Universal Basic Income sounds like free money. But is it really that simple?

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Among all the 2020 presidential campaign white papers and Medium posts on hot-button issues like gun control, affordable housing, and the environment, it seems like there is no shortage of 2020 policy ideas. Now, universal basic income (UBI) has recently joined the list. UBI has become a more popular concept in recent years as new technologies and economic shifts have caused many traditional manufacturing or service jobs to be automated via robots or software platforms. The logic is, if the government gave people (generally those below a certain income threshold, though not always) a fixed amount of income per month, they would have the financial security to pursue training to help them transition into a better paying industry or launch entrepreneurial ventures that they would have been unable to otherwise.

Andrew Yang, a successful corporate leader turned philanthropist and founder of Venture for America turned democratic 2020 presidential candidate, has made UBI a full-fledged cornerstone of his campaign. His proposal is, “Every U.S. citizen over the age of 18 would receive $1,000 a month, regardless of income or employment status, free and clear. No jumping through hoops. Yes, this means you and everyone you know would receive a check for $1,000 a month every month starting in January 2021.”

Yang’s free-for-all approach has received criticism because the top 1% of earners would be receiving this benefit alongside those who are striving to make ends meet below the poverty line. Furthermore, how to actually pay for a UBI system, how to make it work alongside an existing welfare system, and prevent it from being abused are complicated challenges that have kept many similar proposals from getting passed at the government level around the world.

Yang’s campaign website defends the idea, explaining that, “By giving everyone UBI, the stigma for accepting cash transfers from the government disappears. Additionally, it removes the incentive for anyone to remain within certain income brackets to receive benefits.” He’s also not alone in this proposal, Mark Zuckerberg, Elon Musk, the government of Finland, and certain academic circles all support similar variations of this policy. In February Stockton, California, Mayor Michael Tubbs even began to implement a UBI pilot for approximately 130 of the city's residents.

What is UBI?

What many are surprised to learn is that the concept of UBI is not at all new, or even limited to progressive politics. Historically speaking, the idea of providing citizens with a minimum income stipend has been around since at least the 1500s and 1600s, when philosophers and the Catholic church alike saw some form of minimum guaranteed income as a solution for poverty, theft, and other societal issues. Even Thomas Paine and Richard Nixon, both prominent figures in American history, supported UBI-like proposals during their time.

In Nixon's case, the original proposal, "wanted every American family of four to have, from the state, at least $1,600 dollars a year — that’s $10,000 today." The proposal never went anywhere, in large part due to UBI's negative associations with communism and assumptions that people will refuse to work as a result.

Furthermore, depending on the model you choose (a regular payment of $X to everyone, a payment of $X only to those in need, etc.) it can be difficult to calculate exactly how much a UBI program would actually cost, making it difficult to convince lawmakers and taxpayers that it's actually worth the effort.

Who pays for it?

The logistics of paying for UBI has, unsurprisingly, been a subject of debate and there have been a wide variety of proposals to deal with the unavoidably astronomical costs of implementing it full-scale. Current and previous UBI proposals have called for raising the necessary funds through taxes on the super wealthy, getting rid of welfare altogether and repurposing those funds, and/or tying UBI payments to income level to avoid giving money to those who don’t need it.

Andrew Yang’s proposal calls for putting a 10% value-added tax (VAT) on all goods. “A Value-Added Tax (VAT) is a tax on the production of goods or services a business produces,” his campaign site notes. “It is a fair tax and it makes it much harder for large corporations, who are experts at hiding profits and income, to avoid paying their fair share.” As Yang notes, many countries already have VAT with percentages ranging as high as 20-25%.

Does UBI really work?

There have been many UBI pilots and experiments throughout history and into the present day in the U.S. and around the world. The results have varied widely in terms of the type and amount of UBI provided and the number of people involved, so the verdict as to whether or not the system would work well on a full-country level is inconclusive.

In Finland’s case, the government is running a UBI pilot from 2017 through 2019 where a group of a couple thousand individuals between the ages of 25 and 58 years olds are given the equivalent of $634 in lieu of traditional unemployment benefits. Only the first year’s results are out thus far and while the government found that the stress level and overall well-being of the participants improved, their employment prospects did not, at least not yet.

However, an NGO called Give Directly has been running a long-term study in Kenya and has seen significant success through its cash-transfer program. Using mobile payments, the organization gives recipients a one-time payment of $1,000 USD, the equivalent of roughly one year's income. Thus far its studies have found that, “Recipients often save or invest a large proportion of cash transfers, generating increases in future income,” and contrary to a prevailing stigma, recipients generally did not spend their extra income on drugs, alcohol, or other illicit behaviors.

Whether UBI takes hold in the U.S. or other pilot countries is a long way off given the current data and the current political systems in place. However, if ongoing experiments yield more conclusive results, politicians might soon have the evidence needed to challenge the status quo.