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BASIC INCOME AND WELFARE REFORM:
PERSPECTIVES, OPPORTUNITIES, AND CHALLENGES
The recent global recession has served to highlight the fact that unemployment and
poverty remain persistent flaws in the United States economy. To blunt their impact, policy-
makers typically turn to some combination of conditional, targeted public assistance programs.
Current economic conditions make limitations that strategy clear. One strikingly unique policy
tool stands out among the sea of reform proposals – the unconditional basic income (henceforth
abbreviated as UBI). For the purposes of this paper the UBI will be generally defined as an
indefinitely recurring cash grant provided by a government body to individual citizens without
regard to their household composition, financial means, tax contributions, or employment status.
This particular reform is an admittedly radical departure from the status quo, so it merits a
careful and thorough evaluation. With that in mind this paper seeks to examine the UBI’s
historical background, legislative characteristics, normative bases, substantive effects,
administrative challenges, possible funding sources, and potential shortcomings. The following
analysis formulates a conception of the UBI as a well-developed idea that offers transformative
potential and poses correspondingly immense challenges.
1
Background
It is important to have a clear picture of what the UBI is before attempting to engage in
any normative or positive assessments of such a policy. The following section will present an
overview encompassing the UBI’s theoretical and practical history in addition to a few
representative proposals for national reform. This review demonstrates that the UBI is
sufficiently detailed and developed to be analyzed systematically.
The History of Basic Income
The idea for a UBI has been around for in some form or another for over 200 years.
Though proponents’ motivations have differed over time, the fundamentals of such policies have
remained consistent. An overview of the history of UBI theory (as developed by Paine and
Fourier) and UBI policy (as developed by Manitoba, Alaska, and Iran) supports the general
definition outlined above and serves as valuable background for evaluating contemporary
proposals for a national UBI in America.
One of the earliest arguments for a UBI was put forth by Thomas Paine in 1797 with
Agrarian Justice. Paine’s purpose in writing this pamphlet was to outline an ethical and
legislative counterpoint to a popular religious sentiment of his day – the view that the division of
the world between rich and poor was an immutable element of God's will. He bases his ethical
argument on a distinction between two types of property – natural and acquired, respectively.
Paine was a proponent of the Lockean view that every individual has a right to acquire property
in proportion to how much they contribute to its production. By contrast, Paine holds that each
individual has the right to an equal portion of nature or the equivalent thereof. These precepts
have important implications for the organization of society and government. He contends that a
2
transition from “the natural to the civilized” state benefits the rich at the expense of the poor.
What the rich gain in variety and luxury, the poor lose in access to free land that could otherwise
be used for their own subsistence. He concludes that “the first principle” of civilization” should
be to ensure that no individuals are worse off than they would be without the imposition of
government. The basis for Paine’s legislative remedy to this problem is what he refers to as
“ground-rent,” which refers to the product that individuals derive from increased agricultural
productivity made possible by private land-ownership. In Paine’s view, this monopoly rent
rightfully belongs to the community from which the land in question was appropriated. He
proposes that the legislature tax bequeaths to capture this revenue and then invest it in a
“National Fund” that would provide a capital grant to every individual on their 21st birthday and
an annual pension to every individual older than 50. This would compensate each recipient “for
the loss of his or her natural inheritance, by the introduction of the system of landed property.”
Finally, Paine insists that these payments must be distributed universally in order to prevent the
“invidious distinctions" between rich and poor that dominated religious philosophy in his day.
Another source for contemporary UBI theory is French philosopher Charles Fourier and
his "social minimum" proposal. The basis for his view is that all individuals are entitled to
provide their own subsistence. This is inherent in nature where all people can hunt, fish, gather,
or graze. Civilization, according to Fourier, prevents people from effectively exercising these
rights. Like Paine, he believed that individuals should be compensated for that loss (Cunliffe &
Erreygers 2001, 464). Fourier first articulated a solution to this problem in 1803 when he
identified poverty as the single greatest threat to society (461). He thought society could most
effectively resolve this threat by providing a "minimal standard of living" that ensures access to
food, clothing, and housing to all individuals regardless of employment status (462). Fourier's
3
views gained traction when the famous political philosopher John Stuart Mill began promoting
them. Mill argued an economic system that protects private property while providing every
member of the community with "a certain minimum" sufficient for subsistence. After meeting
this condition, Mill believed the rest of society's production should be allocated on the basis of
each individual's contribution to labor, capital, and talent (461). Belgian Socialist Joseph Charlier
also accepted Fourier's conclusion that the government should resolve poverty by providing
individuals with a minimum standard of living to replace their loss of natural subsistence. He did
not, however, agree with the contention that minimum wages and "in-kind" services were the
best policy mechanisms for accomplishing that goal (471). In 1848 he outlined a proposal for the
state to become the sole landowner and redistribute land-rents to compensate former private
landowner. The proposal goes on to specify that the state would use remaining revenue to
establish a "guaranteed minimum" for the rest of society (474). This minimum would grow over
time as the number of former landowners entitled to compensation gradually died off (475). This
complicated solution, Charlier argued, would reconcile the injustice of private land ownership
with respect for legal contracts (473). In the final consideration, Charlier’s development of
Fourier’s proposal can be considered a UBI in the modern sense because all individuals would
eventually have an equal right to a minimum income.
Despite many UBI advocates throughout history, there has been no notable application of
such a policy until the 20th century. Belik (2011) reports that Canada initiated one of the earliest
documented experiments with UBI policy between the years of 1974 and 1978. Federal and
provincial governments over this period provided a monthly grant called the "mincome" to any
of the approximately 1000 residents of Dauphin, Manitoba who fell below the poverty line. The
4
stated purpose of this pilot program was to determine how direct cash payments influence the
work effort of recipients. The grant was initially valued at $1200 per year with the poverty line
was $2100 annually. However, the program went several million dollars over budget after
Canada faced an economic recession that expanded the ranks of the poor and raised prices. The
“mincome” was abruptly cancelled after only four years and the government subsequently
refused to release any data on the program until 2009. As such, researchers have only just begun
to systematically assess the effects of this brief UBI experiment. There may still, however, be
conclusions to draw from the ongoing experiment with UBI taking place in the State of Alaska.
