This page shows various universal basic income ideas and how they might be funded. It also presents how Martin Luther King’s argument for a guaranteed income has come true in the United States – at least partially.
No strings attached
Universal Basic Income (UBI) is a government program that pays cash to citizens as either an anti-poverty or income redistribution program. UBI is generally considered cash payments to citizens with no strings attached—the money can be used for any purpose. This is unlike most welfare programs, which focus benefits on a specific need, such as food or housing. Most welfare programs distribute aid as in-kind benefits, such as rent vouchers, instead of cash.
Anti-poverty program or more?
Dr. Martin Luther King used the term guaranteed income to describe what is now called Universal Basic Income (UBI). To Dr. King, the guaranteed income was an anti-poverty program that should be paid to the poor to lift them out of poverty. Milton Friedman, the conservative economist, proposed what he called the negative income tax, which was also an anti-poverty program. Both ideas were to pay cash to the poor to pull them out of poverty. Mr. Friedman is arguably the most respected conservative economist of the 20th century. Dr. King is arguably the most impactful progressive of the 20th century. The two men are far apart on the political spectrum, yet they agree on this issue. Here are their actual quotes.
UBI is sometimes discussed as an anti-poverty program but usually has the more expansive goal of income redistribution. It can be thought of as a purpose of welfare or something more significant. UBI is often talked about as a solution to the concern of rampant technological expansion eliminating good-paying jobs. Examples of this technological revolution are ATMs replacing tellers or self-driving trucks that may one day replace truck drivers. The idea is that as good-paying jobs diminish, UBI could be implemented to plug the job gap.
The federal government has defined a poverty level but not a UBI level
There is no government standard for the size of UBI, but as the title suggests, it is considered an amount an individual or family could live on – a “Living Wage.” The federal government defines a poverty level (See Poverty Threshold Page) but does not define a UBI or living wage level. See more on the Living Wage Page.
The United States has UBI today – it is just little known. The refundable tax credits are today’s UBI or guaranteed income. The credits pay people cash depending on the number of children they have, even if they owe no income tax. They are the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC). The maximum amount available to a family with two kids approximated $10,000 over the expansion of the programs during the COVID-19 pandemic. (See more on Refundable Tax Credits Page). This amount is far below a Living Wage; therefore, the credits work in structure as UBI but not in scope.
Cost of universal basic income
The cost of a Universal Basic Income program depends on the level of UBI established and whether the payment is made for adults only or includes payments for children. It also depends on whether the payment is made independent of work income or is aimed at the gap between a UBI level and the individual’s current income. The following chart compares the cost of UBI under various scenarios.
If every person in America received a $10,000 annual UBI payment, the cost would have been $3.3 trillion in 2023 [i]. If each American were paid $3,000, the annual cost would have been approximately $1.0 trillion. There are 132.2 million separate households in America, as reported by the Census Bureau [ii]. These households comprise married couples, single parents, and individuals living alone. If these households received a $10,000 UBI payment, the cost would have been $1.3 trillion in 2023. The $10,000 annual payment is purely arbitrary and used for illustrative purposes only. To compare these costs to the current federal budget, see the Entitlement Spending Page.
UBI is usually thought of as payments to households with low income. In 2021, 31% of households in America earned less than $50,000 in annual income [ii]. If $10,000 were paid to all of these households, the cost would have been $414 billion.
63.9 million households in America in 2023 had an annual income below two times the poverty threshold. The graph to the right shows the poverty threshold and an income level of two times the poverty threshold. If these households received a payment of $10,000, the cost would have been $639 billion. There are 25 million children in families with income below two times the poverty threshold. If a UBI payment included $2,500 for each child in these households, the cost would have been $63 billion in 2023.
Each UBI payment described above is in addition to any household income from wages or self-employment. Therefore, if a household had zero annual income versus $50,000 in yearly income, they would receive the same $10,000 UBI payment.
A second way to envision UBI is to establish the payments totaling the gap between a target income level and the household’s income from jobs or self-employment. If the payment were aimed at the gap in income versus the poverty threshold, this is called the poverty gap and would have cost $278 billion in 2023. Further information is shown on the Poverty Gap Page. If the UBI payment was aimed at a level two times the poverty threshold, this is labeled the Living Wage Gap and would have cost $920 billion in 2023. An income level two times the poverty threshold represents a living wage. See more information on the Living Wage Page. UBI payments targeting the poverty or living wage gap cover children because the poverty threshold is based on household size, including children.
How would UBI be funded?
When Universal Basic Income is talked about as a means of compensating for lost jobs due to technological advancements, it is often thought that increased business taxes could fund the program. For instance, if drivers are not needed in self-driving vehicles, then a tax on vehicular transportation could be established to fund UBI. However, most of the time, the arguments for UBI focus on income redistribution as the funding source through taxes on the wealthy, particularly the wealthiest 1% in the nation.
The following table shows a summary of individual income taxes paid in 2020 as reported by the IRS [iii].
