BASIC INCOME AND WELFARE REFORM:

PERSPECTIVES, OPPORTUNITIES, AND CHALLENGES

The recent global recession has served to highlight the fact that unemployment and

poverty remain persistent flaws in the United States economy. To blunt their impact, policy-

makers typically turn to some combination of conditional, targeted public assistance programs.

Current economic conditions make limitations that strategy clear. One strikingly unique policy

tool stands out among the sea of reform proposals – the unconditional basic income (henceforth

abbreviated as UBI). For the purposes of this paper the UBI will be generally defined as an

indefinitely recurring cash grant provided by a government body to individual citizens without

regard to their household composition, financial means, tax contributions, or employment status.

This particular reform is an admittedly radical departure from the status quo, so it merits a

careful and thorough evaluation. With that in mind this paper seeks to examine the UBI’s

historical background, legislative characteristics, normative bases, substantive effects,

administrative challenges, possible funding sources, and potential shortcomings. The following

analysis formulates a conception of the UBI as a well-developed idea that offers transformative

potential and poses correspondingly immense challenges.

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Background

It is important to have a clear picture of what the UBI is before attempting to engage in

any normative or positive assessments of such a policy. The following section will present an

overview encompassing the UBI’s theoretical and practical history in addition to a few

representative proposals for national reform. This review demonstrates that the UBI is

sufficiently detailed and developed to be analyzed systematically.

The History of Basic Income

The idea for a UBI has been around for in some form or another for over 200 years.

Though proponents’ motivations have differed over time, the fundamentals of such policies have

remained consistent. An overview of the history of UBI theory (as developed by Paine and

Fourier) and UBI policy (as developed by Manitoba, Alaska, and Iran) supports the general

definition outlined above and serves as valuable background for evaluating contemporary

proposals for a national UBI in America.

One of the earliest arguments for a UBI was put forth by Thomas Paine in 1797 with

Agrarian Justice. Paine’s purpose in writing this pamphlet was to outline an ethical and

legislative counterpoint to a popular religious sentiment of his day – the view that the division of

the world between rich and poor was an immutable element of God's will. He bases his ethical

argument on a distinction between two types of property – natural and acquired, respectively.

Paine was a proponent of the Lockean view that every individual has a right to acquire property

in proportion to how much they contribute to its production. By contrast, Paine holds that each

individual has the right to an equal portion of nature or the equivalent thereof. These precepts

have important implications for the organization of society and government. He contends that a

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transition from “the natural to the civilized” state benefits the rich at the expense of the poor.

What the rich gain in variety and luxury, the poor lose in access to free land that could otherwise

be used for their own subsistence. He concludes that “the first principle” of civilization” should

be to ensure that no individuals are worse off than they would be without the imposition of

government. The basis for Paine’s legislative remedy to this problem is what he refers to as

“ground-rent,” which refers to the product that individuals derive from increased agricultural

productivity made possible by private land-ownership. In Paine’s view, this monopoly rent

rightfully belongs to the community from which the land in question was appropriated. He

proposes that the legislature tax bequeaths to capture this revenue and then invest it in a

“National Fund” that would provide a capital grant to every individual on their 21st birthday and

an annual pension to every individual older than 50. This would compensate each recipient “for

the loss of his or her natural inheritance, by the introduction of the system of landed property.”

Finally, Paine insists that these payments must be distributed universally in order to prevent the

“invidious distinctions" between rich and poor that dominated religious philosophy in his day.

Another source for contemporary UBI theory is French philosopher Charles Fourier and

his "social minimum" proposal. The basis for his view is that all individuals are entitled to

provide their own subsistence. This is inherent in nature where all people can hunt, fish, gather,

or graze. Civilization, according to Fourier, prevents people from effectively exercising these

rights. Like Paine, he believed that individuals should be compensated for that loss (Cunliffe &

Erreygers 2001, 464). Fourier first articulated a solution to this problem in 1803 when he

identified poverty as the single greatest threat to society (461). He thought society could most

effectively resolve this threat by providing a "minimal standard of living" that ensures access to

food, clothing, and housing to all individuals regardless of employment status (462). Fourier's

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views gained traction when the famous political philosopher John Stuart Mill began promoting

them. Mill argued an economic system that protects private property while providing every

member of the community with "a certain minimum" sufficient for subsistence. After meeting

this condition, Mill believed the rest of society's production should be allocated on the basis of

each individual's contribution to labor, capital, and talent (461). Belgian Socialist Joseph Charlier

also accepted Fourier's conclusion that the government should resolve poverty by providing

individuals with a minimum standard of living to replace their loss of natural subsistence. He did

not, however, agree with the contention that minimum wages and "in-kind" services were the

best policy mechanisms for accomplishing that goal (471). In 1848 he outlined a proposal for the

state to become the sole landowner and redistribute land-rents to compensate former private

landowner. The proposal goes on to specify that the state would use remaining revenue to

establish a "guaranteed minimum" for the rest of society (474). This minimum would grow over

time as the number of former landowners entitled to compensation gradually died off (475). This

complicated solution, Charlier argued, would reconcile the injustice of private land ownership

with respect for legal contracts (473). In the final consideration, Charlier’s development of

Fourier’s proposal can be considered a UBI in the modern sense because all individuals would

eventually have an equal right to a minimum income.

Despite many UBI advocates throughout history, there has been no notable application of

such a policy until the 20th century. Belik (2011) reports that Canada initiated one of the earliest

documented experiments with UBI policy between the years of 1974 and 1978. Federal and

provincial governments over this period provided a monthly grant called the "mincome" to any

of the approximately 1000 residents of Dauphin, Manitoba who fell below the poverty line. The

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stated purpose of this pilot program was to determine how direct cash payments influence the

work effort of recipients. The grant was initially valued at $1200 per year with the poverty line

was $2100 annually. However, the program went several million dollars over budget after

Canada faced an economic recession that expanded the ranks of the poor and raised prices. The

“mincome” was abruptly cancelled after only four years and the government subsequently

refused to release any data on the program until 2009. As such, researchers have only just begun

to systematically assess the effects of this brief UBI experiment. There may still, however, be

conclusions to draw from the ongoing experiment with UBI taking place in the State of Alaska.

