Universal Basic Income: Everything You Need to Know

A Succinctly Comprehensive Guide For the UBI-Curious.

Feb 13, 2021

What is Universal Basic Income?

Basic income is a program where recipients are given money to use as they see fit with no strings attached. Basic income programs are dispersed on a regular and ongoing basis, usually monthly, paying recipients flat sums of money (e.g. all recipients get $500/month). Basic income can be provided by governments, private companies, charities (such as Give Directly), or by philanthropists. Basic income programs are usually targeted, with payments going to a set number of people (often determined by the available funds of the program), who are preselected, usually on the grounds of being low income or in some way disadvantaged. Basic income is, in essence, a more efficient and humane form of social welfare.

Universal basic income, also known as unconditional basic income, basic income guarantee, guaranteed minimum income, guaranteed annual income — or just UBI for short — is basic income given to an entire community or society. And it is this universality that most profoundly sets UBI apart from any existing social program, or indeed from ordinary basic income.

What Would UBI Look Like in Practice?

A nationwide universal basic income would be implemented by the government. Funding would most likely come from a combination of taxes, reallocation of spending from other areas, other cost savings, and added revenue from increased economic growth and productivity (more on funding later). UBI would then be paid to every adult citizen in the country, either by electronic deposit into their bank accounts, a mailed check, or by some other reliable means, on the same day of every month, in a flat amount that does not vary by person. The amount would most likely be somewhere between $500-$1,500 USD per adult, every month for the rest of their lives. A UBI could also include a child allowance which would pay an additional smaller amount per child.

Regardless of employment status or wealth, every citizen would receive their UBI payment every single month. The public would end up paying more in certain taxes to varying degrees (depending on the specifics), but no matter how you fund a UBI, the overwhelming majority of the population ends up net benefactors, and the top slice of individual earners and companies end up being net payers.

Why Universal Basic Income?

A big part of universal basic income’s potential comes from its versatility — the versatility of money. Money means different things to different people. Money can be used to further almost any goal and is something we all need to survive. Cash is the universal tool, which is why proponents of universal basic income have been so wildly ideologically diverse down the generations. From Thomas Paine, to Milton Friedman, to Richard Nixon, to Martin Luther King Jr., to Elon Musk, to Stephen Hawking, to Charles Murray, to Andrew Yang, to Pope Francis — just to name a few. Universal basic income appeals to people of nearly every persuasion because it holds the potential of money itself.

Concerned about poverty? UBI is the most direct way to literally abolish poverty. Want more entrepreneurship? UBI provides a monetary foundation that better allows the risk-taking of new ventures. Public health? The economic security provided by UBI has been shown to lower stress, improve diets, physical health, and mental health. It frees people from abusive jobs or relationships that they may be locked in due to financial dependency. Concerned with government waste? UBI cuts out the bureaucratic middlemen and bloated governmental administration by sending cash directly to We the People. UBI also reduces the burden on other social programs, shrinking the size of government. Income inequality? UBI is a net wealth transfer from rich to poor. Social justice? UBI is a net wealth transfer from privileged communities to marginalized communities. It would be the single biggest investment in women, children, minority groups, LGBTQ, and disabled people in history. Middle class tax relief? This puts more cash back into your pocket than nearly any tax break. Concerned about automation, AI, and the future of work? UBI shares the gains of technology, preventing extreme wealth concentration into the hands of a few tech giants, and gives everyone a universal floor under which they cannot fall. The answer isn’t to halt technological progress, but to share the gains with all.

UBI cannot fix every problem in society, but it sure helps improve so many that there’s truly something for everyone. And it doesn’t require an upheaval of our political or economic system, nor even an amendment to the Constitution. It requires only the simple passage of a bill into law.

What’s Wrong with Our Current Welfare Programs?

Isn’t our existing welfare state already providing a safety net to the most vulnerable sectors of society? If our current hodgepodge of welfare programs is a safety net, it’s riddled with holes. In the US, 13 million people living in poverty are completely disconnected from this so-called safety net, receiving no benefits whatsoever from any program. How could this be? Because of means testing.