There were 1.6 million taxpayers in the top 1% of earners in the United States and they had an average adjusted gross income for the year of $1.8 million. In all, they paid a total of $723 billion in taxes. The effective tax rate for the group was 26.0%. The top 10% of earners had an average adjusted gross income of $393,540 and collectively paid $1.3 trillion in taxes with an effective tax rate of 20.3%. To raise as much as a trillion dollars each year from the top 1% earners would require raising the tax rate to 62%. Annual after-tax income for the taxpayers would drop from $1,307,000 to $671,000. To raise a trillion dollars from the top 10% earners would require raising the effective tax rate to 37% and annual after-tax income for the taxpayers would drop from $314,000 to $248,000. This calculation is done merely by changing the effective tax rate until $1.0 trillion is raised. This could be accomplished by a combination of the elimination of current deductions and the increase in tax rates. There are no other assumptions included in this calculation, such as changes that may occur to taxpayer behavior or other changes to the tax code.
Public Opinion on such a tax increase is divided in the nation, generally with conservatives against the idea and progressives for it. The conservative concern is two-fold:
1) High tax rates lead to the wealthy exercising their means to avoid taxes, such as moving to a new country or simply working less and generating less income. The concern is that actual tax receipts will be lower than expected as the wealthy take action to avoid the taxes.
2) Higher taxes on the wealthy hurt the economy disproportionately. The unintended consequence of high taxes can be fewer jobs and lower wages for low-income individuals compounding the problem UBI attempts to fix. The concern is that the overall economy will shrink with higher taxes on the wealthy, many of whom are small business owners.
Public Support for UBI
There are few surveys conducted of the American public to ascertain their opinion of Universal Basic Income Programs. One such survey found only 34% of the public support such a program. More
Support for Universal Basic Income would depend on the scope and purpose of the program. Milton Friedman’s idea of a negative income tax to fight poverty gets support from some conservatives who, like Friedman, would recommend rolling all the welfare programs into a single program that pays cash to the poor. The current bifurcated federal welfare system has some perverse incentives in it (See work and marriage penalties on the Welfare Issues Page). The idea of getting more cash to the poor in a simplified system also gets support from some progressives who feel such a system would be far more empowering to the poor. The Welfare Reform Page presents the idea of changing the current welfare system into a UBI system.
A large UBI program for income redistribution lacks support at the federal level to become law. This is generally for two reasons:
- Americans have an affinity for work. 90% of voters support requiring able-bodied adults to work, train, or volunteer at least part-time to receive welfare (see further information on the Welfare Opinion Page). UBI programs are usually designed with “no strings attached.” An extensive UBI program would appear to many Americans as a free handout so that individuals will not be incentivized to work for a living. This makes passing a UBI program very difficult, especially during low unemployment.
- An extensive UBI program, distributing as much as one trillion dollars annually, would be twice as vast as the entire welfare program created by the federal government (See Social Safety Net Page). The program would be as large as the defense budget and almost twice as large as the Medicaid Program (See the Entitlement Spending Page). The passage of such influential, large-impact legislation would require more public support than exists today.
Would universal basic income work?
Measuring the success of a UBI program would depend on its purpose. Is the purpose merely to redistribute income regardless of how that income is spent? Or is the purpose to help lead people to financial independence? The same question surrounds the purpose of welfare.
The assumption within any UBI program is that by giving cash to citizens, they will use that cash wisely to better their living conditions, improve their education, take care of their families, or otherwise contribute to their communities. The hope is that UBI helps the individual to grow financially and ultimately become financially independent. The concern is the opposite – that the incentive to work will be diminished and that lives can turn dependent on UBI payments and the cash used for ill purposes such as alcohol or drugs. Would UBI payments give receivers the means for self-improvement or remove the incentive for the need for self-improvement? Over time, do the payments allow individuals to grow and contribute to the success of their communities or disincentivize them to the point where they withdraw and contribute less to their communities? See the blog on gifts to the poor.
This concern exists today regarding the current federal welfare system. Many feel the system leads to dependency and holds down its users. However, the federal system is quite complicated, generally does not pay cash to recipients, and is structured in a way that discourages work and marriage (See Welfare Issues Page). Therefore, the federal welfare system may not be as relevant in the debate regarding a UBI Program.
See the Welfare Reform Page as an example of a UBI Program that lifts low-income individuals out of poverty.
Related Articles
[i] U.S. Census Bureau. Poverty in the United States: 2023. Table A-1. Official Poverty Measure, People With Income Below Specified Ratios of Their Poverty Thresholds by Selected Characteristics: 2022 and 2023. [Internet]. Retrieved November 11, 2024. Available here.
[ii] U.S. Census Bureau. Income in the United States: 2023. Table A-2. Households by Total Money Income, Race, and Hispanic Origin of Householder: 1967 to 2023. [Internet]. Retrieved November 11, 2024. Available here.
[iii] Internal Revenue Service. SOI Tax Stats – Individual Income Tax Rates and Tax Shares. Number of Returns, Shares of AGI and Total Income Tax, AGI Floor and Percentiles in Current and Constant Dollars, and Average Tax Rates. Tax Years: 2001-2020. [Internet]. Retrieved December 14, 2022. Available here.