In 1976 residents of Alaska voted to approve a constitutional amendment that committed

a portion of the state’s yearly oil revenues to investment in the Alaska Permanent Fund, which

was established for that purpose (O'Brien & Olson 1990, 140). The legislature earmarked the

accumulated principal toward “income producing investments” in order to diversify Alaska’s

boom-and-bust prone natural resource based economy (141). The interest generated from the

fund remained unappropriated until Government Hammond proposed creating a dividend

program modeled such that Alaskans would be treated like “stockholders in a corporation” (143).

One rationale for this policy was the assumption that resources under state lands belong equally

to “all state residents, including future generations.” However, Alaskan residents have

historically been highly geographically mobile. This means that future generations may not be

able to benefit from oil revenues via the normal channels of bequests and intergenerational

wealth transfer. According to proponents, preserving a portion of royalties in a permanent fund is

a superior way to facilitate an equitable distribution of profits from the exploitation of

nonrenewable resources between generations over the long term (144). Dividend payments

began in 1982 at $1000 per citizen. That amount fell to an all-time low of $385 the next year, but

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rose such that it has been between $825 every year since 1988, peaking at $2069 in 2008. The

program has disbursed over $17.5 billion since its inception (Alaska Permanent Fund

Corporation 2012).

In 2010 Iran became the first country in the world to implement a national UBI grant

(Tabatabai 2012, 17). This policy came about largely by accident. The government set out to

reform Iran's elaborate system of subsidies, but failed to produce the public support or technical

planning necessary for more targeted reforms (18). As a result, the grant is financed by a gradual

rollback of explicit and implicit subsidies, which were themselves financed by revenues from

Iran's nationalized oil sector (19). The initial yearly transfer per capita was roughly $500 and

claimed by 72.5 million people and account for roughly 15 percent of Iran's national income. For

comparison, Alaska Permanent Fund Dividend payments only account for about 3 to 4 percent of

Alaska's state income (18). The Iranian government has not implemented the policy as the

legislative authors intended, however. The law called for the government to cut up to $20 billion

is subsidies over the course of its first year while phasing in cash transfers. The government

instead opted to delay the policy until the last quarter of the year, at which point it cut $20 billion

in subsidies over the course of three months in order to inflate the size of the initial cash transfers

(21). The policy invites volatility in other respects as well. A decline in international oil prices

poses two serious risks to the program: it would reduce the difference between Iranian

consumers actually pay and what they would have paid under the previous subsidy system, and it

would reduce Iran's oil revenues generally (23). Another problem is inflation, which hovers

around 20 percent annually in Iran and will rapidly erode the value of the grant for the

foreseeable future (25). In sum, Iran's experiment with subsidy reform is an important milestone

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in UBI studies because it represents the first national policy of its kind; however, a

comprehensive policy assessment will have to wait until the program is fully implemented.

In conclusion, this review of the theoretical and practical history of UBI policy provides a

sufficient background for the general definition outlined above, which itself provides a frame for

constructing and evaluating modern UBI proposals

Contemporary Proposals

For the purposes of this paper a UBI policy is defined by three characteristics: the

government grants cash to individuals, recipients are not subject to means tests, and the

government does not impose work requirements. Admittedly, these criteria are vague enough to

encompass a variety of programs that differ in both degree and substance. The unity and

diversity of such policies can be illustrated via a brief overview of a few specific recent UBI

proposals.

In 1998, Leonard Green of the Institute for SocioEconomic Studies proposed a partial

UBI program named the National Tax Rebate. This program would provide a cash payment of

approximately $4000 to each adult and $2000 to each child, treat these payments as taxable

income, and finance these payments by eliminating other "welfare programs and tax

expenditures." There would be no work requirements, means-tests, or additional benefit

reduction rates. Though the grant would not raise recipients above the poverty line on its own,

one full-time minimum wage worker could lift a four person family out of poverty. At the time

of its proposal, this program would have been revenue neutral without any alteration of the tax

code. Computer simulations forecast that this policy would raise incomes in the bottom three-

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fourths of the population, with the greatest improvements accruing to the most poor (Bryan 2005,

609). Though the National Tax Rebate was highly detailed for its time, subsequent proposals

have been much more comprehensive.

Allan Sheahan of the US Basic Income Guarantee Network put forth a highly detailed

plan for tax-reform in 2006 that heavily emphasized the gradual adoption of a UBI. Under this

plan every adult would be eligible for a refundable tax credit of $10000 and every child would be

eligible for a $2000 tax credit. The IRS would deposit these Basic Income Grants (or BIGs) into

recipient bank-accounts monthly. Any income an individual receives in addition credit would be

taxed. Social Security and all other federal retirement programs would ultimately be phased out,

but current retirees could either continue to receive their benefits or opt-in to the BIG. The net

cost of this program is projected to be $1.9 trillion (6). This would be funded primarily through

spending cuts including 138 tax loopholes valued at $740.8 billion per year, the tax code's

standard deduction and personal exemption which costs $244.4 billion per year, $375.5 billion in

annual welfare programs such as the EITC and the Child Tax Credit, and $160.9 billion from

annual defense spending (7). The remaining $374 billion would need to be funded via revenue

increases. USBIG advocates a wide menu of revenue increases to cover the cost of their grant.

$270 billion could be generated by reversing all of the Bush tax cuts, $30 billion from returning

to 1994 tax rates, $60 billion by removing the different set of rates for married couples from the

tax code (8), $59 billion from applying a 20 percent surtax to incomes over $1 million, and $220

billion by subjecting all earned income to payroll taxes. At the time of their bill's proposal, these

revenue increases would have contributed $265 billion toward deficit reduction (9). Though

many Democratic lawmakers were sympathetic, this proposal ultimately failed to gain traction in

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Congress. It is, however, remarkably similar to the proposal released by high-profile

conservative commentator Charles Murray that same year.