In 1976 residents of Alaska voted to approve a constitutional amendment that committed
a portion of the state’s yearly oil revenues to investment in the Alaska Permanent Fund, which
was established for that purpose (O'Brien & Olson 1990, 140). The legislature earmarked the
accumulated principal toward “income producing investments” in order to diversify Alaska’s
boom-and-bust prone natural resource based economy (141). The interest generated from the
fund remained unappropriated until Government Hammond proposed creating a dividend
program modeled such that Alaskans would be treated like “stockholders in a corporation” (143).
One rationale for this policy was the assumption that resources under state lands belong equally
to “all state residents, including future generations.” However, Alaskan residents have
historically been highly geographically mobile. This means that future generations may not be
able to benefit from oil revenues via the normal channels of bequests and intergenerational
wealth transfer. According to proponents, preserving a portion of royalties in a permanent fund is
a superior way to facilitate an equitable distribution of profits from the exploitation of
nonrenewable resources between generations over the long term (144). Dividend payments
began in 1982 at $1000 per citizen. That amount fell to an all-time low of $385 the next year, but
5
rose such that it has been between $825 every year since 1988, peaking at $2069 in 2008. The
program has disbursed over $17.5 billion since its inception (Alaska Permanent Fund
Corporation 2012).
In 2010 Iran became the first country in the world to implement a national UBI grant
(Tabatabai 2012, 17). This policy came about largely by accident. The government set out to
reform Iran's elaborate system of subsidies, but failed to produce the public support or technical
planning necessary for more targeted reforms (18). As a result, the grant is financed by a gradual
rollback of explicit and implicit subsidies, which were themselves financed by revenues from
Iran's nationalized oil sector (19). The initial yearly transfer per capita was roughly $500 and
claimed by 72.5 million people and account for roughly 15 percent of Iran's national income. For
comparison, Alaska Permanent Fund Dividend payments only account for about 3 to 4 percent of
Alaska's state income (18). The Iranian government has not implemented the policy as the
legislative authors intended, however. The law called for the government to cut up to $20 billion
is subsidies over the course of its first year while phasing in cash transfers. The government
instead opted to delay the policy until the last quarter of the year, at which point it cut $20 billion
in subsidies over the course of three months in order to inflate the size of the initial cash transfers
(21). The policy invites volatility in other respects as well. A decline in international oil prices
poses two serious risks to the program: it would reduce the difference between Iranian
consumers actually pay and what they would have paid under the previous subsidy system, and it
would reduce Iran's oil revenues generally (23). Another problem is inflation, which hovers
around 20 percent annually in Iran and will rapidly erode the value of the grant for the
foreseeable future (25). In sum, Iran's experiment with subsidy reform is an important milestone
6
in UBI studies because it represents the first national policy of its kind; however, a
comprehensive policy assessment will have to wait until the program is fully implemented.
In conclusion, this review of the theoretical and practical history of UBI policy provides a
sufficient background for the general definition outlined above, which itself provides a frame for
constructing and evaluating modern UBI proposals
Contemporary Proposals
For the purposes of this paper a UBI policy is defined by three characteristics: the
government grants cash to individuals, recipients are not subject to means tests, and the
government does not impose work requirements. Admittedly, these criteria are vague enough to
encompass a variety of programs that differ in both degree and substance. The unity and
diversity of such policies can be illustrated via a brief overview of a few specific recent UBI
proposals.
In 1998, Leonard Green of the Institute for SocioEconomic Studies proposed a partial
UBI program named the National Tax Rebate. This program would provide a cash payment of
approximately $4000 to each adult and $2000 to each child, treat these payments as taxable
income, and finance these payments by eliminating other "welfare programs and tax
expenditures." There would be no work requirements, means-tests, or additional benefit
reduction rates. Though the grant would not raise recipients above the poverty line on its own,
one full-time minimum wage worker could lift a four person family out of poverty. At the time
of its proposal, this program would have been revenue neutral without any alteration of the tax
code. Computer simulations forecast that this policy would raise incomes in the bottom three-
7
fourths of the population, with the greatest improvements accruing to the most poor (Bryan 2005,
609). Though the National Tax Rebate was highly detailed for its time, subsequent proposals
have been much more comprehensive.
Allan Sheahan of the US Basic Income Guarantee Network put forth a highly detailed
plan for tax-reform in 2006 that heavily emphasized the gradual adoption of a UBI. Under this
plan every adult would be eligible for a refundable tax credit of $10000 and every child would be
eligible for a $2000 tax credit. The IRS would deposit these Basic Income Grants (or BIGs) into
recipient bank-accounts monthly. Any income an individual receives in addition credit would be
taxed. Social Security and all other federal retirement programs would ultimately be phased out,
but current retirees could either continue to receive their benefits or opt-in to the BIG. The net
cost of this program is projected to be $1.9 trillion (6). This would be funded primarily through
spending cuts including 138 tax loopholes valued at $740.8 billion per year, the tax code's
standard deduction and personal exemption which costs $244.4 billion per year, $375.5 billion in
annual welfare programs such as the EITC and the Child Tax Credit, and $160.9 billion from
annual defense spending (7). The remaining $374 billion would need to be funded via revenue
increases. USBIG advocates a wide menu of revenue increases to cover the cost of their grant.
$270 billion could be generated by reversing all of the Bush tax cuts, $30 billion from returning
to 1994 tax rates, $60 billion by removing the different set of rates for married couples from the
tax code (8), $59 billion from applying a 20 percent surtax to incomes over $1 million, and $220
billion by subjecting all earned income to payroll taxes. At the time of their bill's proposal, these
revenue increases would have contributed $265 billion toward deficit reduction (9). Though
many Democratic lawmakers were sympathetic, this proposal ultimately failed to gain traction in
8
Congress. It is, however, remarkably similar to the proposal released by high-profile
conservative commentator Charles Murray that same year.
