My last post focused on the Raise the Wage Act (RTWA), the CBO analysis, and its potential impact on Americans; today, I will be focusing on a frequently compared alternative to raising the minimum wage: instituting a Universal Basic Income or UBI. I will explore the benefits and pitfalls of UBI and, in an upcoming post, illustrate how it stacks up against RTWA. Before we go into the pros and cons, let me first explain the general concept of UBI: A universal basic income is a check given out to every adult citizen of the U.S. either monthly or yearly. The money is enough to get the poorest citizens above the poverty line; most proposed plans suggest approximately $10,000 a year. The UBI would cost trillions of dollars but would be funded by cutting safety net programs and increasing taxes, thus allowing the plan to go through without a dramatic increase in inflation. Many Americans were first introduced to the concept of UBI when presidential candidate Andrew Yang promoted the concept during his presidential campaign. Since then, the idea of implementing a UBI has grown increasingly popular. Yang’s plan stipulated that all Americans over 18 would be granted a check of $1000 monthly. He proposed that the primary funding for implementing a UBI comes from adding a 10% value-added tax to goods and services; however, it can be discerned that for the plan to work effectively, it will be necessary for the government to cut or reduce funding for some safety net programs.
Before introducing the benefits of UBI, it’s essential to understand some basic facts about the wages in America:
- Currently, 34 million people are below the poverty line, and 44% of Americans are employed in a low-wage job.
- According to USA Today, four out of 5 U.S. adults struggle with joblessness, near-poverty, or reliance on welfare for at least parts of their lives.
- Income inequality has reached new heights in America, with the wealthiest 0.1% — people with annual incomes exceeding $3.8 million — taking advantage of more than half of all monetary gains.
Now let us observe how UBI quells these issues. According to Dylan Matthews, a Vox writer, with a UBI, a family making $50,000 a year would get a $15,287 boost on average once you account for lost tax and other benefits. Another way UBI can help more people is by fostering local business growth. Having money from economic growth flow to poor people rather than the rich feeds into a lift in the rate of economic growth and lower unemployment. Conversely, as income inequality increases, the potential for economic growth is constrained. An understated issue regarding welfare and the potential benefit surrounding it is the stigma many perceive to be associated with it. Many people feel a sense of shame surrounding the reception of food stamps or other government provisions and thus choose not to partake in the programs. Those people no longer need to feel “embarrassed” when they use food stamps or other government subsidies because, under the UBI, everyone receives a stipend. Approximately 42.7 percent of the U.S. population was eligible for one or more of these government benefit programs at some time during 2012, but only about 33.6 percent actually took advantage of a benefit.
As with all major plans, the UBI has its fair share of drawbacks. Many people have an issue with the UBI’s universality, which stipulates that billionaires will be receiving the $1000 check along with those below the poverty line. The 250 million nonpoor Americans will get the money they don’t need, and the government will be forced to cut spending, most likely in programs such as food stamps and Social Security. Additionally, the U.S. is unique in that, unlike other countries with UBI, such as Finland, we do not heavily regulate business. So when businesses see that people have more money and now their goods can be considered “cheap,” they raise their prices, resulting in the poverty line being increased. Thus in response, the UBI will need to increase again, locking it into a cycle of inflation. While this argument is a bit of a slippery slope, the fact remains that a UBI will raise prices, and the only effective way to counter that would be a significant shift in government power regarding business regulation.
While there is a lot of focus on minimum wage, it remains important to debate, analyze and understand other potential solutions, including the UBI.