Murray uses his 2006 book In Our Hands to outline a plan to replace the welfare state

with a UBI. Under his plan the government would provide every citizen with a passport that

establishes their eligibility for the grant, individual citizens would be required to open bank

account for the grant to be deposited into, and recipients would be charged a 20% surtax on all

earned income over $25000 until they reimbursed the full cost of the plan (10). Citizens would

begin receiving their grant at the age of 21 (79). Living arrangement or marital status would have

no bearing on eligibility and Congress would have discretion to adjust the value of the grant in

response to changes in inflation or median income (12). The projected cost of this plan in 2002

was $2.023 trillion, or $1.794 trillion after taking reimbursement into account (16). Murray

assumes no change in federal tax rates and favors financing his plan by cutting all "programs that

are unambiguously transfers" (12). Eliminating federal retirement programs —Medicare,

unemployment insurance, and retirement and disability insurance benefit payments — would net

approximately $800 billion in savings (131). Eliminating transfers to low-income individuals —

including Medicaid, SCHIP, SSI, TANF payments and in-kind services, the EITC, the child tax

credit, foster care, food stamps, school lunch, WIC, all housing benefits, Pell Grants, and low-

income energy assistance — would net approximately $373 billion in federal savings (134).

Finally, Murray proposes saving approximately $62 billion by eliminating any federal subsidies

to any "industry, corporation, nonprofit organization, or an identifiable group" (132). All things

considered, Murray’s plan would begin with an approximately $355 billion shortfall compared to

the budget neutrality of those outlined above (18). It is a valuable contribution to the literature

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nonetheless, as it puts forth a plausible vision for UBI reform that should appeal to social and

economic conservatives.

Though the plans above differ in goal and emphasis, they are roughly analogous. There is

a universal agreement on the need to close tax-loopholes and phase out most direct government

transfers. It also seems reasonable to conclude that $2 trillion is a safe estimate for the annual

cost of a UBI policy. Every proposal would require a higher rate of taxation than presently exists,

with the exception of Charles Murray’s more conservative plan. The “Funding” section of this

paper will cover the issue of taxation with greater detail and more current data. There are also

some limited differences in each plan’s approach toward "in-kind" government transfers. While

the authors under consideration generally favor a government role in public education, healthcare

policy remains a contentious area. Murray (2006) proposes eliminating all federal healthcare

spending and requiring individuals to purchase a private insurance plan with their basic income

grant (51). This would cost individuals an estimated $3000 per year if insurance companies were

required to treat the entire population as a single pool (47). Sheahen (2006) reaches the opposite

conclusion. He argues that the government should fully nationalize the health insurance market

and provide "Medicare for All" based on his view that single-payer systems are the most efficient

way to bring long-term costs under control (13). Overall, with few exceptions, recent proposals

have been so similar in key respects that generalized conclusions about the UBI as a whole can

be meaningfully compared to current social welfare policies.

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Perspectives

Any normative evaluation of a public policy should be viewed in the context of the

critic’s perspective. A perspective in this sense is defined as a body of assumptions about the

world, subjective values, and end goals.

In the case of public assistance, Zelleke (2005) offers a number of perspectives that

justify conditional targeting and work requirements. Paternalists may favor work requirements

on their view of human nature. In this view, poverty and unemployment result from some deficit

of character inherent in society or the poor themselves that can only be overcome by cultivating a

spirit of personal independence. Thus, it is counterproductive for the government to allow the

poor to depend on public assistance. Civic republicans may favor work requirements because

they value the principle of reciprocity. They view society is a “web of mutual dependence” in

which each member’s entitlement to assistance depends on the contribution they are willing to

sacrifice for others. Finally, socialists may favor work requirements as an instrument to achieve

their end goal of distribution “from each according to his ability, to each according to his need”

(636). As Marx argued, the socialist state seeks to construct an economy organized on the

principle of “distribution according to work” (Howard 2005, 621). There are a number of other

relevant perspectives that justify the conditional nature of public assistance in the United States.

If an individual assumes that the most significant social cost associated with redistribution is the

“reduction of work effort,” or holds that value that beneficiaries have “a moral obligation to

work,” then a policy of work requirements is necessary for efficiency and equity (Bryan 2005,

598). For others who support welfare on the grounds that it’s a “social contract,” or a formal

agreement for citizens to meet the needs of others in exchange for having their own needs met,

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then conditional targeting is a precondition for the policy’s legitimacy (Panitch 2011, 936).

However, it should be noted that these assumptions, values, and goals are not universal.

A number of political philosophers have expressed criticisms of conditional public

assistance or support for a national UBI. Their arguments can be grouped under three broad

perspectives: liberal, socialist, and conservative.

The Liberal/Libertarian View

The liberal libertarian perspective on basic income is predicated on the subjective value

of individual liberty and the end goal of personal autonomy.

Liberals place a high value on the concept of “negative liberty,” or freedom from

government coercion. In short, the only legitimate restraint on individual action is to protect the

safety and freedom of other individuals (Friedman 1982, 160; Atkinson 1995, 75; Howard 2005,

619). Proponents of this perspective can cite the "liberal neutrality" theory of justice advanced by

John Rawls, which holds that the state must take an impartial stance regarding the multitude of

different "substantive conception of the good life" (Van Parijs 1991, 102; Howard 2005, 614;

Gamel et al. 2006, 479). Under this view, work requirements raise the issue of what constitutes

“work” as opposed to “leisure.” A state that imposes binding definitions for those terms is in

effect violating neutrality by making discriminatory judgments about various life choices (Van

Parijs 1991, 110). In kind transfers suffer from the same defect according to Friedman (1982).

He disparages subsidized housing as an example of “paternalism” because direct cash grants

would allow recipients to choose the housing or other good that most meets their needs and

preferences (146). Hayek (2007) goes even further, condemning all policies directed and specific

classes of people as examples of “arbitrary” rather than “impartial” government (191).