Murray uses his 2006 book In Our Hands to outline a plan to replace the welfare state
with a UBI. Under his plan the government would provide every citizen with a passport that
establishes their eligibility for the grant, individual citizens would be required to open bank
account for the grant to be deposited into, and recipients would be charged a 20% surtax on all
earned income over $25000 until they reimbursed the full cost of the plan (10). Citizens would
begin receiving their grant at the age of 21 (79). Living arrangement or marital status would have
no bearing on eligibility and Congress would have discretion to adjust the value of the grant in
response to changes in inflation or median income (12). The projected cost of this plan in 2002
was $2.023 trillion, or $1.794 trillion after taking reimbursement into account (16). Murray
assumes no change in federal tax rates and favors financing his plan by cutting all "programs that
are unambiguously transfers" (12). Eliminating federal retirement programs —Medicare,
unemployment insurance, and retirement and disability insurance benefit payments — would net
approximately $800 billion in savings (131). Eliminating transfers to low-income individuals —
including Medicaid, SCHIP, SSI, TANF payments and in-kind services, the EITC, the child tax
credit, foster care, food stamps, school lunch, WIC, all housing benefits, Pell Grants, and low-
income energy assistance — would net approximately $373 billion in federal savings (134).
Finally, Murray proposes saving approximately $62 billion by eliminating any federal subsidies
to any "industry, corporation, nonprofit organization, or an identifiable group" (132). All things
considered, Murray’s plan would begin with an approximately $355 billion shortfall compared to
the budget neutrality of those outlined above (18). It is a valuable contribution to the literature
9
nonetheless, as it puts forth a plausible vision for UBI reform that should appeal to social and
economic conservatives.
Though the plans above differ in goal and emphasis, they are roughly analogous. There is
a universal agreement on the need to close tax-loopholes and phase out most direct government
transfers. It also seems reasonable to conclude that $2 trillion is a safe estimate for the annual
cost of a UBI policy. Every proposal would require a higher rate of taxation than presently exists,
with the exception of Charles Murray’s more conservative plan. The “Funding” section of this
paper will cover the issue of taxation with greater detail and more current data. There are also
some limited differences in each plan’s approach toward "in-kind" government transfers. While
the authors under consideration generally favor a government role in public education, healthcare
policy remains a contentious area. Murray (2006) proposes eliminating all federal healthcare
spending and requiring individuals to purchase a private insurance plan with their basic income
grant (51). This would cost individuals an estimated $3000 per year if insurance companies were
required to treat the entire population as a single pool (47). Sheahen (2006) reaches the opposite
conclusion. He argues that the government should fully nationalize the health insurance market
and provide "Medicare for All" based on his view that single-payer systems are the most efficient
way to bring long-term costs under control (13). Overall, with few exceptions, recent proposals
have been so similar in key respects that generalized conclusions about the UBI as a whole can
be meaningfully compared to current social welfare policies.
10
Perspectives
Any normative evaluation of a public policy should be viewed in the context of the
critic’s perspective. A perspective in this sense is defined as a body of assumptions about the
world, subjective values, and end goals.
In the case of public assistance, Zelleke (2005) offers a number of perspectives that
justify conditional targeting and work requirements. Paternalists may favor work requirements
on their view of human nature. In this view, poverty and unemployment result from some deficit
of character inherent in society or the poor themselves that can only be overcome by cultivating a
spirit of personal independence. Thus, it is counterproductive for the government to allow the
poor to depend on public assistance. Civic republicans may favor work requirements because
they value the principle of reciprocity. They view society is a “web of mutual dependence” in
which each member’s entitlement to assistance depends on the contribution they are willing to
sacrifice for others. Finally, socialists may favor work requirements as an instrument to achieve
their end goal of distribution “from each according to his ability, to each according to his need”
(636). As Marx argued, the socialist state seeks to construct an economy organized on the
principle of “distribution according to work” (Howard 2005, 621). There are a number of other
relevant perspectives that justify the conditional nature of public assistance in the United States.
If an individual assumes that the most significant social cost associated with redistribution is the
“reduction of work effort,” or holds that value that beneficiaries have “a moral obligation to
work,” then a policy of work requirements is necessary for efficiency and equity (Bryan 2005,
598). For others who support welfare on the grounds that it’s a “social contract,” or a formal
agreement for citizens to meet the needs of others in exchange for having their own needs met,
11
then conditional targeting is a precondition for the policy’s legitimacy (Panitch 2011, 936).
However, it should be noted that these assumptions, values, and goals are not universal.
A number of political philosophers have expressed criticisms of conditional public
assistance or support for a national UBI. Their arguments can be grouped under three broad
perspectives: liberal, socialist, and conservative.
The Liberal/Libertarian View
The liberal libertarian perspective on basic income is predicated on the subjective value
of individual liberty and the end goal of personal autonomy.
Liberals place a high value on the concept of “negative liberty,” or freedom from
government coercion. In short, the only legitimate restraint on individual action is to protect the
safety and freedom of other individuals (Friedman 1982, 160; Atkinson 1995, 75; Howard 2005,
619). Proponents of this perspective can cite the "liberal neutrality" theory of justice advanced by
John Rawls, which holds that the state must take an impartial stance regarding the multitude of
different "substantive conception of the good life" (Van Parijs 1991, 102; Howard 2005, 614;
Gamel et al. 2006, 479). Under this view, work requirements raise the issue of what constitutes
“work” as opposed to “leisure.” A state that imposes binding definitions for those terms is in
effect violating neutrality by making discriminatory judgments about various life choices (Van
Parijs 1991, 110). In kind transfers suffer from the same defect according to Friedman (1982).
He disparages subsidized housing as an example of “paternalism” because direct cash grants
would allow recipients to choose the housing or other good that most meets their needs and
preferences (146). Hayek (2007) goes even further, condemning all policies directed and specific
classes of people as examples of “arbitrary” rather than “impartial” government (191).
