The Flaws of Universal Basic Income

Given that Andrew Yang is now running for Mayor in New York City, it seems like an appropriate time to revisit his signature (only?) policy issue from the U.S. Presidential campaign: Universal Basic Income (UBI). Credit to him for making this concept go mainstream in 2020, and it’s great to see he’s evolved his policy proposal since last year. However, many traditional UBI proponents still support the “pure” form of the policy, which can be defined as “a periodic cash payment unconditionally delivered to all on an individual basis, without means-test or work requirement.”

Here are some reasons why pure UBI is problematic, at least from a national (U.S.) perspective.

It ignores cost of living

It shouldn’t be a surprise that $1000 goes much further in some locales versus others. The overall cost of living in San Francisco is over 200% that of Kansas City, for example. A truly universal, equivalent cash payment across a wide geographic region would result in wastefulness in some areas and ineffectiveness in others. UBI proponents warn that any modification or formulas applied to the payments is just inviting expensive bureaucracy, but a blatant disregard for the very real differentials in housing & transportation costs will result in a policy continually attacked by all sides. Besides, it’s not like the federal government doesn’t already know how to adjust incomes based on cost of living.

It is inequitable

Whether you are a tech billionaire or a single parent living paycheck-to-paycheck, you would get the same universal basic income. The simplicity of the program is part of its allure, but this is why it is fundamentally inequitable. (Equity, to be clear, is different than equality.) Furthermore, if existing welfare programs such as Social Security and Medicare were gutted to provide funding for UBI as many supporters suggest, the elderly in society would be significantly and disproportionately worse off. (That would be a political third rail just by itself.) Essentially, the scheme would shift resources from the most vulnerable to the relatively affluent, in an era when society is keenly aware of the growing gap between these groups.

The rebuttal to this is usually that it is bureaucratically complex and wasteful to attempt to find who is “most deserving” of UBI. Fortunately, Andrew Yang seems to have realized the exercise is ultimately worth doing, since his latest proposal only offers basic income to those in “extreme poverty.”

It is exorbitantly costly

$1000 per month for 236 million adult citizens in the United States comes out to $2.8 trillion per year. How can this possibly be paid for? A 10% Value-Added Tax (VAT) would certainly help, but the final math doesn’t add up, even when combined with some of Yang’s other revenue-generating ideas.

Questionable in several ways…

The program must also be sustainable for the long-term (in order to realize its promises of increased entrepreneurship or freeing people to pursue their true passions), but government revenues are notoriously unpredictable. Even Alaska Permanent Fund dividends (generally touted as an American UBI success story but which has also led to political dysfunction) vary significantly depending on oil prices. Temporary pilot programs have been attempted around the globe but most of them have ended due to lack of consistent funding.

Where UBI works

To be fair, introducing a universal basic income has produced real and notable benefits in some pilots. UBI at the right level can directly address poverty and relieve stress on overburdened households – an important win for mental health. It is certainly effective at raising the floor in society. Given those as the goals, of course proponents can claim UBI “works” – but is the whole package worth it? Could there be other ways of addressing the societal problems without the cost of full-blown UBI?

What should we do instead?

Yang is already on the right track by limiting basic income payments to those who are truly in poverty. Beyond that, a more progressive version of cash payments would taper off based on income – this is also known as a negative income tax.

Many may be surprised to learn that the United States actually has a variant of a negative income tax already – it’s the Earned-Income Tax Credit (EITC) and is generally viewed favorably by both political parties. Proposals to expand EITC (for example, to family caregivers) seem like steps in the right direction. Unfortunately, such proposals don’t have the raw marketing appeal of universal basic income – so here’s to hoping that American legislators can see past the recent technocratic hype for UBI and bring more enlightened solutions to the table.

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