A simple idea for eliminating poverty is garnering greater attention in recent weeks: automatically have the government give every adult a basic income.
Real wages have been stagnant in America for decades now and income inequality has grown immensely.In the aftermath of the Great Recession, it’s only gotten worse. The Census Bureau reported in September that the 15 per cent of Americans (46.5 million) live below the poverty line. Government benefits like food stamps and TANF help lift some of them above the line, but millions still live below it.
So here’s what you need to know about it.
How would it work?
It’s exactly how it sounds. The government would mail every American over the age of 21 a check each month. That’s it. Everyone is free to do what they like with it.
How would it be funded?
In 2012, there were 179 million Americans between the ages of 21 and 65 (when Social Security would kick in). The poverty line was $US11,945. Thus, giving each working-age American a basic income equal to the poverty line would cost $US2.14 trillion. For some comparison, U.S. GDP was almost $US16 trillion in 2012 and the defence budget was $US700 billion.
But a minimum income would also allow us to eliminate every government benefit as well. Get rid of SNAP, TANF, housing vouchers, the Earned Income tax credit and many others. Get rid of them all. A 2012 Congressional Research Service report found that the federal government spends approximately $US750 billion each year on benefits for low-income Americans and that rises to a clean trillion when you factor in state programs. Eliminate all of those and the net figure comes out to $US1.2 trillion needed to pay for a universal basic income, still a hefty sum.
That doesn’t mean there aren’t ways to pay for it. The CBO found that a carbon tax would bring in nearly $US100 billion a year for instance. Revenue would also increase automatically since everyone would have a basic income on which to pay taxes. The government could also offer a basic income of $US6,000 a year instead of up to the poverty line. Funding a basic income for all working-age adults would not be easy and would require a substantial increase in the size of government, but it’s not impossible either.
What are the benefits of a basic income?
The clear one is that no American would live below the poverty line. The U.S. has been waging the War on Poverty for a generation now and still nearly 50 million Americans are below the line. This would end that war with a decisive victory.
There are knock on effects as well. Americans would have greater leverage to demand higher wages and better working conditions from their employer thanks to the increased income security. Families could allow one parent to take time off to raise their kids. Eliminating the numerous different government welfare programs would also lead to efficiency gains as adults would simply receive their check in the mail and not have to waste time filling out paperwork at numerous different offices.
What are the drawbacks of a basic income?
Economists have long shuddered at the thought of a basic income, because it strongly disincentives work. However, a basic income is just that: basic. Most adults would continue to work to earn extra money. The employment effects would not be non-existent and there may be an increase in part-time work. As Lowrey points out, different studies have found the disincentive effects on work are not as strong as economists feared.
Are there any real world examples?
Perhaps in the near future. Switzerland’s citizens will soon vote on a referendum to give each working-age adult in Switzerland a basic income of $US2,800 (2,500 francs) per month. Supporters of the initiative unloaded a dump truck of eight million coins, one for every Swiss citizen, after they successfully gained 125,000 signatures and triggered the referendum. Other countries have experimented with basic income in small areas, but none has done so throughout an entire country as Switzerland is considering. If the referendum passes, economists will certainly watch intently to see its effects.
Does it have a chance in Congress?
No. Congress can’t even keep the government open or pass a budget, much less revamp our entire benefits program into a basic income. However, there is some bipartisan agreement in academic circles on the idea of a basic income. The American Enterprise Institute’s Charles Murray has written a book on the subject and liberals have long dreamed of a guaranteed basic income. Nevertheless, it will not be coming to the U.S. anytime soon.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.