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Negative liberty is not, however, the only element of the liberal perspective. Many

liberals recognize personal autonomy requires the additional dimension of “positive liberty,” or a

minimum of material resources. This follows from the recognition that even in the absence of

government coercion, individuals cannot exercise “effective liberty” if they are unable to

“participate in society.” This can be illustrated by the difficulty homeless people face in seizing

their right to vote in nations where registration is tied to home address (Atkinson 1995, 75). A

UBI policy enhances positive liberty in this sense because it gives each individual the material

means to make their own life choices (Van Parijs 1991, 103; Gamel et al. 2006, 479).

To sum up, a national UBI should be of interest to adherents of a liberal or libertarian

political perspective because this reform would enhance the personal autonomy of recipients

while avoiding coercive mechanisms like work requirements.

The Left-Wing/Socialist View

The left-wing socialist perspective on basic income is predicated on assumptions about

property rights and the subjective value of equality.

Theorists on the political left identify a number of “rents” – benefits that accrue from

unjustly appropriating external resources as private property – as legitimate targets for taxation

or redistribution by government bodies. Van Parijs (1991) identifies an extremely broad range of

taxable rents. One example is “externalities,” which he defines as any resource used to

“nonconsensually worsen the situation of others.” Taxing the emission of pollutants, for

example, would be one way to capture and redistribute an externality (122). More

controversially, he asserts that individuals benefit appropriate an external resource when they

possess jobs as assets. This is because workers benefit from society’s “accumulated material

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means of production” and scientific advancement (128). This “employment rent” can be

calculated by subtracting the market clearing wage for a particular job from an individual’s

actual wage (125). The only practical way to capture that rent is by taxing wages, as payroll

taxes do in the United States (126). Altogether, left-wing assumptions about rents and private

property serve as justification for a wide number of redistribution policies.

The subjective value that leftists and socialists place on equality has been used by some

as an argument in favor of UBI policies. Van Parijs (1991) bases his own support for UBI in part

on Ronald Dworkin's “equality of resources” theory, which holds that individuals should not be

held responsible for external circumstances imposed on them by previous generations. The crux

of his argument for the UBI is that each individual is rightfully entitled to the “per capita value of

society’s external resources,” which can be collected by taxing rents as outlined above and

redistributed as cash payments (112). He goes on to make the case that these payments should

not be preconditioned by household composition or willingness to work with his conclusion that

"those who take an unfair share of society's resources are not those who opt for such a low-

production, low consumption lifestyle" but rather people who benefit from external resources at

the expense of others (131).

To sum up, adherents to a left-wing or socialist political perspective have views on

property that justify the redistributive mechanisms of the UBI and may welcome the potential of

such a policy to promote the value of equality.

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The Right-Wing/Conservative View

The right-wing conservative perspective on basic income is predicated on the assumption

that policymakers have imperfect knowledge and the end goal of reducing the scope of

government.

Friedrich Hayek (2007) proposes the “Rule of Law” as a principle that reconciles both

conservative precepts. The Rule of Law holds that government policy should be limited to

general and preannounced laws that “make it possible to foresee with fair certainty how the

authority will use its coercive powers in given circumstances and to plan one’s individual

affairs” accordingly (187). Hayek argues that is important to prevent the government from

having discretion over specific situations because “only the individuals concerned in each

instance can fully know these circumstances and adapt their actions to them" (190). Central

planning, or state allocation of resources to specific ends, is unreasonable according to Hayek

because it would require “a complete system of values in which every want of every person or

group has a definite place” (192). These ideas have been applied to UBI policy in specific by

later scholarship.

Burczak (2009) draws on Hayek’s Rule of Law in his own advocacy for a national UBI.

He argues that this sort of policy would “avoid the knowledge problem” because those

responsible for implementing it would lack the discretion to target specific individuals, groups,

circumstances, or outcomes (392). Hayek (2007) does address the issue of public assistance in a

way that appears to support this conclusion. He draws a distinction between two types of

security: providing a minimum of material sustenance, and maintaining a specific lifestyle.

Though he condemns the latter as central planning, he argues that the former should be

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accessible to all can be provided outside of the market system (241). Milton Friedman (1982) has

also expressed support for methods of public assistance that don’t encroach on market forces. As

one example, Friedman proposes a “negative income tax” policy that would set an exemption

level at which no taxes would be paid and a minimum income level below which a grant would

be paid. He goes on to relate this reform to the conservative perspective by pointing out that it

would reduce administrative discretion and reduce the breadth and scope of government anti-

poverty programs (158). Arguably, a UBI would meet those same goals.

To sum up, individuals who adhere to a right-wing or conservative political perspective

may welcome the adoption of a UBI policy due to such a reform’s potential to reduce the

government’s discretion and interference with market forces.

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Opportunities

In addition to the normative cases outlined above, there is a positive element to the debate

over UBI policy in the United States. The opportunity for reform can be illustrated by the

problems inherent in the existing welfare state as well as the effects that would likely follow the

introduction of a national UBI.

Problems with the Status Quo

The United States’ current welfare regime differs from a UBI policy in three key

respects: work requirements, benefit reduction rates, and eligibility criteria. Each one of these

features poses a number of problems for social welfare and the macroeconomy.

Bryan (2005) puts forth an analysis of the Personal Responsibility and Work Opportunity

Reconciliation Act of 1996 [PRWORA] which suggests that attempts to increase workforce

participation among recipients of public assistance had the effects of diminishing social welfare

and distorting the labor market. This law replaced welfare, officially known as Aid to Families

with Dependent Children [AFDC], with a new program called Temporary Assistance for Needy

Families [TANF]. Two key reforms in the new program were the adoption of work requirements

and a hard limit on the number of months recipients could claim assistance (596). These reforms

were immediately hailed as a success because welfare use declined precipitously and workforce

participation among former recipients increased over the late 1990s. However, later studies

suggest that nearly all of these effects could be attributed to economic growth rather than any

specific reform (605). In fact, the single-mothers living below the poverty line have become

substantially poorer since the passage of PRWORA (603). Not only are they receiving fewer

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dollars from government transfers – earned income among this group has fallen more than 10

percent (604). Evidently, work requirements and time limits did not lead to an increase in

employment among this vulnerable group. Not only have these requirements failed to improve

social welfare – their stringency may actually make things worse. It is now against the law for

states to exempt more than 50 percent of TANF recipients from work requirements (603).