Means testing is the process of attempting to verify that an applicant is truly in need (as defined by the government), and of monitoring recipients to continually evaluate and reevaluate their financial situation. Means testing is built into every welfare program in an attempt to save the state money and to prevent anyone from gaming the system. Means testing is the opposite of universality, and it creates many of the problems that exist in traditional welfare programs.

Means testing costs money. It takes an army of bureaucrats and government clerks to administer the welfare state, at considerable taxpayer expense.

Means testing takes time. The bureaucracy takes time to review applications, verify information, reevaluate existing beneficiaries, and deal with mountains of forms and red tape. This slows the system down enormously, resulting in people having to wait weeks, months, or sometimes even years to get benefits.

Means testing is demeaning and dehumanizing. All the paperwork, the showing up at offices to wait in lines, the case managers, the government looking over your shoulder and breathing down your neck — these are the hoops people must jump through, like trained animals, to receive benefits. It is a process that erodes one’s sense of self-worth by requiring a continuous walk of shame.

Means testing creates a work disincentive. If you receive benefits so long as you’re unemployed or your income is below a certain threshold, and getting a job or a raise would end or reduce those benefits, in many cases you’ll have no incentive to work, because doing so will not result in an appreciable net benefit to you. This work disincentive creates a poverty trap, where people ride out benefits for as long as possible, living a bare subsistence lifestyle, because at least it’s reliable: to work is to roll the dice.

Means testing excludes people in need. Temporary Assistance for Needy Families (TANF, though known colloquially as just “welfare”) excludes four out of five people in poverty. Food stamps (SNAP) excludes one out of three people in poverty. Disability (SSI and SSDI) excludes four out of five people with a disability. And Section 8 excludes three out of four people who qualify.

Means testing doesn’t even work. This is the most hilarious and depressing part of it all. It doesn’t even work. Millions in poverty are dissuaded or blocked from benefits by this bureaucratic labyrinth, while many who should be filtered out by the means tests still manage to game the system, or milk it long past when they were first deemed to have needed it.

How Would UBI Be Any Different?

No means testing. No wasteful bureaucracy, no red tape, no waiting times, no dehumanizing hoops, and no work disincentives. Universality also destroys the social stigma associated with means tested programs. If everyone gets it, no one is looked down on. And because UBI is added on top of what you earn, you’d never need to choose between work or UBI.

UBI is paid in money, not “benefits.” You know how to solve your own problems, and cash is the most versatile tool to do that. It shows a basic trust and respect for people to give them money, rather than highly regulated and targeted benefits aimed at nannying them like children.

UBI is a universal floor. Because everyone gets it, that means no one is left out. The millions and millions of people left behind by the holes of means tested safety nets will no longer slip through the cracks.

UBI Isn’t Just a Better Safety Net — It’s a Paradigm Shift

As flawed as our current safety net is, and as much as universal basic income would be an upgrade to it, UBI isn’t just a better version of a social welfare. UBI is a single elegant policy that improves dozens of other problems in society and supercharges human potential.

The downstream effects of improving the economic security and spending power of an entire population are significant. It improves health, mental health, and educational attainment rates. It increases birth weights, homeownership rates, self-employment, and personal savings. It lowers stress, crime, domestic violence, personal debts, and substance abuse. It allows seniors in poverty the option to retire with dignity instead of working until the day they die or living in squalor. It allows parents to spend more time with their children, and students to focus on their studies. It creates economic dynamism, empowering more start-ups and small businesses — and gives their potential customers the money to afford their goods and services.

With universal basic income, people become harder to exploit, because they have the option to say no. Someone trapped in an abusive relationship because they cannot otherwise support themselves can now say no. Someone stuck in unacceptable working conditions because they cannot afford to go without income long enough to secure a better job can now say no. If saying no means starving, then it’s not a realistic option, and without that possibility, you are not truly free. Freedom comes from the ability to refuse something.

