Universal Basic Income: An Idea Whose Time Has Come

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Paul Ryan's new anti-poverty plan, Expanding Opportunity in America, gets a lot of things right. It offers changes that in less partisan times might well attract support well beyond his usual constituency. The more the pity, then, that Rep. Ryan rules out experiments with a universal basic income-an idea that is winning support from conservatives, libertarians, and progressives alike for the way it both deals squarely with poverty, and ends government micromanagement of the lives of the poor.

The Ryan plan takes aim at the way our current tangled safety net undermines incentives to work, and for good reason. As things now stand, when Americans living near the poverty line take minimum wage jobs, benefit reductions typically claw back half or more of their pay. Taking costs of transportation and childcare into account, they keep pennies on the dollar for their efforts, if that.

Rep. Ryan is also onto something when he points out that no one in Washington knows all the answers. During earlier waves of welfare reform, the states served as natural laboratories for testing ideas like Milton Friedman's negative income tax, a precursor of the UBI. The Ryan proposal would build on earlier experience by making "Opportunity Grants" to states that want to try something new. To make sure states didn't divert the funds to building highways or stadiums, funded programs would have to prioritize assistance to people below the poverty line.

So far, so good-until we discover that the Ryan proposal would exclude experiments with the hottest policy idea around. A universal basic income, or UBI, is radical in the best sense of the word. It cuts through the perverse incentives that currently discourage the poor from taking jobs and encourage them to game the system. Under a UBI, everyone, rich or poor, working or not, would get a monthly payment or an equivalent credit against taxes they would otherwise owe. If you were poor and took a job, you'd get to keep every extra dollar you earned and keep your UBI stipend, too. It's the ultimate work incentive.

Why, then, does the Ryan plan take the UBI off the table? It seems that the Representative somehow can't get beyond the Biblical injunction, "If any would not work, neither should he eat." As the plan more prosaically puts it, programs funded by Opportunity Grants would have to require "all able-bodied recipients to work or engage in work-related activities in exchange for aid."

Consider the paradox here. If you support only people who are below or near the poverty line, and only if they work or look for work, then you are committed to penalizing them if they succeed. As soon as they get a job and start to work their way out of poverty, you have start withdrawing their benefits at a rate that leaves them with little to show for their efforts. You bring back the keyflaw in our existing welfare system that motivated reform in the first place.

To be sure, a UBI raises some big practical questions. Critics claim that a UBI would be unaffordable. True, it might well be hard to fund a universal basic income on top of the existing safety net, but that's not what UBI proponents have in mind. Instead, they, like Rep. Ryan himself, propose funding new anti-poverty initiatives by cutting back old welfare programs that don't work. Once a UBI was in place, we could also rethink middle-class entitlements like mortgage interest deductions and redesign income support policies that are not limited to the poor, such as disability benefits and unemployment compensation.

Critics also worry that a UBI would create a nation of layabouts. Realistically, though, no one is proposing a benefit high enough to live in middle-class comfort. Rather, a UBI aims to provide a minimal but dependable base on which people could build a better life for themselves through their own efforts. Would some people take a no-strings monthly stipend as an opportunity to quit work or cut back hours? Some might, and they should be free to do so if that is their choice. There is good evidence, though, that most people would work more, not less, once they were free of the punitive benefit claw-backs that are built into current programs.

But don't take my word for it. The best way to show how a UBI would affect the work habits and wellbeing of the poor would be to give the idea a try. Opportunity Grants to states would be an ideal vehicle to finance small-scale experiments with a UBI. But to make that happen, we will have to get past the fear of "something for nothing" that constrains the otherwise good intentions of the Ryan plan.


Ed Dolan is an economist and blogger.  This is adapted from the current issue of the Milken Institute Review. 

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