However, the Medical Expenditures Panel Survey compiled by the Department of Health and

Human Services found that more than 46 percent of the heads of the poorest households have

“substantial limitations” on their ability to work and over 80 percent of TANF recipients face at

least one obstacle limiting their ability to work. These include having a lack of high-school

education, a newborn, a disabled child, a lack of fluency in English, poor physical health, poor

mental health, or a history of chronic unemployment (602). Taken together, the evidence

suggests that states may not have enough discretion to exempt everyone with a legitimate

disability from work requirements. Finally, time limits and work requirements together have the

potential to distort the labor market and reduce labor market efficiency. Those two requirements

create an incentive to work outside the home, sometimes at the expense of more economically

useful activities. For example, recipients can’t meet work requirements by caring for children,

elderly relatives, or disabled adults (599). Bryan also finds that recipients of public assistance

have experienced more employee-employer mismatches, shorter job tenures, and lower wages

following PRWORA. He attributes these findings to TANF’s time limits, which incentivize hasty

job searches (605). Overall, PRWORA appeals to have failed in its goal to increase social

welfare by incentivizing workforce participation among welfare recipients.

Public assistance programs in the United States have high regressive benefit reduction

rates that harm recipients’ welfare and reduce their incentive to work. Under current law, it is

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possible to face a benefit reduction rate in excess of 100 percent by participating in more than a

single transfer program (Bryan 2005, 606). That is, an extra dollar in earned income could reduce

a recipient’s total level of public assistance by more than one dollar. The literature refers to such

a situation as the income, poverty, or unemployment trap interchangeably (McKay & Vanevery

2000, 270). The United States’ problem in this regard is not unique among conventional welfare

regimes. In Great Britain, for instance, half a million low-income families faced an effective

marginal tax rate of 70% or higher (Atkinson 1995, 17). High benefit reduction rates may induce

recipients of public assistance to work fewer hours, seek less difficult jobs with lower pay, and

“acquire fewer new skills" (Bryan 2005, 599). Murray (2006) cites a high benefit reduction rate

as the primary reason why experiments with negative income tax in the 1970s produced such

strong work disincentives (74). In the United States specifically the EITC has a graduated benefit

reduction rate that reaches a maximum of 21 percent. This can penalize recipients’ work effort

because it is applied to their existing marginal income tax rate. This particularly problematic

because approximately 2/3 of EITC recipients are in the program’s “phase-out range”, while only

1/3 are in the phase-in range where the benefit reduction rate is negative (Bryan 2005, 599).

However, a negative benefit reduction rate can pose problems as well. One inequity in the

current system is that overall benefits increase as income increases over the range of eligible

incomes (605). This applies to the phase-in range of the EITC as well as TANF and Food Stamps

generally. For the latter two programs, the average transfer to the poorest tenth of single mothers

is less than half as much as the average transfer to the second poorest tenth of single mothers

(605). The Social Security system suffers from similar flaws because benefits are determined by

lifetime income (Murray 2006, 24). All things considered, the preceding examples illustrate

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serious fairness and productivity concerns associated with making public assistance rates overly

contingent on earned income.

The current roster of social welfare programs in the United States has a number of

stringent eligibility criteria that seriously limit their ability to reduce poverty. A 1994 study

estimated that the EITC lifts only a quarter of eligible households out of poverty while doing

nothing for the non-working population (de Beer 2000, 44) In fact, about 65 percent of poor

families are excluded entirely either because they have no outside income or because they “are

demographically ineligible, failing the age or child tests" (Bryan 2005, 599). The complexity of

rules and eligibility criteria, as opposed to their content, may further limit the efficacy of anti-

poverty programs. The presence of means-testing alone reduces the “take-up rate” of public

assistance programs, meaning fewer eligible individuals make the effort to even apply (De

Wisperlaere & Stinton 2012, 106). Bureaucracy can also harm recipients’ welfare by tying them

to a geographic location. The hassle of reapplying for TANF, housing assistance, and Food

Stamps could deter a working parent from moving out of an economically depressed area to a

city with a better job market (Murray 2006, 97). The Social Security system is also limited by its

strict criteria, as evinced by incidence of poverty among senior citizens (24). Individuals are not

eligible for survivor’s benefits based on their spouse’s employment unless they were married for

ten years, nor are individuals eligible for retirement benefits if they do not work ten years or

more. This system poses particularly difficulties for divorced or widowed stay-at-home mothers

and housewives (25). Taken together, means testing and other eligibility criteria prevent a

substantial number of the neediest members of American society from improving their

conditions with public assistance.

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Effects of a Basic Income

The adoption of a UBI offers transformative potential for work incentives,

unemployment, aggregate demand, and the social status of marginalized groups.