And by decoupling income from work (to an extent), UBI helps to redefine what work is — finally economically recognizing some of the most crucial work done in society such as parenting, caring for sick or elderly loved ones, and volunteering for charitable or communal causes. This would be a huge step toward correcting one of the market’s biggest blind spots.

What universal basic income creates most of all is a sense of optimism. When you have a cushion to fall back on, and you don’t have to worry about survival, you have peace of mind. You are secure in the knowledge that you can take a risk, or take your time, or pursue what drives you. It transforms the zero-sum mindset of scarcity and to a non-zero-sum mindset of abundance.

Common Questions

How do you pay for it? One of the big lies in politics is that there isn’t enough money to do [insert ambitious policy]. And yet nobody ever asks how we're going to pay for corporate bailouts, endless wars, or the world's largest military-industrial complex. The money is always there. At the time of writing, the US economy is $21 trillion dollars. It's the will that is required.

The way to fund a national UBI is through three general mechanisms in conjunction: taxes, reallocation of funds, and increased revenue and cost savings from gains in productivity and economic growth. Let's take them one at a time.

Taxes. There are a whole host of taxes that can pay for a large portion of a UBI. Most likely it would not be any single one, but a combination of multiple taxes. Some options include the value-added tax, land value tax, financial transaction tax, carbon tax, income tax, wealth tax, removing the cap on social security tax, treating capital gains as regular income, closing loopholes, and additional marginal tax on ultra-high incomes, among others. Perhaps the single best choice for the US would be a value-added tax (VAT). The US is one of the only developed countries without one, and a VAT at just 10% (half the average European rate) would itself generate in excess of a trillion dollars a year by some estimates. And that’s just a VAT on its own — a UBI would ideally draw from a number of taxes. A VAT is also extremely difficult to avoid and would be an effective way to get large tax-dodging companies to pay their fair share.

Fund reallocation. With an overall decrease in poverty, the burden on other social programs will shrink, and some funds could be reallocated. At least $150 to $323 billion per year can be reallocated toward a UBI in this way, depending on how aggressive one wanted to go in this direction. It also bears mentioning that there are other areas of spending where funds may be reallocated, such as some of the $700 billion per year US defense budget, equal to the next 10 countries’ defense budgets combined. Put it this way: sufficient funds could be reallocated from defense to send $1000/month to 25 million people, and still leave the US with the largest defense budget in the world by a margin of hundreds of billions!

Increased economic growth, productivity, and other cost savings. In the US economy, wealth flows from the bottom to the top, and then gets lodged there, sitting in bank accounts, tied up in investments or financial schemes that have no wider societal benefit, or hidden in tax havens. With universal basic income, the general public, who spends their money, gets a big boost in purchasing power, which would then be injected right into the economy. UBI creates the healthy cycle of money flow — bottom to top to bottom to top etc. — that our economy has not been able to achieve for more than a generation. The increases in economic growth from this, plus the increased productivity from a healthier, mentally healthier, less stressed workforce, plus the savings from a reduction in emergency room visits, crime, incarceration, homelessness services, and so forth, would total enormous sums. The impact of childhood poverty alone deprives the US of between $800 billion and $1.1 trillion a year in lost productivity.

It’s also important to acknowledge that there are many factors which are difficult to quantify. We know, for example, that the effects of economic insecurity on cognition depress functional IQ by 13 points. Nearly 80% of Americans live paycheck-to-paycheck. What would it mean, economically, to boost say a third of society’s functional IQ by 13 points? It must surely be profound, and yet any estimate can hardly be much more than educated speculation. The downstream effects of economic insecurity on society — the hidden costs, the lost opportunities, the squandered potential — run so deep and reverberate so far that it’s not always easy to translate them into dollars.