12
Negative liberty is not, however, the only element of the liberal perspective. Many
liberals recognize personal autonomy requires the additional dimension of “positive liberty,” or a
minimum of material resources. This follows from the recognition that even in the absence of
government coercion, individuals cannot exercise “effective liberty” if they are unable to
“participate in society.” This can be illustrated by the difficulty homeless people face in seizing
their right to vote in nations where registration is tied to home address (Atkinson 1995, 75). A
UBI policy enhances positive liberty in this sense because it gives each individual the material
means to make their own life choices (Van Parijs 1991, 103; Gamel et al. 2006, 479).
To sum up, a national UBI should be of interest to adherents of a liberal or libertarian
political perspective because this reform would enhance the personal autonomy of recipients
while avoiding coercive mechanisms like work requirements.
The Left-Wing/Socialist View
The left-wing socialist perspective on basic income is predicated on assumptions about
property rights and the subjective value of equality.
Theorists on the political left identify a number of “rents” – benefits that accrue from
unjustly appropriating external resources as private property – as legitimate targets for taxation
or redistribution by government bodies. Van Parijs (1991) identifies an extremely broad range of
taxable rents. One example is “externalities,” which he defines as any resource used to
“nonconsensually worsen the situation of others.” Taxing the emission of pollutants, for
example, would be one way to capture and redistribute an externality (122). More
controversially, he asserts that individuals benefit appropriate an external resource when they
possess jobs as assets. This is because workers benefit from society’s “accumulated material
13
means of production” and scientific advancement (128). This “employment rent” can be
calculated by subtracting the market clearing wage for a particular job from an individual’s
actual wage (125). The only practical way to capture that rent is by taxing wages, as payroll
taxes do in the United States (126). Altogether, left-wing assumptions about rents and private
property serve as justification for a wide number of redistribution policies.
The subjective value that leftists and socialists place on equality has been used by some
as an argument in favor of UBI policies. Van Parijs (1991) bases his own support for UBI in part
on Ronald Dworkin's “equality of resources” theory, which holds that individuals should not be
held responsible for external circumstances imposed on them by previous generations. The crux
of his argument for the UBI is that each individual is rightfully entitled to the “per capita value of
society’s external resources,” which can be collected by taxing rents as outlined above and
redistributed as cash payments (112). He goes on to make the case that these payments should
not be preconditioned by household composition or willingness to work with his conclusion that
"those who take an unfair share of society's resources are not those who opt for such a low-
production, low consumption lifestyle" but rather people who benefit from external resources at
the expense of others (131).
To sum up, adherents to a left-wing or socialist political perspective have views on
property that justify the redistributive mechanisms of the UBI and may welcome the potential of
such a policy to promote the value of equality.
14
The Right-Wing/Conservative View
The right-wing conservative perspective on basic income is predicated on the assumption
that policymakers have imperfect knowledge and the end goal of reducing the scope of
government.
Friedrich Hayek (2007) proposes the “Rule of Law” as a principle that reconciles both
conservative precepts. The Rule of Law holds that government policy should be limited to
general and preannounced laws that “make it possible to foresee with fair certainty how the
authority will use its coercive powers in given circumstances and to plan one’s individual
affairs” accordingly (187). Hayek argues that is important to prevent the government from
having discretion over specific situations because “only the individuals concerned in each
instance can fully know these circumstances and adapt their actions to them" (190). Central
planning, or state allocation of resources to specific ends, is unreasonable according to Hayek
because it would require “a complete system of values in which every want of every person or
group has a definite place” (192). These ideas have been applied to UBI policy in specific by
later scholarship.
Burczak (2009) draws on Hayek’s Rule of Law in his own advocacy for a national UBI.
He argues that this sort of policy would “avoid the knowledge problem” because those
responsible for implementing it would lack the discretion to target specific individuals, groups,
circumstances, or outcomes (392). Hayek (2007) does address the issue of public assistance in a
way that appears to support this conclusion. He draws a distinction between two types of
security: providing a minimum of material sustenance, and maintaining a specific lifestyle.
Though he condemns the latter as central planning, he argues that the former should be
15
accessible to all can be provided outside of the market system (241). Milton Friedman (1982) has
also expressed support for methods of public assistance that don’t encroach on market forces. As
one example, Friedman proposes a “negative income tax” policy that would set an exemption
level at which no taxes would be paid and a minimum income level below which a grant would
be paid. He goes on to relate this reform to the conservative perspective by pointing out that it
would reduce administrative discretion and reduce the breadth and scope of government anti-
poverty programs (158). Arguably, a UBI would meet those same goals.
To sum up, individuals who adhere to a right-wing or conservative political perspective
may welcome the adoption of a UBI policy due to such a reform’s potential to reduce the
government’s discretion and interference with market forces.
16
Opportunities
In addition to the normative cases outlined above, there is a positive element to the debate
over UBI policy in the United States. The opportunity for reform can be illustrated by the
problems inherent in the existing welfare state as well as the effects that would likely follow the
introduction of a national UBI.
Problems with the Status Quo
The United States’ current welfare regime differs from a UBI policy in three key
respects: work requirements, benefit reduction rates, and eligibility criteria. Each one of these
features poses a number of problems for social welfare and the macroeconomy.
Bryan (2005) puts forth an analysis of the Personal Responsibility and Work Opportunity
Reconciliation Act of 1996 [PRWORA] which suggests that attempts to increase workforce
participation among recipients of public assistance had the effects of diminishing social welfare
and distorting the labor market. This law replaced welfare, officially known as Aid to Families
with Dependent Children [AFDC], with a new program called Temporary Assistance for Needy
Families [TANF]. Two key reforms in the new program were the adoption of work requirements
and a hard limit on the number of months recipients could claim assistance (596). These reforms
were immediately hailed as a success because welfare use declined precipitously and workforce
participation among former recipients increased over the late 1990s. However, later studies
suggest that nearly all of these effects could be attributed to economic growth rather than any
specific reform (605). In fact, the single-mothers living below the poverty line have become
substantially poorer since the passage of PRWORA (603). Not only are they receiving fewer
17
dollars from government transfers – earned income among this group has fallen more than 10
percent (604). Evidently, work requirements and time limits did not lead to an increase in
employment among this vulnerable group. Not only have these requirements failed to improve
social welfare – their stringency may actually make things worse. It is now against the law for
states to exempt more than 50 percent of TANF recipients from work requirements (603).