Gamel et al. (2006) employ a combination of theoretical models and empirical surveys to

test the hypothesis that a national UBI policy would reduce the aggregate labor supply. The

microeconomic theory of labor supply holds that two factors influence individuals’ work-leisure

allocation: the substitution effect and the income effect. The substitution effect implies that an

increase in the wage rates proportionally increases the opportunity cost of leisure, which

encourage people to work more. However, UBI policies do not increase the wage rate – some

variants even involve a phasing-out of minimum wage laws. Thus, a UBI should have a zero or

negative influence on work incentives via the substitution effect. The income effect implies that

increases in purchasing power tend to increase workers’ demand for normal goods. If leisure is a

normal good, then a UBI would decrease work incentive via the income effect (480). However,

standard labor economics can only offer an indeterminate forecast of the effects of a UBI on

labor supply because it may not be the case that all citizens perceive leisure time as a normal

good. A UBI would actually increase work incentives via the income effect to the extent that

jobs are gratifying, unemployment is stigmatized, and professional relationships are an important

element to social networking (484). Survey results suggest that two thirds of young adults

conceive of work in this way. 55 percent of respondents answered that they would not change

their labor activities in response to a UBI while approximately 13 percent answered they would

only reduce their work hours in the short-term for the purpose of investing in education and

formal training (488). As an individual’s level of education or job stability increases, their

likelihood of reducing work efforts in response to external grants (489). There is also theoretical

21

basis for predicting that UBI policies compare favorably to current public assistance policies vis-

à-vis work incentives for low-income individuals. As stated previously, TANF and the EITC

have high benefit reduction rates that create an “unemployment trap” – that is, recipients’

effective wages are reduced so much that labor supply will unequivocally decrease via the

substitution effect (483). All in all, the fear that replacing current public assistance policies with

a UBI would decrease aggregate labor supply is not supported by microeconomic theory or

empirical data.

UBI advocates contend that such a policy would allow the economy to accommodate an

increasing natural rate of employment and improve work conditions. Groot (1997) finds that the

United States economy following World War II has been characterized by simultaneously

increasing per capita output and decreasing per capita demand for labor. The result of this

structural change has been large scale unemployment (209). Groot & Van der Veen (2000)

corroborate these findings, arguing that technological change and globalization decrease

employers’ demand for hiring workers at a “living-wage” in highly developed economies (15).

One way to distribute the remaining number of jobs among more people is by reducing per capita

work hours. There is a strong consensus in the literature that a national UBI policy would

facilitate this type of change (Groot 1997, 208; Groot & Van der Veen 2000, 13; De Beer 2000,

49; Murray 2006, 73). This is an intuitively logical conclusion – by design, UBI policies reduce

the proportion of GDP that gets distributed by market forces (Groot 1997, 207). Productivity

growth has not been the only economic trend that technology improvements have brought about.

Working conditions have gradually improved as well, and there’s reason to believe that a

national UBI policy could accelerate this trend (105). The presence of a reliable safety net,

especially one set near or above the poverty line, would all but eliminate the need for individuals

22

to work dangerous and onerous jobs. Labor’s bargaining power would be greatly increased (Van

Parijs 1991, 5). Employers would then be under serious pressure to invest in technological

improvements that make work safer and more attractive (Burczak 2009, 392). Overall, the

argument that UBI policies could mitigate the impact of decreasing per-capita labor demand and

lead to better labor conditions appears sound.

The literature suggests that the secondary effect of macroeconomic stabilization would

likely accompany the adoption of a national UBI. Burczak (2009) argues that this type of robust

safety net would allow even the unemployed to engage in consumer spending, thus reducing

fluctuation in aggregate demand (392). Standard macroeconomic models support the contention

that exogenous increases in income tend to increase consumer spending, and increases in

consumer spending tends to increase the demand for labor. Thus, it follows that a more

consistent level of aggregate demand would support a more consistent level of employment

(O’Brien & Olson 2009, 149). Alaska’s experience with the Permanent Dividend Fund provides

strong support for this hypothesis. Data shows that Alaskans’ “personal income has tended to

grow more rapidly during the expansionary phase in the presence of dividend payments than it

would have without the payments, and has tended to decrease less rapidly in the contractionary

phase than in the absence of dividend payments” (150). These findings illustrate how the

presence of regular dividend payments can somewhat offset the impact of recessions and

economic shocks.

Adopting a national UBI would likely result in a number of tertiary social effects in

tandem with the economic effects outlined above. The first of these concerns the emotional and

psychological well-being of the poor. There is a strong consensus in UBI literature that means-

tested transfers stigmatize the poor because there are often negative prejudices associated with at

23

least some of the targeted groups. Claimants may therefore be seen by themselves and by others

as inadequate, shameful, humiliated, or unworthy of respect. Replacing current policy with a

UBI that lacks targeting would presumably ameliorate some of the psychological trauma that

low-income people experience today (Van Parijs 1991, 105; Groot 1997, 209; McKay &

Vanevery 2000, 268; De Wisperlaere & Stinton 2012, 106). An even more contentious and

unpredictable social change likely to be brought about by UBI policy concerns the economic and

social position of women. There seems to be some consensus that a UBI would redistribute

income from men to women (Van Parijs 1991, 102). This can partly be attributed to its potential

to eliminate gender biases present in current public assistance policies. For example, the fact that

Social Security payments are based on lifetime contributions is a serious disadvantage to women,

who have historically not had equal access to the labor market and still are not paid at the same

rate as men (Groot 1997, 208; McKay & Vanevery 2000, 271; Murray 2006, 25). In a sense, a

UBI would also provide compensation for the unpaid labor of housework and child care typically

undertaken by women. Some feminists are wary of this outcome could reinforce gender roles on

the grounds that incentivizing “private sphere” activities could halt or reverse the gains women

have made in terms of wages and status in the “public sphere” (McKay & Vanevery 2000, 273;

Bergmann 2004, 116). By contrast, McKay and Vanevery (2000) argue that feminists should

embrace the UBI as a tool for eliminating discrimination based on sex, gender roles, and sexual

orientation. Payments distributed on an individual rather than household basis accommodate a

larger and more fluid range of family structures and lifestyle choices (273). This is relevant to

feminist equality goals because the diversity of family units in United States is increasing

rapidly. For example, rising divorce rates are increasing the proportion of single-parent

households while stronger civil rights enforcement for LGBT people is contributing to an

24

increasing proportion of households that include “more than two coparents” (275-276). In

conclusion, the unconditional and individualized nature of the UBI has profound consequences

for the status of the poor, women, and sexual minorities.