Won't people just stop working? Basic income trials and experiments have shown that people receiving basic income do not work less except for two groups: students and new mothers. UBI allows people to take more time in finding better job opportunities, and to more feasibly walk away from horrible jobs, but people won't just stay home. You can't live comfortably long-term on $1,000 a month, and beyond that, people don't want to sit on the couch for the rest of their lives. The data bears that out. It's one of those unkind assumptions people make about everyone else, but never of themselves.

Won't UBI cause inflation? Inflation typically occurs when the government prints a bunch of money, thus devaluing the currency. While a UBI could theoretically be funded by simply printing money, few advocate it. It would be imprudent and politically unpopular.

There’s also worry about price inflation. If everyone has an extra thousand dollars a month, what's to stop the burger joint down the street from deciding to double their prices, since all the customers have more money? It's important to remember that increased purchasing power does not erase market forces. If you wouldn't pay $20 for an $8 hamburger right now, would you suddenly be fine paying $20 if you got a $12,000/year raise at work? Of course not. More money in people's hands means they have more leverage, not less. A business with competitive prices will have an even better edge in an economy where the average citizen has more purchasing power.

What about landlords? Won’t they just raise rents? Basic income experiments and trials have shown a 4-6% increase in homeownership among recipients. In the US, this would translate to over six million people countrywide. With more money, more renters will be able to purchase or build homes of their own. This decreased demand on the rental market will act as a check on price inflation. Right now, many renters must take what they’re given: landlords hold most of leverage. UBI reverses this dynamic, so that landlords who try to price gauge will find themselves losing tenants and having a hard time replacing them.

Will UBI replace the social safety net? This is a point of friction the further one goes to either political extreme. On the hard-right, people are apt to only support UBI if it does away with the all other forms of welfare, and on the far-left, people tend to say they'd only support it so long as it doesn’t touch the existing patchwork in any way.

This debate between the so-called "libertarian" version of UBI vs the so-called "progressive" version is all one big misunderstanding of how our safety net works in the first place. The current patchwork is means tested. If everyone's income increases by $1,000 a month, vastly fewer people will qualify for these programs. Anything that reduces poverty will automatically shrink the welfare state! So, the "progressive" conception of UBI (where it's just plopped on top of what we have now with no changes) is incoherent and self-negating.

The only way around this would be to exempt UBI from the means testing, which would take the work disincentive that already exists in our means tested welfare, and put it on steroids. Doing this would also increase the cost of implementing UBI, since the funds reallocated from existing programs would need to be raised directly. With UBI, a sustained reduction in poverty would see the means tested welfare patchwork shrink over time, with some programs eventually phasing themselves out, and others remaining, but with much lower enrollment numbers than they do now.

And just to be clear, everything discussed in this essay pertaining to welfare programs or the social safety net excludes entitlement programs and government healthcare such as Medicaid or Medicare. UBI should stack on top of and have no impact on either. To do otherwise would not only be unfair — people pay into entitlements their whole lives, they are entitled to them — it would be political suicide.

Why does UBI have to go to rich people too? By this point, the case has been thoroughly made that means testing is bad. To exclude the rich from receiving UBI requires means testing. The moment we start excluding people by income, we're right back to the existing welfare state and all its shortcomings — right back to bureaucracies, red tape, time delays, bad incentives, social stigmas, and people falling through the cracks. Almost any funding mechanism to a UBI will see the rich paying more in increased taxes than they receive in UBI. They will invariably end up net payers. So, to avoid the negative effects of means testing, give the rich their UBI too, then claw back the funds with taxes.

Is UBI socialism? No. Universal basic income doesn’t nationalize the means of production. UBI isn’t a left or right policy. It’s had broad support across the ideological spectrum (including Milton Friedman, the father of modern capitalism). Ironically, self-identified socialists and Marxists tend to be among the most vocal critics of UBI, in part because UBI is what can rescue capitalism, and they don’t want capitalism shored up — they want a socialist revolution.

“Raise the Floor, Lower the Temp”

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