However, the Medical Expenditures Panel Survey compiled by the Department of Health and
Human Services found that more than 46 percent of the heads of the poorest households have
“substantial limitations” on their ability to work and over 80 percent of TANF recipients face at
least one obstacle limiting their ability to work. These include having a lack of high-school
education, a newborn, a disabled child, a lack of fluency in English, poor physical health, poor
mental health, or a history of chronic unemployment (602). Taken together, the evidence
suggests that states may not have enough discretion to exempt everyone with a legitimate
disability from work requirements. Finally, time limits and work requirements together have the
potential to distort the labor market and reduce labor market efficiency. Those two requirements
create an incentive to work outside the home, sometimes at the expense of more economically
useful activities. For example, recipients can’t meet work requirements by caring for children,
elderly relatives, or disabled adults (599). Bryan also finds that recipients of public assistance
have experienced more employee-employer mismatches, shorter job tenures, and lower wages
following PRWORA. He attributes these findings to TANF’s time limits, which incentivize hasty
job searches (605). Overall, PRWORA appeals to have failed in its goal to increase social
welfare by incentivizing workforce participation among welfare recipients.
Public assistance programs in the United States have high regressive benefit reduction
rates that harm recipients’ welfare and reduce their incentive to work. Under current law, it is
18
possible to face a benefit reduction rate in excess of 100 percent by participating in more than a
single transfer program (Bryan 2005, 606). That is, an extra dollar in earned income could reduce
a recipient’s total level of public assistance by more than one dollar. The literature refers to such
a situation as the income, poverty, or unemployment trap interchangeably (McKay & Vanevery
2000, 270). The United States’ problem in this regard is not unique among conventional welfare
regimes. In Great Britain, for instance, half a million low-income families faced an effective
marginal tax rate of 70% or higher (Atkinson 1995, 17). High benefit reduction rates may induce
recipients of public assistance to work fewer hours, seek less difficult jobs with lower pay, and
“acquire fewer new skills" (Bryan 2005, 599). Murray (2006) cites a high benefit reduction rate
as the primary reason why experiments with negative income tax in the 1970s produced such
strong work disincentives (74). In the United States specifically the EITC has a graduated benefit
reduction rate that reaches a maximum of 21 percent. This can penalize recipients’ work effort
because it is applied to their existing marginal income tax rate. This particularly problematic
because approximately 2/3 of EITC recipients are in the program’s “phase-out range”, while only
1/3 are in the phase-in range where the benefit reduction rate is negative (Bryan 2005, 599).
However, a negative benefit reduction rate can pose problems as well. One inequity in the
current system is that overall benefits increase as income increases over the range of eligible
incomes (605). This applies to the phase-in range of the EITC as well as TANF and Food Stamps
generally. For the latter two programs, the average transfer to the poorest tenth of single mothers
is less than half as much as the average transfer to the second poorest tenth of single mothers
(605). The Social Security system suffers from similar flaws because benefits are determined by
lifetime income (Murray 2006, 24). All things considered, the preceding examples illustrate
19
serious fairness and productivity concerns associated with making public assistance rates overly
contingent on earned income.
The current roster of social welfare programs in the United States has a number of
stringent eligibility criteria that seriously limit their ability to reduce poverty. A 1994 study
estimated that the EITC lifts only a quarter of eligible households out of poverty while doing
nothing for the non-working population (de Beer 2000, 44) In fact, about 65 percent of poor
families are excluded entirely either because they have no outside income or because they “are
demographically ineligible, failing the age or child tests" (Bryan 2005, 599). The complexity of
rules and eligibility criteria, as opposed to their content, may further limit the efficacy of anti-
poverty programs. The presence of means-testing alone reduces the “take-up rate” of public
assistance programs, meaning fewer eligible individuals make the effort to even apply (De
Wisperlaere & Stinton 2012, 106). Bureaucracy can also harm recipients’ welfare by tying them
to a geographic location. The hassle of reapplying for TANF, housing assistance, and Food
Stamps could deter a working parent from moving out of an economically depressed area to a
city with a better job market (Murray 2006, 97). The Social Security system is also limited by its
strict criteria, as evinced by incidence of poverty among senior citizens (24). Individuals are not
eligible for survivor’s benefits based on their spouse’s employment unless they were married for
ten years, nor are individuals eligible for retirement benefits if they do not work ten years or
more. This system poses particularly difficulties for divorced or widowed stay-at-home mothers
and housewives (25). Taken together, means testing and other eligibility criteria prevent a
substantial number of the neediest members of American society from improving their
conditions with public assistance.
20
Effects of a Basic Income
The adoption of a UBI offers transformative potential for work incentives,
unemployment, aggregate demand, and the social status of marginalized groups.
