By Oshan Jerow
See original post here.
I’ve been following debates on guaranteed income for almost a decade, and one thing that’s stood out is that universal basic income (UBI), a regular cash payment to all citizens with no strings attached, is like a Rorschach test.
Some people see UBI as a “capitalist road to communism” or a world free of work. Others see everything from a means of unleashing the population’s creative potential to a policy that would undermine human agency and erode “psychological capital.” Some see it as a way to shore up the welfare state. Others, a way to bulldoze it.
In part, that’s because unless you pin down the details, basic income is too vague to mean anything politically concrete. Like the Rorschach inkblot, you can interpret and design UBI in an endless variety of ways. A program that provides $250 per month is a different ballgame than one providing $1,200 per month. The same goes for one that replaces all other welfare, like food aid (sometimes referred to as a “pure UBI,” which would actually leave the most disadvantaged worse off, and is a bad idea), compared with one that complements existing programs.
Ultimately, the effects of any income guarantee hinge on the details. How much does it pay? Who gets it? How’s it financed? How does it relate to the rest of the welfare state? But most of the real proposals that have made their way through the policy world share a noteworthy trait: When the dust settles, they just wouldn’t be that radical, in either direction.
Generally, most people at the bottom of the income ladder would be better off, those in the middle would break even as they pay about as much in higher taxes as they’d receive from the basic income, and those at the top would be a little worse off. Society would neither ascend into utopian communism nor collapse into bleak idleness. There would just be less poverty and higher taxes.
I see this as good news. If basic income won’t be the silver bullet that changes — or destroys — society, it becomes something far more politically tractable: a moderately effective policy, albeit one with trade-offs, that is well worth considering.
The many faces of basic income
Among actual basic income proposals, some definitely have more of a radical edge than others. But not in terms of their economic effects. What’s radical about imagining a $1,000 per month UBI isn’t so much how it’d affect the economy — again, some would be better off, others would break even, others would be worse off. It’s how to get a program with a $3 trillion price tag through a Congress that couldn’t even solidify an incredibly successful basic income for children — the temporarily expanded child tax credit — that only cost about $100 billion.
Even if the $3 trillion version were to pass, perhaps by effectively communicating how taxing some of the benefits back would lower the program’s net cost, the result would land US federal spending as a percentage of GDP right around where France and Scandinavian countries already sit. Which is to say, from the perspective of other social democracies, that level of spending would be normal.
One way to blunt the more radical politics of UBI is to style the income guarantee as a negative income tax (NIT) instead. The main difference is that NIT’s are means-tested, phasing out their benefit levels as earned income rises. Doing so could lower the sticker price while achieving basically the same economic effects as a UBI considered together with higher taxes, which claw back the benefits to achieve a similar effect as the NIT means-test phasing them out.
For example, one 2021 proposal outlined an NIT-style basic income that guaranteed $12,500 to all adults (plus an additional $4,500 per child). The benefit would begin phasing out when household income (calculated for two-adult households) reaches $15,000, and would zero out at a household income of $70,000. It was estimated to cost $876 billion per year. Compare that to the $3-or-so trillion of high-end UBI proposals that guarantee a similar amount.
Since NIT can be made equivalent in distribution to UBI, but the politics lean in favor of the former, there’s an argument to be made that NIT is the realistic path forward. “A leading task for the left is to legitimize the notion of a new NIT,” writes the economist Max Sawicky in an excellent overview piece. “There are genuine ways to attenuate the power of Capital … The naïve version of UBI isn’t one of them.”
There are, of course, other trade-offs to consider. NIT imposes a hefty administrative burden, where monthly payments would have to be tuned to fluctuating incomes. There may also be a psychological difference between phasing out benefits and paying higher taxes.
But if you put that whole debate aside and keep poking at the economic effects of UBI, its radical mystique continues to dissipate.
The general pattern of basic income’s economic impact
As my colleague Dylan Matthews wrote, “whether or not basic income is a good idea depends entirely on how you pay for it.” In addition, when you look at UBI together with however you propose to pay for it, you begin to see through the radical veil.
Consider one of the most common pairings: paying for UBI with a value-added tax (VAT — sorry, another acronym), a type of consumption tax used across 170 countries worldwide, including all of Europe, leveled on all purchases, including goods and services.
The economist William Gale ran the numbers on coupling a 10 percent VAT with a UBI payout that would range from $2,500 for individuals to about $5,200 for a family of four. The results look like this:
The poorest 20 percent of Americans would see their after-tax income rise about 17 percent — a significant anti-poverty gain. The next 20 percent of Americans would see only a modest gain, roughly 5 percent. The middle 20 percent would experience basically no change. The gains from their UBI would almost perfectly cancel out the higher tax rates they’d pay. And the remaining upper classes would see modest decreases in income, with the tax costs outstripping their UBI benefits.
While the numbers will vary based on the details of the proposal, the trend is general: broad-based taxation coupled with a universal payout, the basic formula of most realistic UBI proposals, tends to leave those at the bottom better off, those in the middle about even, and those at the top a little worse off. It’s not incredibly radical — it’s just an effective anti-poverty policy.
Turning to the macroeconometric models that economists use to predict how various policy changes might affect the economy, you’ll find a similar story. Whether predicting the effects of a tax-funded UBI with the progressive-leaning Levy Institute model or the more centered Penn Wharton Budget Model, GDP and employment rates neither balloon nor crater. Neither model foretells an upheaval in the economic order of things, just a few percentage points in one direction or the other.
We also have suggestive empirical evidence from 2021, the year we had that UBI for kids. The results were as follows: struggling families found it easier to feed their children, pay their utility bills, invest in education, and pay the rent. Employment rates hardly budged, moving us no closer — or farther away, depending on your tastes — to a world without work. (Though, to be fair, a program everyone knows is temporary likely has less impact on employment than if it were permanent.)
Radical ideas have their place. They can stretch our collective imagination, and keep us from falling victim to the belief that there are no fundamental alternatives to the present arrangement of our world. But basic income doesn’t have to be one of them, and shedding that association offers at least two payoffs.
It could bring basic income further into the realm of pragmatic policy analysis, where wonks of all stripes present their views on whether or not the programs’ tradeoffs are worth it. Second, for those who want to elevate their sights on radical possibilities that might exceed political realities, why not dream bigger?