemployment compensation, housing assistance, food and nutrition assistance, and other income security programs. Relative to the nearly 22 million households who earn less than $25,000 annually, this equates to annual expenditures of over $41,000 per low-income household. California also spends billions more on homeless programs, MediCal, CalWORKS, and food assistance programs.

The calls for a UBI demonstrate that the current income support programs are failing to help people who need support to overcome poverty and failing taxpayers who are spending billions while achieving little.

So, how can the government create a more effective income support program?  It is toward this goal that the UBI concept can be useful.

The current web of income support programs delivers substandard services and creates disincentives to work and save. Repealing every one of the current programs would free up $904 billion, which could transform the UBI concept into a simpler, more effective, income support program.

This income support program, which would be essentially a version of Milton Friedman’s negative income tax, could guarantee a minimum income level – say $30,000 annually or the annualized equivalent of the current calls for a $15 minimum wage. This would mean a person who lost their job would be guaranteed to receive $30,000 a year. California, or any other state, could decide to eliminate their state-level programs and provide additional income support as well.

To ensure that this is a proper income support program, not a basic income, there should be job searching or education requirements to receive this income, with stringent exceptions where appropriate. To ensure that this support is not a “basic income” that negates work requirements, the benefits should phase out at a constant rate, and the income support recipient should pay no taxes until they are no longer receiving any support (e.g., the loss of income support is their effective tax payment).

Based on our calculations, this proposal would be budget neutral for the federal government if the benefits are phased out at a rate of 40-cents of benefits reduced for every dollar earned.

While we are not naïve enough to believe this reform could pass in the current political environment, in theory it should have bipartisan appeal. For those on the left-side of the aisle, it is a practical application of the UBI concept that would create a solid income floor while neither discouraging work nor bankrupting the government.  For those on the right, it creates a less intrusive income support system that is simpler to implement and maintains strong incentives for all people to work, save, and invest.

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