Gamel et al. (2006) employ a combination of theoretical models and empirical surveys to
test the hypothesis that a national UBI policy would reduce the aggregate labor supply. The
microeconomic theory of labor supply holds that two factors influence individuals’ work-leisure
allocation: the substitution effect and the income effect. The substitution effect implies that an
increase in the wage rates proportionally increases the opportunity cost of leisure, which
encourage people to work more. However, UBI policies do not increase the wage rate – some
variants even involve a phasing-out of minimum wage laws. Thus, a UBI should have a zero or
negative influence on work incentives via the substitution effect. The income effect implies that
increases in purchasing power tend to increase workers’ demand for normal goods. If leisure is a
normal good, then a UBI would decrease work incentive via the income effect (480). However,
standard labor economics can only offer an indeterminate forecast of the effects of a UBI on
labor supply because it may not be the case that all citizens perceive leisure time as a normal
good. A UBI would actually increase work incentives via the income effect to the extent that
jobs are gratifying, unemployment is stigmatized, and professional relationships are an important
element to social networking (484). Survey results suggest that two thirds of young adults
conceive of work in this way. 55 percent of respondents answered that they would not change
their labor activities in response to a UBI while approximately 13 percent answered they would
only reduce their work hours in the short-term for the purpose of investing in education and
formal training (488). As an individual’s level of education or job stability increases, their
likelihood of reducing work efforts in response to external grants (489). There is also theoretical
21
basis for predicting that UBI policies compare favorably to current public assistance policies vis-
à-vis work incentives for low-income individuals. As stated previously, TANF and the EITC
have high benefit reduction rates that create an “unemployment trap” – that is, recipients’
effective wages are reduced so much that labor supply will unequivocally decrease via the
substitution effect (483). All in all, the fear that replacing current public assistance policies with
a UBI would decrease aggregate labor supply is not supported by microeconomic theory or
empirical data.
UBI advocates contend that such a policy would allow the economy to accommodate an
increasing natural rate of employment and improve work conditions. Groot (1997) finds that the
United States economy following World War II has been characterized by simultaneously
increasing per capita output and decreasing per capita demand for labor. The result of this
structural change has been large scale unemployment (209). Groot & Van der Veen (2000)
corroborate these findings, arguing that technological change and globalization decrease
employers’ demand for hiring workers at a “living-wage” in highly developed economies (15).
One way to distribute the remaining number of jobs among more people is by reducing per capita
work hours. There is a strong consensus in the literature that a national UBI policy would
facilitate this type of change (Groot 1997, 208; Groot & Van der Veen 2000, 13; De Beer 2000,
49; Murray 2006, 73). This is an intuitively logical conclusion – by design, UBI policies reduce
the proportion of GDP that gets distributed by market forces (Groot 1997, 207). Productivity
growth has not been the only economic trend that technology improvements have brought about.
Working conditions have gradually improved as well, and there’s reason to believe that a
national UBI policy could accelerate this trend (105). The presence of a reliable safety net,
especially one set near or above the poverty line, would all but eliminate the need for individuals
22
to work dangerous and onerous jobs. Labor’s bargaining power would be greatly increased (Van
Parijs 1991, 5). Employers would then be under serious pressure to invest in technological
improvements that make work safer and more attractive (Burczak 2009, 392). Overall, the
argument that UBI policies could mitigate the impact of decreasing per-capita labor demand and
lead to better labor conditions appears sound.
The literature suggests that the secondary effect of macroeconomic stabilization would
likely accompany the adoption of a national UBI. Burczak (2009) argues that this type of robust
safety net would allow even the unemployed to engage in consumer spending, thus reducing
fluctuation in aggregate demand (392). Standard macroeconomic models support the contention
that exogenous increases in income tend to increase consumer spending, and increases in
consumer spending tends to increase the demand for labor. Thus, it follows that a more
consistent level of aggregate demand would support a more consistent level of employment
(O’Brien & Olson 2009, 149). Alaska’s experience with the Permanent Dividend Fund provides
strong support for this hypothesis. Data shows that Alaskans’ “personal income has tended to
grow more rapidly during the expansionary phase in the presence of dividend payments than it
would have without the payments, and has tended to decrease less rapidly in the contractionary
phase than in the absence of dividend payments” (150). These findings illustrate how the
presence of regular dividend payments can somewhat offset the impact of recessions and
economic shocks.
Adopting a national UBI would likely result in a number of tertiary social effects in
tandem with the economic effects outlined above. The first of these concerns the emotional and
psychological well-being of the poor. There is a strong consensus in UBI literature that means-
tested transfers stigmatize the poor because there are often negative prejudices associated with at
23
least some of the targeted groups. Claimants may therefore be seen by themselves and by others
as inadequate, shameful, humiliated, or unworthy of respect. Replacing current policy with a
UBI that lacks targeting would presumably ameliorate some of the psychological trauma that
low-income people experience today (Van Parijs 1991, 105; Groot 1997, 209; McKay &
Vanevery 2000, 268; De Wisperlaere & Stinton 2012, 106). An even more contentious and
unpredictable social change likely to be brought about by UBI policy concerns the economic and
social position of women. There seems to be some consensus that a UBI would redistribute
income from men to women (Van Parijs 1991, 102). This can partly be attributed to its potential
to eliminate gender biases present in current public assistance policies. For example, the fact that
Social Security payments are based on lifetime contributions is a serious disadvantage to women,
who have historically not had equal access to the labor market and still are not paid at the same
rate as men (Groot 1997, 208; McKay & Vanevery 2000, 271; Murray 2006, 25). In a sense, a
UBI would also provide compensation for the unpaid labor of housework and child care typically
undertaken by women. Some feminists are wary of this outcome could reinforce gender roles on
the grounds that incentivizing “private sphere” activities could halt or reverse the gains women
have made in terms of wages and status in the “public sphere” (McKay & Vanevery 2000, 273;
Bergmann 2004, 116). By contrast, McKay and Vanevery (2000) argue that feminists should
embrace the UBI as a tool for eliminating discrimination based on sex, gender roles, and sexual
orientation. Payments distributed on an individual rather than household basis accommodate a
larger and more fluid range of family structures and lifestyle choices (273). This is relevant to
feminist equality goals because the diversity of family units in United States is increasing
rapidly. For example, rising divorce rates are increasing the proportion of single-parent
households while stronger civil rights enforcement for LGBT people is contributing to an
24
increasing proportion of households that include “more than two coparents” (275-276). In
conclusion, the unconditional and individualized nature of the UBI has profound consequences
for the status of the poor, women, and sexual minorities.