25

Challenges

The analysis above reveals transformative potential stemming from the UBI’s radical

nature. However, such drastic departure from the status quo poses a number of challenges to

policymakers. If the United States ever adopts this sort of reform it will need to confront

difficulties associated with the implementation, funding, and limitations of UBI policy.

Implementation

The UBI is inherently huge in scope by its construction. Hence, the process of

implementation threatens to massively disrupt economic and social conditions. Policymakers can

mitigate these risks by gradually phasing in UBI reforms and developing a plan to confront a

number major administrative bottlenecks identified in the literature.

Legislative reforms seeking to minimize economic and social upheaval will need to take

an incrementalist approach toward reforming the current public assistance regime. There is a

strong consensus in UBI literature in favor of gradually phasing in grant payments and gradually

phasing out current policies (Groot 1997, 210; Parijs et. al 2000, 65; De Beer 2000, 51;

Bergmann 2004, 108). Immediately adopting a full UBI would create sudden changes in the

distribution of income that would shock aggregate supply and demand (Groot 1997, 210). Van

Parijs et. al (2000) point out that suddenly introducing an individual UBI worth as much or more

than current household welfare transfers would redistribute purchasing power “at the expense of

one-adult households and in favor of two- or more-adult households" (64). There is particular

risk that a sudden windfall would produce work disincentives that could shock the labor supply

and disrupt the revenue stream needed to fund the program (Bergmann 2004, 108). On the social

side, hasty implementation could disrupt family relations. If initial payments were large enough

26

to allow teenage children to live apart from their parents there may be a number of young adults

that loose the impetus to go to school and thus enter the labor pool with reduced skills and

earning capacity (Bergmann 2004, 116; Murray 2006, 76). There are also political risks to an all-

at-once approach. Many of the UBI policy’s benefits could only be realized after long-term

market adjustments. A massive economic disruption in the short-term in the absence of those

benefits would likely engender public resistance and ultimately doom the political future of the

policy (De Beer 2000, 51). The political advantage to starting with a partial UBI and residual

conditional public assistance is that administrative authorities will be able to check whether their

forecasts economic forecasts correct and then adjust the final level of full benefits accordingly

(Groot 1997, 210). With these risks in mind, reformers should aim to construct UBI legislation

that minimizes economic, social, and political upheaval.

Jurgen de Wisperlaere and Lindsay Stinton (2012) identify three significant challenges

that could hamper the administration of a UBI policy. The first bottleneck is the task of

identifying who is eligible and who is not and maintaining a database of that information. The

primary risk with this step is that some eligible beneficiaries are not identified as such (108).

The administrative agency will need a cadaster that includes every individual citizen and lawful

resident to prevent that from happening. Maintaining such a list, not to mention verifying its

accuracy, would entail a great amount of cost and effort. Creating a cadaster from scratch is a

costly process – it cost the UK alone tens of billions in US dollars to set up a comprehensive

national identification system (109). The alternative, using any existing cadaster or combination

of existing cadasters, risks excluding many people – especially vulnerable groups such as the

homeless (110). The second bottleneck is the task of distributing cash payments. There is an

existing infrastructure to distribute this money as a tax rebate, but not everybody who would be

27

eligible for the basic income pays income or payroll tax. Additionally, most states only disburse

tax rebates once a year and most variants of the UBI call for monthly payouts (112). Another

option is for the federal government to provide every eligible individual with "a basic income

debit card" funded incrementally throughout the year. However, this option could incur

substantial expense – both in the cost of setting up an ATM system and the risk of technology

problems (114). The third bottleneck is oversight. Successfully implementing a UBI will require

"an administrative process by which those who fail to receive their basic income are identified,

the error is swiftly rectified, and a feedback mechanism prevents the same error from occurring

again" (115). Even though a UBI would not call for means tests or client monitoring, simply

confirming whether or not beneficiaries receive their grant on a national scale could still a

greater administrative costs than a selective program (116). Together, these bottlenecks reduce

the chances that grant take-up will be substantially – as opposed to nominally – universal. The

risk of non-universal take up is that "the poor, the destitute, and the socially excluded" would be

the most likely category of people to fall through the cracks (107). In short, any authority

responsible for managing and administering a UBI policy must be talented, vigilant, and

resourceful to ensure that the grant actually makes it to those who need it most.

Funding

Contemporary UBI proposals propose financing the program with a number of specific

spending cuts and revenue increases. Not all of these will be politically feasible. This does not,

however, mean that reform is possible. There are number of different approaches policy-makers

could take to raise the assumed $2 trillion annual cost of a UBI.

28

Every major UBI proposal relies on some combination of major spending cuts to defray

its cost. The most obvious of these are cuts are the elimination of the welfare and conditional

public assistance programs that the UBI would be replacing. Murray (2006) finds that these

programs together cost approximately $522 billion annually or $240 billion if medical spending

is left alone (133). Similarly, Sheahan (2006) calls for approximately $239 billion in cuts to

income security programs (10). Murray (2006) also calls to eliminate approximately $482 billion

in Social Security spending along with approximately $264 in annual Medicare spending (131).

Sheahan (2006) proposes neither of these cuts, but finds the programs to be worth $495 billion

and $269 billion respectively (10). Overall, the value of major spending cuts depends on what

programs are to be replaced – approximately $240 billion if the program is intended only to

replace welfare, approximately $730 billion if it is intended to replace welfare and Social

Security, or well over $1.2 trillion if it is intended to replace virtually all transfers.