25
Challenges
The analysis above reveals transformative potential stemming from the UBI’s radical
nature. However, such drastic departure from the status quo poses a number of challenges to
policymakers. If the United States ever adopts this sort of reform it will need to confront
difficulties associated with the implementation, funding, and limitations of UBI policy.
Implementation
The UBI is inherently huge in scope by its construction. Hence, the process of
implementation threatens to massively disrupt economic and social conditions. Policymakers can
mitigate these risks by gradually phasing in UBI reforms and developing a plan to confront a
number major administrative bottlenecks identified in the literature.
Legislative reforms seeking to minimize economic and social upheaval will need to take
an incrementalist approach toward reforming the current public assistance regime. There is a
strong consensus in UBI literature in favor of gradually phasing in grant payments and gradually
phasing out current policies (Groot 1997, 210; Parijs et. al 2000, 65; De Beer 2000, 51;
Bergmann 2004, 108). Immediately adopting a full UBI would create sudden changes in the
distribution of income that would shock aggregate supply and demand (Groot 1997, 210). Van
Parijs et. al (2000) point out that suddenly introducing an individual UBI worth as much or more
than current household welfare transfers would redistribute purchasing power “at the expense of
one-adult households and in favor of two- or more-adult households" (64). There is particular
risk that a sudden windfall would produce work disincentives that could shock the labor supply
and disrupt the revenue stream needed to fund the program (Bergmann 2004, 108). On the social
side, hasty implementation could disrupt family relations. If initial payments were large enough
26
to allow teenage children to live apart from their parents there may be a number of young adults
that loose the impetus to go to school and thus enter the labor pool with reduced skills and
earning capacity (Bergmann 2004, 116; Murray 2006, 76). There are also political risks to an all-
at-once approach. Many of the UBI policy’s benefits could only be realized after long-term
market adjustments. A massive economic disruption in the short-term in the absence of those
benefits would likely engender public resistance and ultimately doom the political future of the
policy (De Beer 2000, 51). The political advantage to starting with a partial UBI and residual
conditional public assistance is that administrative authorities will be able to check whether their
forecasts economic forecasts correct and then adjust the final level of full benefits accordingly
(Groot 1997, 210). With these risks in mind, reformers should aim to construct UBI legislation
that minimizes economic, social, and political upheaval.
Jurgen de Wisperlaere and Lindsay Stinton (2012) identify three significant challenges
that could hamper the administration of a UBI policy. The first bottleneck is the task of
identifying who is eligible and who is not and maintaining a database of that information. The
primary risk with this step is that some eligible beneficiaries are not identified as such (108).
The administrative agency will need a cadaster that includes every individual citizen and lawful
resident to prevent that from happening. Maintaining such a list, not to mention verifying its
accuracy, would entail a great amount of cost and effort. Creating a cadaster from scratch is a
costly process – it cost the UK alone tens of billions in US dollars to set up a comprehensive
national identification system (109). The alternative, using any existing cadaster or combination
of existing cadasters, risks excluding many people – especially vulnerable groups such as the
homeless (110). The second bottleneck is the task of distributing cash payments. There is an
existing infrastructure to distribute this money as a tax rebate, but not everybody who would be
27
eligible for the basic income pays income or payroll tax. Additionally, most states only disburse
tax rebates once a year and most variants of the UBI call for monthly payouts (112). Another
option is for the federal government to provide every eligible individual with "a basic income
debit card" funded incrementally throughout the year. However, this option could incur
substantial expense – both in the cost of setting up an ATM system and the risk of technology
problems (114). The third bottleneck is oversight. Successfully implementing a UBI will require
"an administrative process by which those who fail to receive their basic income are identified,
the error is swiftly rectified, and a feedback mechanism prevents the same error from occurring
again" (115). Even though a UBI would not call for means tests or client monitoring, simply
confirming whether or not beneficiaries receive their grant on a national scale could still a
greater administrative costs than a selective program (116). Together, these bottlenecks reduce
the chances that grant take-up will be substantially – as opposed to nominally – universal. The
risk of non-universal take up is that "the poor, the destitute, and the socially excluded" would be
the most likely category of people to fall through the cracks (107). In short, any authority
responsible for managing and administering a UBI policy must be talented, vigilant, and
resourceful to ensure that the grant actually makes it to those who need it most.
Funding
Contemporary UBI proposals propose financing the program with a number of specific
spending cuts and revenue increases. Not all of these will be politically feasible. This does not,
however, mean that reform is possible. There are number of different approaches policy-makers
could take to raise the assumed $2 trillion annual cost of a UBI.
28
Every major UBI proposal relies on some combination of major spending cuts to defray
its cost. The most obvious of these are cuts are the elimination of the welfare and conditional
public assistance programs that the UBI would be replacing. Murray (2006) finds that these
programs together cost approximately $522 billion annually or $240 billion if medical spending
is left alone (133). Similarly, Sheahan (2006) calls for approximately $239 billion in cuts to
income security programs (10). Murray (2006) also calls to eliminate approximately $482 billion
in Social Security spending along with approximately $264 in annual Medicare spending (131).
Sheahan (2006) proposes neither of these cuts, but finds the programs to be worth $495 billion
and $269 billion respectively (10). Overall, the value of major spending cuts depends on what
programs are to be replaced – approximately $240 billion if the program is intended only to
replace welfare, approximately $730 billion if it is intended to replace welfare and Social
Security, or well over $1.2 trillion if it is intended to replace virtually all transfers.
The government could raise this additional revenue through income tax reform. Sheahen
(2006) identifies approximately $985 billion in tax loopholes and expenditures that could be
eliminated (19). However, he also notes a number of powerful constituencies that could obstruct
this sort of reform (12). Another option touted by UBI literature is replacing the current system
of progressive marginal tax rates with a 35% flat tax. USBIG has tentatively endorsed this as an
alternative to their loophole reductions and surcharges on the wealthy. In 2004 the IRS projected
that total income tax revenues would increase from $809 billion to $2.17 trillion under such a
plan (9). Atkinson (1995) favors this approach because it is simpler to administer (3) and because
the initial rate required to fund a generous basic income would already be close to the top-
marginal tax rate in the UK and US, leaving little room for graduation (2). However, President
Obama’s more modest tax reform package has a higher profile and a more realistic chance of
29
passing. This proposal would increase the top two income brackets from 33 to 36 percent and 35
to 39.6 percent respectively, cap personal exemptions and itemized deductions for earners in the
top two income brackets, increase the top capital gains rate to 20 percent, and increase the top
estate tax rate from 35 percent with a $5 million exemption to 45 percent with a $3.5 million
exemption. These policies would raise an estimated $136.1 billion in revenue; however the Tax
Foundation’s models predict that the actual revenue increase could be as low as $55.5 billion
after taking into account effects on economic growth (Entin 2012). So, it is possible to raise up
to $1.361 trillion in additional annual revenue with existing tax reform proposals.
There are also a number legislative proposals to raise revenue by taxing externalities –
specifically carbon emissions. Ramseur, Legget, & and Sherlock (2012) report that the Save Our
Climate Act of 2011 introduced in the 112th Congress would have levied a tax of $20 per metric
ton of carbon. The CBO projects that this bill would have generated approximately $88 billion in
revenue during its first year with this amount gradually growing to $144 billion by 2020 (15).
Interest groups have, however, obstructed the bill thus far (24). Holladay & Livermore (2010)
identify “cap-and-dividend” as a more bipartisan variant of pricing carbon. In the 111th Congress
Senators Cantwell (D-WA) and Collins (R-ME) introduced a bill of this type titled the Carbon
Limits and Energy for America's Future Act. This legislation aims to reduce greenhouse gas
emissions 20 percent by 2020 and 83 percent by 2050 by creating and auctioning emission
permits. One unique feature of this bill is that the 75 percent of auction revenue is already
earmarked toward an Alaska style stakeholder’s dividend (1). Only light changes would be
needed to incorporate this revenue into a national UBI policy. One flaw, however, is that the
potential revenue raised by auctions is much less predictable than the potential revenue raised
through direct taxation. Overall, it seems reasonable to conclude that a tax on carbon could
30
Taken together, these examples reveal that policy-makers have a wide array of spending
cuts and revenue increases to choose from. It seems reasonable to conclude that funding a
substantial UBI grant is within the United States’ financial means.
Limitations
Policymakers seeking to reform the welfare system should keep in mind the caveat that
no policy is perfect. The UBI is a huge policy with correspondingly huge flaws. There are some
policy areas in which the status quo may prove superior, some goals on which the UBI will fail
to deliver, and a number of political obstacles that could jeopardize the policy’s success.
There are many problems that the UBI will fail to solve and a few more that it will create.
Logically speaking, the UBI can never be set at a high enough level to completely remove
recipient’s dependence on the labor market. Setting payouts that high would create such
powerful work disincentives that there would not be nearly enough tax revenue to finance the
program in the first place (Bergmann 2004, 115; Panitch 2011, 939). The median voter theory
makes that risk very real. In a democracy, those with below average incomes are the majority
and can vote for larger redistribution than is socially optimal over the objections of the wealthy
minority (Atkinson 1995, 17). The UBI’s novel means of individual rather than household
disbursement could also lead to unintended social consequences. For example, the fact that
poverty is especially strong among one-income households coupled with the relative rise in two-
earner families suggest that a great part of future income inequality will be between one and two-
earner families (Groot 1997, 224). In these areas and others, the UBI may perform no better, and
in some cases worse, than the status quo.
31
There is also little feasibility to the goal of completely replacing the welfare state and
conditional public assistance. The first problem is that in-kind services like healthcare and public
education are so expensive relative to average income that even a generous UBI grant would not
ensure that everybody would or could include them in their personal budget (Bermann 2004,
112). It may also be inadvisable to completely scrap the system of social workers and client
monitoring because "desperate isolation, the inability to manage one's income or a shaky mental
health may be no less crippling than the lack of adequate purchasing power" (Parijs et. al 2000,
75). All things considered, there are a number of unique social problems that probably should be
dealt with on a conditional basis. Ultimately, reality could get in the way of the gains in
administrative efficiency that UBI policy was designed to take advantage of.
The UBI’s radical nature suggests that it will face an uphill political value. There are
reasons why it is easier to make “incremental changes to the status quo” than it is to completely
eliminate established policies, let alone a long list of them. Each program has a powerful lobby
composed of its beneficiaries and special interests (Bryan 2005, 608). The UBI’s complexity
could play against it as well. For example, the sort of "comprehensive identity database"
necessary to administer this sort of program may also spur heated popular resistance, as
illustrated by the UK’s national identification card experience (De Wispelaere & Stinton 2012,
110). There is, however, some cause for optimism. The popular view that people deserve to be
rewarded for their effort could bolster the UBI’s popularity to the extent that it’s lack of a benefit
reduction rate would free people from the “poverty trap” (Atkinson 1995, 75). Overall, the UBI
faces an uncertain but challenging political future.
In conclusion, the UBI is not a panacea. It suffers from a number of shortcomings and
political hurdles.
32
Conclusion
The Unconditional Basic Income is such a uniquely complicated and ambitious proposal
that only a few conclusions about it are clear. First, the UBI’s theoretical background, historical
applications, and detailed legislative proposals mark it as a well-developed idea. Second,
normative perspectives on the UBI and positive analyses comparing its practical effects to those
of the status quo demonstrate the UBI’s transformative potential. Finally, the UBI’s
administrative complexity, funding demands, and political shortcomings pose substantial
challenges to reformers. However, this sort of bold reform may be exactly what’s needed in this
modern economy. Globalization, technological progress, and economic productivity are
advancing at an increasingly rapid rate. These conditions not only make it possible to finance a
UBI – they arguably justify its implementation. Ultimately, blunting the human impact of
persistent unemployment and poverty will require some sort of radical upheaval. For these
reasons, basic income policy will remain an important area of political science and economic
research for years to come.
33
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