The government could raise this additional revenue through income tax reform. Sheahen

(2006) identifies approximately $985 billion in tax loopholes and expenditures that could be

eliminated (19). However, he also notes a number of powerful constituencies that could obstruct

this sort of reform (12). Another option touted by UBI literature is replacing the current system

of progressive marginal tax rates with a 35% flat tax. USBIG has tentatively endorsed this as an

alternative to their loophole reductions and surcharges on the wealthy. In 2004 the IRS projected

that total income tax revenues would increase from $809 billion to $2.17 trillion under such a

plan (9). Atkinson (1995) favors this approach because it is simpler to administer (3) and because

the initial rate required to fund a generous basic income would already be close to the top-

marginal tax rate in the UK and US, leaving little room for graduation (2). However, President

Obama’s more modest tax reform package has a higher profile and a more realistic chance of

29

passing. This proposal would increase the top two income brackets from 33 to 36 percent and 35

to 39.6 percent respectively, cap personal exemptions and itemized deductions for earners in the

top two income brackets, increase the top capital gains rate to 20 percent, and increase the top

estate tax rate from 35 percent with a $5 million exemption to 45 percent with a $3.5 million

exemption. These policies would raise an estimated $136.1 billion in revenue; however the Tax

Foundation’s models predict that the actual revenue increase could be as low as $55.5 billion

after taking into account effects on economic growth (Entin 2012). So, it is possible to raise up

to $1.361 trillion in additional annual revenue with existing tax reform proposals.

There are also a number legislative proposals to raise revenue by taxing externalities –

specifically carbon emissions. Ramseur, Legget, & and Sherlock (2012) report that the Save Our

Climate Act of 2011 introduced in the 112th Congress would have levied a tax of $20 per metric

ton of carbon. The CBO projects that this bill would have generated approximately $88 billion in

revenue during its first year with this amount gradually growing to $144 billion by 2020 (15).

Interest groups have, however, obstructed the bill thus far (24). Holladay & Livermore (2010)

identify “cap-and-dividend” as a more bipartisan variant of pricing carbon. In the 111th Congress

Senators Cantwell (D-WA) and Collins (R-ME) introduced a bill of this type titled the Carbon

Limits and Energy for America's Future Act. This legislation aims to reduce greenhouse gas

emissions 20 percent by 2020 and 83 percent by 2050 by creating and auctioning emission

permits. One unique feature of this bill is that the 75 percent of auction revenue is already

earmarked toward an Alaska style stakeholder’s dividend (1). Only light changes would be

needed to incorporate this revenue into a national UBI policy. One flaw, however, is that the

potential revenue raised by auctions is much less predictable than the potential revenue raised

through direct taxation. Overall, it seems reasonable to conclude that a tax on carbon could

30

Taken together, these examples reveal that policy-makers have a wide array of spending

cuts and revenue increases to choose from. It seems reasonable to conclude that funding a

substantial UBI grant is within the United States’ financial means.

Limitations

Policymakers seeking to reform the welfare system should keep in mind the caveat that

no policy is perfect. The UBI is a huge policy with correspondingly huge flaws. There are some

policy areas in which the status quo may prove superior, some goals on which the UBI will fail

to deliver, and a number of political obstacles that could jeopardize the policy’s success.

There are many problems that the UBI will fail to solve and a few more that it will create.

Logically speaking, the UBI can never be set at a high enough level to completely remove

recipient’s dependence on the labor market. Setting payouts that high would create such

powerful work disincentives that there would not be nearly enough tax revenue to finance the

program in the first place (Bergmann 2004, 115; Panitch 2011, 939). The median voter theory

makes that risk very real. In a democracy, those with below average incomes are the majority

and can vote for larger redistribution than is socially optimal over the objections of the wealthy

minority (Atkinson 1995, 17). The UBI’s novel means of individual rather than household

disbursement could also lead to unintended social consequences. For example, the fact that

poverty is especially strong among one-income households coupled with the relative rise in two-

earner families suggest that a great part of future income inequality will be between one and two-

earner families (Groot 1997, 224). In these areas and others, the UBI may perform no better, and

in some cases worse, than the status quo.

31

There is also little feasibility to the goal of completely replacing the welfare state and

conditional public assistance. The first problem is that in-kind services like healthcare and public

education are so expensive relative to average income that even a generous UBI grant would not

ensure that everybody would or could include them in their personal budget (Bermann 2004,

112). It may also be inadvisable to completely scrap the system of social workers and client

monitoring because "desperate isolation, the inability to manage one's income or a shaky mental

health may be no less crippling than the lack of adequate purchasing power" (Parijs et. al 2000,

75). All things considered, there are a number of unique social problems that probably should be

dealt with on a conditional basis. Ultimately, reality could get in the way of the gains in

administrative efficiency that UBI policy was designed to take advantage of.

The UBI’s radical nature suggests that it will face an uphill political value. There are

reasons why it is easier to make “incremental changes to the status quo” than it is to completely

eliminate established policies, let alone a long list of them. Each program has a powerful lobby

composed of its beneficiaries and special interests (Bryan 2005, 608). The UBI’s complexity

could play against it as well. For example, the sort of "comprehensive identity database"

necessary to administer this sort of program may also spur heated popular resistance, as

illustrated by the UK’s national identification card experience (De Wispelaere & Stinton 2012,

110). There is, however, some cause for optimism. The popular view that people deserve to be

rewarded for their effort could bolster the UBI’s popularity to the extent that it’s lack of a benefit

reduction rate would free people from the “poverty trap” (Atkinson 1995, 75). Overall, the UBI

faces an uncertain but challenging political future.

In conclusion, the UBI is not a panacea. It suffers from a number of shortcomings and

political hurdles.

32

Conclusion

The Unconditional Basic Income is such a uniquely complicated and ambitious proposal

that only a few conclusions about it are clear. First, the UBI’s theoretical background, historical

applications, and detailed legislative proposals mark it as a well-developed idea. Second,

normative perspectives on the UBI and positive analyses comparing its practical effects to those

of the status quo demonstrate the UBI’s transformative potential. Finally, the UBI’s

administrative complexity, funding demands, and political shortcomings pose substantial

challenges to reformers. However, this sort of bold reform may be exactly what’s needed in this

modern economy. Globalization, technological progress, and economic productivity are

advancing at an increasingly rapid rate. These conditions not only make it possible to finance a

UBI – they arguably justify its implementation. Ultimately, blunting the human impact of

persistent unemployment and poverty will require some sort of radical upheaval. For these

reasons, basic income policy will remain an important area of political science and economic

research for years to come.

33

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